Civil obligations and natural obligations in Christmas bonuses

CIVIL LAW REVIEW 2017-2018`
OBLIGATIONS -ARTS. 1156-1304
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 plaintif
Bernardino Estrada. On August 9, 1930, the defendant signed a document which
states in duty to the plaintif 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 efectiveness by prescription, it is now,
however, for a moral obligation, which is consideration enough to create and
efective 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".
Page 1 of 109
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 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.
Page 2 of 109
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 plaintif 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:
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.
Page 3 of 109
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 efectively
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 2 nd 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.
CRUZ V. TUASON AND CO.
Nature: complaint for recovery of improvements and

conveyance of land
Ponente: BARREDO, J
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" )
plaintif 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
Page 4 of 109
(2) that in 1952, defendants availed of plaintif'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 plaintif, that the complaint states no
cause of action, the agreement regarding the same having been made by
plaintif with the Deudors and not with the defendants, hence the theory of
plaintif based on Article 2142 of the Code on unjust enrichment is
untenable; and
(2) anent the alleged agreement about plaintifs 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 plaintif 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 plaintif and the
Deudors); (2) the cause of action of plaintif is unenforceable under the Statute of
Frauds; and (3) the action of the plaintif has already prescribed.
ISSUE: W/N plaintif’s claim (2nd COA) is unenforceable under the State of Frauds
RULING:
No. Statute of Frauds is inapplicable. Nevertheless, plaintif 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 efecting 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 diferences with defendants as, in fact,
on March 16, 1963, through his eforts, 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,
Page 5 of 109
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 plaintif 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 plaintif. 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 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.
Page 6 of 109
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 plaintif 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 plaintif 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 plaintif
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 plaintif 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
plaintif 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 plaintif 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 plaintif to believe that Jose Duran was
empowered and authorized by the defendant to efect the said sale.
The plaintif 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, plaintif firm filed the present civil case.
ISSUE: W/N defendant must fulfill the obligation contracted by his nephew.
Page 7 of 109
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 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 efect 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
plaintifs,
[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
Page 8 of 109
redemption, herein defendant (child of 1 st 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 eforts of compromise had failed, his half-brothers and sisters, herein
plaintifs, 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 plaintifs, 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 plaintif 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.
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.
Page 9 of 109
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 afidavit of
extrajudicial settlement he executed preliminary to the registration thereof betrays
a clear efort 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 afirms, 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/plaintifs.
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.
Page 10 of 109
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 efect the abovementioned 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 efected 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 efect the payment 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,
Page 11 of 109
(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 sufer 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
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 afecting 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
FACTS:
Page 12 of 109
On August 11, 1958, the plaintif 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 plaintif is a corporation duly organized and existing according to the
laws of the Philippines, with ofices 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 plaintif 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 plaintif 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 plaintif
paid without protest in the erroneous belief that it was liable therefor xxx
"4. That plaintif, 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 efect 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 plaintif 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 plaintif, 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 plaintif-appelele, as retail dealer's taxes under
Ordinance 1925, as amended by Ordinance No. 3364of the City of Manila, without
protest, are refundable
RULING:
Plaintif-Appellee is entitled to the refund.

Page 13 of 109
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 afecting 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 plaintif), apply to the case.
PUYAT AND SONS: provisions of Act 190 (Code of Civ. Procedure) should apply,
insofar as payments made before the efectivity 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
efectivity, 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 efectivity of the new Civil Code, because "prescription already running before
the efectivity 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 efect 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 afirmed, in all other respects.
Page 14 of 109
SALUDAGA V. FEU
Nature: Complaint for damages

Ponente: YNARES-SANTIAGO, J.
DOCTRINE:
FACTS:
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 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 sufice 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
Page 15 of 109
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 efect
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:
Page 16 of 109
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 plaintif
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.
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 liability, and that
NACOCO would pay rentals.
CFI released NACOCO from any liability but denied plaintif the right to recover
reasonable rentals.
Plaintif appeals to recover reasonable rentals from August 1946, which as when
NACOCO began occupying the premises, and to vacate it.
Respondent, on the other hand, admits rentals but only starting February 28, 1949,
when the judgment of the CFI was issued. It defends itself by saying it occupied
the property in good faith, and had no obligation whatsoever to pay rentals for the
use and occupation of the warehouse.
ISSUE:
Whether or not NACOCO is liable for rentals from the time of its occupancy or
from the time of the judgment of the CFI.
RULING: It is not liable for rentals at all.

If defendant is liable at all, its obligations must arise from any of the four sources
of obligations: law, contract or quasi-contract, crime, or negligence.
NACOCO is not guilty of any ofense at all since it entered the premises and
occupied the same with the permission of the Alien Property Administration, which
had legal control and administration. It’s not negligent of anything either. There
was no privity of contract or obligation between the Alien Property Custodian and
Taiwan Tekkosho such that the Alien Property Custodian or its permittee
(NACOCO) can be held responsible for the illegal occupation by Taiwan Takkosho.
Note: the Alien Property Custodian did not occupy the property as successor to the
interests of Taiwan Tekkosho, but by expression provision of the law. When
NACOCO took possession of the property, the Alien Property Administration had
the absolute control of the property as the trustee of the US Government; as such,
if NACOCO is liable for rentals, it would accrue to the US Government and not to
Sagrada Orden.
Furtehrmore, there was no agreement between the Alien Property Custodian and
NACOCO for the payment of rentals on the property. The predecessor of NACOCO,
Copra Export, did not pay any rentals or had to pay any compensation of any kind.
When the NACOCO succeeded Copra Export, it must have also been free from
payment of rentals, especially since it’s a Government corporation.
Page 17 of 109
As such, there is no basis on any of the sources of obligations to find that NACOCO
is liable for rentals to Sagrada Orden.
PEOPLE’S CAR INC. VS COMMANDO SECURITY SERVICE

AGENCY
Nature: Action for damages

Ponente: Teehankee
Date: May 22, 1973
DOCTRINE: Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith
FACTS:
NCC Article 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.
People’s Car Inc and Commando Security Service Agency entered into a Guard
Service Contract where the latter would safeguard and protect the business
premises of People’s Car from theft, pilferage, robbery, vandalism and all other
unlawful acts of any person or persons prejudicial to the interest of the plaintif.
On April 5, 1970, at around 1AM, one of the security guards, without any authority
or consent whatsoever, brought out of the compound of the plaintif a car
belonging to Joseph Luy, a customer, and eventually lost control of the said car,
causing the same to fall into a ditch. Plaintif filed a complaint of qualified theft
against the security guard; plaintif alleges that it had to sufer damages by way of
payment for the repairs of the car in the amount of Php7,079, as well as car rental
value in the sum of Php1,410 as plaintif had to loan a car to Joseph Luy for 47
days while the car was being repaired. As such, plaintif incurred a total of
Php8,489.10 in damages.
Plaintif claimed that the entire amount is imputable to Commando Security as,
under paragraph 5 of their contract, defendant assumed liability for acts done
during their watch hours by guards, while Commando alleges, under paragraph 4
of the contract, that its liability should not exceed Php1,000.
TC ruled in favor of the interpretation of Commando Security.
ISSUE: What is the extent of the liability of Commando Security in light of the
contract that the parties entered into
RULING: It is liable for the entire Php8,489.10.

The limitation to Php1,000 per guard post is only applicable for loss or damage
“through the negligence of its guards during watch hours” provided that the same
is duly reported to the plaintif within 24 hours of the 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 plaintif 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 plaintif 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 plaintif from any and all liabilities
Page 18 of 109
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, plaintif 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. plaintif) or to have plaintif file
a crossclaim (if Luy did not opt to dismiss the action). The recommendations of the
TC are unduly technical and unrealistic
Plaintif 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. Plaintif 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:
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 dificult 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.
Page 19 of 109
CFI ruled that while negligence was attributable to the defendant, the plaintif 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 plaintif to
sufer his injuries; as such, they constituted an efective legal cause of the injuries
sustained by the plaintif. However, it must still be weighed against the
contributory negligence of the plaintif.
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
difers 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 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 diferent. The burden of proof is on the plaintif to show the
Page 20 of 109
negligence in culpa aquillana, while in a contract, it is suficient 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 plaintif should not have gotten of from the train
prior to its slowing down is insuficient 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 plaintif 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 plaintif, 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:
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 sufered 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
plaintif 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
Page 21 of 109
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.
On the other hand, the liability of Cortez, the owner of the passenger truck, and
Velasco, the drier, rests on a contract, which was suficiently 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.
Hongkong and Shanghai Banking Corp vs. Broqueza, G.R.

No. 178610, November 17, 2010
Antonio T. Carpio / (DIVISION)

FACTS:
Petitioners Gerong and Editha Broqueza are employees of Hongkong and Shanghai
Banking Corporation (HSBC). They are also members of respondent HSBC, Ltd.
Staf Retirement Plan (HSBCL-SRP, plaintif) The HSBCL-SRP is a retirement plan
established by HSBC through its board of trustees for the benefit of the employees.
On October 1, 1990, petitioner Broqueza obtained a car loan in the amount

of Php 175,000.00. On December 12, 1991, she again applied and was granted an
appliance loan in the amount of Php24,000.00. On the other hand, petitioner
Gerong applied and was granted an emergency loan in the amount of
Php35,780.00 on June 2, 1993. These loans are paid through automatic salary
deduction.
Meanwhile in 1993, a labor dispute arose between HSBC and its employees.
Majority of HSBC’s employees were terminated, Among whom petitioners. The
employees then filed an illegal dismissal case before the NLRC against HSBC.
Because of their dismissal, petitioners were not able to pay the monthly
amortizations of their respective loans. Thus respondent considered the accounts
delinquent. Demands to pay the respective obligations were made upon
petitioners, but they failed to pay.
ISSUE:
Whether or not the loan is immediately demandable?
RULING:
The obligation to pay the car loan is a pure obligation because the promissory note
does not specify a period. When the employee ceased being an employee of the
company, She can no longer avail of the benefit of payment by installment.
Therefore, ABC INC can demand payment immediately.
_____________________________________________________________________________________
PAY VS PALANCA
Page 22 of 109
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:
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:
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
Page 23 of 109
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. Plaintif 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 sufering
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 dificult, 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 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 efort 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
suficiently 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

Page 24 of 109
Ponente: Reyes
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:
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 plaintif the sum of P6.00 for the purchase
of spare parts, which plaintif gave. On October 26, finally fed up with the delay,
plaintif demanded that the typewriter be returned. The defendant returned the
same in a wrapped package; the plaintif discovered that the same was completely
in shames with the interior cover and some parts and screws missing. Plaintif 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 plaintif had his typewriter repaired by Freixas Business Machines, which was
successful in doing so for the cost of P89.85.
Plaintif 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.
Plaintif 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 plaintif
did not contain a period under NCC 1197, such that the plaintif 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
Page 25 of 109
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.
Clear that the defendant breached his obligation, so he is liable under NCC 1167
for the cost of the execution of the obligation in the proper manner, which is
P89.85 He is 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
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 ofices as a result of the destruction of the building
where his ofice 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.
Page 26 of 109
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 stop paying in order to terminate the lease. The
Court states that this is void according to 1256 of the Spanish Civil Code.
ELEIZEGUI VS MANILA LAWN TENNIS CLUB

Nature: Action for ejectment
Ponente: Arellano
Date: May 19, 1903
DOCTRINE:
FACTS:
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.
Page 27 of 109
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 suficient 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
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:
Page 28 of 109
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 diferently: 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 efects 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.
Page 29 of 109
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 plaintif, 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
Lim was a businesswoman. She went to the home of Maria Ayroso and ofered 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 afirmed, 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.
Page 30 of 109
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:
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.
Page 31 of 109
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 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
counterofer 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
Page 32 of 109
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.
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 afirmed 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
Page 33 of 109
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

Ponente: Padilla
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 efect, 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.
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
Page 34 of 109
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:
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.
Page 35 of 109
THE BACHRACH MOTOR CO. INC. V. ESPIRITU

Nature: Collection suit
Ponente: Avanceña
Date: 6 November 1928
DOCTRINE: Article 1152 of the Old Civil Code permits the agreement upon a
penalty apart from the interest. Should there be such an agreement, the penalty
does not includ
FACTS:
Relevant Provision of Law: Article 1152, Old Civil
Code
Espiritu purchased two white trucks from petitioner. Both were secured by
mortgage on other trucks and by promissory notes. However, Espiritu failed to
make full
e the interest, and may be demanded separately.
payment on both trucks. After the securities were sold and the proceeds applied to
the loan:
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.
ROBES-FRANCISCO v. CFI
Nature: Direct appeal on questions of law

Ponente: J. Munoz Palma
DOCTRINE: 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.
FACTS:
Relevant Provision of Law: Article 1226 and 2209
Page 36 of 109
(Civil Code)
Private respondent Millan bought a lot from petitioner Robes Realty corporation in
May, 1962, and paid in full her installments on December 22, 1971, but it was only
on March 2, 1973, that a deed of absolute sale was executed in her favor.
The deed had the provision:

- The seller warrants that the TCT shall be transferred in the name of the
buyer within 6 months from full payment.
- 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 sufered 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
Page 37 of 109
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
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
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 ofending 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 ofers 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
Page 38 of 109
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 ofers 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 ofending 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
Page 39 of 109
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
diference 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
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 diferencia 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.
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
Page 40 of 109
incumbent upon him.

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 efected after determination by the Court a quo of the value
of said house on the basis of the agreement of the parties, or if this is not possible
by such commissioner or commissioners as the Court may appoint.
ARRIETA v. NARIC
Ponente: J. Regala
Date: January 24, 1964
Page 41 of 109
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:
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 plaintif-
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 ofered Thailand rice instead. Such ofer 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
Page 42 of 109
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
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:
Code)
The petitioner is a company engaged in transmitting telegrams. The plaintifs are

the children and spouse of Consolacion Castro who died in the Philippines. One of
the plaintifs, 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 plaintifs and awarded compensatory, moral,
exemplary, damages to each of the plaintifs with 6% interest per annum plus
attorney’s fees. The Court of Appeals afirmed this ruling but modified and
Page 43 of 109
eliminated the compensatory damages to Sofia and exemplary damages to each

plaintif, 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 sufering private respondents had to undergo. Art. 2217
of the Civil Code states: "Moral damages include physical sufering, 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
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.
Page 44 of 109
FACTS:
Engineering Construction, Inc. (ECI), being a successful bidder, executed a
contract with the National Waterworks and Sewerage Authority (NAWASA),
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
Page 45 of 109
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 efect, 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:
Petitioner Bernardino Jimenez bought bagoong in the Sta. Ana Public Market on a
rainy day. It was flooded by ankle-deep and dirty rainwater. When petitioner turned
around, he stepped on an uncovered drainange opening, causing a 4-inch rusty nail
to penetrate his leg. Petitioner fell sick and was unable to supervise his bus
business for a long time. He sued the City of Manila and Asiatic Integrated Corp.
as administrator of the said public market. The trial court sentenced the City of
Manila and Asiatic solidarily liable for damages. On appeal, the CA modified and
held that only Asiatic is liable. Hence this petition. HELD—City of Manila liable
under article 2189 of the Civil Code.
Argument
The City of Manila argues that it cannot be held liable because under the
Management and Operating Contract with Asiatic, the latter assumed sole
responsibility for damages which may be sufered by third persons for any cause
attributable to it.
The City of Manila also argues that under the Revised Charter of Manila, it “shall
not be liable or held for damages or injuries to persons or property arising from
the failure of the Mayor, the Municipal Board, or any other City Oficer, to enforce
the provisions of this chapter, or any other law or ordinance, or from negligence of
Page 46 of 109
said Mayor, Municipal Board, or any other oficers while enforcing or attempting to
enforce said provisions.”
ISSUE:
Whether the City of Manila is liable for the injuries sufered by the petitioner
despite the contract and the Revised Charter of Manila?
RULING:
Yes.
1. The Revised Charter of Manila establishes a general rule regulating the liability
of the City of Manila for "damages or injury to persons or property arising from the
failure of city oficers" to enforce the provisions of said Act, "or any other law or
ordinance or from negligence" of the City "Mayor, Municipal Board, or other
oficers while enforcing or attempting to enforce said provisions."
On the other hand, Art. 2189 of the Civil Code provides that “Provinces, cities
and municipalities shall be liable for damages for the death of, or injuries sufered
by any person by reason of defective conditions of roads, streets, bridges, public
buildings and other public works under their control or supervision.”
The said article constitutes a particular prescription making "provinces, cities and
municipalities ... liable for damages for the death of, or injury sufered by any
person by reason" — specifically — "of the defective condition of roads, streets,
bridges, public buildings, and other public works under their control or
supervision." In other words the Revised Charter of Manila refers to liability
arising from negligence, in general, regardless of the object, thereof, while Article
2189 of the Civil Code governs liability due to "defective streets, public buildings
and other public works" in particular and is therefore decisive on this specific case.
Under article 2189, 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.
2. The City of Manila, per the contract, remained in control of Asiatic, hence the
former must be held liable for petitioner’s injuries.
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.
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.
3. On defense:
“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).
“There is no argument that it is the duty of the City of Manila to exercise

reasonable care to keep the public market reasonably safe for people
frequenting the place for their marketing needs.
“While it may be conceded that the fulfillment of such duties is extremely

dificult during storms and floods, it must however, be admitted that ordinary
Page 47 of 109
precautions could have been taken during good weather to minimize the
dangers to life and limb under those dificult circumstances.
“For instance, the drainage hole could have been placed under the stalls
instead of on the passage ways. 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 five (5) months after the incident happened, the opening was
still uncovered. Moreo ver, 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.
“To recapitulate, it appears evident that the City of Manila is likewise liable
for damages under Article 2189 of the Civil Code, respondent City having
retained control and supervision over the Sta. Ana Public Market and as tort-
feasor under Article 2176 of the Civil Code on quasi-delicts
“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 sufered,
the City is therefore liable for the injury sufered by the petitioner.
“Respondent City of Manila and Asiatic Integrated Corporation being joint

tort-feasors are solidarily liable under Article 2194 of the Civil Code.”
Dispositive
The judgment is modified. The City of Manila and Asiatic are solidarily liable.
NAKPIL & SONS v. CA (144 SCRA 596)

