Obligations

and Contracts
SUBMMITTED TO:

ATTY. MARIA LULU G. REYES

SUBMITTED BY:

YEAR I-C , (AY 2016-2017)

AP-APID, CORRIUR

BAUTISTA, MICHAEL VINCENT

CASTRO, LYNDON

LIZARDO, RONALD ALLEN

MANGINGA, AVANCE

ORTEZA, WILBUR

PAGAOA, HARRY DAVE

BANG-NGIT, JESTIN BELLE

BAQUIRAN, TRISTAN MYRELLE

LEONAR, JING-JING

PEREZ, CRICHELLE

TAMAYO, JOAN

[CASE COMPENDIUM]
 Table of Contents
Subjective Elements of Obligation.............................................................................................................20
Ocampo III vs. People of the Philippines..............................................................................................20
Law as Source of Obligation......................................................................................................................21
Leung Ben vs. P. J. O'Brien...................................................................................................................21
Pelayo, vs. Lauron.................................................................................................................................22
Nikko Hotel Manila Garden and Ruby Lim vs. Roberto Reyes.............................................................23
St. Mary‘s Academy vs. William Carpitanos, et.al................................................................................24
Contracts as Source of Obligation.............................................................................................................25
Spouses Guanio vs. Makati Shangri-La Hotel And Resort, Inc.............................................................25
TSPIC Corporation vs. TSPIC Employees Union.................................................................................26
Regino vs. Pangasinan Colleges of Science and Technology................................................................27
PSBA v. CA..........................................................................................................................................28
Ayala Corporation vs. Rosa Diana Realty and Development Corporation............................................29
Bricktown Development Corp. vs. Amor Tierra Development Corporation..........................................30
Quasi-Contracts as Source of Obligation...................................................................................................30
Locsin II v. Mekeni...............................................................................................................................31
Flores v. Sps Lindo................................................................................................................................32
Shinryo Company v. RRN Inc...............................................................................................................33
Titan-Ikeda vs. Primetown....................................................................................................................34
PADCOM v. Ortigas Center Association...............................................................................................35
Delicts as Source of Obligation..................................................................................................................37
People of the Philippines vs. Nurfrasir Hashim.....................................................................................37
Abellana vs. People...............................................................................................................................38
People vs. Malicsi.................................................................................................................................39
People of the Philippines vs. Rosauro Sia.............................................................................................40
People of the Philippines vs. Carlos Doctolero, Sr................................................................................41
People v. Abulencia...............................................................................................................................42
Bermudez v. Melecio-Herrera...............................................................................................................43
People v. Relova....................................................................................................................................44
Manantan v. CA....................................................................................................................................45
People v. Bayotas..................................................................................................................................46
Quasi Delict as Source of Obligation.........................................................................................................47
Barredo v. Garcia..................................................................................................................................47
Del Carmen, Jr. vs. Geronimo Bacoy....................................................................................................48
Philippine Hawk Corporation v. Lee.....................................................................................................50
Dy Teban vs. Liberty Forest..................................................................................................................51
Safeguard Security vs. Tangco..............................................................................................................52
Villanueva vs. Domingo........................................................................................................................53
 Calalas vs. Court Of Appeals................................................................................................................54
Picart vs. Smith.....................................................................................................................................55
Specific Real Obligations...........................................................................................................................57
Durban Apartments vs. Pioneer Insurance............................................................................................57
Parties to Deliver.......................................................................................................................................59
Lagon vs. Hooven Comalco..................................................................................................................59
Positive Personal Obligations....................................................................................................................60
Spouses Francisco v. Court Of Appeals.................................................................................................60
Jacinto Tanguilig v. Court Of Appeals...................................................................................................62
Breach of Obligations................................................................................................................................64
Periquet Jr. vs. Court Of Appeals..........................................................................................................64
LEGASPI OIL CO., INC vs. THE COURT OF APPEALS...................................................................66
Mora.........................................................................................................................................................68
Philippine Charter Insurance v. Central Colleges of the Philippines.....................................................68
Necessity of Demand.................................................................................................................................69
PNB MADECOR vs. GERARDO C. UY......................................................................................................69
When Demand Not Necessary...................................................................................................................70
IGNACIO BARZAGA vs. COURT OF APPEALS and ANGELITO ALVIAR....................................70
JOSEFINA TAYAG, et. al. vs. COURT OF APPEALS and ALBRIGIDO LEYVA..............................71
Mora Solvendi...........................................................................................................................................73
RAQUEL-SANTOS vs. COURT OF APPEALS..................................................................................73
RIZAL COMMERCIAL BANKING CORPORATION vs. COURT OF APPEALS............................75
Mora Accipiendi........................................................................................................................................77
State Investment vs. Court Of Appeals..................................................................................................77
Compensatio Morae..................................................................................................................................78
BPI Investment Corporation vs. Hon. Court Of Appeals.......................................................................78
Leaño vs. Court Of Appeals..................................................................................................................79
Heirs of Bacus vs. Court Of Appeals.....................................................................................................80
Integrated Packaging Corporation vs. Court of Appeals........................................................................82
Roberto Z. Laforteza, et.al. vs. Alonzo Machuca..................................................................................84
Fraud(Dolo)...............................................................................................................................................85
Regala vs. Carin....................................................................................................................................85
Dolo Incidente...........................................................................................................................................86
The International Corporate vs. Sps. Gueco..........................................................................................86
Republic of the Philippines vs. the Court of Tax Appeals.....................................................................87
Malicious Prosecution...............................................................................................................................88
Diaz vs. Davao Light............................................................................................................................88
Yasoña vs. De Ramos............................................................................................................................89
Degrees of Diligence..................................................................................................................................90
Asian Terminals, Inc. vs. Philam Insurance Co., Inc.............................................................................90
Negligence as a Question of Fact..............................................................................................................90
 Yambao vs. Zuñiga................................................................................................................................91
Smith Bell Dodwell vs. Borja...............................................................................................................92
Ilusorio vs. CA......................................................................................................................................94
NPC vs. CA...........................................................................................................................................96
Culpa Contractual.....................................................................................................................................97
Saint Luke‘s College of Medicine v. Spouses Perez..............................................................................97
Muaje-Tuazon vs. Wenphil....................................................................................................................98
RCPI vs. VERCHEZ.............................................................................................................................99
Victory Liner vs. Gammad..................................................................................................................100
FGU vs. Sarmiento..............................................................................................................................101
LRTA vs. Navidad...............................................................................................................................102
University of the East vs Jader............................................................................................................103
Culpa Aquiliana.......................................................................................................................................104
Delsan Transport vs. C&A Consortium...............................................................................................104
PCIB v. CA.........................................................................................................................................105
SMC and Heirs of Ouano v. C.A.........................................................................................................107
Solidary v. Independent Liability of Employer and/or Employee..............................................................108
Heirs of Ochoa vs. G&S Transport......................................................................................................108
Pacis vs. Morales.................................................................................................................................109
Philippine Hawk Corporation vs. Vivian Tan Lee..................................................................................110
MERCURY DRUG CORPORATION v. HUANG.........................................................................................111
MENDOZA v. SORIANO........................................................................................................................112
CEREZO v. TUAZON..............................................................................................................................113
Presumption of Fraud/Negligence of Employer.......................................................................................114
FILCAR TRANSPORT SERVICES v. ESPINAS............................................................................................114
FEB LEASING v. SPS BAYLON................................................................................................................115
FILIPINAS SYNTHETIC v. DE LOS SANTOS..............................................................................................116
VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS......................................................................117
Proof of Employer’s Fault/Negligence.....................................................................................................118
MERCURY DRUG CORPORATION VS. BAKING......................................................................................118
PLEYTO VS. LOMBOY............................................................................................................................119
Proof of Due Diligence.............................................................................................................................120
Syki vs. Begasa.....................................................................................................................................120
Yambao vs. Zuniga..............................................................................................................................121
Quasi-Delictual Liability Even in the Existence of Contract......................................................................122
Mindanao Terminal vs Phoenix...........................................................................................................122
YHT Realty vs. CA.................................................................................................................................123
Medical Malpractice................................................................................................................................124
Ramos vs. CA.......................................................................................................................................124
Reyes vs CA..........................................................................................................................................125
Solidum vs People of the Philippines...................................................................................................126
 Rosit vs Davao Doctors Hospital..........................................................................................................127
Nogales vs Capitol Medical Center......................................................................................................128
Professional Services v. Agana.............................................................................................................129
Professional Services v. CA..................................................................................................................130
Professional Services v. Agana.............................................................................................................132
Cantre v. Sps. Go..................................................................................................................................134
Dr. Rubi Li v. Sps. Soliman....................................................................................................................136
Culpa Criminal.........................................................................................................................................138
People v. Delos Santos.........................................................................................................................138
LG. Foods v. Agraviador.......................................................................................................................140
Contravention of Terms...........................................................................................................................141
Magat v. Medialdea.............................................................................................................................141
Specific Performance...............................................................................................................................143
Vda. De Mistica v. Naguiat...................................................................................................................143
Co v. CA................................................................................................................................................145
Resolution: Nature as Remedy.................................................................................................................146
Heirs of Quirong v. DBP.......................................................................................................................146
Heirs of Gaite v. The Plaza...................................................................................................................148
Solar Harvest Inc. v. Davao Corrugated................................................................................................150
Right to Resolve/Rescind: Requisites.......................................................................................................150
Reyes v. Tuparan..................................................................................................................................151
G.G. Sportswear v. World Class Properties..........................................................................................153
Movido v. Reyes Pastor........................................................................................................................155
Sps. Tongson v. Emergency Pawnshop.................................................................................................157
Sanz Maceda v. DBO............................................................................................................................158
Effects of Resolution................................................................................................................................160
Serrano v. CA.......................................................................................................................................160
Gil v. CA...............................................................................................................................................161
Reyes v. Lim.........................................................................................................................................162
Ong v. Tiu.............................................................................................................................................164
Equatorial Realty v. Mayfair Theater....................................................................................................166
Velarde v. CA........................................................................................................................................168
Asuncion v. Evangelista........................................................................................................................170
Uy v. CA...............................................................................................................................................172
Damages: Kinds.......................................................................................................................................174
Tamayo v. Abad Senora........................................................................................................................174
Tan v. OMC Carriers.............................................................................................................................176
Victory Liner v. Heirs of Malecdan.......................................................................................................178
GOVERNMENT SERVICE INSURANCE SYSTEM vs. SPOUSES GONZALO.............................180
BPI Investment v. D.G. Carreon............................................................................................................181
Accion Pauliana.......................................................................................................................................182
 Khe hong cheng vs. Court of Appeals..................................................................................................182
Fortuitous Event/Requisite......................................................................................................................183
Philippine Realty vs. Ley Construction and Development Corporation..............................................183
Megaworld Globus Asia, Inc. vs. Tanseco...........................................................................................185
Sicam vs Jorge.....................................................................................................................................186
Huibonhoa vs. CA...............................................................................................................................188
Ace Agro vs. CA.................................................................................................................................190
Effects of Fortuitous Events upon Obligations.........................................................................................191
Dioquino vs Laureano.........................................................................................................................191
Bachelor Express vs CA......................................................................................................................192
Vasquez vs CA....................................................................................................................................193
Yobido vs CA......................................................................................................................................194
Juntilla vs Fontanar.............................................................................................................................195
Philamagen Insurance vs MGG Marine...............................................................................................196
Mindez vs. Morillo..............................................................................................................................197
NAPOCOR vs. Phillip Bros................................................................................................................198
Transmissibility of Rights and Obligations...............................................................................................200
Ong Genato vs Bayhon........................................................................................................................200
Union Bank vs. Santibanez..................................................................................................................201
San Augustin vs. CA...........................................................................................................................202
Projext Builders, Inc. vs. CA...............................................................................................................203
Kinds of Obligations: Pure.......................................................................................................................205
Hongkong and Shanghai vs Sps. Broqueza.........................................................................................205
Conditional Obligation.............................................................................................................................206
DBP vs. CA.........................................................................................................................................206
Suspensive Condition...............................................................................................................................207
Tomimbang vs. Tomimbang................................................................................................................207
Gonzales vs Heirs................................................................................................................................208
Insular Life vs Young..........................................................................................................................210
Direct Funders vs. Lavina...................................................................................................................211
Potestative Suspensive Condition............................................................................................................212
Vda. De Mistica vs Naguiat.................................................................................................................212
Hermosa vs. Longara...........................................................................................................................213
Trillana vs Quezon Colleges................................................................................................................214
Positive Suspensive Condition..................................................................................................................215
Visayan Sawmill vs. CA......................................................................................................................215
Leano vs. CA.......................................................................................................................................216
Effect of Non-Fulfillment of Suspensive Condition...................................................................................217
De Leon vs. Ong.................................................................................................................................217
Heirs of Sandejas vs. Lina...................................................................................................................218
Period or Term.........................................................................................................................................220
 COMMISSIONER OF INTERNAL REVENUE vs. PRIMETOWN PROPERTY GROUP...................................220
NATIONAL MARKETING CORPORATION v. TECSON..............................................................................221
Condition v. Term.....................................................................................................................................222
ERNEST BERG v. MAGDALENA ESTATE INC...........................................................................................222
LIRAG TEXTILE MILLS vs. COURT OF APPEALS......................................................................................223
DAGUHOY ENTERPRISES vs. RITA L. PONCE.........................................................................................225
VICTORIAS PLANTERS ASSOCIATION vs. VICTORIAS MILLING..............................................................226
Potestative Period....................................................................................................................................228
JESPAJO REALTY CORPORATION vs. COURT OF APPEALS.....................................................................228
PILAR N. BORROMEO vs. COURT OF APPEALS.....................................................................................230
BENITO GONZALEZ vs. FLORENTINO DE JOSE......................................................................................231
Effects......................................................................................................................................................232
GUILLERMINA BALUYUT vs. EULOGIO POBLETE..................................................................................232
MALAYAN REALTY, INC v. UY HAN YONG..............................................................................................234
KASAPIAN NG MANGGAGAWA NG COCA-COLA vs. COURT OF APPEALS.............................................236
ZENAIDA M. SANTOS vs. CALIXTO SANTOS..........................................................................................237
MANUEL D. MELOTINDOS vs. MELECIO TOBIAS..................................................................................239
LL AND COMPANY vs. HUANG CHAO CHUN.........................................................................................240
BRENT SCHOOL, INC. v. RONALDO ZAMORA.......................................................................................241
LOURDES VALERIO LIM vs. PEOPLE OF THE PHILIPPINES.....................................................................242
PACIFIC BANKING CORPORATION v. COURT OF APPEALS.....................................................................243
Alternative Obligation.............................................................................................................................246
FELIPE AGONCILLO vs. CRISANTO JAVIER.............................................................................................246
ONG GUAN CAN vs. THE CENTURY INSURANCE..................................................................................248
CLARA TAMBUNTING DE LEGARDA vs. VICTORIA DESBARATS MIAILHE...............................................249
ESTANISLAO REYES vs. SEBASTIANA MARTINEZ...................................................................................250
Facultative Obligation.............................................................................................................................251
MARTINA QUIZANA vs. GAUDENCIO REDUGERIO...............................................................................251
Joint Obligation.......................................................................................................................................252
MARSMAN DRYSDALE LAND vs. PHILIPPINE GEOANALYTICS...............................................................252
PURITA ALIPIO vs. COURT OF APPEALS................................................................................................253
PH CREDIT CORPORATION vs. COURT OF APPEALS..............................................................................254
Solidary Obligation..................................................................................................................................256
CDCP vs. REBECCA G. ESTRELLA...........................................................................................................256
REPUBLIC GLASS CORPORATION vs. LAWRENCE C. QUA.....................................................................257
INIMACO v. NATIONAL LABOR RELATIONS COMMISSION....................................................................258
METRO MANILA TRANSIT vs. COURT OF APPEALS...............................................................................259
Mutual Agency........................................................................................................................................260
BALDOMERO INCIONG vs. COURT OF APPEALS...................................................................................260
PHILIPPINE BLOOMING MILLS vs. PHILIPPINE BLOOMING MILLS CO.,.................................................261
Mutual Guaranty.....................................................................................................................................262
 QUEENSLAND-TOKYO COMMODITIES vs. THOMAS GEORGE..............................................................262
SHRIMP SPECIALISTS, INC. vs. FUJI......................................................................................................263
ASSET BUILDERS CORPORATION vs. STRONGHOLD INSURANCE COMPANY, INCORPORATED.............264
EPARWA SECURITY v. LICEO DE CAGAYAN UNIVERSITY........................................................................265
CARLOS DIMAYUGA vs. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK.............................................266
MANOLO P. CERNA vs. COURT OF APPEALS.........................................................................................268
Indivisible Obligations.............................................................................................................................269
NATIVIDAD P. NAZARENO v. COURT OF APPEALS.................................................................................269
Penalty: Legal v. Conventional.................................................................................................................271
AURELIO P. ALONZO vs. SAN JUAN.......................................................................................................271
JESUS T. DAVID vs. COURT OF APPEALS...............................................................................................272
Penalties v. Interests................................................................................................................................273
REPUBLIC OF THE PHILIPPINES v. THI THU THUY T. DE GUZMAN.........................................................273
JOSE MARQUES vs. FAR EAST BANK AND TRUST COMPANY................................................................274
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs. MENCHAVEZ.....................................276
THERESA MACALALAG vs. PEOPLE OF THE PHILIPPINES......................................................................278
ANTONIO TAN vs. COURT OF APPEALS................................................................................................280
EASTERN SHIPPING LINES vs. COURT OF APPEALS...............................................................................281
Escalation v. Acceleration Clause.............................................................................................................283
SPOUSES SILOS vs. PHILIPPINES NATIONAL BANK................................................................................283
EQUITABLE PCI BANK vs. ANTONIO A. BELLONES................................................................................284
NEW SAMPAGUITA BUILDERS CONSTRUCTION vs. PHILIPPINE NATIONAL BANK................................285
RODELO G. POLOTAN vs. COURT OF APPEALS.....................................................................................288
Legal Rate................................................................................................................................................288
DARIO NACAR vs. GALLERY FRAMES....................................................................................................289
Reduction of Conventional Penalties.......................................................................................................290
SPOUSES MALLARI vs. PRUDENTIAL BANK..........................................................................................290
RGM INDUSTRIES, INC v. UNITED PACIFIC CAPITAL CORPORATION.....................................................291
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs............................................................293
ARTHUR F. MENCHAVEZ......................................................................................................................293
BONIFACIO SANZ MACEDA vs. DEVELOPMENT BANK OF THE PHILIPPINES.........................................295
PHILIPPINE NATIONAL BANK vs. SPOUSES ENCINA..............................................................................296
RESTITUTA M. IMPERIAL vs. ALEX A. JAUCIAN.....................................................................................297
TEDDY G. PABUGAIS vs. DAVE P. SAHIJWANI........................................................................................298
ANTONIO LO vs. COURT OF APPEALS...................................................................................................300
TOLOMEO LIGUTAN vs. COURT OF APPEALS........................................................................................301
SPOUSES PASCUAL vs. RODRIGO V. RAMOS.........................................................................................302
FIRST METRO INVESTMENT CORPORATION vs. ESTE DEL SOL.............................................................303
DOMEL TRADING CORPORATION vs. COURT OF APPEALS...................................................................305
LETICIA Y. MEDEL, DR. RAFAEL MEDEL vs. COURT OF APPEALS...........................................................307
PACITA F. REFORMINA vs. TOMOL.......................................................................................................309
Extinguishment Of Obligations: Payment................................................................................................310
SONNY LO vs. KJS.................................................................................................................................310
PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS..........................................................................312
CATHAY PACIFIC AIRWAYS vs. SPOUSES VAZQUEZ...............................................................................313
CITIBANK, N.A. vs. MODESTA R. SABENIANO.......................................................................................314
TELENGTON BROTHERS & SONS, INC vs. UNITED STATES LINES, INC...................................................315
C.F. SHARP vs. NORTHWEST AIRLINES, INC..........................................................................................316
ALBERT R. PADILLA vs. SPOUSES PAREDES...........................................................................................317
NORBERTO TIBAJIA vs. COURT OF APPEALS........................................................................................319
DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS....................................................320
Evidences of Credit..................................................................................................................................321
VITARICH CORPORATION vs. CHONA LOSIN.........................................................................................321
METROPOLITAN BANK vs. RENATO D. CABILZO...................................................................................322
Effect of Inflation.....................................................................................................................................323
ALMEDA vs. BATHALA MARKETING INDUSTRIES.................................................................................323
EQUITABLE PCI BANK vs. SANDOVAL-GUTIERREZ................................................................................324
Substantial Payment................................................................................................................................325
Palanca v. Guides, 452 S 461................................................................................................................325
Creditor's Right of Payment.....................................................................................................................327
Dela Cruz v Concepcion.......................................................................................................................327
PCIB v. CA............................................................................................................................................328
Lagon v. Hooven Comalco....................................................................................................................329
BPI v. CA...............................................................................................................................................330
REPUBLIC OF THE PHILIPPINES vs. THI THU THUY T. DE GUZMAN.....................................331
PCIB v. Franco....................................................................................................................................332
Audion Electric v. NLRC....................................................................................................................333
Payment by Third Person.........................................................................................................................335
Land Bank of the Philippines v. Ong...................................................................................................335
Where Payment Must Be Made...............................................................................................................337
Binalbagan v. CA................................................................................................................................337
When Payment Must Be Made................................................................................................................340
Lorenzo Shipping v. BJ Marthel..........................................................................................................340
Dacion En Pago........................................................................................................................................342
Luzon Development Bank v. Enriquez................................................................................................342
Estanislao v. East-West Banking Corp.................................................................................................344
Aquintey v. Tibong..............................................................................................................................345
Payment by Cession or Assignment.........................................................................................................346
Lo v. CA..............................................................................................................................................346
Application of Payments..........................................................................................................................347
ASJ Corp. v. Evangelista.....................................................................................................................347
Paculdo v. Regalado............................................................................................................................348
 CBC v. CA..........................................................................................................................................350
Mobil v. CA.........................................................................................................................................353
Tender of Payment and Consignation......................................................................................................356
Sps. Bonrostro v. Sps. Luna.................................................................................................................356
Benos v. Lawilao.................................................................................................................................357
People‘s Industrial v. CA.....................................................................................................................358
Eternal Gardens v. CA.........................................................................................................................359
Rayos v. Reyes....................................................................................................................................361
Kinds of Loss/Impossibility: Physical, Civil, or Legal.................................................................................362
Occena v. CA......................................................................................................................................362
Ortigas v. Feati Bank...........................................................................................................................363
So v. Food Fest Land, Inc....................................................................................................................364
Magat v. CA........................................................................................................................................366
PNCC v. CA........................................................................................................................................367
NATELCO v. CA................................................................................................................................368
Condonation/Remission of the Debt........................................................................................................372
Reyna v. COA.....................................................................................................................................372
Trans Pacific v. CA.............................................................................................................................373
Presumption of Delivery..........................................................................................................................374
Dalupan v. Harden...............................................................................................................................374
Lopez Vito v. Tambunting...................................................................................................................376
Confusion or Merger of Rights.................................................................................................................378
Estate of Mota v. Serra........................................................................................................................378
Yek Tong Lin v. Yusingco....................................................................................................................380
Compensation: Requisites.......................................................................................................................381
EGV Realty v. CA...............................................................................................................................381
Aerospace Chemical v. CA..................................................................................................................383
Apodaca v. NLRC...............................................................................................................................385
Total vs. Partial........................................................................................................................................385
Sps. Chung v. Ulanday Construction...................................................................................................386
Legal Compensation: Requisites..............................................................................................................388
Mondragon v. Sola, Jr..........................................................................................................................388
Insular Investment v. Capital One.......................................................................................................390
Lao, et al. v. Special Plans, Inc............................................................................................................392
United Planters Sugar v. CA................................................................................................................393
Legal Compensation: When Prohibited...................................................................................................395
PNB Management v. R & R Metal......................................................................................................395
Silahis v. IAC......................................................................................................................................395
Francia v. CA......................................................................................................................................397
Trinidad v. Acapulco...........................................................................................................................399
Novation..................................................................................................................................................400
 Heirs of Franco v. Sps. Gonzales.........................................................................................................400
Objective Novation..................................................................................................................................402
Hernandez-Nievera v. Hernandez........................................................................................................402
St. James College v. Equitable PCI Bank............................................................................................404
Tomimbang v. Tomimbang..................................................................................................................405
Substitution of the Debtor: Expromision..................................................................................................407
Mindanao Savings v. Willkom.............................................................................................................407
Aquintey v. Tibong..............................................................................................................................408