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:
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
Page 48 of 109
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 ofice 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 afirmed 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
Page 49 of 109
earthquake.
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 efect, 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 afirmed 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 efecting the plans, designs, specifications, and construction of the
PBA building is equivalent to bad faith in the performance of their respective tasks.
UNIVERSAL FOOD CORPORATION VS. CA

33 SCRA 1
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, plaintif Magdalo V. Francisco, Sr. discovered a formula for the
manufacture of a food seasoning (sauce) derived from banana fruits popularly
Page 50 of 109
known as MAFRAN sauce. It was used commercially since 1942, and in the same
year plaintif registered his trademark in his name as owner and inventor with the
Bureau of Patents. However, due to lack of suficient capital to finance the
expansion of the business, in 1960, said plaintif secured the financial assistance of
Tirso T. Reyes who, after a series of negotiations, formed with others defendant
Universal Food Corporation eventually 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
among other things 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.
In line with the terms and conditions of the Bill of Assignment, Magdalo Francisco
was appointed Chief Chemist with a salary of P300.00 a month. 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,
Secretary-Treasurer Ciriaco L. de Guzman of 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 plaintif Magdalo V. Francisco, Sr., should be stopped for the time being until the
corporation should resume its operation. On December 3, 1960, President and
General Manager Tirso T. Reyes, issued a memorandum to Victoriano Francisco
ordering him to report to the factory and produce "Mafran Sauce" at the rate of
not less than 100 cases a day so as to cope with the orders of the corporation's
various distributors and dealers, and with instructions to take only the necessary
daily employees without employing permanent employees. Again, on December 6,
1961, another memorandum was issued by the same President and General
Manager instructing the Assistant Chief Chemist Ricardo Francisco, to recall all
daily employees who are connected in the production of Mafran Sauce and also
some additional daily employees for the production of Porky Pops. On December
29, 1960, another memorandum was issued by the President and General Manager
instructing Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting
Superintendent, to produce Mafran Sauce and Porky Pops in full swing starting
January 2, 1961 with further instructions to hire daily laborers in order to cope
with the full blast operation.
Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of
P300.00 a month only until his services were terminated on November 30, 1960.
On January 9 and 16, 1961, UFC, acting thru its President and General Manager,
authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the
corporation including its trademarks, formula and assets at a price of not less than
P300,000.00. Due to these successive memoranda, without plaintif Magdalo V.
Francisco, Sr. being recalled back to work, he filed the present action on February
14, 1961. Then in a letter dated March 20, 1961, UFC requested said plaintif to
report for duty, but the latter declined the request because the present action was
already filed in court.
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. Certain provisions of the bill would lead one to believe that the formula
itself was transferred. To quote, “the respondent patentee "assign, transfer
and convey all its property rights and interest over said Mafran trademark
and formula for MAFRAN SAUCE unto the Party of the Second Part," and
Page 51 of 109
the last paragraph states that such "assignment, transfer and conveyance is
absolute and irrevocable (and) in no case shall the PARTY OF THE First Part
ask, demand or sue for the surrender of its rights and interest over said
MAFRAN trademark and mafran formula."
“However, a perceptive analysis of the entire instrument and the language

employed therein would lead one to the conclusion that what was actually ceded
and transferred was only the use of the Mafran sauce formula.This was the precise
intention of the parties.”
The SC had the following reasons to back up the above conclusion. 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,
our 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.”
2. No. Petitioner’s contention that Magdalo Francisco’s petition for rescission

should be denied because under Article 1383 of the Civil Code of the
Philippines rescission cannot be demanded except when the party sufering
damage has no other legal means to obtain reparation, was of no merit
because “it is predicated on a failure to distinguish between a rescission for
breach of contract under Article 1191 of the Civil Code and a rescission by
reason of lesion or economic prejudice, under Article 1381, et seq.” 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.
_____________________________________________________________________________________
MAGDALENA ESTATE VS. MYRICK

71 PHIL. 346
FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots No. 28 and 29 of Block 1, Parcel 9
of the San Juan Subdivision, San Juan, Rizal. Their contract of sale provides 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.
In pursuance of said agreement, the vendee made several payments amounting to

P2,596.08, the last being due and unpaid was that of May 2, 1930. By reason of
this, the vendor, through its president, notified the vendee that, in view of his
inability to comply with the terms of their contract, said agreement had been
cancelled, relieving him of any further obligation thereunder, and that all amounts
paid by him had been forfeited in favor of the vendor. 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.
ISSUE:
Was the petitioner authorized to forfeit the purchase price paid?
Page 52 of 109
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 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
elected 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 be
ordering the return of the things which were the object of the contract, with their
fruits and of the price, with its interest, computed from the date of institution of
the action.
_____________________________________________________________________________________
UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES

35 SCRA 102
FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement
whereby the latter was granted exclusive authority to cut, collect and remove
timber from the Land Grant for a period starting from the date of agreement to
December 31, 1965, extendible for a period of 5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94.
Despite repeated demands, ALUMCO still failed to pay, so UP sent a notice to
rescind the logging agreement. On the other hand, ALUMCO executed an
instrument entitled “Acknowledgment of Debt and Proposed Manner of Payments.
It was approved by the president of UP, which stipulated the following:
3. In the event that the payments called for are not suficient to liquidate the
foregoing indebtedness, the balance outstanding after the said payments have
been applied shall be paid by the debtor in full no later than June 30, 1965.
5. In the event that the debtor fails to comply with any of its promises, the Debtor
agrees without reservation that Creditor shall have the right to consider the
Logging Agreement rescinded, without the necessity of any judicial suit…
ALUMCO continued its logging operations, but again incurred an unpaid account.
On July 19,1965, UP informed ALUMCO that it had, as of that date, considered
rescinded and of no further legal efect the logging agreement, and that UP had
already taken steps to have another concessionaire take over the logging
operation.
ALUMCO filed a petition to enjoin UP from conducting the bidding. The lower
court ruled in favor of ALUMCO, hence, this appeal.
ISSUE:
Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard
the same before any judicial pronouncement to that efect?
RULING:
Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default
by the debtor, UP has the right and the power to consider the Logging Agreement
of December 2, 1960 as rescinded without the necessity of any judicial suit. As to
such special stipulation and in connection with Article 1191 of the Civil Code, the
Supreme Court, stated in Froilan vs. Pan Oriental Shipping Co:
Page 53 of 109
“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.”
_____________________________________________________________________________________
ZULUETA VS. MARIANO

G.R. No. L-29360 January 30, 1982111 SCRA 206
FACTS:
Petitioner Zulueta, owner of a house and lot, entered into a “Contract to Sell” for
the said property with private respondent, a movie director. The said property cost
P75,000 payable in 20years with respondent buyer assuming to pay a down
payment of P5,000 and a monthly instalment of P630 payable in advance before
the 5th day of the corresponding month, starting with December,1964.One of their
stipulations was 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. On the
allegation that private respondent failed to comply with the monthly amortizations
stipulated in the contract, despite demands to pay 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 to 1)vacate the premises; 2) pay
petitioner the sum of P11, 751.30 representing respondent’s balance owing as of
May, 1966; 3) pay petitioner the sum of P630 every month after May, 1966, and
costs. Private respondent contended that the Municipal Court had no jurisdiction
over the nature of the action as it involved the interpretation and/or rescission of
the contract.
ISSUE:
Was the action before the Municipal Court essentially one for rescission or
annulment of a contract?
RULING:
Yes. According to the Supreme Court, “...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.” The
Supreme Court, in Nera vs. Vacante (3 SCRA 505), also said, “A violation by a party
of any of the stipulations of a contract on agreement to sell real property would
entitle the other party to resolved or rescind it.” Also, according to the book of
Tolentino, Civil Code of the Phil., Vol. IV, 1962 ed. P. 168,citing Magdalena Estate
vs. Myrick, 71 Phil. 344 (1941), extra-judicial rescission has legal efect when the
parties does not oppose it. If it is objected to, judicial determination of the issue is
still necessary.With regards to the jurisdictions of inferior courts, the Supreme
Court said that the CFI correctly ruled that the Municipal Court had no jurisdiction
over the case and correctly dismissed the appeal. However, the CFI 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.
_____________________________________________________________________________________
Page 54 of 109
PALAY INC. V. CLAVE

G.R. NO. L-56076
FACTS:
On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott
sold a parcel of land owned by the corporation to the private respondent, Nazario
Dumpit, by virtue of a Contract to Sell. The sale price was P23,300.00 with 9%
interest per annum, payable with a down payment of P4,660.00 and monthly
instalments of P246.42 until fully paid. Paragraph 6 of the contract provided for
automatic extrajudicial rescission upon default in payment of any monthly
instalment 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 instalments paid.
Respondent Dumpit paid the down payment and several instalments amounting to
P13,722.50 with the last payment was made on December 5, 1967 for instalments
up to September 1967. Almost six (6) years later, private respondent wrote
petitioner ofering to update all his overdue accounts and sought consent to the
assignment of his rights to a certain Lourdes Dizon. 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)
questioning the validity of the rescission. The NHA held that the rescission is void
in the absence of either judicial or notarial demand. Palay, Inc. and Onstott in his
capacity as President of the corporation, jointly and severally, was ordered to
refund Dumpit the amount paid plus 12% interest from the filing of the complaint.
Petitioners' MR was denied by the NHA. Respondent Presidential Executive
Assistant, on May 2, 1980, afirmed the Resolution of the NHA. Reconsideration
sought by petitioners was denied for lack of merit. Thus, the present petition.
ISSUE:
W/N demand is necessary to rescind a contract?
RULING:
As held in previous jurisprudence, the 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 the
cited cases, there was at least a written notice sent to the defaulter informing him
of the rescission. A written notice is indispensable to inform the defaulter of the
rescission. Hence, the resolution by petitioners of the contract was inefective and
inoperative against private respondent for lack of notice of resolution (as held in
the U.P. vs. Angeles case). The act of a party in treating a contract as cancelled
should be made known to the other.
Later, RA 6551 6551 entitled "An Act to Provide Protection to Buyers of Real Estate
on Instalment Payments,” emphasized the indispensability of notice of cancellation
to the buyer 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.
Moreover, there was no waiver on the part of the private respondent of his right to
be notified under paragraph 6 of the contract since it was a contract of adhesion, a
standard form of petitioner corporation, and private respondent had no freedom to
stipulate. Finally, it is a matter of public policy to protect buyers of real estate on
instalment payments against onerous and oppressive conditions. Waiver of notice
Page 55 of 109
is one such onerous and oppressive condition to buyers of real estate on instalment
payments.
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 but since 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 instalments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 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.
Onstott not personally liable
Onstott was made liable because he was then the President of the corporation and
the controlling stockholder but there was no suficient proof that he used the
corporation to defraud private respondent. He cannot, therefore, be made
personally liable just because he "appears to be the controlling stockholder". Mere
ownership by a single stockholder or by another corporation is not of itself
suficient ground for disregarding the separate corporate personality.
Finally, there are no badges of fraud on the petitioners' part. They had literally
relied, albeit mistakenly, on paragraph 6 (supra) of the contract when it rescinded
the contract to sell extrajudicially and had sold it to a third person.
Petitioner Palay, Inc. is liable to refund to respondent Dumpit the amount of

P13,722.50, with interest at twelve (12%) p.a. from November 8, 1974, the date of
the filing of the Complaint.
_____________________________________________________________________________________
ANGELES VS. CALASANZ

135 SCRA 323
FACTS:
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and
plaintifs-appellees Buenaventura Angeles and Teofila Juani entered into a contract
to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7%
interest per annum. The plaintifs-appellees made a downpayment of P392.00 upon
the execution of the contract. They promised to pay the balance in monthly
installments of P41.20 until fully paid, the installment being due and payable on
the 19th day of each month. The plaintifs-appellees paid the monthly installments
until July 1966, when their aggregate payment already amounted to P4,533.38.
On December 7, 1966, the defendants-appellants wrote the plantifs-appellees a
letter requesting the remittance of past due accounts. On January 28, 1967, the
defendants-appellants cancelled the said contract because the plaintifs failed to
meet subsequent payments. The plaintifs’ letter with their plea for reconsideration
of the said cancellation was denied by the defendants.
The plaintifs-appellees filed a case before the Court of First Instance to compel
the defendant to execute in their favor the final deed of sale alleging inter alia that
after computing all subsequent payments for the land in question, they found out
that they have already paid the total amount including interests, realty taxes and
incidental expenses. The defendants alleged in their answer that the plaintifs
violated par. 6 of the contract to sell when they failed and refused to pay and/or
ofer to pay monthly installments corresponding to the month of August, 1966 for
more than 5 months, thereby constraining the defendants to cancel the said
contract.
Page 56 of 109
The Court of First Instance rendered judgment in favor of the plaintifs, hence this
appeal.
ISSUE:
Has the Contract to Sell been automatically and validly cancelled by the
defendants-appellants?
RULING:
No. While it is true that par.2 of the contract obligated the plaintifs-appellees to
pay the defendants the sum of P3,920 plus 7% interest per annum, it is likewise
true that under par 12 the seller is obligated to transfer the title to the buyer upon
payment of the said price.
The contract to sell, being a contract of adhesion, must be construed against the
party causing it. The Supreme Court agree with the observation of the plaintifs
appellees to the efect that the terms of a contract must be interpreted against the
party who drafted the same, especially where such interpretation will help efect
justice to buyers who, after having invested a big amount of money, are now sought
to be deprived of the same thru the prayed application of a contract clever in its
phraseology, condemnable in its lopsidedness and injurious in its efect which, in
essence, and its entirety is most unfair to the buyers.
Thus, since the principal obligation under the contract is only P3,920.00 and the
plaintifs-appellees have already paid an aggregate amount of P4,533.38, the
courts should only order the payment of the few remaining installments but not
uphold the cancellation of the contract. Upon payment of the balance of P671.67
without any interest thereon, the defendant must immediately execute the final
deed of sale in favor of the plaintifs and execute the necessary transfer of
documents, as provided in par.12 of the contract.
_____________________________________________________________________________________
BOYSAW VS INTERPHIL PROMOTIONS (148 SCRA 635)