Subrogation to the Rights of the Creditor: Legal vs. Conventional...........................................................408
Asian Terminals v. Philam...................................................................................................................409
Loadmasters v. Glodel Brokerage........................................................................................................411
Metrobank v. Rural Bank of Gerona....................................................................................................412
Swagman v. CA...................................................................................................................................414
Azolla Farms v. CA.............................................................................................................................415
Bautista v. Pilar Development.............................................................................................................416
Evadel Realty v. Soriano.....................................................................................................................418
Statute of Limitations/Prescriptive Periods..............................................................................................420
Rosario v. De Guzman.........................................................................................................................420
Vector Shipping v. American Home....................................................................................................422
Villeza v. German Management..........................................................................................................423
Insurance of the Philippine Islands v. Sps. Gregorio...........................................................................425
Mariano v. Petron................................................................................................................................426
Sps. Bernales v. Heirs of Sambaan......................................................................................................427
Interruption.............................................................................................................................................429
B & I Realty v. Caspe..........................................................................................................................429
Mesina v. Garcia..................................................................................................................................430
Heirs of Gaudiane v. CA.....................................................................................................................431
Laureano v. CA...................................................................................................................................432
Banco Filipino v. CA...........................................................................................................................433
Vda. De Delgado v. CA.......................................................................................................................434
Maestrado v. CA..................................................................................................................................435
Estoppel: Definition and Meaning...........................................................................................................435
F.A.T. Kee Computer v. Online Networks..............................................................................................436
Tanay Recreation v. Fausto..................................................................................................................437
Mendoza v. CA.....................................................................................................................................438
Lim v. Queensland...............................................................................................................................439
Placewell v. Camote.............................................................................................................................441
Heirs of Ragua v. CA.............................................................................................................................443
Estoppel by Deed.....................................................................................................................................444
Metrobank v. CA..................................................................................................................................444
Sps. Manuel v. CA................................................................................................................................445
Estoppel in Pais by Representation/Positive............................................................................................446
Cuenco v. Cuenco................................................................................................................................446
Laurel v. Desierto.................................................................................................................................448
Hanopol v. SM.....................................................................................................................................450
Estoppel in Pais by Promise.....................................................................................................................452
Terminal Facilities v. PPA......................................................................................................................452
Mendoza v. CA.....................................................................................................................................454
Estoppel in Pais by Silence.......................................................................................................................455
Marques v. Far East Bank....................................................................................................................455
Roblett Construction v. CA.................................................................................................................456
Estoppel by Laches: Prescription vs. Laches Sime....................................................................................458
Darby v. Goodyear...............................................................................................................................458
Far East Bank v. Borja...........................................................................................................................461
Kings Properties Corporation, Inc. v. Galido........................................................................................463
Metrobank v. Cabilzo...........................................................................................................................464
Mesina v. Garcia..................................................................................................................................466
Pahamotang v. PNB.............................................................................................................................468
Shopper's Paradise v. Roque................................................................................................................469
Meatmasters v. Lelis Integrated...........................................................................................................471
Larena v. Mapili...................................................................................................................................473
Santos v. Santos...................................................................................................................................475
Villanueva-Mijares v. CA......................................................................................................................477
Contracts: Autonomy...............................................................................................................................478
PABLO P. GARCIA vs.YOLANDA VALDEZ VILLAR....................................................................478
SPOUSES FERNANDO and ANGELINA EDRALIN vs...................................................................479
PHILIPPINE VETERANS BANK......................................................................................................479
UNIVERSITY PHYSICIANS SERVICES vs.MARIAN CLINICS....................................................480
FELICIDAD T. MARTIN v.DBS BANK PHILIPPINES....................................................................481
HEIRS OF ALFREDO ZABALA vs. HON. COURT OF APPEALS..................................................483
DUNCAN v. GLAXO WELLCOME PHILIPPINES..........................................................................484
STAR PAPER vs. RONALDO D. SIMBOL.......................................................................................485
DAISY B. TIU v. Platinum Plans PHIL. INC......................................................................................486
AVON COSMETICS v. LETICIA H. LUNA......................................................................................487
ALFONSO DEL CASTILLO vs. SHANNON RICHMOND..............................................................488
ARWOOD INDUSTRIES, INC. vs.D.M. CONSUNJI, INC...............................................................489
SPOUSES BENEDICT and MARICEL DY TECKLO vs.RURAL BANK OF PAMPLONA, INC .. 490
VIOLETA TUDTUD BANATE v. PHILIPPINE COUNTRYSIDE RURAL BANK..........................491
SPOUSES SILVESTRE v. RODRIGO V. RAMOS............................................................................492
CHUA TEE DEE vs. COURT OF APPEALS.....................................................................................493
G.Q. GARMENTS vs.ANGEL MIRANDA........................................................................................495
PEDRO T. BERCERO vs.CAPITOL DEVELOPMENT CORPORATION........................................498
Obligatory Force......................................................................................................................................501
MAXIMA HEMEDES v.COURT OF APPEALS...............................................................................................501
Right of First Refusal..........................................................................................................................503
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES vs. GOLDEN HORIZON REALTY
CORPORATION.................................................................................................................................503
AGRIPINO VILLEGAS v. COURT OF APPEALS............................................................................505
EQUATORIAL REALTY DEVELOPMENT vs.................................................................................506
MAYFAIR THEATER, INC................................................................................................................506
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES..................................................................508
v. COURT OF APPEALS....................................................................................................................508
SPS. REYNALDO K. LITONJUA vs.L & R CORPORATION..........................................................511
Mutuality.................................................................................................................................................513
VICENTE JOSEFA v. ZHANDONG TRADING CORPORATION...................................................513
Equality/Contracts of Adhesion...........................................................................................................514
ANICETO SALUDO, JR. v. SECURITY BANK COMMISSION,....................................................514
EQUITABLE PCI BANK, INC v. ANTONIO A. BELLONES...........................................................516
TERESITA DIO vs. ST. FERDINAND MEMORIAL PARK, INC.....................................................517
PILIPINO TELEPHONE CORPORATION vs. DELFINO TECSON................................................519
PHILIPPINE AIRLINES vs. COURT OF APPEALS.........................................................................521
SPOUSES LUIS M. ERMITAÑO v. COURT OF APPEALS.............................................................523
Non-binding as to Third Parties; Exceptions............................................................................................524
UNIWIDE SALES v. TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT CORPORATION
525
HEIRS OF AUGUSTO L. SALAS, JR v. LAPERAL REALTY CORPORATION, ROCKWAY REAL
ESTATE CORPORATION..................................................................................................................527
BIENVENIDO R. MEDRANO vs.COURT OF APPEALS................................................................529
MANUEL B. TAN vs.EDUARDO R. GULLAS.................................................................................531
Enforceability...........................................................................................................................................533
JESUS M. GOZUN vs. JOSE TEOFILO T. MERCADO....................................................................533
Privity : Exceptions...................................................................................................................................535
STA. LUCIA REALTY & DEVELOPMENT, INC vs.........................................................................535
SPOUSES FRANCISCO....................................................................................................................535
JOSEPH CHAN v. BONIFACIO S. MACEDA, JR.,..........................................................................538
Stipulations Pour Autrui...........................................................................................................................540
TIMOTEO BALUYOT v.COURT OF APPEALS..............................................................................540
Contracts Creating Real Rights................................................................................................................542
SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO vs..................................................542
SPOUSES RENATO CUYCO and FILIPINA CUYCO......................................................................542
Tortious Interference...............................................................................................................................544
ALLAN C. GO....................................................................................................................................544
vs.........................................................................................................................................................544
MORTIMER F. CORDERO................................................................................................................544
 SO PING BUN vs. COURT OF APPEALS.........................................................................................548
Stages in the Execution of a Contract......................................................................................................550
INTERNATIONAL FREEPORT TRADERS vs.................................................................................550
DANZAS INTERCONTINENTAL....................................................................................................550
ROCKLAND CONSTRUCTION COMPANY, INC. vs.....................................................................553
MID-PASIG LAND DEVELOPMENT CORPORATION..................................................................553
Consummation/Termination....................................................................................................................555
METROPOLITAN MANILA DEVELOPMENTAUTHORITY,.........................................................555
vs.........................................................................................................................................................555
JANCOM ENVIRONMENTAL CORPORATION.............................................................................555
Essential Requisites of Contracts: Offer and Acceptance.........................................................................558
KOREAN AIR CO., LTD. and SUK KYOO KIM v. ADELINA A.S. YUSON...................................558
ROCKLAND CONSTRUCTION COMPANY INC vs.......................................................................559
MID-PASIG LAND DEVELOPMENT CORPORATION..................................................................559
MANILA METAL CONTAINER CORPORATION...........................................................................561
vs.........................................................................................................................................................561
PHILIPPINE NATIONAL BANK.......................................................................................................561
RIDO MONTECILLO vs.IGNACIA REYNES..................................................................................563
JASMIN SOLER vs.COURT OF APPEALS......................................................................................565
YOLANDA PALATTAO vs. COURT OF APPEALS.........................................................................567
ABS-CBN BROADCASTING CORPORATION vs.COURT OF APPEALS.....................................569
Offer: Requisites......................................................................................................................................571
LOURDES ONG LIMSON vs. COURT OF APPEALS.....................................................................571
Acceptance: Requisites; distinguished from Counter-Offer......................................................................574
IN RE ADMINISTRATION OF THE ESTATE OF PASCUAL VILLANUEVA. MAURICIA G. DE
VILLANUEVA...................................................................................................................................574
Vices of Capacity.....................................................................................................................................576
CORAZON CATALAN...................................................................................................................576
vs.........................................................................................................................................................576
JOSE BASA........................................................................................................................................576
EUGENIO DOMINGO vs.COURT OF APPEALS.............................................................................579
HEIRS OF WILLIAM SEVILLA vs.LEOPOLDO SEVILLA............................................................581
MARIO J. MENDEZONA vs.JULIO H. OZAMIZ.............................................................................583
Mistake/Error..........................................................................................................................................585
MARIANO T. LIM vs. COURT OF APPEALS..................................................................................585
Undue Influence......................................................................................................................................587
CORAZON RUIZ vs. COURT OF APPEALS....................................................................................587
Fraud: Kinds.............................................................................................................................................589
EPIFANIA DELA CRUZ, substituted by LAUREANA V. ALBERTO vs. SPS. EDUARDO C. SISON
and EUFEMIA S. SISON....................................................................................................................589
RURAL BANK OF STA. MARIA, PANGASINAN vs.THE HONORABLE COURT OF APPEALS,
ROSARIO R. RAYANDAYAN, CARMEN R. ARCEO......................................................................591
Object or Subject Matter.........................................................................................................................593
DOMINGO CARABEO vs. SPOUSES NORBERTO and SUSAN DINGCO....................................593
Licit..........................................................................................................................................................595
FRANCISCO I. CHAVEZ...................................................................................................................595
vs.........................................................................................................................................................595
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION.................................................................................................................................595
Cause/Consideration...............................................................................................................................597
DOMINGO CARABEO vs. SPOUSES NORBERTO and SUSAN DINGCO...................................597
PIO SIAN MELLIZA, vs. CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE
COURT APPEALS,.............................................................................................................................599
Cause or Consideration............................................................................................................................601
MANUEL CATINDIG,.......................................................................................................................601
v...........................................................................................................................................................601
AURORA IRENE VDA. DE MENESES,...........................................................................................601
ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA, , vs. EDUARDO J.
FUENTEBELLA, et. al., ....................................................................................................................603
CARMELA BROBIO MANGAHAS, , vs. EUFROCINA A. BROBIO,.............................................604
GOLDEN APPLE REALTY AND DEVELOPMENT CORPORATION, et. al., , vs. SIERRA
GRANDE REALTY CORPORATION, et. al.,....................................................................................606
ASKAY, plaintiff-appellant, vs. FERNANDO A. COSALAN, defendant-appellee.............................609
True/Real: Simulation of Contracts..........................................................................................................611
HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE, ,.................................611
vs.........................................................................................................................................................611
RODRIGO N. LIM,............................................................................................................................611
RAFAEL G. SUNTAY, petitioners, vs. THE HON. COURT OF APPEALS and FEDERICO C.
SUNTAY, respondents.........................................................................................................................613
Cause v. Motive.......................................................................................................................................616
WILLIAM UY and RODEL ROXAS,,...............................................................................................616
v...........................................................................................................................................................616
COURT OF APPEALS, et. al.,............................................................................................................616
Onerous...................................................................................................................................................618
PENTACAPITAL INVESTMENT CORPORATION, ,......................................................................618
v...........................................................................................................................................................618
MAKILITO B. MAHINAY,................................................................................................................618
Remuneratory.........................................................................................................................................620
Heirs of Ramon C. Gaite, et. al.,..........................................................................................................620
v...........................................................................................................................................................620
The Plaza, Inc. and FGU Corporation,................................................................................................620
HICOBLINO M. CATLY, Petitioner,..................................................................................................622
v...........................................................................................................................................................622
William Navarro, et. al., Respondents.................................................................................................622
Gratuitous...............................................................................................................................................624
CONCHITA LIGUEZ, , vs. THE HONORABLE COURT OF APPEALS, et. al.,.............................624
PHILIPPINE BANKING CORPORATION, vs. LUI SHE,..............................................................626
Form for Validity......................................................................................................................................628
SONIA F. LONDRES, et. al.,..............................................................................................................628
v...........................................................................................................................................................628
THE COURT OF APPEALS, et. al.....................................................................................................628
SPS. ANTONIO & LETICIA VEGA,.................................................................................................630
v...........................................................................................................................................................630
SOCIAL SECURITY SYSTEM (SSS),...............................................................................................630
CLARA M. BALATBAT, ,..................................................................................................................632
v...........................................................................................................................................................632
COURT OF APPEALS, et. al..............................................................................................................632
UNIVERSAL ROBINA SUGAR MILLING CORPORATION, ,.......................................................634
v...........................................................................................................................................................634
HEIRS OF ANGEL TEVES, ..............................................................................................................634
Reformation of Instruments, When Prohobited.......................................................................................636
RITA SARMING, RUFINO SARMING, et. al., ,...............................................................................636
v...........................................................................................................................................................636
CRESENCIO DY, et. al.......................................................................................................................636
CEBU INTERNATIONAL FINANCE CORPORATION, , vs. COURT OF APPEALS, VICENTE
ALEGRE, ...........................................................................................................................................638
Interpretation of Contracts......................................................................................................................640
ADR SHIPPING SERVICES, INC., ,.................................................................................................640
v...........................................................................................................................................................640
MARCELINO GALLARDO and Court of Appeals,...........................................................................640
In Case of Doubt......................................................................................................................................642
Valentin Movido,.................................................................................................................................642
v...........................................................................................................................................................642
Luis Reyes Pastor,...............................................................................................................................642
TSPIC Corporation,.............................................................................................................................644
v...........................................................................................................................................................644
TSPIC Employees Union (FFW),........................................................................................................644
Sps. Rafael and Zenaida Estanislao,....................................................................................................646
v...........................................................................................................................................................646
East West Banking Corporation,..........................................................................................................646
Agrifina Aquintey,...............................................................................................................................648
v...........................................................................................................................................................648
Sps. Felicidad and Rico Tibong,..........................................................................................................648
Adoracion E. Cruz, et.al.,....................................................................................................................650
v...........................................................................................................................................................650
 The Honorable Court of Appeals, et.al.,..............................................................................................650
Rizalina Gabriel Gonzales,..................................................................................................................653
v...........................................................................................................................................................653
Honorable Court of Appeals and Lutgarda Santiago,..........................................................................653
Juana Almira, et.al.,.............................................................................................................................655
v...........................................................................................................................................................655
Court Of Appeals and Federico Briones,.............................................................................................655
Doctrine of ―Complementary Contracts Construed Together.................................................................657
PHILIPPINE BANK OF, COMMUNICATIONS,...............................................................................657
v...........................................................................................................................................................657
ELENA LIM,et. al.,.............................................................................................................................657
SPOUSES EFREN N. RIGOR and ZOSIMA D. RIGOR owners of CHIARA CONSTRUCTION, .. 659
v...........................................................................................................................................................659
CONSOLIDATED ORIX LEASING and FINANCE CORPORATION,............................................659
RODOLFO P. VELASQUEZ,.............................................................................................................661
v...........................................................................................................................................................661
COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, INC.,.......661
Defective Contracts.................................................................................................................................663
HEIRS OF SOFIA QUIRONG,...........................................................................................................663
v...........................................................................................................................................................663
DEVELOPMENT BANK OF THE PHILIPPINES,............................................................................663
Nature and Effects...................................................................................................................................665
SAMUEL U. LEE, et. al.,....................................................................................................................665
v...........................................................................................................................................................665
BANGKOK BANK PUBLIC COMPANY,.........................................................................................665
EQUATORIAL REALTY DEVELOPMENT, INC.,...........................................................................668
v...........................................................................................................................................................668
MAYFAIR THEATER, INC.,..............................................................................................................668
MARIA ANTONIA SIGUAN,............................................................................................................670
v...........................................................................................................................................................670
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM,..................................................................670
KHE HONG CHENG, et. al.,..............................................................................................................673
v...........................................................................................................................................................673
COURT OF APPEALS, et. al.,............................................................................................................673
RAFAEL G. SUNTAY, et. al.,.............................................................................................................675
v...........................................................................................................................................................675
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY,....................................................675
Voidable Contracts..................................................................................................................................677
CARMELA BROBIO MANGAHAS, , v. EUFROCINA A. BROBIO, ..............................................677
CORNELIA M. HERNANDEZ, , vs. CECILIO F. HERNANDEZ, ..................................................679
MANUEL O. FUENTES, et.al.,..........................................................................................................681
 v...........................................................................................................................................................681
CONRADO G. ROCA, et. al.,.............................................................................................................681
Voidable Contracts: Annulment...............................................................................................................683
Associated Bank,.................................................................................................................................683
v...........................................................................................................................................................683
Sps. Montano,.....................................................................................................................................683
WILLIAM ALAIN MIAILHE, ,.........................................................................................................685
v...........................................................................................................................................................685
COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES,.....................................................685
First Philippine Holdings Corporation,................................................................................................686
v...........................................................................................................................................................686
Trans Middle East (Phils.) EQUITIES Inc.,........................................................................................686
Effects......................................................................................................................................................687
Manuel Luis Sanchez,.........................................................................................................................687
v...........................................................................................................................................................687
Mapalad Realty Corporation,..............................................................................................................687
Rizalino Oesmer, et al.,.......................................................................................................................689
v...........................................................................................................................................................689
Paraiso Development Corporation,......................................................................................................689
Perpetua Vda. De Ape,........................................................................................................................691
v...........................................................................................................................................................691
Court of Appeals at. al.,.......................................................................................................................691
Julian Francisco, et. al.,.......................................................................................................................693
v...........................................................................................................................................................693
Pastor Herrera,.....................................................................................................................................693
ROSARIO L. DE BRAGANZA, ET AL., , vs. FERNANDO F. DE VILLA ABRILLE, ...................694
MIGUEL KATIPUNAN, et. al., ,.......................................................................................................695
v...........................................................................................................................................................695
BRAULIO KATIPUNAN, JR., ..........................................................................................................695
NILO R. JUMALON,..........................................................................................................................697
v...........................................................................................................................................................697
COURT OF APPEALS, et. al.,............................................................................................................697
Unauthorized Contracts...........................................................................................................................699
NELSON CABALES, ET. AL.,...........................................................................................................699
v...........................................................................................................................................................699
COURT OF APPEALS,.......................................................................................................................699
Necessity of Writing................................................................................................................................700
ANNUCIACION VDA. DE OUANO, et al.,......................................................................................700
v...........................................................................................................................................................700
THE REPUBLIC OF THE PHILIPPINES, et. al.,..............................................................................700
Orduña, et al. v. Fuentebella................................................................................................................702
 Municipality of Hagonoy v. Hon. Dumdum........................................................................................703
Shoemaker v. La Tondeña...................................................................................................................705
PNB vs. Philippine Vegetable Oil Company.......................................................................................706
Parol Evidence Rule.................................................................................................................................707
Vda. De Ouano, et al. v. RP, 9 February 2011.....................................................................................707
Executory vs. Executed vs. Partially Executory Contracts.........................................................................709
Municipality of Hagonoy v. Hon. Dumdum........................................................................................709
Tan v. Villapaz,....................................................................................................................................711
Sps. David v. Tiongson........................................................................................................................712
Cordial v. Miranda...............................................................................................................................713
Villanueva-Mijares v. CA....................................................................................................................714
Remedies – Unenforceable Contract.......................................................................................................715
Rosencor v. Inquing, 354 S 119...........................................................................................................715
Firme v. Buka,.....................................................................................................................................717
Void/Inexistent Contracts........................................................................................................................718
Querubin v. COMELEC......................................................................................................................718
Golden Apple v. Sierra Grande............................................................................................................719
Heirs of M. Doronio v. Heirs of F. Doronio.........................................................................................721
Sps. Bernales v. Heirs of Sambaan......................................................................................................722
Heirs of Liwagon v. Heirs of Liwagon................................................................................................724
Campos v. Pastrana.............................................................................................................................726
Gurrea v. Suplico, 488 S 332...............................................................................................................728
Frenzel v. Catito, 406 S 55..................................................................................................................729
La Bugal-B'laan v. Ramos...................................................................................................................730
Jaworski v. PAGCOR..........................................................................................................................732
Action for Declaration of Nullity..............................................................................................................734
Heirs of Balite v. Lim, 446 S 56..........................................................................................................734
Pineda v. CA, 376 S 222......................................................................................................................736
Cruz v. Bancom, 379 S 490.................................................................................................................737
Prohibited Contracts................................................................................................................................739
Hadja Fatima v. HadjiAbubacar..........................................................................................................739
Infotech v. COMELEC........................................................................................................................740
Pabugais v. Sahijwani, 423 S 596........................................................................................................743
Liguez v. CA, 102 P 577......................................................................................................................745
Philbank v. Lui She, 21 S 52...............................................................................................................746
Vigilar v. Aquino.................................................................................................................................748
EPG Construction v. Vigilar, 354 S 566..............................................................................................750
Gochan v. Young, 354 S 207...............................................................................................................752
Francisco v. Herrera,...........................................................................................................................753
Mendezona v. Ozamiz,........................................................................................................................755
Kinds of Natural Obligation.....................................................................................................................757
 Manzanilla v. CA.................................................................................................................................757
Rural Bank of Paranaque v. Remolado................................................................................................759
TRUST......................................................................................................................................................761
Cojuangco v. Republic,.......................................................................................................................761
Ringor v. Ringor,.................................................................................................................................763
Salvador v. CA,...................................................................................................................................765
Kinds: Express Trust v. Implied Trust........................................................................................................767
Huang v. CA, 236 S 420......................................................................................................................767
Vda.deEsconde v. CA, 253 S 66..........................................................................................................769
Tala Realty v. Banco Filipino,.............................................................................................................772
Express Trust............................................................................................................................................775
Medina v. CA, 196 P 205 (1981).........................................................................................................775
Filipinas Port v. Go..............................................................................................................................778
Implied Trust............................................................................................................................................779
Vda.De Gualberto v. Go......................................................................................................................779
Heirs of Yap v. CA, 371 P 523.............................................................................................................780
Heirs of Kionisala v. Heirs of Dacut,...................................................................................................782
Ramos v. Ramos, 61 S 284..................................................................................................................784
Intestate Estate of Ty v. CA, 356 S 661...............................................................................................786
Vda. De Reterto v. Barz,......................................................................................................................787
ChiaoLiong Tan v. CA,........................................................................................................................789
O'laco v. Co Cho Chit,.........................................................................................................................790
 Subjective Elements of Obligation

Ocampo III vs. People of the Philippines

G.R. Nos. 156547-51, February 4, 2008

FACTS:

Ocampo, provincial governor of Tarlac from February 22, 1988 up to June 30, 1992,
loaned out P56.6 million of the P100 million to the Lingkod Tarlac Foundation, Inc. (LTFI) for
the implementation of various livelihood projects. The loan was made pursuant to a
Memorandum of Agreement (MOA) entered into by the Province of Tarlac, represented by
petitioner Ocampo, and LTFI, represented by petitioner Flores, on August 8, 1988. How the
P56.6 million released to LTFI was utilized became the subject matter of 25 criminal cases.

Sec. 2 (c) of Rule XI of the Rules and Regulations Implementing the Local Government
Code of 1983 provides that the local chief executive of a local government unit shall represent
the respective local units in all their business transactions and sign on its behalf all bonds,
contracts and obligations and other official documents made in accordance with law or
ordinance.‖ Sec. 2 of Rule VI states that the power to sue, to acquire and convey real or personal
property, and to enter into contracts shall be exercised by the local chief executive upon authority
of the Sanggunian concerned. Thus, the Sandiganbayan declared that since the required authority
from the Sangguniang Panlalawigan was not shown to have been obtained by petitioner Ocampo,
the MOA is ineffective as far as the Province of Tarlac is concerned.

ISSUE: Whether or not petitioners Ocampo and Flores are guilty of the crime of Malversation of
Public Funds.