FACTS:
On May 1, 1961, Boysaw and manager Ketchum signed with Interphil (represented
by Sarreal) a contract to engage Flash Elorde in a boxing match at Rizal Memorial
Stadium on Sept 30, 1961 or not later than 30 days shld a postponement be
mutually agreed upon. Boysaw, accdg to contract, shld not engage in other bouts
prior to the contest. Interphil signed Elorde to a similar agreement. Boysaw fought
and defeated Louis Avila in Nevada. Ketchum assigned to Amado Araneta his
managerial rights, who later transferred the rights to Alfredo Yulo. Sarreal wrote
to Games and Amusement Board (GAB) regarding this switch of managers bec they
weren’t notified. GAB called for conferences and decided to schedule the Elorde-
Boysaw bout on Nov 4, 1961. USA National Boxing Assoc approved. Sarreal ofered
to move the fight to Oct 28 for it to be w/in the 30 day allowable postponement in
the contract. Yulo refused. He was willing to approve the fight on Nov 4 provided it
will be promoted by a certain Mamerto Besa. The fight contemplated in the May 1
contract never materialized. Boysaw and Yulo sued Interphil, Sarreal and Nieto.
Boysaw was abroad when he was scheduled to take the witness stand. Lower court
reset the trial. Boysaw was still absent on the later date. Court reset. On the third
instance, a motion for postponement was denied. Boysaw and Yulo moved for a
new trial, but it was denied. Hence, this appeal.
ISSUES:
1. WON there was a violation of the May 1 contract and if so, who was guilty
2. WON there was legal ground for postponement of the fight
Page 57 of 109
3. WON lower court erred in refusing postponement of the trial for 3rd time
4. WON lower court erred in denying new trial
5. WON lower court erred in awarding appellees damages
RULING:
1. Boysaw violated the contract when he fought with Avila. Civil Code provides,
the power to rescind obligations is implied, in reciprocal ones, (as in this
case) in case one of the obligors should not comply w/ what is incumbent
upon him. Another violation was made in the transfers of managerial rights.
These were in fact novations which, to be valid, must be consented to by
Interphil. When a contract is unlawfully novated, the aggrieved creditor may
not deal with the substitute.
2. The appellees could have opted to rescind or refuse to recognize the new
manager, but all they wanted was to postpone the fight owing to an injury
Elorde sustained. The desire to postpone the fight is lawful and reasonable.
The GAB did not act arbitrarily in acceding to the request to reset the date
of the fight and Yulo himself agreed to abide by the GAB ruling. The
appellees ofered to move the fight w/in the 30 day period for postponement
but this was refused by the appellants, notwithstanding the fact that by
virtue of the appellants violations, they have forfeited any right to the
enforcement of the contract.
3. The issue of denial of postponement of trial was raised in another petition

for certiorari and prohibition. It can’t be resurrected in this case.
4. The court was correct in denying new trial. The alleged newly discovered
evidence are merely clearances from clerk of court, which can alter the
result of the trial.
5. Because the appellants willfully refused to participate in the final hearing

and refused to present documentary evidence, they prevented themselves
from objecting to or presenting proof contrary to those adduced by the
appellees.
PILIPINAS BANK VS IAC

JUNE 30, 1987
FACTS:
Hacienda Benito, Inc. as vendor, and private respondents, as vendees executed

Contract to Sell No. over a parcel of land on monthly installments subject to the
condition: “The contract shall be considered automatically rescinded and cancelled
and of no further force and efect 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…”
Page 58 of 109
During the contract, petitioner sent series of notices to private respondents

(PR) for thei latter’s balances/arrearages. From time to time, PR partially
complied with this and requested for extensions. On May 19, 1970, the
petitioner, for the last time, reminded the PR to pay their balance. After more
than two years, PR sent a letter expressing their desire to settle their desire to
fully settle their obligation. On March 27, 1974, petitioner wrote a letter to PR ,
informing them that the contract to sell had been rescinded. PR filed Complaint
for Specific Performance with Damages to compel petitioner to execute a deed
of sale.
After trial, the lower court rendered a decision in PR’s favor, holding that
petitioner could not rescind the contract to sell, because: (a) petitioner waived the
automatic rescission clause by accepting payment and by sending letters advising
private respondents of the balances due, thus, looking forward to receiving
payments thereon. Said decision was afirmed on appeal. Hence, this Petition For
Review on Certiorari,
ISSUE:
Whether or not the Contract to Sell was rescinded, under the automatic rescission
clause contained therein?
RULING: 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." The assailed decision is afirmed.
_____________________________________________________________________________________
CENTRAL BANK V COURT OF APPEALS

G.R. NO. L-45710 OCTOBER 3, 1985
The bank’s asking for advance interest for the loan is improper considering that
the total loan hasn’t been released. A person can’t be charged interest for
nonexisting debt. The alleged discovery by the bank of overvaluation of the loan
collateral is not an issue. Since Island Savings Bank failed to furnish the
P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent.
FACTS:
Island Savings Bank, upon favorable recommendation of its legal department,

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 located in Cubo, Las Nieves, Agusan. The loan called for a lump
sum of P80,000, repayable in semi-annual installments for 3 yrs, with 12% annual
interest. After the agreement, a mere P17K partial release of the loan was made by
the bank and Tolentino and his wife signed a promissory note for the P17,000 at
12% annual interest payable w/in 3 yrs. An advance interest was deducted fr the
partial release but this prededucted interest was refunded to Tolentino after being
informed that there was no fund yet for the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was sufering liquidity
problems, prohibited the bank from making new loans and investments. And after
the bank failed to restore its solvency, the Central Bank prohibited Island Savings
Bank from doing business in the Philippines. Island Savings Bank in view of the
non-payment of the P17K filed an application for foreclosure of the real estate
mortgage. Tolentino filed petition for specific performance or rescission and
Page 59 of 109
damages with preliminary injunction, alleging that since the bank failed to deliver
P63K, he is entitled to specific performance and if not, to rescind the real estate
mortgage.
ISSUES:
1) Whether or not Tolentino’s can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the
promissory note
3) Whether or not the real estate mortgage can be foreclosed
RULING:
1)Whether or not Tolentino’s can collect from the bank for damages. The loan
agreement implied reciprocal obligations. When one party is willing and ready to
perform, the other party not ready nor willing incurs in delay. When Tolentino
executed real estate mortgage, he signified willingness to pay. That time, the
bank’s obligation to furnish the P80K loan accrued. Now, the Central Bank
resolution made it impossible for the bank to furnish the P63K balance. The
prohibition on the bank to make new loans is irrelevant bec it did not prohibit the
bank fr releasing the balance of loans previously contracted. Insolvency of debtor
is not an excuse for non-fulfillment of obligation but is a breach of contract.
The bank’s asking for advance interest for the loan is improper considering that
the total loan hasn’t been released. A person can’t be charged interest for
nonexisting debt. The alleged discovery by the bank of overvaluation of the loan
collateral is not an issue. The bank oficials should have been more responsible and
the bank bears risk in case the collateral turned out to be overvalued.
Furthermore, this was not raised in the pleadings so this issue can’t be raised. The
bank was in default and Tolentino may choose bet specific performance or
rescission w/ damages in either case. But considering that the bank is now
prohibited fr doing business, specific performance cannot be granted. Rescission is
the only remedy left, but the rescission shld only be for the P63K balance.
2) Whether or not the mortgagor is liable to pay the amount covered by the
promissory note
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. If Tolentino had not signed a promissory note setting the date for payment of
P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay. 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.
3) Whether or not the real estate mortgage can be foreclosed

Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than suficient to secure a
P17,000.00 debt.
_____________________________________________________________________________________
Page 60 of 109
M. TUASON & CO., INC. VS. JAVIER

G.R. NO. L-28569 February 27, 1970
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
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?
RULING:
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 ofered 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.
_____________________________________________________________________________________
LEGARDA VS SALADAÑA
G.R. No. L-26578, January 28, 1974
FACTS:
Saldaña had entered into two written contracts with Legarda, a subdivision owner,
whereby Legarda agreed to sell to him two of his lots for 1,500 per lot, payable
over a span of 10 years on 120 monthly installments with 10% interest per annum.
Saldaña paid for eight consecutive years but did not make any further payments
due to Legarda’s failure to make the necessary improvement on the said lot which
was promised by their representative, the said Mr. Cenon. Saldaña already paid a
Page 61 of 109
total of Php3,582.06. The statement of account shows that Saldaña paid

Php1,682.28 of the principal and Php1,889.78 for the interest. It did not
distinguish which of the two said lots was paid. Petitioner, then, rescinded the
contract based on the stipulation of the contract that payments made by
respondent shall be considered as rentals and any improvements made shall be
forfeited in favor of the petitioner. The lower court ruled sustaining petitioner’s
cancellation of contract. So respondent appealed and judgment was reversed in
favor of the respondent ordering petitioners to deliver to plaintif one of the two
lots at the choice of the defendant and execute the deed of conveyance. Hence this
petition.
ISSUE:
Was the cancellation of the sale of contract valid?
RULING:
No, even though it was stipulated that failure to complete the payment would
result to the cancellation of the contract, it was still not valid. As clearly shown in
the statement of account, Saldaña was able to pay one of the two said lots. Under
Article 1234 of the New Civil 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 sufered by the obligee”. Hence, under the
authority of Article 1234 of the New Civil Code, Saladaña is entitled to one of the
two lots of his choice and the interest paid shall be forfeited in favor of the
petitioners.
AZCONA V. JAMANDRE (151 SCRA 317)

FACTS:
Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta.
Fe in Negros Occidental to Cirilo Jamandre. The agreed yearly rental was P7200
and the term was for 3agricultural years beginning 1960. On March 30, 1960,
when the first annual rent was due, petitioner was not able to deliver possession of
the leased property thus he “waived” payment of that rental. Respondent only
entered the premises on October 26, 1960 after paying P7000, which was
acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner
notified respondent that the contract of lease was deemed cancelled for violation of
the conditions of the contract. Earlier, in fact, the respondent had been ousted
from the possession of the 60 hectares of the leased premises and let with only 20
hectares of the original area.
ISSUES
Whether or not the lease contract is deemed cancelled upon failure of the
respondent to:
1. Attach the parcelary plan identifying the exact area subject of the contract
2. Secure approval of PNB of said contract
3. Pay the rentals
RULING:
Parcelary Plan
The correct view is that there was an agreed subject-matter, although it was not
expressly defined because the plan was not annexed and never approved. There
was still an ascertainable object because the leased premises were suficiently
delineated and identified. Failure to attach the plan was imputable to the petitioner
himself because he was supposed to prepare the said plan. Nevertheless, the
identification of the lease area rendered the plan unnecessary and its absence did
not nullify the agreement.
Page 62 of 109
PNB Approval
Petitioners claim that such possession was not delivered because the approval of
by the PNB had not materialized due to respondent's neglect. Respondent was
negotiating the loan with PNB but the contract does not state upon whom fell the
obligation to secure the approval.
Payment of Rent
Petitioner contends that the payment of P7000, which was short of P200, was a
violation of the agreement thus the contract should be deemed cancelled. But the
petitioner unqualifiedly accepted the amount. The absence of any mention of the
discrepancy in the receipt nor any protest or demand to collect the remaining
balance, means that petitioner acknowledged the amount as the full payment for
the rent. The SC afirms the decision of the CA and petition is denied. Note: The
CA held that the amount of P200 had been condoned but the SC viewed it as a
mere reduction of the stipulated rental in consideration of the withdrawal from the
leased premises where the petitioner intended to graze his cattle.
Relevant Articles/ Jurisprudence

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.
Aranas v Tutaan
127 SCRA 828
FACTS:
The stocks of Universal Textile Mills (UTEX) were issued to co-defendants Manuel
and Castaneda. Subsequently, in 1971, the lower court declared that Luisa Aranas
is the rightful owner of the 400 shares of stocks at Universal Textile Mills (UTEX.
Further, it ordered that dividends in cash or stocks pertaining to the same be
delivered to Aranas. UTEX then filed a motion to clarify the phrase in said decision
which states “to deliver to her all dividends appertaining to the same, whether in
cash or in stocks” meant dividends properly pertaining to the plaintifs after the
court’s declaration of her ownership. The said motion was granted, where the
court ordered UTEX to pay the plaintif the cash dividends which accrued to the
stocks in question after the current decision was rendered but the cash dividends
already paid to the co-defendants before the court decision may not be claimed by
the plaintifs.
The co-defendants filed for a new trial and the decision was the same as the the
1971 ruling. Upon appeal to the CA, the said ruling was afirmed. The lower court
issued a writ of execution in 1979 directed to UTEX to 1) cancel the certificate of
stocks of the co-defendants and issue new ones in the name of the petitioners, and
2) Pay the cash dividends accrued from 1972 to 1979 (period from the new trial to
the issuance of writ of execution). UTEX alleged that the cash dividends had
already been paid.
ISSUE:
Whether or not there was valid payment?
RULING:
Page 63 of 109
No. It is elementary that payment made by a judgment debtor to a wrong party

cannot extinguish the obligation of such debtor to its creditor. It was clear in the
motion for clarification that all dividends accruing to the said shares after the
rendition of judgement belonged to the Aranas. When UTEX paid the wrong
parties, despite its knowledge and understanding of the final judgment, it is still
liable to pay Aranas as the lawful declared owners of the said shares. The burden
to recover the wrong payment is on UTEX and cannot be passed on to the Aranas
as the innocent parties.
__________________________________________________________________________________
Kalalo vs. Luz

34 SCRA 337
FACTS:
On 17 November 1959, Octavio Kalalo entered into an agreement with Alfredo Luz
where he was to render engineering design services for a fee. On 11 December
1961, Kalalo sent Luz a statement of account where the balance due for services
rendered was P59,505. On 18 May 1962, Luz sent Kalalo a resume of fees due to
the latter, and a check for P10,861.08. Kalalo refused to accept the check as full
payment of the balance of the fees due him. On 10 August 1962, Kalalo filed a
complaint containing 4 causes of action, i.e. $28,000 (representing 20% of the
amount paid to Luz in the International Research Institute project) and the balance
of P30,881.25 as fees; P17,0000 as consequential and moral damages; P55,000 as
moral damages, attorney’s fees and litigation expenses; and P25,000 as actual
damages, attorney’s fees and litigation expenses). The trial court ruled in favor of
Kalalo. Luz filed an appeal directly with the Supreme Court raising only questions
of law.
ISSUE:
Whether the rate of exchange of dollar to peso are those at the time of the
payment of the judgment or at the time when the research institute project became
due and demandable?
RULING:
Luz’ obligation to pay Kalalo the sum of US$28,000 accrued on 25 August 1961, or
after the enactment of RA 529 (16 June 1950). Thus, the provision of the statute
which requires payment at the prevailing rate of exchange when the obligation was
incurred cannot be applied. RA 529 does not provide for the rate of exchange for
the payment of obligation incurred after the enactment of the Act, and thus the
rate of exchange should be that prevailing at the time of payment. The view finds
support in the ruling of the Court in Engel vs. Velasco & Co. The trial court did not
err in holding the rate of exchange is that at the time of payment.
____________________________________________________________________________________
Ponce vs. CA
90 SCRA 533
Page 64 of 109
FACTS:
On 3 June 1969, Jesus Afable, together with Feliza Mendoza and Ma. Aurora Dino
executed a promissory note in favor of Nelia Ponce in the sum of P814,868.42
payable without interest on or before 31 July 1969, subject to an interest of 12%
per annum if not paid at maturity, and an additional sum equivalent to 10% of total
amount due as attorney’s fees in case it is necessary to bring suit, and the
execution of a first mortgage on their properties or the Carmen Planas Memorial
Inc. in the event of failure to pay the indebtedness in accordance with the terms.
Upon failure of the debtors to pay, a complaint was filed against them for the
recovery of the principal sum, plus interest and damages. The trial court rendered
judgment in favor of Ponce. The Court of Appeals afirmed the decision of the trial
court. On the second motion for reconsideration, however, the appellate court
reversed the judgment and opined that the intent of the parties was that the note
was payable in US dollars which is illegal, with neither party entitled to recover
under the “in pari delicto” rule.
ISSUE:
Whether an agreement to pay in dollars defeat a creditor’s claim for payment?
RULING:
If there is an agreement to pay an obligation in a currency other than Philippine

legal tender, the same is illegal / null and void as contrary to public policy,
pursuant to RA 529, and the most that can be demanded is to pay the said
obligation in Philippine currency. It cannot defeat a creditor’s claim for payment,
for such will allow a person to enrich himself inequitably at another’s expense.
What RA 529 prohibits is the payment of an obligation in dollars. A creditor cannot
oblige the debtor to pay in dollars, even if the loan was given in said currency. In
such case, the indemnity is expressed in Philippine currency on the basis of the
current rate of exchange at the time of payment.
NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS

10 SCRA 686
FACTS:
Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint
for collection of money filed by private respondent, Ricardo A. Tong. In this
complaint, respondent Judge rendered a compromise judgment based on the
amicable settlement entered by the parties wherein petitioner will pay to private
respondent P54,500.00 at 6% interest per annum and P6,000.00 as 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-Oficio Sherif
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
Page 65 of 109
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-Oficio Sherif. In upholding the
refusal of the private respondent to accept the check, the respondent Judge cited
Article 1249 of the New Civil Code which provides that payments of debts shall be
made in the currency which is the legal tender of the Philippines and Section 63 of
the Central Bank Act which provides that checks representing deposit money do
not have legal tender power. In sustaining the contention of the private respondent
to refuse the acceptance of the cash, the respondent Judge cited Article 1248 of
the New Civil Code which provides that creditor cannot be compelled to accept
partial payment unless there is an express stipulation to the contrary.
ISSUE:
Can the check be considered a valid payment of the judgment obligation?
RULING:
Yes. It is to be emphasized that it is a well-known and accepted practice in the

business sector that a Cashier’s Check is deemed cash. Moreover, since the check
has been certified by the drawee bank, this certification implies that the check is
suficiently funded in the drawee bank and the funds will be applied whenever the
check is presented for payment. The object of certifying a check is to enable the
holder to use it as money. When the holder procures the check to be certified, it
operates as an assignment of a part of the funds to the creditors. Hence, the
exception provided in Section 63 of the Central Bank Act which states that checks
which have been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash the amount equal to that which is
credited to his account. The 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 of Malolos v IAC

191 SCRA 411
FACTS:
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
Page 66 of 109
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, we find 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 plaintif’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 decision of the trial court. The IAC, in finding that the
private respondent had suficient available funds, ipso facto concluded that the
latter had tendered payment.
ISSUE:
Whether or not the finding of the IAC that Atty. Francisco had suficient available
funds did tender payment for the said obligation.
Whether or not an ofer 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.
RULING:
1. No. Tender of payment involves a positive and unconditional act by the obligor of
ofering legal tender currency as payment to the obligee for the former’s obligation
Page 67 of 109
and demanding that the latter accept the same. Thus, tender of payment cannot be
presumed by a mere inference from surrounding circumstances. At most,
suficiency of available funds is only afirmative of the capacity or ability of the
obligor to fulfill his part of the bargain. The respondent court was therefore in
error.
2. 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 ofer 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 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 the DECISION of the IAC is hereby
SET ASIDE and ANNULLED and the DECISION of the trial court is REINSTATED.
Tibajia vs. CA
223 SCRA 163
FACTS:
A suit for collection of sum of money was ruled in favor of Eden Tan and against
the spouses Norberto Jr. and Carmen Tibajia. After the decision was made final,
Tan filed a motion for execution and levied upon the garnished funds which were
deposited by the spouses with the cashier of the Regional Trial Court of Pasig. The
spouses, however, delivered to the deputy sherif the total money judgment in the
form of Cashier’s Check (P262,750) and Cash (P135,733.70). Tan refused the
payment and insisted upon the garnished funds to satisfy the judgment obligation.
The spouses filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. The motion was denied.
ISSUE:
Whether the spouses have satisfied the judgment obligation after the delivery of
the cashier’s check and cash to the deputy sherif.
RULING:
A check, whether a manager’s check or ordinary check, is not legal tender, and an
ofer 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 (Philippine Airlines vs. Court of Appeals;
Roman Catholic Bishop of Malolos vs. Intermediate Appellate Court). The court is
not, by decision, sanctioning the use of a check for the payment of obligations over
the objection of the creditor (Fortunado vs. Court of Appeals).
Page 68 of 109
____________________________________________________________________________________
VELASCO VS. MANILA ELECTRIC CO., ET. AL. -

42 SCRA 556
FACTS:
Pedro J. Velasco, the appellant, complained that MERALCO, the appellee company,
created a nuisance, as defined in Art. 694 of the Civil Code of the Philippines, in
form of noise from their substation which was in the same street, next to Velasco’s
property/residence, which the appellant also uses for his Medical Practice as a
physician. The claim cannot be proven solely by testimony however, as the
testimonies given by the locals do not corroborate with each other, or were
subjective. To get a more accurate proof, under instructions from the Director of
Health, Dr. Jesus Almonte, noted as an impartial party, used a sound level meter
and other instruments within the compound of the plaintif-appellant to get a
reading on the decibels or sound meter. It was observed that the readings range
from 46-80 decibels, depending on the time and place. The appellee company also
took sound level samplings, with Mamerto Buenafe conducting the reading within
and near the vicinity of the substation, whose readings range from 42-76 decibels.
The readings were compared to Technical charts, which listed the decibels of areas
from an average home: 40, to the noisiest spot of Niagara Falls: 92. Thus, the
readings from the impartial party appeared more reliable. The court concluded
that the evidence pointed the noise levels to be of actionable nuisance, and that
the appellant is entitled to relief, as there was a possibility that it had efect on the
appellant’s health. Appellee company contended that the appellant should not have
a ground to complain because of: 1) the intensity inside Velasco’s house was on 46
to 47 decibels; 2) the sound level at the North General Hospital, where silence was
observed, was higher that his residence and did not take action; 3) MERALCO had
received no complaint in its 50 years of operations until the case.
ISSUES:
Whether or not the substation constituted a public nuisance. Whether or not

Velasco had the right to claim for damages.
RULING:
The court held that the substation constituted a public nuisance in form of noise, of
which they made reference and consideration with cases in the U.S. regarding
what level of noise would constitute as public nuisance as defined in Art. 694 of the
Civil Code of the Philippines. The court also contended that the damage claims by
the plaintif-appellant was exaggerated, taking into consideration that 1) the
appellant did not make all the possible measures, for example to perhaps lease the
property to others, 2) as for his health, it was observed that only Velasco, among
the other locals seem to have the ailments as he listed, and therefore lowered it to
a more justifiable amount of 20,000 pesos in damages and 5,000 pesos in
attorney’s fees, payable by the appellee. They also ordered that the appellee
should take measures in lowering the noise within 90 days.
_____________________________________________________________________________________
Page 69 of 109
Commissioner of Public Highways vs. Burgos

96 SCRA 831
FACTS:
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:
Whether or not the provision of Article 1250 of the New Civil Code is applicable in
determining the amount of compensation to be paid to private respondent
Amigable for the property taken?
RULING:
Article 1250 of the NCC provides that the value of currency at the time of the
establishment of the obligation shall be the basis of payment which would be the
value of peso at the time of taking of the property when the obligation of the
government to pay arises. It is only when there is an agreement that the inflation
will make the value of currency at the time of payment, not at the time of the
establishment, the basis for payment.
The correct amount of compensation would be P14,615.79 at P2.37 per square
meter, not P49,459.34, and the interest in the sum of P145,410.44 at the rate of 6%
from 1924 up to the time respondent court rendered its decision as was awarded
by the said court should accordingly be reduced.
FILIPINO PIPE vs. NAWASA

161 SCRA 32
FACTS:
Page 70 of 109
NAWASA entered into a contract with the plaintif FPFC for the latter to supply
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. NAWASA paid in installments on various dates, a total of P134,680.00
leaving a balance of P135,507.50 excluding interest. FPFC demanded payment
from NAWASA of the unpaid balance of the price with interest in accordance with
the terms of their contract. NAWASA failed to pay, plaintif filed a collection suit.
RTC rendered judgment ordered NAWASA to pay the unpaid balance in NAWASA
negotiable bonds. NAWASA did not deliver the bonds to the judgment creditor.
FPFC filed another complaint seeking an adjustment of the unpaid balance in

accordance with the value of the Philippine peso FPFC presented voluminous
records and statistics showing that a spiraling 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.
ISSUE:
W/N there exists an extraordinary inflation of the currency justifying an adjustment

of NAWASA's unpaid judgment obligation to FPFC?
RULING:
Article 1250 of the Civil Code provides: 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..
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
the parties at the time of the establishment of the obligation. (Tolentino
Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.)
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

164 SCRA 556
FACTS:
On September 20, 1960 the parties entered into a Lease Agreement whereby the
plaintif- appellant leased a parcel of land known as Lot No. 2191 of the cadastral
Survey of Ligao, Albay to the defendant appellee at a monthly rental of Two
Page 71 of 109
Hundred Fifty Pesos (P250.00). Paragraph 14 of said contract of lease provides: “In
the event of an official devaluation or appreciation of the Philippine cannot the
rental specified herein 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 Executive

Order No. 195 1 titled "Changing the Par Value of the Peso from US$0.50 to
US$0.2564103 (U.S. Dollar of the Weight and Fineness in Efect on July 1, 1944).
This took efect at noon of November 8, 1965. By reason of this Executive Order
No. 195, plaintif-appellant demanded from the defendant-appellee ailieged
increase in the monthly rentals from P250.00 a month to P487.50 a month.
Defendant-appellee fertilize to pay the increased monthly rentals.
On January 16, 1967, plaintif-appellant filed a complaint (Civil Case No. 68154)
with the CFI of Manila, Branch XVII praying that defendant-appellee be ordered to
pay the monthly rentals as increased by reason of Executive Order 195. On January
8, 1968 the trial court in dismissing the complaint
ISSUE:
Whether or not Executive Order No. 195 in efect decreased the worth or value of
our currency and a "devaluation" or "depreciation" has taken place which would
justify the proportionate increase of rent?
RULING:
It will be noted that devaluation is an official act of the government (as when a law
is enacted thereon) and refers to a reduction in metallic content; depreciation can
take place with or without alleged official act, and does not depend on metallic
content (although depreciation may be caused currency devaluation).
In the case at bar, while no express reference has been made to metallic content,
there nonetheless is a reduction in par value or in the purchasing power of
Philippine currency. Even assuming there has been no official devaluation as the
term is technically understood, the fact is that there has been a diminution or
lessening in the purchasing power of the peso, thus, there has been a
"depreciation" (opposite of "appreciation"). Moreover, when laymen unskilled in
the semantics of economics use the terms "devaluation" or "depreciation" they
certainly mean them in their ordinary signification — decrease in value. Hence as
contemplated, the term "devaluation" may be regarded as synonymous with
"depreciation," for certainly both refer to a decrease in the value of the currency.
The rentals should therefore by their agreement be proportionately increased.
_____________________________________________________________________________________
FILINVEST CREDIT CORPORATION vs. COURT OF

APPEALS
111 SCRA 421
FACTS:
Page 72 of 109
Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks
and used for construction purposes. In order to increase their production, they
looked for a rock crusher which Rizal Consolidated Corporation then had for sale.
A brother of Sy Bang, went to inspect the machine at the Rizal Consolidated’s plant
site. Apparently satisfied with the machine, the private respondents signified their
intent to purchase the same.
Since he does not have the financing capability, Sy Bang applied for financial
assistance from Filinvest Credit Corporation. Filinvest agreed to extend financial
aid on the following conditions: (1) that the machinery be purchased in the
petitioner’s name; (2) that it be leased with option to purchase upon the
termination of the lease period; and (3) that Sy Bang execute a real estate
mortgage as security for the amount advanced by Filinvest. A contract of lease of
machinery (with option to purchase) was entered into by the parties whereby they
to lease from the petitioner the rock crusher for two years. The contract likewise
stipulated that at the end of the two-year period, the machine would be owned by
Sy Bang.
3 months from the date of delivery, Sy Bang claiming that they had only tested the
machine that month, sent a letter-complaint to the petitioner, alleging that
contrary to the 20 to 40 tons per hour capacity of the machine as stated in the
lease contract, the machine could only process 5 tons of rocks and stones per hour.
They then demanded that the petitioner make good the stipulation in the lease
contract. Sy Bang stopped payment on the remaining checks they had issued to the
petitioner.
As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real

estate mortgage.
ISSUE:
WON the real transaction was lease or sale? SALE ON INSTALLMENTS?
RULING:
The real intention of the parties should prevail. The nomenclature of the
agreement cannot change its true essence, i.e., a sale on installments. It is basic
that a contract is what the law defines it and the parties intend it to be, not what it
is called by the parties. It is apparent here that the intent of the parties to the
subject contract is for the so-called rentals to be the installment payments. Upon
the completion of the payments, then the rock crusher, subject matter of the
contract, would become the property of the private respondents. This form of
agreement has been criticized as a lease only in name.
Sellers desirous of making conditional sales of their goods, but who do not wish
openly to make a bargain in that form, for one reason or another, have frequently
resorted to the device of making contracts in the form of leases either with options
to the buyer to purchase for a small consideration at the end of term, provided the
so-called rent has been duly paid, or with stipulations that if the rent throughout
the term is paid, title shall thereupon vest in the lessee. It is obvious that such
transactions are leases only in name. The so-called rent must necessarily be
Page 73 of 109
regarded as payment of the price in installments since the due payment of the
agreed amount results, by the terms of bargain, in the transfer of title to the
lessee.
Indubitably, the device contract of lease with option to buy is at times resorted to
as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through
the set-up, the vendor, by retaining ownership over the property in the guise of
being the lessor, retains, likewise, the right to repossess the same, without going
through the process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to constitute a chattel
mortgage over the movable sold. More important, the vendor, after repossessing
the property and, in efect, canceling the contract of sale, gets to keep all the
installments-cum-rentals already paid.
Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is
presumed to be more knowledgeable, if not experts, on the machinery subject of
the contract, they should not therefore be heard now to complain of any alleged
deficiency of the said machinery. It was Sy Bang who was negligent, not Filinvest.
Further, Sy Bang is precluded to complain because he signed a Waiver of Warranty.
CITIZENS SURETY VS CA
162 SCRA 738
FACTS:
On December 4, 1959, the petitioner issued two (2) surety bonds CSIC Nos. 2631
and 2632 to guarantee compliance by the principal Pascual M. Perez Enterprises of
its obligation under a "Contract of Sale of Goods" entered into with the Singer
Sewing Machine Co. In consideration of the issuance of the aforesaid bonds,
Pascual M. Perez, in his personal capacity and as attorney-in-fact of his wife,
Nicasia Sarmiento and in behalf of the Pascual M. Perez Enterprises executed on
the same date two (2) indemnity agreements wherein he obligated himself and the
Enterprises to indemnify the petitioner jointly and severally, whatever payments
advances and damage it may sufer or pay as a result of the issuance of the surety
bonds.
In addition to the two indemnity agreements, Pascual M. Perez executed a deed of

assignment on the same day, December 4,1959, of his stock of lumber with a total
value of P400,000.00. On April 12, 1960, a second real estate mortgage was
further executed in favor of the petitioner to guarantee the fulfillment of said
obligation.
Pascual M. Perez Enterprises failed to comply with its obligation under the
contract of sale of goods with Singer Sewing Machine Co., Ltd. Consequently, the
petitioner was compelled to pay, as it did pay, the fair value of the two surety bonds
in the total amount of P144,000.00. Except for partial payments in the total sum of
P55,600.00 and notwithstanding several demands, Pascual M. Perez Enterprises
failed to reimburse the petitioner for the losses it sustained under the said surety
bonds.
Page 74 of 109
The petitioner filed a claim for sum of money against the estate of the late Nicasia
Sarmiento which was being administered by Pascual M. Perez. In opposing the
money claim, Pascual M. Perez asserts that the surety bonds and the indemnity
agreements had been extinguished by the execution of the deed of assignment.
ISSUE:
Whether or not the administrator's obligation under the surety bonds and
indemnity agreements had been extinguished by reason of the execution of the
deed of assignment?
RULING:
On its face, the document speaks of an assignment where there seems to be a