HELD:

No. It is clear that the funds released by the Province of Tarlac, including the money
allegedly malversed by petitioners in Crim. Case Nos. 16794 and 16795, were in the nature of a
loan to LTFI. Art. 1953 of the Civil Code provides that a person who receives a loan of money or
any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality. Hence, petitioner Ocampo correctly argued that the
NALGU funds shed their public character when they were lent to LTFI as it acquired ownership
of the funds with an obligation to repay the Province of Tarlac the amount borrowed. The
relationship between the Province of Tarlac and the LTFI is that of a creditor and debtor. Failure
to pay the indebtedness would give rise to a collection suit. There can be no malversation of
public funds by petitioner Ocampo in the instant cases since the loan of P11.5 million transferred
ownership and custody of the funds, which included the sum of money allegedly malversed, to
LTFI for which Ocampo could no longer be held accountable.
 Law as Source of Obligation

Leung Ben vs. P. J. O'Brien

G.R. No. L-13602, April 6, 1918

FACTS:

On December 12, 1917, an action was instituted by P. J. O'Brien to recover of Leung Ben
the sum of P15,000 alleged to have been lost by the plaintiff to the defendant in a series of
gambling, banking and percentage games conducted ruing the two or three months prior to the
institution of the suit. The plaintiff asked for an attachment against the property of the defendant,
on the ground that the latter was about to depart from the Philippine islands with intent to
defraud his creditors. This attachment was issued; the sheriff attached the sum of P15,000 which
had been deposited by the defendant with the International Banking Corporation. The provision
of law under which this attachment was issued requires that there should be accuse of action
arising upon contract, express or implied.

ISSUE: Whether or not the statutory obligation to restore money won at gaming an obligation
arising from contract should be express.

HELD:

No. Upon general principles, recognize both the civil and common law, money lost in
gaming and voluntarily paid by the loser to the winner cannot in the absence of statue, be
recovered in a civil action. But Act No. 1757 of the Philippine Commission, which defines and
penalizes several forms of gambling, contains numerous provisions recognizing the right to
recover money lost in gambling or in the playing of certain games (secs. 6, 7, 8, 9, 11). The idea
of contractual duty embodied in the debt which was the first conception of contract liability
revealed in the common law, has remained, although it was detained to be in a measure obscured
by the more modern conception of obligation resulting from promise.

The right to recover money improperly paid (repeticion de lo indebido) is also recognized
as belong to this class of duties. the duty of the defendant to refund the money which he won
from the plaintiff at gaming is a duty imposed by statute. It therefore arises ex lege. Furthermore,
it is a duty to return a certain sum which had passed from the plaintiff to the defendant. By all the
criteria which the common law supplies, this a duty in the nature of debt and is properly
classified as an implied contract. It is well- settled by the English authorities that money lost in
gambling or by lottery, if recoverable at all, can be recovered by the loser in an action of
indebitatus assumpsit for money had and received. This means that in the common law the duty
to return money won in this way is an implied contract, or quasi-contract.
 Pelayo, vs. Lauron
G.R. No. L-4089, January 12, 1909

FACTS:
Arturo Pelayo, a physician residing in Cebu, filed a complaint against Marcelo Lauron
and Juana Abella setting forth that on or about the 13th of October of said year, at night, the
plaintiff was called to the house of the defendants, situated in San Nicolas, and that upon arrival
he was requested by them to render medical assistance to their daughter-in-law who was about to
give birth to a child; that therefore, and after consultation with the attending physician, Dr.
Escaño, it was found necessary, on account of the difficult birth, to remove the fetus by means of
forceps which operation was performed by the plaintiff, who also had to remove the afterbirth, in
which services he was occupied until the following morning, and that afterwards, on the same
day, he visited the patient several times; that the just and equitable value of the services rendered
by him was P500, which the defendants refuse to pay without alleging any good reason therefor;
that for said reason he prayed that the judgment be entered in his favor as against the defendants,
or any of them, for the sum of P500 and costs, together with any other relief that might be
deemed proper.

ISSUE: Whether or not the defendants should be held liable for the fees.

HELD:

No. 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 occurs. Obligations arising
from law are not presumed. The rendering of medical assistance in case of illness is comprised
among the mutual obligations to which the spouses are bound by way of mutual support. (Arts.
142 and 143) The Court held that the rendering of medical assistance is one of the obligations to
which spouses are bound by mutual support, expressly determined by law and readily demanded.
Therefore, there was no obligation on the part of the in-laws but rather on the part of the husband
who is not a party.
 Nikko Hotel Manila Garden and Ruby Lim vs. Roberto Reyes
G.R. No. 154259, February 28, 2005

FACTS:

In the evening of October 13, 1994, while drinking coffee at the lobby of Hotel Nikko,
respondent was invited by a friend, Dr. Filart to join her in a party in celebration of the birthday
of the hotel‗s manager. During the party and when respondent was lined-up at the buffet table,
he was stopped by Ruby Lim, the Executive Secretary of the hotel, and asked to leave the party.
Shocked and embarrassed, he tried to explain that he was invited by Dr. Filart, who was herself a
guest. Not long after, a Makati policeman approached him and escorted him out of her party. Ms.
Lim admitted having asked respondent to leave the party but not under the ignominious
circumstances painted by Mr. Reyes, that she did the act politely and discreetly. Mindful of the
wish of the celebrant to keep the party intimate and exclusive, she spoke to the respondent
herself when she saw him by the buffet table with no other guests in the immediate vicinity. She
asked him to leave the party after he finished eating.

After she had turned to leave, the latter screamed and made a big scene. Dr. Filart
testified that she did not want the celebrant to think that she invited Mr. Reyes to the party.
Respondent filed an action for actual, moral and/or exemplary damages and attorney‗s fees. The
lower court dismissed the complaint. On appeal, the Court of Appeals reversed the ruling of the
trial court, consequently imposing upon Hotel Nikko moral and exemplary damages and
attorney‗s fees. On motion for reconsideration, the Court of Appeals affirmed its decision.

ISSUES: Whether or not Ms. Ruby Lim is liable under Articles 19 and 21 of the Civil Code.

HELD:

No. Article 21 states that any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the latter for
the damage. Without proof of any ill-motive on her part, Ms. Lim‗s act cannot amount to
abusive conduct.

The maxim Volenti Non Fit Injuria (self-inflicted injury) was upheld by the Court, that is,
to which a person assents is not esteemed in law as injury, that consent to injury precludes the
recovery of damages by one who has knowingly and voluntarily exposed himself to danger.
 St. Mary’s Academy vs. William Carpitanos, et.al.
G.R. No. 143363, February 6, 2002

FACTS:

From February 13 to 20, 1995, defendant-appellant St. Mary‗s Academy of Dipolog City
conducted an enrollment drive for the school year 1995-1996. As a student of St. Mary‗s
Academy, Sherwin Carpitanos was part of the campaigning group. Accordingly, Sherwin, along
with other high school students were riding in a Mitsubishi jeep owned by defendant Vivencio
Villanueva on their way to Larayan Elementary School, Larayan, Dapitan City. The jeep was
driven by James Daniel II then 15 years old and a student of the same school. Allegedly, the
latter drove the jeep in a reckless manner and as a result the jeep turned turtle. Sherwin
Carpitanos died as a result of the injuries he sustained from the accident. The trial court ordered
the defendants, St. Mary‗s Academy principally liable and the parents of James Daniel as
subsidiarily liable for damages.

ISSUE: Whether or not the appellant, St. Mary‗s Academy, is principally liable for damages for
the death of Sherwin.

HELD:

No. Under Article 219 of the Family Code, if the person under custody is a minor, those
exercising special parental authority are principally and solidarily liable for damages caused by
the acts or omissions of the unemancipated minor while under their supervision, instruction, or
custody. However, for petitioner to be liable, there must be a finding that the act or omission
considered as negligent was the proximate cause of the injury caused because the negligence
must have a causal connection to the accident. Respondents Daniel spouses and Villanueva
admitted that the immediate cause of the accident was not the negligence of petitioner or the
reckless driving of James Daniel II, but the detachment of the steering wheel guide of the jeep.
Hence, liability for the accident, whether caused by the negligence of the minor driver or
mechanical detachment of the steering wheel guide of the jeep, must be pinned on the minor‗s
parents primarily.

The negligence of petitioner St. Mary‗s Academy was only a remote cause of the
accident. Between the remote cause and the injury, there intervened the negligence of the
minor‗s parents or the detachment of the steering wheel guide of the jeep. Considering that the
negligence of the minor driver or the detachment of the steering wheel guide of the jeep owned
by respondent Villanueva was an event over which petitioner St. Mary‗s Academy had no
control, and which was the proximate cause of the accident, petitioner may not be held liable for
the death resulting from such accident.
 Contracts as Source of Obligation

Spouses Guanio vs. Makati Shangri-La Hotel And Resort, Inc.

G.R. No. 190601, February 7, 2011

FACTS:

For their wedding reception, spouses Guanio booked at the Shangri-la Hotel Makati.
Three days before the event, a final food tasting took place. Petitioners aver that the salmon
served was half the size of what they were served during the initial food tasting; and when
queried about it, the hotel quoted a much higher price (P1,200.00) for the size that was initially
served to them. The parties eventually agreed on a final price P1,150 per person. A day before
the event or on July 27, 2001, the parties finalized and forged their contract. Petitioners claim
that during the reception, respondent‗s representatives, Catering Director Bea Marquez and
Sales Manager Tessa Alvarez, did not show up despite their assurance that they would; their
guests complained of the delay in the service of the dinner; certain items listed in the published
menu were unavailable; the hotel‗s waiters were rude and unapologetic when confronted about
the delay; and despite Alvarez‗s promise that there would be no charge for the extension of the
reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour
extension of the event up to 4:00 A.M. the next day. They nevertheless filed a complaint for
breach of contract and damages. The RTC rendered a judgement in favor of the petitioners but
the Court of Appeals reversed the trial court‗s decision, it holding that the proximate cause of
petitioner‘s injury was an unexpected increase in their guests.

ISSUE: Whether or not the CA erred in its decision that the proximate cause of petitioner‘s
injury was an unexpected increase in their guests.

HELD:

What applies in the present case is Article 1170 of the Civil Code which reads: Art. 1170.
Those who in the performance of their obligations are guilty of fraud, negligence or delay, and
those who in any manner contravene the tenor thereof, are liable for damages. Breach of contract
is defined as the failure without legal reason to comply with the terms of a contract. It is also
defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or
part of the contract. The appellate court, and even the trial court, observed that petitioners were
remiss in their obligation to inform respondent of the change in the expected number of guests.

As for petitioner‘s claim that respondent departed from its verbal agreement with
petitioners, the same fails, given that the written contract which the parties entered into the day
before the event, being the law between them.
 TSPIC Corporation vs. TSPIC Employees Union
G.R No. 163419, February 13, 2008

FACTS:

TSPI Corporation entered into a Collective Bargaining Agreement with the corporation
Union for the increase of salary for the latter‗s members for the year 2000 to 2002 starting from
January 2000. thus, the increased in salary was materialized on January 1, 2000. However, on
October 6, 2000, the Regional Tripartite Wage and production Board raised daily minimum wage
from P 223.50 to P 250.00 starting November 1, 2000. Conformably, the wages of the 17
probationary employees were increased to P250.00 and became regular employees therefore
receiving another 10% increase in salary. In January 2001, TSPIC implemented the new wage
rates as mandated by the CBA. As a result, the nine employees who were senior to the 17
recently regularized employees, received less wages. On January 19, 2001, TSPIC‗s HRD
notified the 24 employees who are private respondents, that due to an error in the automated
payroll system, they were overpaid and the overpayment would be deducted from their salaries
starting February 2001. The Union on the other hand, asserted that there was no error and the
deduction of the alleged overpayment constituted diminution of pay.

ISSUE: Whether or not the alleged overpayment constitutes diminution of pay as alleged by the
Union.

HELD:

It is considered that Collective Bargaining Agreement entered into by unions and their
employers are binding upon the parties and be acted in strict compliance therewith. Thus, the
CBA in this case is the law between the employers and their employees. Therefore, there was no
overpayment when there was an increase of salary for the members of the union simultaneous
with the increasing of minimum wage for workers in the National Capital Region. The CBA
should be followed thus, the senior employees who were first promoted as regular employees
shall be entitled for the increase in their salaries and the same with lower rank workers.
 Regino vs. Pangasinan Colleges of Science and Technology
G.R No. 156109, November 18, 2004

FACTS:

Petitioner Khristine Rea M. Regino was a first year computer science student at
Respondent Pangasinan Colleges of Science and Technology (PCST). Reared in a poor family,
Regino went to college mainly through the financial support of her relatives. During the second
semester of school year 2001-2002, she enrolled in logic and statistics subjects under
Respondents Rachelle A. Gamurot and Elissa Baladad, respectively, as teachers. Thus, a fund
raising project pertaining to a dance party was organized by PCST, requiring all its students to
purchase two tickets in consideration as a prerequisite for the final exam. Regino, an
underprivileged, failed to purchase the tickets because of her status as well as that project was
against her religious belief, thus, she was not allowed to take the final examination by her two
professors.

ISSUE: Whether or not the refusal of the university to allow Regino to take the final
examination is valid

HELD:

No. Barring any violation of the rules on the part of the students, an institution of higher
learning has a contractual obligation to afford its students a fair opportunity to complete the
course they seek to pursue.

The fee, however, was not part of the school-student contract entered into at the start of
the school year. Hence, it could not be unilaterally imposed to the prejudice of the enrollees.
Such contract is by no means an ordinary one. In Non, we stressed that the school-student
contract is imbued with public interest, considering the high priority given by the Constitution to
education and the grant to the State of supervisory and regulatory powers over all educational
institutions.
 PSBA v. CA
G.R. No. 84698, Jan. 4, 1992

FACTS:
Carlitos Bautista, a third-year commerce student of PSBA, was stabbed to death while
on the second-floor premises of the school. The assailants were not members of the schools‘
academic community but were elements from outside the school. The parents of Carlitos filed a
civil action against the school authorities, alleging them negligent, reckless and with failure to
take security precautions, means and methods before, during and after the attack on the victim.
The appellate court found in their favor, primarily anchoring its decision on the law of quasi-
delicts.

ISSUE: Whether or not the appellate court was correct in deciding the case based on Article
2180.

HELD:
It had been stressed that the law plainly provides that the damage should have been
caused or inflicted by pupils or students of the educational institution sought to be held liable for
the acts of its pupils or students while in its custody. However, this material situation does not
exist in the present case for, as earlier indicated, the assailants of Carlitos were not students of
PSBA, for whose acts the school could have been made liable.
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. Moreover, there is that ―built-in‖ obligation to provide students with an atmosphere that
promotes or assists in attaining its primary undertaking of imparting knowledge. The school must
ensure that adequate steps are taken to maintain peace and order within the campus premises and
to prevent the breakdown thereof.
Because the circumstances of the present case evince a contractual relation between
PSBA and Carlitos, the rules on quasi-delict do not really govern. However, the mere fact that a
person is bound to another by contract does not relieve him from extra-contractual liability to
such person. When such a contractual relation exists the obligor may break the contract under
such conditions that the same act which constitutes a breach of the contract would have
constituted the source of an extra-contractual obligation had no contract existed between the
parties. Art. 21 of the Civil Code comes to mind, so that should the act which breaches a contract
be done in bad faith and violative of Art. 21, then there is a cause to view the act as constituting a
quasi-delict.
 Ayala Corporation vs. Rosa Diana Realty and Development Corporation
G.R. No. 134284, December 1, 2000

FACTS:
In April 1976, Ayala Corporation entered into a transaction with Manuel Sy and Sy Ka
Kieng where former sold a lot in Salcedo Village in Makati. The deed of sale had some
encumbrances contained in the Special Conditions of Sale (SCS) and Deed of Restrictions (DR),
which should be followed by the vendees. The stipulations in the SCS are:
a. a building proposal must be submitted to Ayala which must be in accordance with the
DR;
b. the construction of the building must be completed on or before 1979,
and c. that there will be no resale of the lot.

The DR specified the limits in height and floor area of the building to be constructed.
However, Sy and Kieng, failed to build a building but nonetheless with the permission of Ayala,
the vendees sold the lot to the respondent, Rosa Diana Realty. Respondent Company agreed to
abode by the SCS and the DR stipulations. Prior to the construction, Rosa Diana submitted a
building plan to Ayala complying with the DR but it also passed a different building plan to the
building administrator of Makati, which did not comply with the stipulations in the DR. While
the building, ―The Peak,‖ was being constructed, Ayala filed a case praying that: 1) Rosa Diana,
be compelled to comply with the DR and build the building in accordance with the building plan
submitted to Ayala; or 2) on the alternative, the rescission of the deed of sale.

ISSUE: Whether or not Rosa Diana committed a breach of contract.