complete conveyance of the stocks of lumber to the petitioner, as assignee.
However, in the light of the circumstances obtaining at the time of the execution of
said deed of assignment, we cannot regard the transaction as an absolute
conveyance.
The subsequent acts of the private respondent bolster the fact that the deed of
assignment was intended merely as a security for the issuance of the two bonds.
Partial payments amounting to P55,600.00 were made after the execution of the
deed of assignment to satisfy the obligation under the two surety bonds. Since
later payments were made to pay the indebtedness, it follows that no debt was
extinguished upon the execution of the deed of assignment. Moreover, a second
real estate mortgage was executed on April 12, 1960 and eventually cancelled only
on May 15, 1962. If indeed the deed of assignment extinguished the obligation,
there was no reason for a second mortgage to still have to be executed. The deed
of assignment was therefore intended merely as another collateral security for the
issuance of the two surety bonds.
_____________________________________________________________________________________
Case: Soco vs. Militante (123SCRA 421)
FACTS:
Soco and Francisco entered into a contract of lease on January 17, 1973, whereby
Soco leased her commercial building and lot situated at Manalili Street, Cebu City,
to Francisco for a monthly rental of P 800.00 for a period of 10 years renewable for
another 10 years at the option of the lessee. It can readily be discerned from
Exhibit “A” (from SOCO) that paragraphs 10 and 11 appear to have been cancelled
while in Exhibit “2” (from FRANCISCO) only paragraph 10 has been cancelled.
Claiming that paragraph 11 of the Contract of Lease was in fact not part of the
contract because it was cancelled, Soco filed Civil Case No. R-16261 in the Court
of First Instance of Cebu seeking the annulment and/or reformation of the Contract
of Lease.
Sometime before the filing of Civil Case No. R-16261 Francisco noticed that Soco
did not anymore send her collector for the payment of rentals and at times there
were payments made but no receipts were issued. This situation prompted
Francisco to write Soco the letter dated February 7, 1975 which the latter
Page 75 of 109
received. After writing this letter, Francisco sent his payment for rentals by checks
issued by the Commercial Bank and Trust Company.
The factual background setting of this case clearly indicates that soon after Soco
learned that Francisco sub-leased a portion of the building to NACIDA, at a
monthly rental of more than P3,000.00 which is definitely very much higher than
what Francisco was paying to Soco under the Contract of Lease, the latter felt that
she was on the losing end of the lease agreement so she tried to look for ways and
means to terminate the contract.
In view of this alleged non-payment of rental of the leased premises beginning

May, 1977, Soco through her lawyer sent a letter dated November 23, 1978 to
Francisco serving notice to the latter ‘to vacate the premises leased.’ In answer to
this letter, Francisco through his lawyer informed Soco and her lawyer that all
payments of rental due her were in fact paid by Commercial Bank and Trust
Company through the Clerk of Court of the City Court of Cebu. Despite this
explanation, Soco filed this instant case of Illegal Detainer.
MTC and RTC have conflicting findings. The former found that the consignation
was valid. RTC reversed and ordered the eviction of the Francisco.
ISSUE:
WON there was a valid consignation of payment of the rentals?
RULING:
In order that consignation may be efective, the debtor must first comply with
certain requirements prescribed by law. The debtor must show (1) that there was a
debt due; (2) that the consignation of the obligation had been made 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 (Art. 1176, Civil Code); (3) that previous notice of the
consignation had been given to the person interested in the performance of the
obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the
disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation
had been made the person interested was notified thereof (Art. 1178, Civil Code).
Failure in any of these requirements is enough ground to render a consignation
inefective. (parang wala naman tong mga to sa 1176, 1177 and 1178?)
We hold that the respondent lessee has utterly failed to prove the following
requisites of a valid consignation:
First, tender of payment of the monthly rentals to the lessor. Second, respondent
lessee also failed to prove the first notice to the lessor prior to consignation.
Evidently, from this arrangement, it was the lessee’s duty to send someone to get
the cashier’s check from the bank and logically, the lessee has the obligation to
make and tender the check to the lessor. This the lessee failed to do, which is fatal
to his defense.
Third, respondent lessee likewise failed to prove the second notice, that is after
consignation has been made, to the lessor. And the fourth requisite that
respondent lessee failed to prove is the actual deposit or consignation of the
monthly rentals except the two cashier’s checks referred to in Exhibit 12. As
indicated earlier, not a single copy of the oficial receipts issued by the Clerk of
Page 76 of 109
Court was presented at the trial of the case to prove the actual deposit or
consignation.
We, therefore, find and rule that the lessee has failed to prove tender of payment
except that in Exh. 10; he has failed to prove the first notice to the lessor prior to
consignation except that given in Exh. 10; he has failed to prove the second notice
after consignation except the two made in Exh. 12; and he has failed to pay the
rentals for the months of July and August, 1977 as of the time the complaint was
filed for the eviction of the lessee. We hold that the evidence is clear, competent
and convincing showing that the lessee has violated the terms of the lease contract
and he may, therefore, be judicially ejected.
Notes:
According to Article 1256, New Civil Code, 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 efect 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.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and
it generally requires a prior tender of payment. (Limkako vs. Teodoro, 74 Phil.
313).
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 consignation is necessarily judicial, and the priority of the first is the attempt
to make a private settlement before proceeding to the solemnities of consignation.
(8 Manresa 325).
__________________________________________________________________________________
Case: Immaculata vs. Navarro (160 SCRA 211)

To preserve the right to redeem, consignation is not required; but to actually
redeem, there must of course be payment or consignation (deposit) itself.
FACTS:
On March 24, 1975, petitioner Lauro Immaculata, represented by his wife Amparo
Velasco as guardian ad litem filed in the CFI of Rizal a complaint, for annulment of
judgment and deed of sale with reconveyance of real property, against private
respondents herein and respondent sherif.
The complaint alleged that on or about December, 1969 Juanito Victoria with the
cooperation of defendant Juanita Naval, and others succeeded in causing plaintif
Lauro Immaculata, petitioner herein, to execute a Deed of Absolute Sale in favor of
Juanito Victoria, by unduly taking advantage of the mental illness and/or weakness
Page 77 of 109
of petitioner and thru deceit and fraudulent means, purportedly disposed of by way
of absolute sale, a 5,000-square meter parcel of land covered by a TCT, for the sum
of P 58k, which petitioner supposedly received, but in truth and in fact did not;
that although it was made to appear that petitioner voluntarily and freely appeared
before the Notary Public on January 13, 1970, petitioner, then already sufering
from chronic mental illness, could not possibly appear before the said Notary
Public; and that said Deed of Sale was not freely and voluntarily executed by
petitioner, and the same was absolutely fictitious and simulated, and, consequently,
null and void; that based on said fictitious and simulated sale, an action for specific
performance was filed by Juanito Victoria, during his lifetime, against petitioner
herein before the respondent Court to compel petitioner to execute a document
registerable with the Register of Deeds of Rizal in order that Juanito Victoria may
be able to obtain title over the property; that no proper and valid service of
summons was ever made upon the petitioner, and thus, notwithstanding, the latter
was declared in default and judgment by default was rendered against him; that
said judgment by default was null and void, having been rendered against a person
who is/was admittedly insane and over whose person, the respondent court did not
validly acquire jurisdiction; that the judgment by default was not properly served
upon the petitioner and/or the supposed guardian ad litem, and this,
notwithstanding, Juanito Victoria, thru counsel, succeeded in securing the issuance
of a writ of execution to enforce the judgment by default rendered by the
respondent Court against the petitioner; that Juanito Victoria, alleging that the
herein petitioner failed to comply with the alleged writ of execution, prayed before
the respondent Court that the respondent Sherif be directed to execute the
necessary deed of conveyance in favor of Juanito Victoria and thus consequently,
without the knowledge and consent of petitioner, a new TCT was issued in favor of
Victoria; that, in the alternative, petitioner prays that he be allowed to repurchase
the property within five (5) years from the time judgment is rendered by the
respondent courtupholding the validity of the proceedings and the sale since the
land in question was originally covered by a Free Patent title; and finally, petitioner
prays for actual and moral damages as well as exemplary damages, attorney's fees,
expenses of litigation and costs of suit.
Private respondents moved for the complaint’s dismissal. Respondent Court

dismissed the complaint on the ground of res judicata. Petitioner filed an MR on
the ground that res judicata is not applicable when the main cause of action is to
annul the very judgment. However, the respondent court denied the MR.
ISSUE:
Whether the present case is already barred by prior judgment?
RULING:
(Remedial Law. Decision was already final and executory. Civil Case for annulment
of judgment already barred by prior judgment in the civil case for specific
performance. Immaculata lost.)
It has been repeatedly held that in order for a judgment to be a bar to a

subsequent case, the following requisites must be present: (1) it must be a final
judgment; (2) the court which rendered it had jurisdiction over the subject matter
and the parties; (3) it must be a judgment on the merits; and (4) there must be
Identity between the two cases, as to parties, subject matter and cause of action.
Page 78 of 109
In the case at bar, there appears to be no dispute that the judgment in Civil Case
No. 13734 had already become final and executory. As a matter of fact, respondent
court had already ordered on July 12, 1973 the issuance of the writ of execution in
favor of the plaintif, Juanito Victoria and against the defendant, Lauro Immaculata.
It has been shown that the court which rendered the decision in Civil Case No.
13734 had jurisdiction over the subject matter and the parties in the case
particularly Lauro Immaculata. There also appears to be no question that there
was judgment on the merits in Civil Case No. 13734, and there was Identity of
parties, subject matter, and in efect in the causes of action in the two cases.
Moreover, the issues raised in the complaint in Civil Case No. 20968 have already
been the subject matter of the decision rendered by a court of competent
jurisdiction in Civil Case No. 13734. Therefore, the judgment in Civil Case No.
13734 is a bar to Civil Case No. 20968 under the principle of res judicata.
Immaculata filed an MR with SC.
G.R. No. L-42230 April 15, 1988
Petitioner's MR GRANTED.
.... the question of the right of legal redemption has remained unresolved. Be it
noted that in he civil case filed on March 24, 1975 before the defunct CFI of Rizal,
petitioner presented an alternative cause of action or prayer just in case the
validity of the sale would be sustained – to allow petitioner to legally redeem the
property.
We hereby grant said alternative cause of action or prayer. While the sale was
originally executed sometime in December, 1969, it was only on February 3, 1974
when, as prayed for by private respondent, and as ordered by the court a quo, a
"deed of conveyance" was formally executed. Since ofer to redeem was made on
March 24, 1975, this was clearly within the five-year period of legal redemption
allowed by the Public Land Act.
The allegation that the ofer to redeem was not sincere, because there was no
consignation of the amount in Court is devoid of merit. The right to redeem is a
RIGHT, not an obligation, therefore, there is no consignation requiredto preserve
the right to redeem.
WHEREFORE, the case is remanded to the court a quo for it to accept payment or
consignation by the herein petitioner of whatever he received from respondent at
the time the transaction was made.
_____________________________________________________________________________________
Case: People vs. Franklin (39 SCRA 363)

FACTS:
Appeal was taken by the Asian Surety & Insurance Company, Inc. from the decision
of the Court of First Instance of Pampanga dated April 17, 1963, forfeiting the bail
bond posted by it for the provisional release of Natividad Franklin, the accused in
Criminal Case No. 4300 of said court, as well as from the latter's orders denying
the surety company's motion for a reductions of bail, and its motion for
Page 79 of 109
reconsideration thereof.
It appears that an information filed with the Justice of the Peace Court of Angeles,
Pampanga, docketed as Criminal Case No. 5536, Natividad Franklin was charged
with estafa. Upon a bail bond posted by the Asian Surety & Insurance Company,
Inc. in the amount of P2,000.00, she was released from custody.
After the preliminary investigation of the case, the Justice of the Peace Court
elevated it to the Court of First Instance of Pampanga where the Provincial Fiscal
filed the corresponding information against the accused. The Court of First
Instance then set her arraignment on July 14, 1962, on which date she failed to
appear, but the court postponed the arraignment to July 28 of the same year upon
motion of counsel for the surety company. The accused failed to appear again, for
which reason the court ordered her arrest and required the surety company to
show cause why the bail bond posted by it should not be forfeited.
On September 25, 1962, the court granted the surety company a period of thirty
days within which to produce and surrender the accused, with the warning that
upon its failure to do so the bail bond posted by it would be forfeited. On October
25, 1962 the surety company filed a motion praying for an extension of thirty days
within which to produce the body of the accused and to show cause why its bail
bond should not be forfeited. As not withstanding the extension granted the surety
company failed to produce the accused again, the court had no other alternative
but to render the judgment of forfeiture.
Subsequently, the surety company filed a motion for a reduction of bail alleging
that the reason for its inability to produce and surrender the accused to the court
was the fact that the Philippine Government had allowed her to leave the country
and proceed to the United States on February 27, 1962. The reason thus given not
being to the satisfaction of the court, the motion for reduction of bail was denied.
The surety company's motion for reconsideration was also denied by the lower
court on May 27, 1963, although it stated in its order that it would consider the
matter of reducing the bail bond "upon production of the accused." The surety
company never complied with this condition.
Appellant now contends that the lower court should have released it from all
liability under the bail bond posted by it because its failure to produce and
surrender the accused was due to the negligence of the Philippine Government
itself in issuing a passport to said accused, thereby enabling her to leave the
country. In support of this contention the provisions of Article 1266 of the New
Civil Code are invoked.
ISSUE:
Whether or not Article 1266 is applicable in the instant case?
RULING:
Appellant's contention is untenable. The abovementioned legal provision does not

apply to its case, because the same speaks of the relation between a debtor and a
creditor, which does not exist in the case of a surety upon a bail bond, on the one
hand, and the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that: The rights and liabilities of
sureties on a recognizance or bail bond are, in many respects, diferent from those
Page 80 of 109
of sureties on ordinary bonds or commercial contracts. The former can discharge

themselves from liability by surrendering their principal; the latter, as a general
rule, can only be released by payment of the debt or performance of the act
stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held that: By the mere
fact that a person binds himself as surety for the accused, he takes charge of, and
absolutely becomes responsible for the latter's custody, and under such
circumstances it is incumbent upon him, or rather, it is his inevitable obligation not
merely a right, to keep the accused at all times under his surveillance, inasmuch as
the authority emanating from his character as surety is no more nor less than the
Government's authority to hold the said accused under preventive imprisonment.
In allowing the accused Eugenio Uy Tuising to leave the jurisdiction of the
Philippines, the appellee necessarily ran the risk of violating and in fact it clearly
violated the terms of its bail bonds because it failed to produce the said accused
when on January 15, 1932, it was required to do so. Undoubtedly, the result of the
obligation assumed by the appellee to hold the accused at all times to the orders
and processes of the lower court was to prohibit said accused from leaving the
jurisdiction of the Philippines because, otherwise, said orders and processes would
be nugatory and inasmuch as the jurisdiction of the court from which they issued
does not extend beyond that of the Philippines, they would have no binding force
outside of said jurisdiction.
It is clear, therefore, that in the eyes of the law a surety becomes the legal
custodian and jailer of the accused, thereby assuming the obligation to keep the
latter at all times under his surveillance, and to produce and surrender him to the
court upon the latter's demand.
That the accused in this case was able to secure a Philippine passport which
enabled her to go to the United States was, in fact, due to the surety company's
fault because it was its duty to do everything and take all steps necessary to
prevent that departure. This could have been accomplished by seasonably
informing the Department of Foreign Afairs and other agencies of the government
of the fact that the accused for whose provisional liberty it had posted a bail bond
was facing a criminal charge in a particular court of the country. Had the surety
company done this, there can be no doubt that no Philippine passport would have
been issued to Natividad Franklin.
______________________________________________________________________________
Case: Laguna vs Manabat (58 SCRA 650)

FACTS:
A contract was executed whereby the Biñan Transportation Company leased to the
Laguna-Tayabas Bus Company at a monthly rental of P2,500.00 its certificates of
public convenience over the lines known as Manila-Biñan, Manila-Canlubang and
Sta. RosaManila, and to the Batangas Transportation Company its certificate of
public convenience over the line known as Manila-Batangas Wharf, together with
one "International" truck, for a period of five years, renewable for another similar
period, to commence from the approval of the lease contract by the Public Service
Commission. On the same date the Public Service Commission provisionally
approved the lease contract on condition that the lessees should operate on the
Page 81 of 109
leased lines in accordance with the prescribed time schedule and that such
approval was subject to modification or cancellation and to whatever decision that
in due time might be rendered in the case.
Sometime after the execution of the lease contract, the plaintif Biñan
Transportation Company was declared insolvent and from time to time, the
defendants paid the lease rentals up to December, 1957, with the exception of the
rental for August 1957, from which there was deducted the sum of P1,836.92
without the consent of the plaintif. This deduction was based on the ground that
the employees of the defendants on the leased lines went on strike.
In Civil Case No. 696 of the Court of First Instance of Batangas, Branch II,
judgment was rendered in favor of defendant Batangas Transportation Company
against the Biñan Transportation Company for the sum of P836.92. The assignee of
the plaintif objected to such deduction, claiming that the contract of lease would
be suspended only if the defendants could not operate the leased lines due to the
action of the oficers, employees or laborers of the lessor but not of the lessees,
and that the deduction of P836.92 amounted to a fraudulent preference in the
insolvency proceedings as whatever judgment might have been rendered in favor
of any of the lessees should have been filed as a claim in said proceedings.
___________________________________________________________________________________
Case: Occena vs Jabson (73 SCRA 637)

DOCTRINE: The Civil Code authorizes the release of an obligor when the service
has become so difficult as to be manifestly beyond the contemplation of the parties
but does not authorize the courts to modify or revise the subdivision contract
between the parties or fix a different sharing ratio from that contractually
stipulated with the force of law between the parties.
FACTS:
Private respondent Tropical Homes, Inc had a subdivision contract with petitioners
who are the owners of the land subject of subdivision development by private
respondent. The contract stipulated that the petitioners’ fixed and sole share and
participation is the land which is equivalent to forty percent of all cash receipts
from the sale of the subdivision lots. When the development costs increased to
such level not anticipated during the signing of the contract and which threatened
the financial viability of the project as assessed by the private respondent,
respondent filed at the lower court a complaint for the modification of the terms
and conditions of the contract by fixing the proper shares that should pertain to
the parties therein out of the gross proceeds from the sales of the subdivision lots.
Petitioners moved for the dismissal of the complaint for lack of cause of action. The
lower court denied the motion for dismissal which was upheld by the CA based on
the civil code provision that “when the service has become so dificult as to be
manifestly beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part”. Insisting that the worldwide increase in
prices cited by private respondent does not constitute a suficient cause of action
for the modification of the terms and conditions of the contract, petitioners filed
the instant petition.
ISSUE:
Page 82 of 109
Whether or not private respondent may demand modification of the terms of the
contract on the ground that the prestation has manifestly come beyond the
contemplation of the parties?
RULING:
The general rule is that impossibility of performance releases the obligor. However,
it is submitted that when the service has become so dificult as to be manifestly
beyond the contemplation of the parties, the court should be authorized to release
the obligor in whole or in part. The intention of the parties should govern and if it
appears that the service turns out to be so dificult as have been beyond their
contemplation, it would be doing violence to that intention to hold the obligor still
responsible.
If the prayer of the private respondent is to be released from its contractual

obligations on account of the fact that the prestation has become beyond the
contemplation of the parties, then private respondent can rely on said provision of
the civil code. But the prayer of the private respondent was for the modification of
their valid contract. The above-cited civil code provision does not grant the court
the power to remake, modify, or revise the contract or to fix the division of the
shares between the parties as contractually stipulated with the force of law
between the parties. Therefore, private respondent’s complaint for modification of
its contract with petitioner must be dismissed. The decision of respondent court is
reversed.
____________________________________________________________________________________
Case: Bank of the Philippines vs CA (GR 136202, January

25, 2007)
FACTS:
A.A. Salazar Construction and Engineering Services filed an action for a sum of
money with damages against herein petitioner Bank of the Philippine Islands (BPI)
on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig
City. The complaint was later amended by substituting the name of Annabelle A.
Salazar as the real party in interest in place of A.A. Salazar Construction and
Engineering Services. Private respondent Salazar prayed for the recovery of the
amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and
Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She
likewise prayed for damages and attorney’s fees.
It was alleged that Salazar had in her possession three crossed checks with an
aggregate amount of P267,692.50. These checks were payable to the order of JRT
Construction and Trading which was the name of Templonuevo’s business. Despite
lack of knowledge and endorsement of Templonuevo, Salazar was able to deposit
the checks in her personal savings account with BPI and encash the same. The
three checks were deposited in three diferent occasions over the span of eight
months. A year after the last encashment, Templonuevo protested the purportedly
unauthorized encashments and demanded from BPI the aggregate amount of
the checks. BPI complied with Templonuevo’s demand. Since the money could no
longer be debited from the account of Salazar where she deposited the checks,
Page 83 of 109
they froze her other account with them. Later on, BPI issued a cashier’s check in
favor of Templonuevo for the aggregate amount and debited P267, 707.70 from
Salazar’s account representing the aggregate amount and the bank charges for
the cashier’s check. Trial court ruled in favor of her which was aﬃrmed by CA.
Hence, this petition.
ISSUE
1: Does a collecting bank, over the objections of its depositor, have the
authority to withdraw unilaterally from such depositor’s account the amount
it had previously paid upon certain unendorsed order instruments deposited by the
depositor to another account that she later closed?
RULING:
A bank generally has a right of set-of 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 "[f]ixed, 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 has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code
may take place "when all the requisites mentioned in Article 1279 are present," as
follows:
(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.
ISSUE 2: Whether or not BPI acted judiciously in setting-of the amount it paid to
Templonuevo against the deposit of Salazar?
RULING:
As businesses afected with public interest, and because of the nature of their
functions, banks are under obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
In this regard, petitioner was clearly remiss in its duty to private respondent
Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite
the obvious lack of indorsement thereon, petitioner permitted the encashment of
these checks three times on three separate occasions. This negates petitioner’s
claim that it merely made a mistake in crediting the value of the checks to
Salazar’s account and instead bolsters the conclusion of the CA that petitioner
recognized Salazar’s claim of ownership of checks and acted deliberately in paying
the same, contrary to ordinary banking policy and practice. It must be emphasized
that the law imposes a duty of diligence on the collecting bank to scrutinize checks
Page 84 of 109
deposited with it, for the purpose of determining their genuineness and regularity.
The collecting bank, being primarily engaged in banking, holds itself out to the
public as the expert on this field, and the law thus holds it to a high standard of
conduct. The taking and collection of a check without the proper indorsement
amount to a conversion of the check by the bank.
___________________________________________________________________________________
Case: Gan Tion vs CA (28 SCRA 235)

DOCTRINE: Compensation possible only when two parties are each other’s
creditor and debtor.
FACTS:
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the
latter filed an ejectment case against the former due to non-payment of rents for
August and September of that year, at P180 a month, or P360 altogether. The
defendant denied the allegation and said that the agreed monthly rental was only
P160, which he had ofered to but was refused by the plaintif.
The plaintif obtained a favorable judgment in the municipal court (of Manila), but
upon appeal the Court of First Instance, on July 2, 1962, reversed the judgment
and dismissed the complaint, and ordered the plaintif to pay the defendant the
sum of P500 as attorney's fees. That judgment became final.
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, holding that although "respondent 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." 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:
Whether or not there has been legal compensation between petitioner Gan Tion
and respondent Ong Wan Sieng?
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
Page 85 of 109
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.
Case: PNB vs Ong Acero (148 SCRA 166)

For compensation to automatically apply by law, it must be proved by competent
evidence that the parties are the creditors and debtors of each other. Property
already in custodia legis cannot be the subject of a set-off.
FACTS:
Isabela Wood Construction & Dvpt Corp (ISABELA) has a savings account with
PNB in the amount of P2 Million. Said account is the subject of two conflicting
claims. One claim is asserted by the Aceros (respondents), and the other is by PNB.
Aceros’ claim to the bank deposit was founded upon the garnishment thereof by
the sherif, efected in execution of the partial judgment (in the amount of P1.5 M)
rendered by the CFI in their favor. Notice of garnishment was served on PNB,
followed by a CFI order (Feb. 15, 1980) directing the latter to hand over the P1.5M
to the sherif for delivery to the ACEROs. A second judgment was rendered
ordering ISABELLA to pay compensatory damages and atty.’s fees all amounting to
almost P600k.
On the other hand, PNB's claim is based on a Credit Agreement between it and
ISABELA in virtue of which: (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 (such as to deliver a property as mortgage, obtain
the consent of Metrobank to secure a second mortgage in favor of PNB); 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.
It was upon this version of the facts, and its theory thereon based on a mutual set-
of, or compensation, between it and ISABELA — in accordance with Articles 1278
et al. of the Civil Code — that PNB intervened in the action between the ACEROS
and ISABELA on or about February 28, 1980 and moved for reconsideration of the
Order of February 15, 1980 (requiring it to turn over to the sherif the sum of
P1,532,000. The CFI denied the motion. PNB again filed an MR, this time of
another Order, and also pleaded for suspension in the meantime of the
enforcement of the Orders of February 15, and May 14, 1980. Its persistence
seemingly paid of.
The RTC set aside the Orders, and set for hearing PNB’s first MR. Subsequently,
the RTC reversed its decision, ruling that there had been a valid assignment by
ISABELA to PNB of the amount deposited. The ACEROS appealed to the IAC which
ruled in their favor. PNB appealed to the SC.
PNB's main thesis is that when it opened a savings account for ISABELA on March
9, 1979 in the amount of P 2M, it (PNB) became indebted to ISABELA in that
amount. So that when ISABELA itself subsequently came to be indebted to PNB on
account of ISABELA's breach of the terms of the Credit Agreement, ISABELA and
PNB became at the same time creditors and debtors of each other, compensation
automatically took place between them, in accordance with Article 1278 of the
Civil Code.
Page 86 of 109
PNB’s 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.
ISSUE:
Whether or not PNB’s contentions are correct, and that compensation

automatically took place between the parties thus preventing the Aceros’
garnishment thereof?
RULING:
NO.
Article 1278 of the Civil Code does indeed provide that "Compensation shall take
place 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 cannot 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, that it has not proven by competent evidence that it is a creditor
of ISABELA. All that the documents presented by PNB 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. It bears stressing
that PNB did not at all lack want for opportunity to produce these documents, if it
does indeed have them.
PNB’s alternative theory, is as untenable as the first. First, there being no

indebtedness to PNB on ISABELA's part, there is in consequence no occasion to
speak of any mutual set-of, 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” 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 inefectual 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 CFI for the
enforcement of the partial judgment in the ACEROS' favor).
One final factor precludes according validity to PNB's arguments. On the

assumption that the P 2M deposit was in truth assigned as some sort of "collateral"
to PNB — although as PNB insists, it was not in the form of a pledge — the
agreement postulated by PNB that it had been authorized to assume ownership of
Page 87 of 109
the fund upon the coming into being of ISABELA s indebtedness is void ab initio, it
being in the nature of a pactum commisoruim proscribed as contrary to public
policy.
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 of-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.
REPUBLIC, in behalf of the RICE AND CORN

ADMINISTRATION v. HON. WALFRIDO DE LOS ANGELES
Ponente: Concepcion, J.
Date: June 25, 1980
DOCTRINE: 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 suficient and no other proof
may be required.
FACTS:
On Oct 29, 1964 spouses Petra and Benjamin Farin obtained a loan from Marcelo
Page 88 of 109
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 sherif advertised and scheduled. Spouses Farin
filed petition for prohibition against the sherif and mortgagee.
Acting upon petition, Hon. De los Angeles issued an order commanding the Sherif
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
plaintif, Petra Farin, is indebted to the aforesaid movant, RCA, as allegedly in the
said motion and assuming that the herein plaintif 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 plaintif.
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 plaintif is indebted to the aforesaid movant, RCA, as
alleged in the said motion and assuming that the herein plaintif 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

Page 89 of 109
proper if such claim is disputed. But, if the claim is undisputed, as in the case at
bar, the statement is suficient 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 suficient 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
that it is entitled to retain the rentals by way of compensation.
Petition of RCA granted.
SOLINAP V del Rosario (123 SCRA 640)

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
Page 90 of 109
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 efect 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 plaintifs' 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-of
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.
SYCIP V CA (134 SCRA 317)

Nature: Estafa Case
Page 91 of 109
Ponente: Relova, J.
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.
FACTS:
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 suficient funds to
cover it.
When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa case
(in the) fiscals ofice ... 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."
The Trial Court convicted Sycip of Estafa which the Court of Appeals Afirmed.
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-of 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 innot 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.
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. Moreover, as correctly
pointed out by the trial court, Lapuz did not consent to the of-setting of his
obligation with petitioner's obligation to pay for the 500 shares.
Page 92 of 109
(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 diferently, 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.
COMPANIA MARITIMA VS CA
(L-50900 April 9, 1985)
FACTS:
Fernando A. Froilan purchased from the Shipping Administration a boat described

as MV/FS-197 for the sum of P200,000.00, with a down payment of P50,000.00. To
secure payment of the unpaid balance of the purchase price, a mortgage was
constituted on the vessel in favor of the Shipping Administration.
The contract was duly approved by the President of the Philippines. Froilan
appeared to have defaulted in spite of demands, not only in the payment of the first
installment on the unpaid balance of the purchase price and the interest thereon
when they fell due, but also failed in his express undertaking to pay the premiums
on the insurance coverage of the vessel obliging the Shipping Administration to
advance such payment to the insurance company. Subsequently, FROILAN
appeared to have still incurred a series of defaults notwithstanding
reconsiderations granted.
General Manager (of the Shipping Administration) directed its oficers to take
immediate possession of the vessel and to suspend the unloading of all cargoes on
the same until the owners thereof made the corresponding arrangement with the
Shipping Administration. Pursuant to these instructions, the boat was, not only
actually repossessed, but the title thereto was registered again in the name of the
Shipping Administration, thereby re-transferring the ownership thereof to the
government.
Pan Oriental Shipping Co., hereinafter referred to as Pan Oriental, ofered to

charter said vessel FS-197 for a monthly rent of P3,000.00. Because the
government was then spending for the guarding of the boat and subsistence of the
crew members since repossession, the Slopping Administration, accepted Pan
Oriental's ofer "in principle" subject to the condition that the latter shag cause the
repair of the vessel advancing the cost of labor and drydocking thereof, and the
Shipping Administration to furnish the necessary spare parts. In accordance with
this charter contract, the vessel was delivered to the possession of Pan Oriental.
In the meantime, Froilan tried to explain his failure to comply with the obligations
he assumed and asked that he be given another extension to file the necessary
bond. However, as he failed to fulfill even these ofers made by him in these two
communications, the Shipping Administration denied his petition for
reconsideration (of the rescission of the contract).
The Cabinet revoked the cancellation of Froilan's contract of sale and restored to
him all his rights thereunder, on condition that he would give not less than
Page 93 of 109
P1,000.00 to settle partially as overdue accounts and that reimbursement of the

expenses incurred for the repair and drydocking of the vessel performed by Pan
Oriental was to be made in accordance with future adjustment between him and
the Shipping Administration. Later, pursuant to this reservation, Froilan's request
to the Executive Secretary that the Administration advance the payment of the
expenses incurred by Pan Oriental in the drydocking and repair of the vessel, was
granted on condition that Froilan assume to pay the same and file a bond to cover
said undertaking.
The formal bareboat charter with option to purchase, in favor of the Pan Oriental
was returned to the General Manager of the Shipping Administration without
action (not disapproval), only because of the Cabinet resolution restoring Froilan
to his rights under the conditions set forth therein, namely, the payment of
P10,000.00 to settle partially his overdue accounts and the filing of a bond to
guarantee the reimbursement of the expenses incurred by the Pan Oriental in the
drydocking and repair of the vessel But Froilan again failed to comply with these
conditions. And so the Cabinet, considering Froilan's consistent failure to comply
with his obligations, including those imposed in the resolution, resolved to
reconsider said previous resolution restoring him to his previous rights.
The Cabinet resolved once more to restore Froilan to his rights under the original
contract of sale, on condition that he shall pay the sum of P10,000.00 upon delivery
of the vessel to him, said amount to be credited to his outstanding accounts; that
he shall continue paying the remaining installments due, and that he shall assume
the expenses incurred for the repair and drydocking of the vessel. Pan Oriental
protested to this restoration of Froilan's rights under the contract of sale, for the
reason that when the vessel was delivered to it, the Shipping Administration had
authority to dispose of the said property, Froilan having already relinquished
whatever rights he may have thereon. Froilan paid the required cash of
P10,000.00, and as Pan Oriental refused to surrender possession of the vessel, he
filed an action for replevin to recover possession thereof and to have him declared
the rightful owner of said property.
The Republic of the Philippines, having been allowed to intervene in the

proceeding, also prayed for the possession of the vessel in order that the chattel
mortgage constituted thereon may be foreclosed. Defendant Pari Oriental resisted
said intervention, claiming to have a better right to the possession of the vessel by
reason of a valid and subsisting contract in its favor, and of its right of retention, in
view of the expenses it had incurred for the repair of the said vessel. As
counterclaim, defendant demanded of the intervenor to comply with the latter's
obligation to deliver the vessel pursuant to the provisions of the charter contract.
Subsequently, Compañia Maritima, as purchaser of the vessel from Froilan, was

allowed to intervene in the proceedings (in the lower court), said intervenor taking
common cause with the plaintif Froilan.
The lower court rendered a decision upholding Froilan's (and Compañia