HELD:

Yes. The Supreme Court ruled that Rosa Diana committed a breach of contract by
submitting a building plan to Ayala complying with the DR and submitting a different building
plan to the building administrator of Makati, which did not comply with the stipulations in the
DR. Contractual obligations between parties have the force of law between them and absent any
allegation that the same are contrary to law, morals, good customs, public order or public policy,
they must be complied with in good faith. Hence, Article 1159 of the New Civil Code provides
that obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
 Bricktown Development Corp. vs. Amor Tierra Development Corporation
G.R. No. 112182, December 12, 1994

FACTS:

Bricktown Development Corporation executed two contracts to sell in favor of petitioner

Tierra Corp. covering a total of 96 residential lots situated at the Multinational Village
Subdivision, La Huerta, Parañaque, Metro Manila. The total price of P21,639,875.00 was
stipulated to be paid by private respondent in such amount and maturity dates, as follows;
P2,200,000.00 on March 31, 1981, P3, 209, 965.75 on 30 June 1981, P4, 729, 906.25 on 31
December 1981, and the balance of P11, 500,000.00 to be paid by means of an assumption by
private respondent of petitioner‗s corporation‗s mortgage liability to the Philippine Saving Bank
or, alternatively, to be made payable in cash. On even date 31 March 1981, the parties executed a
supplemental agreement providing that private respondent would additionally pay to petitioner
the amount of P55, 364.68 or 21% interest on the balance of downpayment for the period from
31 March to 30 June 1981 and of P390, 367.37 representing interest paid by petitioner
corporation to the Philippine Savings Bank in updating the bank loan for the period from 1
February to 31 March 1981.

Petitioner Corporation sent notice of cancellation of contract to private respondent on

account of the latter‗s continued failure to pay the installment due 30 June 1981 and interest on
the unpaid balance of the stipulated initial payment. On 26 September 1983, private respondent
demanded the refund of its various payment to petitioner amounting to P2, 445, 497.71.
However, petitioner did not heed the demand.

ISSUE: Whether or not the contracts to sell were validly rescinded or cancelled by Petitioner
Corporation.

HELD:

The contracts to sell were validly rescinded. In fine, while we must conclude that
petitioner corporation still acted within its legal right to declare the contracts to sell rescinded or
cancelled, considering, nevertheless, the peculiar circumstances found to be extant by the trial
court, confirmed by the Court of Appeals, it would be unconscionable to likewise sanction the
forfeiture by petitioner corporation of payments made to it by private respondent. Indeed, the
Court has intimated that the relationship between parties in any contract must always be
characterized and punctuated by good faith and fair dealing. Judging from what the court below
have said, petitioners did fall well behind that standard. The Court does not find it equitable to
adjudge any interest payment by petitioners on the amount to be thus refunded computed from
judicial demand, for indeed, private respondent should not be allowed to totally free itself from
its own breach.

Quasi-Contracts as Source of Obligation

 Locsin II v. Mekeni
G.R. No. 192105, December 09, 2013

FACTS:
Petitioner began his stint as Mekeni Regional Sales Manager on March 17, 2004. To be
able to effectively cover his appointed sales territory, Mekeni furnished petitioner with a used
Honda Civic car valued at P280,000.00, which used to be the service vehicle of petitioner‘s
immediate supervisor. Petitioner paid for his 50% share through salary deductions of P5,000.00
each month.
Subsequently, Locsin resigned effective February 25, 2006. By then, a total of
P112,500.00 had been deducted from his monthly salary and applied as part of the employee‘s
share in the car plan. Mekeni supposedly put in an equivalent amount as its share under the car
plan. In his resignation letter, petitioner made an offer to purchase his service vehicle by paying
the outstanding balance thereon. The parties negotiated, but could not agree on the terms of the
proposed purchase. Petitioner thus returned the vehicle to Mekeni on May 2, 2006.

ISSSUE: Whether or not the principle of Unjust Enrichment is applicable.

HELD:
Yes. It is unfair to deny petitioner a refund of all his contributions to the car plan. Under
Article 22 of the Civil Code, every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of the latter without
just or legal ground, shall return the same to him. Article 2142 of the same Code likewise
clarifies that there are certain lawful, voluntary and unilateral acts which 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. In the absence of specific terms and conditions governing the car plan
arrangement between the petitioner and Mekeni, a quasi-contractual relation was created
between them. Consequently, Mekeni may not enrich itself by charging petitioner for the use of
its vehicle which is otherwise absolutely necessary to the full and effective promotion of its
business. It may not, under the claim that petitioner‘s payments constitute rents for the use of the
company vehicle, refuse to refund what petitioner had paid, for the reasons that the car plan did
not carry such a condition
 Flores v. Sps Lindo
648 SCRA 772 13 April 2011

FACTS:

In October 1995, Edna Lindo obtained a loan amounting to P400k from Arturo Flores. To
secure the loan, Edna executed a deed of real estate mortgage on a property which is however
part of the conjugal property (it was both in her name and her husband‗s name Enrico Lindo).
Only Edna signed the deed. But in November 1995, Enrico executed a special power of attorney
authorizing Edna to mortgage the property. Edna was not able to pay the loan despite repeated
demands from Flores. Flores then filed an action to foreclose the mortgage. The trial court (RTC
Manila, Branch 33) ruled that the action for foreclosure cannot prosper because it appears that
there was no valid mortgage between Edna and Flores. Edna mortgaged the property without the
consent of her husband and the special power of attorney executed by Enrico a month after the
execution of the deed did not cure the defect. The trial court however ruled that Flores can
instead file a personal action (collection suit) against Edna. Eventually, Flores filed a suit for
collection of sum of money against Edna and Enrico.

ISSUE: Whether or not the Court of Appeals is correct.

HELD:

No. It is true that as a rule, a mortgage-creditor has a single cause of action against a
mortgagor-debtor, that is, to recover the debt; and that he has the option of either filing a
personal action for collection of sum of money or instituting a real action to foreclose on the
mortgage security. These remedies are indeed mutually exclusive. However, in this case, the
Supreme Court made a pro hac vice decision (applicable only to this case and as an exception to
the rule) which allows Flores to recover via a personal action despite his prior filing of a real
action to recover the indebtedness. This procedural rule cannot be outweighed by the rule on
unjust enrichment. Here, Edna admitted her liability of indebtedness.
 Shinryo Company v. RRN Inc.
G.R. No. 172525 October 20, 2010

FACTS:

The parties admitted several facts before the CIAC. It was shown that petitioner
and respondent executed an Agreement and Conditions of Sub-contract (hereafter
Agreement signed on June 11, 1996 and June 14, 1996, respectively. Respondent
signified its willingness to accept and perform for petitioner in any of its projects, a part
or the whole of the works more particularly described in Conditions of Sub-Contract
and other Sub-contract documents.

On June 11, 2002, the parties executed a Supply of Manpower, Tools/Equipment,

Consumables for the Electrical Works-Power and Equipment Supply for P25,000,000.00.
The parties also agreed that respondent will perform variation orders in the Project. In
connection with the Project, petitioner supplied manpower chargeable against respondent.

Respondent was not able to finish the entire works with petitioner due to
financial difficulties. On September 26, 2003, respondent only acknowledged
P2,371,895.33 as material back charges. Thereafter, on October 16, 2003, respondent
sent another letter to petitioner for them to meet and settle their dispute.

ISSUE: Whether or not there is unjust enrichment.

HELD:

No.In order that accion in rem verso may prosper, the essential elements must be
present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss,
(3) that the enrichment of the defendant is without just or legal ground, and (4) that the
plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.

Petitioner failed to prove that respondent's free use of the manlift was without
legal ground based on the provisions of their contract. Thus, the third requisite, i.e., that
the enrichment of respondent is without just or legal ground, is missing. In addition,
petitioner's claim is based on contract, hence, the fourth requisite − that the plaintiff has
no other action based on contract, quasi-contract, crime or quasi-delict − is also absent.
Clearly, the principle of unjust enrichment is not applicable in this case.
 Titan-Ikeda vs. Primetown
G.R No. 158768, February 12, 2008

FACTS:

Primetown Property Corporation entered into contract weith the petitioner Titan-Ikeda
Construction Corporation for the structural works of a 32-storey prime tower. After the
construction of the tower, respondent again awarded to the petitioner the amount of P
130,000,000.00 for the tower‗s architectural design and structure. Howevere, in 1994, the
respondent entered inot a contract of sale of the tower in favor of the petitioner in a manner
called full-swapping. Since the respondent had allegedly constructed almost one third of the
project as well as selling some units to third persons unknown to the petitioner. Integrated Inc.
took over the project, thus the petitioner is demanding for the return of its advanced payment in
the amount of P2, 000,000.00 as well as the keys of the unit.

ISSUE: Whether or not the petitioner is entitled to damages.

HELD:

No, because in a contract necessarily that there is a meeting of the minds of the parties
in which this will be the binding law upon them. Both parties are obliged to perform their
obligation simultaneously and in good faith. In this case, petitioner, Titan-Ikeda cannot recover
damages because it was found out there was no solutio indebiti or mistake in payment in this
case since the latter is just entitled to the actual services it rendered to the respondent and thus it
is ordered to return the condominium units to the respondent.
 PADCOM v. Ortigas Center Association
G.R. No. 146807, May 9, 2002

FACTS:

Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the
Padilla Office Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas
Center, Pasig City. The land on which the building stands was originally acquired from the
Ortigas & Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC)
under a Deed of Sale dated 4 September 1974. Among the terms and conditions in the deed of
sale was the requirement that the transferee and its successor-in-interest must become members
of an association for realty owners and long-term lessees in the area later known as the Ortigas
Center. Subsequently, the said lot, together with improvements thereon, was conveyed by TDC in
favor of PADCOM in a Deed of Transfer dated 25 February 1975. In 1982, respondent Ortigas
Center Association, Inc. (hereafter the Association) was organized to advance the interests and
promote the general welfare of the real estate owners and long-term lessees of lots in the Ortigas
Center. It sought the collection of membership dues in the amount of two thousand seven
hundred twenty-four pesos and forty centavos (P2, 724.40) per month from PADCOM. The
corporate books showed that PADCOM owed the Association P639, 961.47, representing
membership dues, interests and penalty charges from April 1983 to June 1993. In view of
PADCOM's failure and refusal to pay its arrears in monthly dues, including interests and
penalties thereon, the Association filed a complaint for collection of sum of money before the
trial court. The Association averred that purchasers of lands within the Ortigas Center complex
from OCLP are obligated under their contracts of sale to become members of the Association.
This obligation was allegedly passed on to PADCOM when it bought the lot from TDC, its
predecessor-in-interest.

ISSUE: Whether or not PADCOM is a member of the Ortigas Center Association, Inc.

HELD:

As a lot owner, PADCOM is a regular member of the Association. No application for

membership is necessary. If at all, acceptance by the Board of Directors is a ministerial function
considering that PADCOM is deemed to be a regular member upon the acquisition of the lot
pursuant to the automatic membership clause annotated in the Certificate of Title of the property
and the Deed of Transfer. PADCOM‗s contention that the automatic membership clause is a
violation of its freedom of association because it was never forced to join the association is
likewise untenable. Nobody forced it to buy the land when it bought the building with the
annotation of the condition or lien on the Certificate of Title thereof and accepted the Deed.
PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the
Association. Having ruled that PADCOM is a member of the Association, it is obligated to pay
its dues incidental thereto as mandated by Article 1159 of the Civil Code which states that
obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith‖. Assuming in gratis argumenti that PADCOM is not a
member of the Association, it cannot evade payment without violating the equitable principles
underlying quasi-contracts. Article 2142 of the Civil Code provides that 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.
 Delicts as Source of Obligation

People of the Philippines vs. Nurfrasir Hashim

G.R. No. 194255, 13 June 2012
FACTS:

Bernadette Pansacala a.k.a Neneng Awid, together with co-accused Nurfrasir

Hashim y Saraban a.k.a Franz/Frans, Makdul Jamad y Bukin a.k.a. Macky, a certain Tas and a
certain Jun were all convicted for the crime illegal recruitmentfor the crime of illegal recruitment
as defined under Section 6 in relation to Section 7(b) of Republic Act. No. (R.A.) 8042 or the
Migrant Workers and Overseas Filipinos Act of 1995. On June 11, 2003 and for sometime prior
or subsequent thereto, in the City of Zamboanga, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, conspiring and confederating together, mutually
aiding and assisting with one another without having previously obtained from the Philippine
Overseas Employment Administration, license or authority to engage in the recruitment and
deployment of overseas workers, did then and there willfully, unlawfully and feloniously,
illegally recruit for a promised employment abroad particularly in Brunei and Malaysia, thus
causing and prompting the persons of BBB and AAA to apply which employment however did
not materialize because in truth and in fact, the promised employment is non-existent, in flagrant
violation of the above-mentioned law and causing damage and prejudice to said complainants;
further, the commission of the above stated offense tantamount to economic sabotage in that the
same was committed by a syndicate.

ISSUE: Whether or not the accused is guilty of illegal recruitment

HELD:

Yes. To be convicted of the crime of illegal recruitment committed by a syndicate, the following
elements must occur: 1. The accused have no valid license or authority required by law to enable them to
lawfully engage in the recruitment and placement of workers. 2. The accused engaged in this activity of
recruitment and placement by actually recruiting, deploying and transporting. 3. Illegal recruitment was
committed by three persons conspiring and confederating with one another. As to the first element,
accused-appellant admitted that she did not have a valid license to recruit persons for overseas
employment, consistent with her defense that she did not engage in the recruitment of persons for
employment. Anent the second element, both victims, AAA and BBB, narrated in great detail how they
were induced by accused-appellant to accept an employment opportunity, and how they were successfully
transported from Zamboanga City to Malaysia where they eventually worked as prostituted women. On
the third element, accused-appellant posits that the prosecution failed to prove that there were more than
two persons involved in the alleged crime of illegal recruitment, since the trial court held only two of the
accused liable for the crime. The prosecution, she alleges, failed to establish that the other accused
Macky, Jun, and Tas also had no license or authority to recruit workers for overseas employment.
 Abellana vs. People
G.R. No. 174654, August 17, 2011

FACTS:

In 1985, petitioner Felixberto A. Abellana extended a loan to private respondents spouses

Diaga and Sapia Alonto (spouses Alonto), secured by a Deed of Real Estate Mortgage over Lot
Nos. 6471 and 6472 located in Cebu City. Subsequently, or in 1987, petitioner prepared a Deed
of Absolute Sale conveying said lots to him. The Deed of Absolute Sale was signed by spouses
Alonto in Manila. However, it was notarized in Cebu City allegedly without the spouses Alonto
appearing before the notary public. Thereafter, petitioner caused the transfer of the titles to his
name and sold the lots to third persons.On August 12, 1999, respondent spouses filed a
complaint charging petitioner with Estafa through Falsification of Public Document. The RTC
found that petitioner did not intend to defraud the spouses Alonto and that petitioner can only be
held guilty of Falsification of a Public Document by a private individual under Article 172(1)in
relation to Article 171(2) of the Revised Penal Code and not Estafa through falsification of
public document as charged in the Information. Petitioner, upon appeal, raised the issue of
whether an accused who was acquitted of the crime charged may nevertheless be convicted of
another crime or offense not specifically charged and alleged and which is not necessarily
included in the crime or offense charged. The CA affirmed the trial court's finding with respect
to petitioner's civil liability.

ISSUE: Whether or not petitioner could still be held civilly liable notwithstanding his acquittal.

HELD:

No. It is an established rule in criminal procedure that a judgment of acquittal shall state
whether the evidence of the prosecution absolutely failed to prove the guilt of the accused or
merely failed to prove his guilt beyond reasonable doubt. The "extinction of the penal action
does not carry with it the extinction of civil liability unless the extinction proceeds from a
declaration in a final judgment that the fact from which the civil liability might arise did not
exist." Civil liability arises when one, by reason of his own act or omission, done intentionally or
negligently, causes damage to another. Hence, for petitioner to be civilly liable to spouses
Alonto, it must be proven that the acts he committed had caused damage to the spouses. Based
on the records, the acts allegedly committed by the petitioner did not cause any damage to
spouses Alonto. Even assuming that the spouses Alonto did not personally appear before the
notary public for the notarization of the Deed of Absolute Sale, the same does not necessarily
nullify or render void ab initio the parties' transaction. Such non-appearance is not sufficient to
overcome the presumption of the truthfulness of the statements contained in the deed.
 People vs. Malicsi
G.R No. 175833, January 29, 2008
FACTS:
Mlicsi was accused for rape. The appellant contended that he and the victim were
sweethearts but the trial court did not give weight to that theory. The trial court found appellant
guilty of the crime of four counts of qualified rape and was sentenced to suffer the penalty of
death for each count of rape, to pay P300,000.00 as civil indemnity (P75,000.00 for each count),
and P200,000.00 as moral damages (P50,000.00 for each count). The CA however modified the
findings of the RTC declaring that appellant is guilty of four counts of simple rape and to suffer
the penalty of reclusion perpetua.
ISSUE: Whether the award of damages was properly made.
HELD:
No, because the Supreme Court declared that the crime committed was four count of
simple rape only and not qualified rape because the special aggravating circumstances of
minority and relationship must be alleged in the information but the prosecution failed to do so.
Since it is not included, four counts of simple rape should be undertaken. The penalty imposed
then should be reclusion perpetua. The appellate court also correctly affirmed the award by the
trial court of P200,000.00 for moral damages. Moral damages are automatically granted to rape
victim. However, the award of civil indemnity is reduced to P200,000.00 in the amount of
P50,000.00 for each count of simple rape is automatically granted.
 People of the Philippines vs. Rosauro Sia
G.R. No. 137457, November 21, 2001

FACTS:
This is an automatic review of a decision of the Regional Trial Court finding the accused
Johnny Balalio y Deza and Jimmy Ponce y Tol guilty beyond reasonable doubt as principals by
conspiracy for violation of RA 6539 (Anti- Carnapping law) as amended, and sentenced them to
suffer the penalty of death. Accused are likewise adjudged jointly and severally liable to pay
Agripina Bermudez, the mother of the deceased Christian Bermudez the sums of: (a) P50, 000.00
as compensatory damages for the death of Christian Bermudez; (b) P200, 000.00 as burial and
other expenses incurred in connection with the death of Christian; and (c) P3, 307,199.60 (2/3 x
[80-27] x 300 per day x 26 days (excluding Sundays) x 12 months) representing the loss of
earning capacity of Christian Bermudez as taxi driver.

ISSUE: The issue is whether or not the trial courts‗ award for damages is proper.

HELD:
The decision is partly correct. The Court finds the amount of P50, 000.00 as death
indemnity proper, following prevailing jurisprudence, and in line with controlling policy. The
award of civil indemnity may be granted without any need of proof other than the death of the
victim. Though not awarded by the trial court, the victim‗s heirs are likewise entitled to moral
damages, pegged at P50, 000.00 by controlling case law, taking into consideration the pain and
anguish of the victim‗s family brought about by his death. However, the award of P200, 000.00
as burial and other expenses incurred in connection with the death of the victim must be deleted.
The records are bereft of any receipt or voucher to justify the trial court‗s award of burial and
other expenses incurred in connection with the victim‗s death. The rule is that every pecuniary
loss must be established by credible evidence before it may be awarded. Credence can be given
only to claims, which are duly supported, by receipts or other credible evidence.

In determining the amount of lost income, the following must be taken into account:
(1) the number of years for which the victim would otherwise have lived; and (2) the rate of the
loss sustained by the heirs of the deceased. The second variable is computed by multiplying the
life expectancy by the net earnings of the deceased meaning total earnings less expenses
necessary in the creation of such earnings or income less living and other incidental expenses
considering that there is no proof of living expenses of the deceased, net earnings are computed
at fifty percent of the gross earnings. In this case, the court notes that the victim was 27 years old
at the time of his death and his mother testified that as a driver of the Tamaraw FX taxi, he was
earning P650.00 a day. Based on the foregoing computation, the award of the trial court with
regard to lost income is thus modified accordingly. The court ordered the accused to pay the heirs
of the victim Christian Bermudez the sum of P50, 000.000 as civil indemnity, the sum of P50,
000.00 as moral damages, and the sum of P2, 996,867.20 representing lost earnings. The award
of P200, 000.00 as burial and other expenses is deleted for lack of substantial proof
 People of the Philippines vs. Carlos Doctolero, Sr.
G.R. No. 131866, 2001 Aug 20

FACTS:
On November 20, 1996 at around 7:00 in the evening, Vicente Ganongan Jr. and Roderick
Litorco went to their friends‗ boarding house on Honeymoon Road, Baguio City. Thereat,
Vicente Ganongan, Roderick Litorco, Regie Daodaoan, Rex Tabanganay, Jeffrey Alimani and
Florencio Dagson agreed to drink gin in Sangatan Store. After two (2) hours, the group decided
to go home. They went down Honeymoon road towards Rimando road to get a taxi for Litorco.
Upon noticing that Litorco could not carry himself, they decided to bring him to their boarding
house. Dagson assisted Litorco and walked ahead of Ganongan, Daodaoan, Tabanganay and
Alimani. As the latter four neared the Garcia store along Honeymoon road, Carlos Garcia, with
three companions, told them to stop, pointing a gun at them. Hearing the commotion, Dagson
who was walking about 5 to 7 meters ahead with Litorco rushed to the boarding house and
sought help. When Dagson came back, he was with Oliver, Arman and Dexter. When they
arrived, they saw Garcia pointing a gun at the group. Oliver Alimani approached Garcia who in
turn pointed his gun at Oliver and identified himself as barangay kagawad. At this time, Carlos
Doctolero Sr. was standing at the edge of Honeymoon road. He then put his arm over
Daodaoan‗s shoulder. Daoadaoan shoved Doctolero‗s hand and retreated. Doctolero stepped
back and fired twice at Daodaoan but missed. Tabanganay asked Daodaoan if he was hit and
upon answering that he was not, Tabanganay shouted at his friends to run. When Ganongan
turned around to run, Doctolero fired at him, hitting him twice. Oliver Alimani came to
Ganongan‗s aid when the latter yelled that he was hit. Thereafter, they hailed a taxi and rushed
Ganongan to Saint Louis University Hospital where he expired. Accused-appellant was
convicted of murder after appreciating the aggravating circumstance of treachery. He was
sentenced to suffer the penalty of reclusion perpetua and was ordered to indemnify the heirs of
Ganongan the amounts of P50,000.00 as civil indemnity, P227,808.00 as actual damages, and
P300,000.00 as moral damages plus costs.

ISSUE: Whether or not the accused was guilty of murder and the damages awarded to the
heirs were proper.

HELD: No. Since treachery was not proven to be resent in this case, the court deemed it proper
to convict the accused of the crime of homicide, instead of murder thus damages were reduced
to P112,413.40 representing funeral expenses, which were duly proven and covered by receipts.
Expenses relating to the 9th day, 40th day and 1st year anniversaries cannot be considered in the
award of actual damages as these were incurred after a considerable lapse of time from the burial
of the victim. With respect to the award of moral damages, the same is reduced to P50,000.00 in
accordance with existing jurisprudence.
 People v. Abulencia
22 August 2001

FACTS:
Victim, Rebelyn Garcia, minor, was allegedly raped and killed by accused, Rolly
Abulencia. Information was filed charging accused of rape with homicide. The lower court
convicted the accused and sentenced him to suffer the penalty of death and awarded damages in the
amount of Php 75,000, exemplary damages of PhP 20,000 and actual damages of PhP 6,425.

ISSUE: Whether or not award of damages was proper.

HELD:
The court ruled that the obligation to pay damages in cases of delict is provided by law.
The Supreme Court (SC) in affirming the decision of the lower court increased the amount of
damages from Php 75,000 to Php 100,000 as the latter amount is fixed in cases of rape with
homicide. The exemplary damages was increased by Php 5,000. Furthermore, the court gave
moral damages in the amount of Php 50,000.00 as the reason is obvious for the mental agony
that the family went through due to the death of a family member. The actual damage, being
supported by receipts, was retained. The judgment was affirmed with modifications on the
damages awarded.
 Bermudez v. Melecio-Herrera
26 February 1988
FACTS:
A cargo truck driven by Domingo Pontino and owned by Cordova Ng Sun Kwan hit a
jeepney. Rogelio, son of plaintiff, who was six-year old, is a passenger of the jeepney who
sustained injuries which caused his death. The plaintiff filed petition for reservation to file a
separate civil case when a criminal case was filed against Pontino. After which, the plaintiff filed
a civil case for damages. Having treated the case as a criminal one, the lower court acquitted
Kwan and ordered the suspension of the hearing of the civil case until the criminal case has been
decided.

ISSUE: Whether or not the reservation made by the plaintiff made the case based on crime.

HELD:
The court ruled that in cases of negligence, the offended party may choose to prosecute
the defendants according to a crime or a quasi-delict. If a party chooses the latter, he may hold
the employer solidary liable for the negligent act of his employee, subject to the employer's
defense of exercise of the diligence of a good father of the family. In the case at bar, the action
filed by appellant was an action for damages based on quasi-delict. The fact that appellants
reserved their right in the criminal case to file an independent civil action did not preclude them
from choosing to file a civil action for quasi-delict. The petition was granted.
 People v. Relova
06 March 1987
FACTS:
The defendant, Manuel Opulencia, was charged of a violation of an ordinance and was
acquitted due to prescription. Information was filed charging defendant of theft punishable under
the Revised Penal Code (RPC). The defendant then contended that the charge is a violation of
his right against double jeopardy.

ISSUE: Whether or not defendant may still be civilly liable under the circumstances.

RULING:
The court ruled that the acquittal on the ground of violation of right against double
jeopardy does not warrant release of civil liability since in the latter what is needed is only a
preponderance of evidence. The civil liability is different from the criminal aspect of the charge.
 Manantan v. CA
29 January 2001

FACTS:
The Provincial Fiscal of Isabela filed an information charging petitioner Manantan with
reckless imprudence resulting to homicide. On arraignment, the petitioner pleaded not guilty to
the crime charged. The prosecution‗s evidence, as summarized by the trial court indicated that
Manantan was driving 40 km/hr along the highway (although according to Charles Cudamon,
the car was running at a speed of 80 to 90 km/hr on the wrong lane of the highway because the
car was overtaking a tricycle, when they met a passenger jeepney with bright lights on). The
defense version was essentially the same as that of the prosecution, except that defense witness
Miguel Tabangin declared that Manantan did not drink beer that night. The RTC found that the
accused was not guilty. However, on appeal, the court modified the decision in favor of the
private respondents.
ISSUE: Whether or not extinguishment of criminal liability also extinguishes civil liability.
HELD:
The court ruled that our law recognizes two kinds of acquittal, with different effects on the
civil liability of the accused. First is an acquittal on the ground that the accused is not the author
of the act or omission complained of. The second is an acquittal based on reasonable doubt on
the guilt of the accused. In this case, even if the guilt of the accused has not been satisfactorily
established, he is not exempt from civil liability which may be proved by preponderance of
evidence only. A scrutiny of the lower court‗s decision in this case supports the conclusion of the
appellate court that the acquittal was based on reasonable doubt; hence petitioner‗s civil liability
was not extinguished by his discharge. The court noted that the trial court did not discount the
possibility that the accused was really negligent. The foregoing clearly shows that petitioner‗s
acquittal was predicated on the conclusion that his guilt had not been established with moral
certainty. Stated differently, it is an acquittal based on reasonable doubt and a suit to enforce civil
liability for the same act or omission lies.
 People v. Bayotas
236 SCRA 239
FACTS:
Rogelio Bayotas was charged with Rape and eventually convicted thereof on June 19,
1991. Pending appeal for his conviction, Bayotas died on February 4, 1994 at the National
Bilibid Hospital due to cardio-respiratory arrest secondary to hipato carcinoma gastric
malingering. Consequently the Supreme Court dismissed the criminal aspect of the appeal. It
however, required the Solicitor General to file its comment with regard to his civil liability
arising from his commission of the offense charged. In his comment the Solicitor General
expressed his view that the death of accused did not extinguish his civil liability as a result of his
commission of the offense charged. Counsel of the accused appellant opposed the view arguing
that the death of the accused while the judgment of conviction is pending appeal extinguishes
both his criminal and civil liability.
ISSUE: Whether or not the death of the accused pending appeal of his conviction extinguishes
his civil liability.
RULING: The court ruled that Article 89 of the RPC states that criminal liability is totally
extinguished by the death of the convict, as to the personal penalties; and as to the pecuniary
penalties liability therefore is extinguished only when the death of the offender occurs before
final judgment. It should be stressed that the extinction of civil liability follows the extinction of
the criminal liability under Art. 38, only when the civil liability arises from the criminal act as its
only basis. Stated differently, where the civil liability does not exist independently of the
criminal responsibility, the extinction of the latter by death, ipso facto extinguishes the former,
provided that the death supervenes before final judgment. In pursuing recovery of civil liability
arising from crime, the final determination of the criminal liability is a condition precedent to the
prosecution of the civil action, such that when the criminal action is extinguished by the demise
of accused-appellant pending appeal thereof, said civil action cannot survive. The claim for civil
liability springs out of and is dependent upon facts, which if true, would constitute a crime. Such
civil liability is an inevitable consequence of the criminal liability and is to be declared and
enforced in the criminal proceeding. If the private offended party, upon extinction of the civil
liability ex delicto desires to recover damages from the same act or omission complained of, he
must file a separate civil action, this time predicated not on the felony previously charged but on
other sources of obligation. The source of obligation upon which the action is premised
determines against whom the same shall be enforced. If the same act or omission complained of,
also arises from quasi delict or may, by provisions of law, result in an injury to person or
property, the separate civil action must be filed against the executor or administrator of the estate
of the accused.
 Quasi Delict as Source of Obligation

Barredo v. Garcia
73 P 607

FACTS:

Fontanilla is the employee of Barredo who was held liable for the death of Garcia caused
by the negligence of the taxi driver Fontanilla. A head-on collision happened in Malate in which
the Taxicab driven by Fontanilla, owned by Barredo, and a carratela guided by a certain
Dimapilin. A separate civil action was reserved and granted.

ISSUE: Whether or not the separate civil action filed against petitioner makes him primarily and
directly liable under Art. 1903 of the Civil Code as employer of Fontanilla.

RULING:

The court ruled that there are distinctions between crimes against culpa aquiliana, which
are the following: 1) crimes affect public interest the other private concern, 2) Penal Code
punishes or corrects the criminal act while the Civil Code by means of indemnification, merely
repairs the damage, and 3) Delicts are not as broad as quasi-delicts. In the instant case, Barredo is
being held liable not under the commission of the crime but under quasi-delict, in which he was
not able to overcome his own negligence in the selection and supervision of his employees.
Barredo then has two (2) liabilities, subsidiarily in the conviction of Fontanilla, and primarily
under Art. 1903. The judgment was affirmed.
 Del Carmen, Jr. vs. Geronimo Bacoy
25 April 2012

FACTS:

At the dawn on New Year‗s Day of 1993, Emilia Bacoy Monsalud, along with her
spouse Leonardo Monsalud, Sr. and their daughter Glenda Monsalud, were on their way home
from a Christmas party they attended in Poblacion, Sominot, Zamboanga Del Sur. Upon reaching
Purok Paglaom in Sominot, they were run over by a Fuso passenger jeep bearing plate number
UV-PEK-600 that was being driven by Allan Maglasang. The jeep was registered in the name of
petitioner Oscar del Carmen, Jr. (Oscar Jr.) and used as a public utility vehicle plying the
Molave, Zamboanga del Sur to Sominot, Zamboanga del Sur and vice versa route.

A criminal case was filed against Allan before the Regional Trial Court of Molave,
Zamboanga del Sur, Branch 23. In a Decision dated March 13, 1997, said court declared Allan
guilty beyond reasonable doubt of the crime charged. During the pendency of said criminal case,
Emilia‗s father, Geronimo Bacoy (Geronimo), in behalf of the six minor children of the
Monsaluds, filed a civil case, an independent civil action for damages based on culpa aquiliana.
Aside from Allan, also impleaded therein were his alleged employers, namely, the spouses Oscar
del Carmen, Sr. (Oscar Sr.) and Norma del Carmen (Spouses del Carmen) and the registered
owner of the jeep, their son Oscar Jr. Geronimo prayed for the reimbursement of funeral and
burial expenses, as well as the award of attorney‗s fees, moral and exemplary damages resulting
from the death of the three victims, and loss of net income earnings of Emilia who was employed
as a public school teacher at the time of her death. The RTC exculpated the spouses del Carmen
from civil liability for insufficiency of evidence. However, their son Oscar Jr. was held civilly
liable in a subsidiary capacity. The RTC anchored its ruling primarily on the principle of res ipsa
loquitur, i.e., that a presumption of negligence on the part of a defendant may be inferred if the
thing that caused an injury is shown to be under his management and that in the ordinary course
of things, the accident would not have happened had there been an exercise of care.