Maritima's) right to the ownership and possession of the FS-197. However, in the
circumstances of this case, therefore, the resulting situation is that neither Froilan
nor the Pan Oriental holds a valid contract over the vessel. However, since the
intervenor Shipping Administration, representing the government practically
ratified its proposed contract with Froilan by receiving the full consideration of the
sale to the latter, for which reason the complaint in intervention was dismissed as
to Froilan, and since Pan Oriental has no capacity to question this actuation of the
Shipping Administration because it had no valid contract in its favor, the of the
lower court adjudicating the vessel to Froilan and its successor Maritima, must be
suspended. Nevertheless, under the already adverted to, Pan Oriental cannot be
considered as in bad faith until after the institution of the case.
ISSUE:
Page 94 of 109
Whether or not the obligation can take place where one of the debts is not
liquidated as when there is a running interest still to be paid thereon?
RULING:
NO. The legal interest payable from February 3, 1951 on the sum of P40,797.54,
representing useful expenses incurred by PAN-ORIENTAL, is also still unliquidated
8 since interest does not stop accruing "until the expenses are fully paid." 9 Thus,
we find without basis REPUBLIC's allegation that PAN- ORIENTAL's claim in the
amount of P40,797.54 was extinguished by compensation since the rentals payable
by PAN-ORIENTAL amount to P59,500.00 while the expenses reach only
P40,797.54. Deducting the latter amount from the former, REPUBLIC claims that
P18,702.46 would still be owing by PAN-ORIENTAL to REPUBLIC. That argument
loses sight of the fact that to the sum of P40,797.54 will still have to be added the
legal rate of interest "from February 3, 1951 until fully paid."
The amount of P6,937.72 a month ordered to be paid by REPUBLIC and

MARITIMA to PAN-ORIENTAL until the latter is paid its useful and necessary
expenses is likewise in order. That amount represents the damages for the
wrongful issuance of the Writ of Replevin and was computed as follows: P4,132.77
for loss of income by PAN ORIENTAL plus P2,804.95 as monthly depreciation of
the vessel in lieu of the charter hire. It should further be recalled that this Court,
in acting on PAN- ORIENTAL's application for damages in its Resolution of
December 16, 1966, supra, did not deny the same but referred it instead to the
Trial Court "there to be heard and decided" since evidence would have to be
presented. Moreover, this Court found that PAN-ORIENTAL was "deprived of the
possession of the vessel over which (it) had a lien for these expenses" and that
FROILAN and REPUBLIC "may be held responsible for the deprivation of
defendant (PANORIENTAL) of its right to retention of the property until fully
reimbursed on the necessary expenditures made on the vessel. "
The return of Pl5,000.00 ordered by the Trial Court and afirmed by the Appellate
Court was but just and proper. As this Court found, that sum was tendered to
REPUBLIC "which together with its (PAN-ORIENTAL's) alleged expenses already
made on the vessel, cover 25% of the cost of the vessel, as provided in the option
granted in the bareboat contract. This amount was accepted by the Administration
as deposit" Since the purchase did not eventually materialize for reasons
attributable to REPUBLIC, it is but just that the deposit be returned. It is futile to
allege that PAN-ORIENTAL did not plead for the return of that amount since its
prayer included other reliefs as may be just under the premises. Courts may issue
such orders of restitution as justice and equity may warrant.
We find no merit in MARITIMA's contention that the alleged damages on account

of wrongful replevin was barred by res judicata, and that the application for
damages before the lower Court was but a mere adoption of a diferent method of
presenting claims already litigated. For the records show that an application for
damages for wrongful replevin was filed both before this Court and thereafter
before the Trial Court after this Tribunal specifically remanded the issue of those
damages to the Trial Court there to be heard and decided pursuant to Rule 60,
Section 10 in relation to Rule 57, Section 20.
THE INTERNATIONAL CORPORATE BANK, INC. VS IAC

(G.R. No. L-69560 June 30, 1988)
FACTS:
Private respondent secured from petitioner's predecessors-in-interest, the then

Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a
Page 95 of 109
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 made a money market placement with ATRIUM in the amount
of P1,046,253.77 at 17% interest per annum for a period of 32 days or until
October 13, 1980, its maturity date. Meanwhile, private respondent 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 being the only bidder, said properties were sold in its favor
for only P20,000,000.00. Petitioner claims that after deducting this amount, private
respondent is still indebted in the amount of P6.81 million.
Private respondent filed a complaint with the trial court against petitioner for
annulment of the sherif'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. She alleges in her complaint, which was subsequently
amended, that the mortgage is not yet due and demandable and accordingly the
foreclosure was illegal; that per her loan agreement with petitioner she is entitled
to the release to her of the balance of the loan in the amount of P30,000,000.00;
that petitioner refused to pay her the proceeds of her money market placement
notwithstanding the fact that it has long become due and payable; and that she
sufered damages as a consequence of petitioner's illegal acts.
In its answer, petitioner denies private respondent's allegations and asserts among
others, that it has the right to apply or set of 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.
The trial court subsequently dismissed private respondent's cause of action

concerning the annulment of the
foreclosure sale, for lack of jurisdiction, but left the other causes of action to be
resolved after trial. Private respondent then filed separate complaints in Manila
and in Bulacan for annulment of the foreclosure sale of the properties in Manila
and in Bulacan, respectively.
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,
at the time when she had already given her direct testimony on the merits of the
case and was being cross-examined by counsel. Petitioner filed an opposition
thereto, claiming that the proceeds of the money market investment had already
been applied to partly satisfy its deficiency claim, and that to grant the motion
would be to render judgment in her favor without trial and make the proceedings
moot and academic. However, at the hearing, counsel for petitioner and private
respondent jointly manifested that they were submitting for resolution said motion
as well as the opposition thereto on the basis of the pleadings and of the evidence
which private respondent had already presented.
ISSUE:
Whether or not legal compensation can take place under Article 1290 of the Civil
Code?
RULING:
Page 96 of 109
NO. Petitioner contends that 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 of private respondent's money market claim of
P1,062,063.83. The argument is without merit. As correctly pointed out by the
respondent Court of Appeals. 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 efect 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-of
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.
It must be noted that Civil Case No. 83-19717 is still pending consideration at the
RTC Manila, for annulment of Sherifs sale on extra-judicial foreclosure of private
respondent's property from which the alleged deficiency arose. Therefore, the
validity of the extrajudicial foreclosure sale and petitioner's claim for deficiency
are still in question, so much so that it is evident, that the requirement of Article
1279 that the debts must be liquidated and demandable has not yet been met. For
this reason, legal compensation cannot take place under Article 1290 of the Civil
Code.
_____________________________________________________________________________________
MINDANAO PORTLAND CEMENT VS. CA

(G.R. No. L-62169, February 28, 1983)
DOCTRINE: For compensation to take place, the two parties must be debtors and
creditors of each other.
FACTS:
Respondent Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld

Steel Corporation (Pacweld) as the latter's attorney, filed a pleading addressed to
the defendant & Third-Party Plaintif Mindanao Portland Cement Corporation
(MPCC), for the collection of attorney’s fees from a previous case against MPCC.
MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds therefor,

that said amount is set-of 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 Court of First Instance of Manila in another civil case,
entitled Pacweld Steel Corporation, et al. writ of execution to this efect having
been issued by said court
The court denied the petition by MPCC. An appeal was filed where MPCC claims
that the court erred in not holding that the two obligations are extinguished
reciprocally by operation of law. Fermin denied that the storage of zippers in
Mariano’s warehouse was intended to guarantee the payment of his loan. These
were merely deposits because he had nowhere to place the zippers.When Fermin
Page 97 of 109
tried to get the rest of the zippers, Mariano refused to release it due to the non-
payment of the loan. Mariano sued Fermin for the principal amount of 160000
The trial court: in favor of Fermin that the debt was reduced to P120000. The CA
reversed the same in favor of Mariano that debt was P160000 (original)
ISSUE:
WON the two obligations are extinguished reciprocally by operation of law? NO.
RULING:
The Supreme Court ruled in favor of the MPCC. The appealed order granting Atty.
Laquihon’s motion was a void alteration of judgment. Pursuant to the provisions of
Art. 1278, 1279 and 1290 of the Civil Code and all the requisites in Art. 1279 “even
creditors and debtors are unaware” for automatic compensation are present.
MPCC and Pacweld were creditors and debtors of each other, their debts to each
other consisting in 2 separate cases, ordering the payment to each other of the
sum of P10,000 by way of attorney’s fees. The 2 obligations ofset each other.
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 ofset each
other, compensation having taken efect 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.
_____________________________________________________________________________________
FUA V YAP
(GR No. 48797 July 30, 1943)
FACTS:
Plaintif-appellee Fua was the judgment creditor of the appellants, the Yaps. They
were sentenced to pay Fua P1, 539.04 with legal interest and costs. By virtue of a
writ of execution, a parcel of land belonging to the appellants was levied and was
scheduled to be sold at a public auction. The appellants then executed a mortgage
in favor of appellee where it was stipulated that the appellants’ obligation was
reduced to P1, 200 payable on four installments, to secure payment of the P1, 200,
a camarin belonging to the appellants was mortgaged to the appellee, that in case
appellant default in payment, they would pay 10% of the unpaid balance as
attorney’s fees, plus the costs of the action to be brought by appellee by reason of
such default, and the amount of P338 representing the discount conceded to the
appellants.
But pursuant to an alias writ of execution, the land was eventually sold at a public
auction with appellee as highest bidder. Appellants refused to vacate said parcel so
an action was instituted by Fua. Appellants relied on the legal defenses, among
others, that their obligation under the judgment in the civil case was novated by
the mortgage executed by them in favor of the appellee.
Page 98 of 109
The lower court ruled in favor of appellee and declared him to be the owner of the
land ordering appellant to deliver the same to appellee.
ISSUE:
Whether the liability under the judgment in the civil case had been extinguished by
the settlement evidenced by the mortgage executed by them in favor of the
appellee?
RULING:
YES. Appellants liability under the judgment in the civil case had been
extinguished by the statement evidenced by the mortga ge executed by them in
favor of appellee. Although said mortgage did not expressly cancel the old
obligation, this was impliedly novated by reason of the incompatibility resulting
from the fact that, whereas the judgment was for P1, 538.04 payable at one time,
did not provid e for attorney’s fees, and was not secured, the new obligation is for
P1, 200 payable in installments, stipulates for attorney’s fee, and is secured by a
mortgage.
The later agreement did not merely extend the time to pay the judgment, because
it was therein recited that appellant promised to pay P1, 200 to appellee as a
settlement of said judgment. Said judgment cannot be said to have been settled,
unless it was extinguished.
_____________________________________________________________________________________
MILLAR v. CA
(GR No. L-29981 April 30, 1971)
FACTS:
Gabriel did not pay the first installment due on a chattel mortgage on a jeep he had
executed with Millar.
 The CFI of Manila issued a writ of execution ordering Gabriel to return a
Willy’s Ford jeep to Millar.
 Gabriel pleaded with Millar to release the jeep under an arrangement
whereby he was to mortgage the jeep in order to pay the judgment debt in
favor of the latter. Gabriel executed a chattel mortgage on the jeep.
o Gabriel was to pay a total of PHP 1700 in two installments at PHP 850
each.
Gabriel failed to pay the first installment. Millar then obtained a writ of execution
but even after the lapse of the entire chattel mortgage period, it was returned
unsatisfied.
 After five unsatisfied writs of execution, the sherif levied on certain
personal properties belonging to Gabriel and scheduled them for execution
sale.
 Respondent Gabriel: Filed an urgent motion for suspension of execution sale
on the ground of payment of the judgment debt.
The lower court ordered the suspension of the execution sale and ruled that
novation had taken place and that the parties had executed the chattel mortgage
only “to secure or get better security for the judgment.”
Page 99 of 109
 CA held that there the chattel mortgage agreement impliedly novated the
CFI judgment.
 CA held that the following circumstances demonstrated the incompatibility
between the judgment debt and the deed of chattel mortgage:
Judgment Debt Chattel Mortgage
Orders Gabriel to pay PHP Only PHP 1700

1746.98 with interest at 12% per
annum from the filing of
complaint plus PHP 400 in
attorney’s fees and the costs of
suit
No specific mode of payment Payment of the sum of PHP 1700

in two equal installments
No mention of damages Obligates Gabriel to pay

liquidated damages in the amount
of PHP 300 in case of default
Unsecured Jeep may be foreclosed

extrajudicially in case of default
ISSUE:
WON the deed of chattel mortgage novated the judgment of the CFI? NO
RULING:
No novation shall be implied, unless there is clear and convincing proof of
complete incompatibility between the two obligations.
NO. There was no clear and convincing proof that there was an implied novation in
the execution of the Chattel Mortgage Agreement.
 On the first circumstance: Only modifications that alter the essence of the
old obligation result in implied novation.
o The mere reduction of the amount due does not constitute a suficient
indicium of incompatibility especially in the light of Millar and
Gabriel’s admission that the reduced amount was due to partial
payments made by the latter before the execution of the chattel
mortgage agreement.
o The deed of chattel mortgage was a mere specification of how much
exactly Gabriel owed to Millar in order to avoid confusion.
 On the third circumstance: Discrepancy between the PHP 400 and PHP 300
fixed as attorney’s fees and damages in the judgment and the deed
respectively explained:
o Partial payments made by Gabriel 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 fees fixed in the judgment,
thereby reducing both amounts. (I don’t understand the reasoning
here)
o There was no clear and convincing evidence that the PHP 300 in
attorney’s fees stipulated in the deed of chattel mortgage intended the
same as an obligation for payment of liquidated damages in case of
default.
Page 100 of 109

 On the second circumstance: The chattel mortgage simply gave Gabriel an

express and specific method of payment and more time to enable him to
satisfy the judgment indebtedness. It did not constitute any substantial
modification of the judgment.
On the fourth circumstance: The debt security in the form of the jeep was
stipulated to secure the satisfaction of the liability. It efectuated no substantial
alteration in Gabriel’s liability.
_____________________________________________________________________________________
NATIONAL POWER CORPORATION VS DAYRIT

(GR NO. L-62845-46 November 25, 1983)
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 oficers 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 on October 14, 1981, and they asked the Court to approve
it. 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 in the aforesaid civil case which had been re-
numbered R-82- 10787.
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.
ISSUE:
Whether or not novation can be presumed?
RULING:
NO. Novation is never presumed but must be explicitly stated; No novation in the
absence of explicit novation or incompatibility on every point between the old and
the new agreement of the parties.
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 101 of 109

INTEGRATED CONSTRUCTION SERVICES, INC., ET AL. VS. RELOVA

(G.R. No. L-41117 DECEMBER 29, 1986)
FACTS:
Petitioners sued the respondent Metropolitan Waterworks and Sewerage System