ISSUE: Whether or not the doctrine of res ipsa loquitor is present in this case.
HELD:
The court ruled that under the doctrine of res ipsa loquitur, "where the thing that caused
the injury complained of is shown to be under the management of the defendant or his servants;
and the accident, in the ordinary course of things, would not happen if those who had
management or control used proper care, it affords reasonable evidence – in the absence of a
sufficient, reasonable and logical explanation by defendant – that the accident arose from or was
caused by the defendant‗s want of care. The requisites of the doctrine of res ipsa loquitur are as
follows: 1) the accident is of a kind which does not ordinarily occur unless someone is negligent;
2) the cause of the injury was under the exclusive control of the person in charge and 3) the
injury suffered must not have been due to any voluntary action or contribution on the part of the
person injured.
The above requisites are all present in this case. First, no person just walking along the road
would suddenly be sideswiped and run over by an on-rushing vehicle unless the one in charge of
the said vehicle had been negligent. Second, the jeep which caused the injury was under the
exclusive control of Oscar Jr. as its owner. When Oscar Jr. entrusted the ignition key to Rodrigo,
he had the power to instruct him with regard to the specific restrictions of the jeep‗s use,
including who or who may not drive it. As he is aware that the jeep may run without the ignition
key, he also has the responsibility to park it safely and securely and to instruct his driver Rodrigo
to observe the same precaution. Lastly, there was no showing that the death of the victims was
due to any voluntary action or contribution on their part. The aforementioned requisites having
been met, there now arises a presumption of negligence against Oscar Jr. which he could have
overcome by evidence that he exercised due care and diligence in preventing strangers from
using his jeep. Unfortunately, he failed to do so.
 Philippine Hawk Corporation v. Lee
16 February 2010

FACTS:
The accident involved a motorcycle, a passenger jeep, and a bus. The bus was owned by
petitioner Philippine Hawk Corporation and was then being driven by Margarito Avila. On
March 15, 2005, Vivian Tan Lee filed before the RTC a complaint against Philippine Hawk
Corporation and Defendant Margarito Avila for damages based on quasi-delict, arising from a
vehicular accident that occurred on March 17, 1991 in Brgy. Buensoceco, Gumaca, Quezon. The
accident resulted in the death of respondent's husband, Silvino Tan, and caused respondent
physical injuries. The respondent sought the payment of indemnity for the death of Silvino Tan,
moral damages and exemplary damages, funeral and internment expenses, medical and
hospitalization expenses, the cost of the motorcycle's repair, attorney's fees and other just and
equitable reliefs. In its decision, the trial court held petitioner, Bus Company, is liable for failing
to exercise the diligence of a good father of the family in the selection and supervision of Avila,
having failed to sufficiently inculcate in him discipline and correct behavior of on the road. The
court of Appeals affirmed the decision on the trial court with modification in the award of
damages.

ISSUE: Whether or not petitioner is liable to respondent for damages.

HELD:

Yes. The Supreme Court upholds the Court of Appeals decision awarding respondent
moral damages for the physical injuries she sustained due to the vehicular accident. Under Art.
2219 of the civil code, moral damages may be recovered in quasi-delicts causing physical
injuries. Likewise, the Court of Appeals correctly awarded civil indemnity for the death of
respondent's husband, temperate damages, and moral damages for the physical injuries sustained
by respondent in addition to the damages granted by the trial court to the respondent.
 Dy Teban vs. Liberty Forest
G.R No. 161803, February 4, 2008

FACTS:

A Prime Mover Trailer suffered a tire blow out during the night of its travel at a national
highway. The trailer was owned by the respondent Liberty Forest. The driver allegedly put earl
warning devices but the only evidence being witnessed was a banana trunks and candles. Since
the car was placed at the right wing of the road, thus it cause the swerving of a Nissan van owned
by the petitioner when a passenger bus was coming in between the trailer. The Nissan van owner
claimed for damages against the respondent. The trial court found that the proximate cause of the
three –way accident is the negligence and carelessness of driver of the respondent . However
reversed the decision of the trial court.

ISSUE: Whether there was negligence on the part of the respondent.

HELD:

Yes. There was negligence on the part of the respondent when the latter failed to put and
used an early warning device because it was found out that there was no early warning device
being prescribed by law that was used by the driver in order to warn incoming vehicle.
Furthermore, the proximate cause of the accident was due to the position of the trailer where it
covered a cemented part of the road, thus confused and made trick way for other vehicles to pass
by. Thus the respondent is declared liable due to violation of road rules and regulations.
 Safeguard Security vs. Tangco
G.R No. 165732, December 14, 2006

FACTS:

Evangeline Tangco was depositor of Ecology Bank. She was also a licensed-fire arm
holder, thus during the incident, she was entering the bank to renew her time deposit and along
with her was her firearm. Suddenly, the security guard of the bank, upon knowing that the victim
carries a firearm, the security guard shot the victim causing the latter‗s instant death. The heirs
of the victim filed a criminal case against security guard and an action against Safeguard
Security for failure to observe diligence of a goof father implied upon the act of its agent.

ISSUE: Whether Safeguard Security can be held liable for the acts of its agent.

HELD:

Yes. The law presumes that any injury committed either by fault or omission of an
employee reflects the negligence of the employer. In quasi-delicts cases, in order to overcome
this presumption, the employer must prove that there was no negligence on his part in the
supervision of his employees. It was declared that in the selection of employees and agents,
employers are required to examine them as to their qualifications, experience and service
records. Thus, due diligence on the supervision and operation of employees includes the
formulation of suitable rules and regulations for the guidance of employees and the issuance of
proper instructions intended for the protection of the public and persons with whom the employer
has relations through his employees. Thus, in this case, Safeguard Security committed negligence
in identifying the qualifications and ability of its agents.
 Villanueva vs. Domingo
G.R No. 144274, September 20, 2004

FACTS:

In 1991, a collision was made by a green Mitsubishi lancer owned by Ocfemia against a
silver Mitsubishi lancer driven by Leandro Domingo and owned by petitioner Priscilla Domingo.
The incident caused the car of Domingo bumped another two parked vehicles. A charged was
filed against Ocfemia and the owner Villanueva. Villanueva claimed that he must not be held
liable for the incident because he is no longer the owner of the car, that it was already swapped to
another car . however, the trial court ordered the petitioner to pay the damages incurred by the
silver Mitsubishi lancer car.

ISSUE: Whether the owner Villanueva be held liable for the mishap.

HELD:

Under the Motor Vehicle law, it was declared that the registered owner of any vehicle is
primary land directly liable for any injury it incurs while it is being operated. Thus, even the
petitioner claimed that he was no longer the present owner of the car, still the registry was under
his name, thus it is presumed that he still possesses the car and that the damages caused by the
car be charge against him being the registered owner. The primary function of Motor vehicle
registration is to identify the owner so that if any accident happens, or that any damage or injury
is caused by the vehicle, responsibility therefore can be fixed on a definite individual, the
registered owner.
 Calalas vs. Court Of Appeals
G.R No. 122039, May 31, 2000

FACTS:

Eliza Sunga was a passenger of a jeepney owned and operated by the petitioner Calalas.
Private respondent Sunga sat in the rear protion of the jeepney where the conductor gave Sunga
an extension seat. When the jeep stopped, Sunga gave way to a passenger going outside the jeep.
However, an Isuzu Truck driven by Verene and owned by Salva, accidentally hit Sunga causing
the latter to suffer physical injuries where the attending physician ordered a three months of rest.
Sunga filed an action for damages against the petitioner for breach of contract of common
carriage by the petitioner. On the other hand, the petitioner Calalas filed an action against Salva,
being the owner of the truck. The lower court ruled in favor of ther petitioner, thus the truck
owner is liable for the damage to the jeep of the petitioner.

ISSUE: Whether the petitioner is liable.

HELD:

Yes. The petitioner is liable for the injury suffered by Sunga. Under Article 1756 of the
New Civil Code, it provides that common carriers are presumed to have been at fault or to have
acted negligently unless they prove that they observed extraordinary diligence as defined in Arts.
1733 and 1755 of the Code. This provision necessarily shifts to the common carrier the burden of
proof. In this case, the law presumes that any injury suffered by a passenger of the jeep is
deemed to be due to the negligence of the driver. This is a case on Culpa Contractual where there
was pre-existing obligations and that the fault is incidental to the performance of the obligation.
Thus, it was clearly observed that the petitioner has negligence in the conduct of his duty when
he allowed Sunga to seat in the rear portion of the jeep which is prone to accident.
 Picart vs. Smith
37 PHIL 813

FACTS:

Plaintiff was riding on his pony across the bridge. Before he had gotten half-way across,
the defendant approached from the opposite direction in an automobile. As the defendant neared
the bridge, he saw the plaintiff and blew his horn to give warning. The plaintiff heard the
warning signal but instead of going to the let, he pulled the pony closely up against the railing on
the right side of the bridge. He averred that he thought he did not have sufficient time to get over
the other side. As the automobile approached, the defendant guided it toward the plaintiff,
without diminution to speed, assuming the horseman would move to the other side. When he had
gotten quite near, there being no possibility o the horse getting across to the other side, the
defendant quickly turned his car sufficiently to the right to escape hitting the horse. However, the
horse was still hit and died while the rider was thrown off violently.

ISSUE: Whether the defendant was negligent in maneuvering his car giving rise to a civil
obligation.

HELD:

Yes. The Court held that the control of the situation has shifted to the defendant when the
incident occurred. At first, he has the right to assume that the horse and rider would pass over to
the other side but as he moved to the center, it was demonstrated that this would not be done. It
was then his duty to bring his car to an immediate stop or, seeing that there were no other person
on the bridge, to take the other side and ass sufficiently far away from the horse to avoid the
danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon
the horse. When the defendant exposed the horse and rider to this danger he was negligent in the
eye of the law.

Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have
foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing the
conduct or guarding against its consequences. Applying this test to the conduct of the defendant,
it is clear that negligence is established. A prudent man, laced in the position of the defendant,
would have recognized that the course which he was pursuing was fraught with risk, and would
therefore have foreseen harm to the horse and rider as a reasonable consequence of that course.
Under these circumstances the law imposed on the defendant the duty to guard against the
threatened harm. The plaintiff on the other hand was guilty of antecedent negligence in planting
himself on the wrong side o the road. The negligent acts of the two parties were not
contemporaneous, since the negligence of the defendant succeeded the negligence of the plaintiff
by an appreciable interval. Under these circumstances, the law is that the person who has the last
fair chance to avoid the impending harm and fails to do is chargeable with the consequences,
without reference to the prior negligence of the other party. In sum, though the plaintiff was
guilty of negligence or being on the wrong side of the bridge, the defendant was civilly liable as
he had fair chance to avoid the accident.
 Specific Real Obligations

Durban Apartments vs. Pioneer Insurance

G.R. No. 179419, January 12, 2011

FACTS:

On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right of
subrogation, filed [with the RTC of Makati City] a Complaint for Recovery of Damages against
[petitioner] Durban Apartments Corporation, doing business under the name and style of City
Garden Hotel, and [defendant before the RTC] Vicente Justimbaste x x x. [Respondent averred]
that: it is the insurer for loss and damage of Jeffrey S. See‗s [the insured‗s] 2001 Suzuki Grand
Vitara x x x with Plate No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the
amount of P1,175,000.00; on April 30, 2002, See arrived and checked in at the City Garden
Hotel in Makati corner Kalayaan Avenues, Makati City before midnight, and its parking
attendant, defendant x x x Justimbaste got the key to said Vitara from See to park it[. O]n May 1,
2002, at about 1:00 o‗clock in the morning, See was awakened in his room by [a] telephone call
from the Hotel Chief Security Officer who informed him that his Vitara was carnapped while it
was parked unattended at the parking area of Equitable PCI Bank along Makati Avenue between
the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the Hotel Chief Security Officer,
thereafter reported the incident to the Operations Division of the Makati City Police Anti-
Carnapping Unit, and a flash alarm was issued; the Makati City Police Anti-Carnapping Unit
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x
Justimbaste; See gave his Sinumpaang Salaysay to the police investigator, and filed a Complaint
Sheet with the PNP Traffic Management Group in Camp Crame, Quezon City; the Vitara has not
yet been recovered since July 23, 2002 as evidenced by a Certification of Non- Recovery issued
by the PNP TMG; it paid the P1,163,250.00 money claim of See and mortgagee ABN AMRO
Savings Bank, Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the
negligence of [petitioner] Durban Apartments and [defendant] Justimbaste because it was
discovered during the investigation that this was the second time that a similar incident of
carnapping happened in the valet parking service of [petitioner] Durban Apartments and no
necessary precautions were taken to prevent its repetition; [petitioner] Durban Apartments was
wanting in due diligence in the selection and supervision of its employees particularly defendant
x x x Justimbaste; and defendant x x x Justimbaste and [petitioner] Durban Apartments failed
and refused to pay its valid, just, and lawful claim despite written demands. Upon service of
Summons, [petitioner] Durban Apartments and [defendant] Justimbaste filed their Answer with
Compulsory Counterclaim alleging that: See did not check in at its hotel, on the contrary, he was
a guest of a certain Ching Montero x x x; defendant x x x Justimbaste did not get the ignition key
of See‗s Vitara, on the contrary, it was See who requested a parking attendant to park the Vitara
at any available parking space, and it was parked at the Equitable Bank parking area, which was
within See‗s view, while he and Montero were waiting in front of the hotel; they made a written
denial of the demand of [respondent] Pioneer Insurance for want of legal basis; valet parking
services are provided by the hotel for the convenience of its customers looking for a parking
space near the hotel premises; it is a special privilege that it gave to Montero and See; it does not
include responsibility for any losses or damages to motor vehicles and its accessories in the
parking area; and the same holds true even if it was See himself who parked his Vitara within the
premises of the hotel as evidenced by the valet parking customer‗s claim stub issued to him; the
carnapper was able to open the Vitara without using the key given earlier to the parking attendant
and subsequently turned over to See after the Vitara was stolen; defendant x x x Justimbaste saw
the Vitara speeding away from the place where it was parked; he tried to run after it, and blocked
its possible path but to no avail; and See was duly and immediately informed of the carnapping
of his Vitara; the matter was reported to the nearest police precinct; and defendant x x x
Justimbaste, and Horlador submitted themselves to police investigation.

ISSUE: Whether the lower courts erred in declaring petitioner as in default for failure to appear
at the pre-trial conference and to file a pre-trial brief.

HELD:
Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of respect and
are considered conclusive between the parties. A review of such findings by this Court is not
warranted except upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises, or conjectures; (2) when
a lower court‗s inference from its factual findings is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of
the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which,
if properly considered, will justify a different conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions without mention of the specific evidence on
which they are based, are premised on the absence of evidence, or are contradicted by evidence
on record. None of the foregoing exceptions permitting a reversal of the assailed decision exists
in this instance. Plainly, from the facts found by the lower courts, the insured See deposited his
vehicle for safekeeping with petitioner, through the latter‗s employee, Justimbaste. In turn,
Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from See‗s
delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received
with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss
of See‗s vehicle.
 Parties to Deliver

Lagon vs. Hooven Comalco

349 SCRA 363

FACTS:

This petition for review on certiorari seeks to set aside the Decision of the Court of
Appeals of 28 April 1997 which in turn set aside the decision of the Regional Trial Court of
Davao City and ordered petitioner Jose V. Lagon to pay respondent Hooven Comalco Industries,
Inc. (HOOVEN) the amount of P69,329.00 with interest at twelve percent (12%) per annum
computed from the filing of the complaint until fully paid, plus attorneys fees and costs, as well
as the Resolution of the appellate court denying reconsideration thereof.

ISSUE: Whether or not all the materials specified in the contracts had been delivered.

HELD:

The Supreme Court disagrees. The ocular inspection was made by the judge himself, at the
request of both petitioner and respondent, for the exclusive purpose of determining whether the
materials subject of this case were actually delivered and installed. There is therefore no basis to
give little evidentiary value on the results of the ocular inspection, as the Court of Appeals
would, and charge the trial court with error for relying thereon. It is now rather late for any of the
parties to disclaim them, especially when they are not in his or its favor. Furthermore, a cursory
reading of the decision of the court a quo will at once show that it was not premised solely on the
results of the ocular inspection but was likewise predicated on other evidence presented by the
parties and well-considered facts and circumstances discussed by the trial court in its ratio
decidendi. We cannot ignore the factual findings of the trial court, which must carry great weight
in the evaluation of evidentiary facts, and in the absence of any indication showing grave error
committed by trial court, the appellate court is bound to respect such findings of fact.
 Positive Personal Obligations

Spouses Francisco v. Court Of Appeals

401 SCRA 594

FACTS:

On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and Engineer
Bienvenido C. Mercado entered into a Contract of Development for the development into a
subdivision of several parcels of land in Pampanga. Respondent committed to complete the
construction within 27 months. Respondent also advanced P200,000.00 for the initial expenses
of the development work. In return, respondent would receive 50% of the total gross sales of the
subdivision lots and other income of the subdivision. Respondent also enjoyed the exclusive and
irrevocable authority to manage, control and supervise the sales of the lots within the
subdivision.

On 5 August 1986, respondent secured from the Human Settlements Regulatory

Commission ("HSRC") an extension of time to finish the subdivision development until 30 July
1987. On 8 August 1986, petitioners instructed respondent to stop selling subdivision lots and
collecting payments from lot buyers. On 20 January 1987, petitioners granted respondent an
authority to resume the sale of subdivision lots and the collection of payments subject to the
following conditions: (1) all collections shall be deposited in a joint account with China Banking
Corporation, San Fernando, Pampanga branch; (2) withdrawals shall be limited to 50% of the
total collections or to respondent's share, which can only be used for development expenses, and
any withdrawal shall be subject to the approval of petitioners; (3) only Franda Village
Subdivision receipts, duly countersigned by petitioners, shall be used; (4) collections shall be
subject to a weekly or monthly audit; and (5) any violation of these conditions shall result in the
automatic cancellation of the authority. Respondent filed an action to rescind the contract on the
ground that conditional authority issued by petitioners violated the Contract. Petitioners
countered that respondent breached the Contract by failing to finish the subdivision within the 27
months agreed upon, and therefore respondent was in delay. Petitioners also alleged that
respondent sold one subdivision lot to two different buyers.