(MWSS), formerly NAWASA, in the Court of First Instance of Manila for breach of
contract. Meanwhile, parties submitted the case to Arbitration.
The Arbitration Board rendered its decision:

o MWSS is ordered to pay petitioners about P15.5M less P2.3M to be set aside
as trust fund to pay creditors of joint venture in connection with the project,
or a net award of P13,188,950.20 with interest thereon from filing of
complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS some discounts in

consideration of an early payment of the award.
Thus, MWSS adopted Board Resolution embodying the terms and conditions of
their agreement (discounts). MWSS sent letter to petitioners, quoting Board
Resolution w/c grants MWSS some discounts from amount payable (e.g. reductions
in interests, net principal award), provided that MWSS would pay judgment within
15 d therefrom or up to October 17, 1972.
Petitioners signed their "Conforme" to the letter, and extended period to pay the
judgment less the discounts.
MWSS, however, paid only on December 22, 1972, the amount stated in the
decision but less the reductions provided in letter.
Three years after, after the last balance of trust fund had been released to satisfy
creditors' claims, the petitioners filed Motion for Execution in said civil case
against MWSS for the balance due under the CFI award. Respondent MWSS
opposed execution, setting defenses of payment and estoppel.
CFI/Judge Relova: denied Motion for Execution on ground that parties had
novated the award by their subsequent agreement.
Petitioners elevated case with SC thru petition for mandamus as a special civil
action and/or, in the alternative, an appeal from orders of the CFI.
ISSUE:
WON the subsequent letter-agreement between Petitioners and MWSS novated the
judgment award?
RULING:
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, the
suspensive and conditional nature of the said agreement (making the novation
conditional) is expressly acknowledged and stipulated in the 14th whereas clause
of MWSS' Resolution No. 132-72. MWSS' failure to pay within the stipulated period
removed the very cause and reason for the agreement, rendering some inefective.
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
Page 102 of 109

Instruction No. 2, was not an unforeseen supervening factor because when MWSS
forwarded the letter-agreement to the petitioners on October 2, 1972, the MWSS
was already aware of LOI No. 2.
MWSS' contention that the stipulated period was intended to pressure MWSS
oficials 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 oficial, stating that necessary steps should
be taken to efect payment within 15 days, for otherwise, MWSS would forego the
advantages of the discount."
____________________________________________________________________________________
COCHINGYAN, JR. V. R&B SURETY AND INSURANCE CO., INC
(GR No. L-47369 June 30, 1987)
FACTS:
In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) 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).
PAGRICO submitted Surety Bond No. 4765, issued by respondent R&B Surety and
Insurance Co., (R&B Surety) in the amount of P400,000.00 in favor of the PNB. In
consideration of R & B Surety's issuance of the Surety Bond, two identical
indemnity agreements were entered into with R & B Surety executed by the
Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, and (b)
another agreement dated 24 December 1963 was executed by PAGRICO.
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.
The lower court rendered a decision in favor of R & B Surety, ordering the
Cochingyan and Villanueva to pay the plaintif, jointly and severally, the total
amount of their liability on Surety Bond No. 4765, at the interest rate of 6% per
annum.
ISSUE:
Whether or not 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?
RULING:
NO.
Page 103 of 109

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. 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 efect 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, we 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.”
In the present case, we note 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 efect 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.
Notes:
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.
Page 104 of 109
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.
_____________________________________________________________________________________
BALILA VS IAC
(GR NO. L-68477 October 29, 1987)
FACTS:
Petitioners were defendants and private respondents were plaintifs in a Civil Case.
They entered into an amicable settlement wherein petitioners admitted “having
sold under a pacto de retro sale 3 parcels of land (Lot 965, Lot 16, Lot 52) in the
amount of P84,000” and that they “hereby promise to pay the said amount within
the period of 4 months but not later than May 15, 1981.”
December 30, 1981 or more than 7 months after the last day for making payments,
petitioners redeemed from private respondent Guadalupe Lot No. 52 by paying the
amount of P20,000.
August 4, 1982 – Guadalupe filed a motion for a hearing on the consolidation of the
title over the remaining 2 parcels of land namely Lot 965 and Loot 16 alleging that
the earlier court decision (approving the amicable settlement) remained
unenforced for non-payment of the total obligation. Petitioners opposed, alleging
that they had made partial payments to Guadalupe’s attorney-in-fact and son,
Waldo, as well as to the Sherif.
TC issued an order afirming consolidation.
On June 8, 1983, while the TC order had not yet been enforced, petitioners paid
Guadalupe by tendering the amount of P28,000 to her son Waldo, thus leaving an
unpaid amount of P35,200. A certification dated June 8, 1983 and signed by Waldo
showed that petitioners were given a period of 45 days from date or up to July 23,
1983 within which to pay the balance. Such certification supported petitioners’ MR
of the order of consolidation. MR was however denied.
ISSUE:
Was the Order approving the amicable settlement novated upon subsequent
mutual agreements of the parties? YES
RULING:
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.
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
Page 105 of 109
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.
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.
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.
DISPOSITIVE
Petition is given due course. Private respondents are hereby ordered to reconvey
and deliver lot No. 965 and Lot No. 16 as covered by TCT Nos. 146360 and 146361
respectively in favor of petitioners. Should private respondents fail to do so, the
Clerk of Court of the Regional Trial Court concerned is ordered to execute the
necessary deed of reconveyance, conformably with the provisions of the Rules of
Court. The local Register of Property is ordered to register said deed of
reconveyance. Private respondents are hereby authorized to withdraw the balance
in the amount of P10,000 consigned by petitioners on January 9, 1985 with the trial
court as per OR No. 9764172 (Annex "O") a full payment of petitioners' obligation.
_____________________________________________________________________________________
PEOPLE'S BANK AND TRUST COMPANY vs. SYVEL'S INCORPORATED,

ANTONIO and ANGEL SYYAP
(GR No. L-29280 August 11, 1988)
FACTS:
Chattel mortgage was executed in connection w/ credit commercial line (loan) of

P900k granted to Syvel’s Inc. When credit expired, Antonio and Angel Syyap
executed undertaking in favor of People’s Bank whereby they both agreed to
guarantee, and without benefit of excussion the full and prompt payment of any
indebtedness incurred on account of said credit line.
When Syvel’s failed to make payment, People’s Bank started to foreclose

extrajudicially the chattel mortgage, which was not pushed through in an attempt
to settle. But there was still no payment.
People’s Bank filed action for foreclosure of chattel mortgage was executed on its
stocks of goods, personal properties, and other materials owned by it and located
at it stores or warehouses.
On petition, plaintif People’s Bank claimed that defendants are disposing their
properties to defraud their creditors e.g. People’s Bank. A preliminary writ of
attachment was issued.
Hence, defendants Syyap set up counterclaim for damages.

Page 106 of 109
During pendency of case, Antonio Syyap proposed to settle the case, hence, a
conference was held wherein Syyap requested for dismissal of case and
instead, offered to execute a REM on his real property in Cavite.
People’s Bank consented.
In same case, defendants Syyap filed Motion to Dismiss case, but defendants
refused to agree if it meant the dismissal of their counterclaim. Instead, they filed
their own Motion to Dismiss on the ground that by execution of real estate
mortgage, obligation secured by chattel mortgage was novated, and therefore,
People Bank’s cause of action to (ELAM: which was to foreclose the chattel
mortgage) was extinguished.
ISSUE:
Whether or not novation occurred when the real estate mortgage was executed?
RULING:
NO
Court ruled (with People’s Bank):

 Novation takes place when the object or principal condition of an
obligation is changed or altered. Novation is never presumed; it must
be explicitly stated or there must be manifest incompatibility
between old and new obligations in every aspect.
In this case:
(1) Contract on its face does not show existence of explicit novation nor
incompatibility between old and new agreements. 2 nd contract indicates that
real estate mortgage was executed as new additional security only.
(2) In the real estate mortgage, appellants agreed that chattel mortgage
shall remain in full force and shall not be impaired by the real estate
mortgage.
Contracts provides --- “That the chattel mortgage executed by Syvel's Inc. (Doc.
No. 439, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila); real
estate mortgage executed by Angel V. Syyap and Rita V. Syyap (Doc. No. 441, Page
No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila) shall
remain in full force and shall not be impaired by this mortgage (par. 5, Exhibit"A,").
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
(Bank of P.I. v. Herrige, 47 Phil. 57).
WON respondent judge gravely erred in the issuance of the writ of

preliminary attachment?
NO.
Court ruled (with People’s Bank):
 Act of debtor in taking his stock of goods from the rear of his store at night,
is suficient to support an attachment upon ground of fraudulent
concealment of property for the purpose of delaying and defrauding
creditors.
Appellant failed to adduce evidence of bad faith or malice in the procurement of
the writ of preliminary attachmen
__________________________________________________________________
Page 107 of 109

ESTRELLA BENIPAYO RODRIGUEZ et al vs. HON. JUAN O. REYES

(G.R. No. L-22958 January 30, 1971)
FACTS:
Petitioners filed with the respondent court a complaint against their brother,
respondent Alberto D. Benipayo, for the partition of the properties held by them in
common as heirs of the late spouses, Donato D. Benipayo and Pura Disonglo (Civil
Case No. 52188). After respondent Benipayo had answered the complaint, the
court set the case for a pre-trial conference, and in the course thereof the parties
agreed to have the properties in litigation sold at public auction to the highest
bidder. Pursuant to an order issued by the respondent judge, the parties submitted
to the court a list of the properties to be sold, among which were some lots in
Albay, and the following parcels of land, with their improvements, that were at the
time mortgaged to the Development Bank of the Philippines
The respondent judge first directed the sale at public auction of properties located
in Albay. After the consummation of the sale and the approval thereof, His Honor
ordered the sale of the two Manila lots and improvements described above.
Pursuant to the order, the sherif of the City of Manila scheduled the auction sale
on 30 March 1964 at 10:00 o'clock A.M. Notice thereof was duly posted and
published
On the date set for the sale, petitioners moved for its postponement on the ground
that they were not in a position to actively participate therein, but upon objection
of respondent Benipayo's counsel, His honor denied the motion and the sale was
held as scheduled.
Herein respondent, Jose N. Dualan, successfully bid at the auction sale the sum of
P235,000.0 for Lot No. 6-B-2, Block No. 2124, covered by Transfer Certificate of
Title No. 48979, issued by the Ofice of the Register of Deeds of Manila; while
respondent Vicente Sayson's bid of P173,000.00 was the highest for Lot No. 6-A of
Block No. 2124, covered by Transfer Certificate of Title No. 48978 issued by the
same ofice. After the sherif had filed his return with the respondent judge,
petitioners moved for the approval of the sale, deducting from the total amount of
P408,000.00 the sherif's percentage, and the expenses incurred by petitioners for
the publication of the notice of sale.
The petitioners seek to apply the doctrine of caveat emptor to the successful
bidder Dualan, and contend that under said rule Dualan bought at his own peril
and, having purchased the property with knowledge of the encumbrance he should
assume payment of the indebtedness secured thereby.
ISSUE:
Whether or not the doctrine of caveat emptor can be applied to the successful
bidder Dualan?
RULING:
NO. The maxim "caveat emptor" applies only to execution sales, and this was not
one such.5 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.
The reason is plain:

the mortgage is merely an encumbrance on the property, entitling the mortgagee
to have the property foreclosed, i.e., sold, in case the principal obligor does not pay
Page 108 of 109

the mortgage debt, and apply the proceeds of the sale to the satisfaction of his
credit.
Mortgage is merely an accessory undertaking for the convenience and security of

the mortgage creditor, and exists independently of the obligation to pay the debt
secured by it. The mortgagee, if he is so minded, can waive the mortgage security
and proceed to collect the principal debt by personal action against the original
mortgagor.
By buying the property covered by TCT No. 48979 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. 6 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.
Our Civil Code, Article 1293, explicitly provides:

ART. 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even with out 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.
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.
Upon the other hand, the orders complained of, in so far as they require the
vendors-heirs to clear the title to the land sold to respondent Dualan, when the
latter bid for it with full knowledge that the same was subject to a valid and
subsisting mortgage, is plainly erroneous. In submitting his bid, Dualan is
presumed to know, and in fact did know, that the property was subject to a
mortgage lien; that such encumbrance would make him, as purchaser, eventually
liable to discharge mortgage by paying or settling with the mortgage creditor,
should the original mortgagors fail to satisfy the debt. Normally, therefore, he
would have taken this eventuality into account in making his bid, and ofer a lower
amount for the lot than if it were not encumbered. If he intended his bid to be
understood as conditioned upon the property being conveyed to him free from
encumbrance, it was his duty to have so stated in his bid, or at least before
depositing the purchase price. He did not do so, and the bid must be understood
and taken to conform to the normal practice of the buyer's taking the mortgaged
property subject to the mortgage. Consequently, he may not demand that the
vendors should discharge the encumbrance aforesaid.
Thus, the questioned order of the trial court ordering the vendors-heirs to clear the
property of all its encumbrances is not in accordance with law.
_____________________________________________________________________________________
Page 109 of 109

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Civil obligations and natural obligations in Christmas bonuses

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CIVIL LAW REVIEW 2017-2018`

OBLIGATIONS -ARTS. 1156-1304

Nature: Complaint for sum of money

NOTE: The case is in Spanish.

Nature: Complaint for 20% Christmas bonus

ISSUE: W/N a Christmas bonus is a demandable obligation.

It is thus readily seen that an element of natural obligation before it can be

Nature: Complaint for payment of loan

Date: May 11, 1989

CFI: reversed; dismissed the complaint

ISSUE: W/N the right to prescription may be renounced or waived

Article 1112 of Civil Code provides:

CRUZ V. TUASON AND CO.

Nature: complaint for recovery of improvements and

Faustino Cruz filed a complaint for recovery of improvements and conveyance of

(2) that in 1952, defendants availed of plaintif's services as an intermediary

Defendants filed a MD on the following grounds:

There is already partial execution of the agreement: Moreover, appellant's

We cannot, however, escape taking judicial notice, in relation to the

viewed from what would be the ultimate conclusion of appellant's case, We

ISSUE #2 (TOPICAL): W/N plaintif can claim based on a quasi-contract (unjust

Art. 2142 states,

Predicated on the principle that no one should be allowed to unjustly enrich

GUTIERREZ HERMANOS V. ORENSE

Nature: Complaint to compel defendant to execute an

On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards

CFI: ordered the defendant to make immediate delivery of the property in

Nature: Action for partition with accounting

redemption, herein defendant (child of 1 st M) repurchased, by himself alone, and

CA: reversed TC;

Petitioner (defendant) contends,

ISSUE: May petitioner, as a co-owner, acquire exclusive ownership over the

If not, whether petitioner acts as a TRUSTEE or a NEGOTIORUM GESTOR.

The right of repurchase may be exercised by a co-owner with respect to his

Necessary expenses may be incurred by one co-owner, subject to his right to

The result is that the property remains to be in a condition of co-ownership. While

Registration of property is not a means of acquiring ownership. It operates as a

The petitioner must then be said to be a trustee of the property on behalf

RE: negotiorum gestio

We hold in the negative. Prescription, as a mode of terminating a relation of co-

Acting on said instruction, FNSB instructed private respondent Manufacturers

CA: Art 2154 is applicable; reversed CFI

ISSUE: W/N petitioner has an obligation to return the $10,000.

For this article to apply the following requisites must concur:

Petitioner: the payment by respondent bank of the second $10,000.00 remittance

PUYAT AND SONS V. MANILA

Nature: action for refund

"4. That plaintif, being a manufacturer of various kinds of furniture, is exempt

CITY OF MANILA (defendants): the taxes in question were voluntarily paid by

Plaintif-Appellee is entitled to the refund.

RE: Requirement of protest

In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question

Nature: Complaint for damages

Petitioner Joseph Saludaga was a sophomore law student of respondent Far

Petitioner thereafter filed a complaint for damages against respondents on the

TC: held FEU and GALAXY liable

CA: reversed; dismissed the complaint; shooting was a fortuitous event

YES. FEU is liable (culpa contractual).

Re: Force majeure

SAGRADA ORDEN VS NACOCO

Nature: Action to recover the possession of a parcel of land and

On January 4, 1942, during the Japanese occupation, a Japanese corporation by the