ISSUE: Whether or not the respondent incurred delay in not finishing the work in the stipulated
time.

HELD:

The Supreme Court finds no merit in petitioner‗s claim that respondent incurred delay in
the performance of his obligation under the Contract. At that time, the law authorized HSRC to
grant extensions of time for completion of subdivision projects.

The law provides that delay may exist when the obligor fails to fulfill his obligation within the
time expressly stipulated. In this case, the HSRC extended the period for respondent to finish the
development work until 30 July 1987. Respondent did not incur delay since the period granted
him to fulfill his obligation had not expired at the time respondent filed the action for rescission
on 27 February 1987. Moreover petitioners hampered and interfered with respondent‗s
development work. Petitioners also stopped respondent from selling lots and collecting payments
from lot buyers, which was the primary source of development funds. In effect, petitioners
rendered respondent incapable, or at least made it difficult for him, to develop the subdivision
within the allotted period. In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply with what is incumbent upon him. It is only when one of
the parties fulfills his obligation that delay by the other begins. Respondent‗s failure to submit
the monthly report cannot serve as sufficient basis for the cancellation of the Contract. The
cancellation of a contract will not be permitted for a slight or casual breach. Only a substantial
and fundamental breach, which defeats the very object of the parties in making the contract, will
justify a cancellation. In the instant case, the development work continued for more than two
years despite the lack of a monthly report.
 Jacinto Tanguilig v. Court Of Appeals
G.R. No. 117190, January 2, 1997

FACTS:

Sometime in April 1987, petitioner entered into a contract with herein private respondent
to construct windmill for the latter. After some negotiations they agreed on the construction of
the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of
completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement
respondent paid petitioner a down payment of P30,000.00 and an installment payment of
P15,000.00, leaving a balance of P15,000.00.

On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. However, private respondent claimed that
petitioner did not build a deep well so he was not entitled for payment and also such windmill
was defective and was easily destroyed by a typhoon. Petitioner, on the other hand, denied the
inclusion of the construction of a deep well in their contract and besides the destruction of the
windmill is due to a force majeure. In finding for plaintiff, the trial court held that the
construction of the deep well was not part of the windmill project as evidenced clearly by the
letter proposals submitted by petitioner to respondent. The defects and the construction were not
also clearly proven by the respondent. However, Court of Appeals reversed the trial court. It
ruled that the construction of the deep well was included in the agreement of the parties because
the term "deep well" was mentioned in both proposals. His motion for reconsideration having
been denied by the Court of Appeals, petitioner now seeks relief from the Supreme Court.

ISSUES: Whether or not petitioner is obliged to construct the deep well and is obliged to repair
the windmills.

HELD:

No. The said deep well is not stipulated in their contract. Notably, nowhere in either
proposal is the installation of a deep well mentioned, even remotely. Neither is there an
itemization or description of the materials to be used in constructing the deep well. There is
absolutely no mention in the two (2) documents that a deep well pump is a component of the
proposed windmill system. In order for a party to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate
cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, four
(4) requisites 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 unforeseeable 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. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day
the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong
wind in this case cannot be fortuitous, unforeseeable or unavoidable. On the contrary, a strong
wind should be present in places where windmills are constructed, otherwise the windmills will
not turn.
 Breach of Obligations

Periquet Jr. vs. Court Of Appeals

238 SCRA 697

FACTS:

Spouses Fernando Periquet and Petra Francisco were left childless so they took in a son out
of wedlock of Maria, Petra‗s sister. The boy was given the name Fernando Periquet Jr., though
he was not legally adopted. On March 20, 1966, Fernando Periquet died. He left a will wherein
he named his wife Petra as his universal heir.

Unfortunately, Petra died after only four months and eighteen days later. Prior to her
untimely death, she asked her lawyer to prepare her last will and testament. Petra left her estate
to petitioner and provided for certain legacies to her brother, sister and children of her deceased
siblings. However, she died before she could sign it. On August 3,1966, Felix Francisco executed
a document of Assignment of Hereditary Rights in favor of Periquet Jr. other intestate heirs also
executed a Deed of assignment of Hereditary Rights except Florentino Zaragoza and Alberta
Zaragoza-Morgan. On December 13, 1969, petitioner entered into a compromise agreement with
the Zaragozas and Periquets.

The trial court approved the compromise agreement. Also, an order for adjudication and
transfer of the residue of the estate to petitioner was issued. On May 16, 1970, Felix Francisco
filed an action to annul the Assignment of Hereditary Rights he executed in favor of petitioner.
The action for annulment was based on gross misrepresentation and fraud, grave abuse of
confidence, mistake and undue influence and lack of cause and/or consideration in the execution
of the challenged Deed of Assignment.

ISSUES:
1. Whether or not the CA erred in disregarding and ignoring the trial court‗s strong and
substantial findings of fact that no fraud, deception, gross misrepresentation or undue
influence attended the execution and signing of the Deed of Assignment of Hereditary Rights.
2. Whether or not the Intermediate Appellate Court erred in disregarding the trial court‗s
strong and substantial findings of fact that no fraud, deception, gross misrepresentation or
undue influence attended the execution and signing of the deed of Assignment.

HELD:

Anent the 1st issue, YES. No fraud was employed by herein petitioner. Felix Francisco
could not be considered to have been deceived into signing the subject deed of assignment. The
kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted
to by one of the contracting parties to induce the other to enter into a contract which without
them he would not have agreed to. It must have a determining influence on the consent of the
victim. The will of the victim, in effect, is maliciously vitiated by means of a false appearance of
reality. In the case at bench, manifestations of fraud are non-existent. Resultantly, the
Assignment of Hereditary Rights executed by Felix Francisco in favor of herein petitioner is
valid and effective. Furthermore, the allegations of fraud, deception, gross misrepresentation, or
undue influence were not established by full, clear and convincing evidence. The finding of the
trial court as to its existence or non-existence is final and cannot be reviewed save only when the
finding it clearly shown to be erroneous.

Anent the 2nd issue, YES. The fraud that vitiates a contract refers to those insidious
words or machinations resorted to by one of the contracting parties to induce the other to enter
into a contract which without them he would not have agreed to. In the case at bench, no such
fraud was employed by herein petitioner. Clearly, Felix Francisco executed the document
voluntarily and freely basing it on the Trial Court‗s findings. The finding of the Trial Court as to
the existence of fraud is final and cannot be reviewed save only when the finding is clearly
shown to be erroneous.
 LEGASPI OIL CO., INC vs. THE COURT OF APPEALS
G.R. No. 96505, July 1, 1993

FACTS:

Respondent Bernard Oseraos acting through his authorized agents, had several
transactions with Legaspi Oil Co. for the sale of copra to the latter. The price at which appellant
sells the copra varies from time to time, depending on the prevailing market price when the
contract is entered into. One of his authorized agents, Jose Llover, had previous transactions with
appellee for the sale and delivery of copra. The records show that he concluded a sale for 70 tons
of copra at P95.00 per 100 kilos on May 27, 1975 and another sale for 30 tons of P102.00 per
100 kilos on September 23, 1975. Subsequently, on November 6, 1975, another designated agent
signed a contract in behalf of appellant for the sale of 100 tons of copra at P79.00 per 100 kilos
with delivery terms of 25 days effective December 15, 1975. At this point, it must be noted that
the price of copra had been fluctuating (going up and down), indicating its unsteady position in
the market.

On February 16, 1976, appellant's agent Jose Llover signed a contract for the sale of 100
tons of copra at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976. As
compared to appellant's transaction on November 6, 1975, the current price agreed upon is
slightly higher than the last contract. In all these contracts though, the selling price had always
been stated as "total price" rather than per 100 kilos. However, the parties have understood the
same to be per 100 kilos in their previous transactions.

After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus
leaving a balance of 53,666 kilos as per running account card. Accordingly, demands were made
upon appellant to deliver the balance with a final warning embodied in a letter dated October 6,
1976, that failure to deliver will mean cancellation of the contract, the balance to be purchased at
open market and the price differential to be charged against appellant. On October 22, 1976,
since there was still no compliance, appellee exercised its option under the contract and
purchased the undelivered balance from the open market at the prevailing price of P168.00 per
100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable
against appellant.

ISSUE: Whether or not private respondent Oseraos is liable for damages arising from fraud or
bad faith in deliberately breaching the contract of sale entered into by the parties.

HELD:

Yes. The private respondent is guilty of fraud in the performance of his obligation under
the sales contract whereunder he bound himself to deliver to petitioner 100 metric tons of copra
within twenty (20) days from March 8, 1976. However within the delivery period, Oseraos
delivered only 46,334 kilograms of copra to petitioner, leaving an undelivered thus a balance of
53,666 kilograms. Petitioner made repeated demands upon private respondent to comply with his
contractual undertaking to deliver the balance of 53,666 kilograms but private respondent elected
to ignore the same.

In a letter dated October 6, 1976, petitioner made a final demand with a warning that,
should private respondent fail to complete delivery of the balance of 53,666 kilograms of copra,
petitioner would purchase the balance at the open market and charge the price differential to
private respondent. Still private respondent failed to fulfill his contractual obligation to deliver
the remaining 53,666 kilograms of copra. On October 22, 1976, since there was still no
compliance by private respondent, petitioner exercised its right under the contract and purchased
53,666 kilograms of copra, the undelivered balance, at the open market at the then prevailing
price of P168.00 per 100 kilograms, a price differential of P86.00 per 100 kilograms or a total
price differential of P46,152.76.
 Mora

Philippine Charter Insurance v. Central Colleges of the Philippines

G.R. Nos. 180631-33, February 22, 2012

FACTS:

On May 16, 2000, Central Colleges of the Philippines (CCP), an educational institution,
contracted the services of Dynamic Planners and Construction Corporation (DPCC) to be its
general contractor for the construction of its five (5)-storey school building at No. 39 Aurora
Boulevard, Quezon City, with a total contract price ofP248,000,000.00. As embodied in a
Contract Agreement, the construction of the entire building would be done in two phases with
each phase valued at P124,000,000.00.

To guarantee the fulfillment of the obligation, DPCC posted three (3) bonds, all issued
by the Philippine Charter Insurance Corporation (PCIC), namely: (1) Surety Bond No. PCIC-
45542, dated June 25, 2003, amounting to P7,031,460.74, (2) Performance Bond No. PCIC-
45541 in the amount of P2,929,775.31 which was subsequently increased to P6,199,999.99
through Bond Endorsement No. E-2003/12527; and (3) Performance Bond No. PCIC-46172 for
P692,890.74. All the bonds were callable on demand and set to expire on October 30, 2003.

The Phase 1 of the project was completed without issue. Thereafter, CCP paid DPCC
P14,880,000.00 or 12% of the agreed price of P124,000,000.00 with a check datedMarch 14,
2002 as downpayment for the Phase 2 of the project.

ISSUE: Whether or not the CA grossly erred in upholding the CIAC award pronouncing
respondent CCP as rightfully and justifiably entitled to terminate the contract agreement?

HELD:

The civil law concept of delay or default commences from the time the obligor demands,
judicially or extrajudicially, the fulfillment of the obligation from the obligee. In legal parlance,
demand is the assertion of a legal or procedural right. Hence, DPCC incurred delay from the time
CCP called its attention that it had breached the contract and extrajudicially demanded the
fulfillment of its commitment against the bonds. It is the obligor‗s culpable delay, not merely the
time element, which gives the obligee the right to seek the performance of the obligation. As
such, CCP‗s cause of action accrued from the time that DPCC became in culpable delay as
contemplated in the surety and performance bonds. In fact, Surety Bond PCIC-45542,
Performance Bond PCIC-45541 and PCIC-46172 each specified how claims should be made
against it.
 Necessity of Demand

PNB MADECOR vs. GERARDO C. UY

G.R. No. 129598, August 15, 2001

FACTS:

Guillermo Uy, doing business under the name G.U. Enterprises, assigned to respondent
Gerardo Uy his receivables due from Pantranco North Express Inc. (PNEI) amounting to
P4,660,558.00. The deed of assignment included sales invoices containing stipulations regarding
payment of interest and attorney‗s fees. Thus, Uy filed with the RTC a collection suit with an
application for the issuance of a writ of preliminary attachment against PNEI.

A writ of preliminary attachment was issued on January 26, 1995, commanding the
sheriff to attach the properties of the defendant, real or personal, and/or (of) any person
representing the defendant‖ in such amount as to cover Gerardo Uy‗s demand. On January 27,
1995, the sheriff issued a notice of garnishment addressed to the Philippine National Bank
(PNB) attaching the goods, effects, credits, monies and all other personal properties of PNEI in
the possession of the bank, and requesting a reply within five days. PNB MADECOR received a
similar notice.

Petitioner then submitted a position paper stating that PNB MADECOR is a creditor of
PNEI with respect to the P8,784,227.48 and at the same time its debtor with respect to the
P7,884,000.00, PNB MADECOR and PNEI are therefore creditors and debtors of each other and
by force of the law on compensation, both obligations of PNB MADECOR and PNEI are
already considered extinguished to the concurrent amount or up to P7,884,000.00 so that PNEI is
still obligated to pay PNB MADECOR the amount of P900,227.48

ISSUE: Whether or not the letter of PNEI on September 28, 1984 to PNB MADECOR was
a demand letter.

HELD:

The Supreme Court observed that petitioner‗s obligation to PNEI appears to be payable
on demand. Petitioner is obligated to pay the amount stated in the promissory note upon receipt
of a notice to pay from PNEI. Henceforth, if petitioner fails to pay after such notice, the
obligation will earn an interest of 18 percentum per annum. The records showed that the letter
was not a demand letter but one that merely informed petitioner of the conveyance of a certain
portion of its obligation to PNEI per a dacion en pago arrangement between PNEI and PNB, and
the unpaid balance of obligation after deducting the amount conveyed to PNB. The letter only
connotes that PNEI was advising petitioner to settle the matter of implementing the earlier
arrangement with PNB.
 When Demand Not Necessary

IGNACIO BARZAGA vs. COURT OF APPEALS and ANGELITO ALVIAR G.R. No.
115129, February 12, 1997

FACTS:

Petitioner Ignacio Barzaga bought from the hardware store of respondent AngelitoAlviar
construction materials for the niche of his wife scheduled for internment on December 24, 1990.
He paid for the materials purchased but the circumstances of delivery with the specific date
(December 22), time (8 A.M.), and place (Memorial Cemetery, Dasmarinas) were not indicated
in the invoice receipts but were verbally acknowledged by the store attendant. Respondent was
not able to deliver the materials on the specified date and time which resulted to the delay in the
construction of the niche and consequently to the delay in the internment of petitioners wife. The
delay caused the inability of the petitioner to accede to the dying wishes of his wife that she be
buried on the 24th of the month. She was buried 2 and ½ days later, after Christmas.

ISSUE: Whether or not the respondent is liable for damages due to his non-performance of his
obligation to deliver the materials on the specified date and time.

HELD:

Yes, private respondent is liable for damages. Respondent‗s contention in the appellate
court that he did not incur delay in the performance of his obligation to deliver the thing sold to
petitioner since the time of delivery was not indicated in the invoice receipt covering the sale
could not be sustained in view of the positive verbal commitment of the respondent‗s
employee. It was no longer necessary to indicate the time of delivery. Respondent was negligent
and incurred delay in the performance of his contractual obligations. Respondent had no right to
manipulate petitioner‗s timetable and substitute it with his own. Therefore, he is liable for
moral damage for causing further anguish and pain, and suffering to the family of petitioner
especially during Christmas day, and for exemplary damages for not performing his obligation
under the business contract.
 JOSEFINA TAYAG, et. al. vs. COURT OF APPEALS and ALBRIGIDO LEYVA
G.R. No. 96053, March 3, 1993

FACTS:

The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his
demise in 1979, and CelerinaLabuguin, in favor of AlbrigidoLeyva involving the undivided one-
half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija is the subject matter of
the present litigation between the heirs of Juan Galicia, Sr. who assert breach of the conditions as
against private respondent‗s claim anchored on full payment and compliance with the
stipulations thereof.

The court of origin which tried the suit for specific performance filed by private
respondent on account of the herein petitioner‗s reluctance to abide by the covenant, ruled in
favor of the vendee while respondent court practically agreed with the trial court except as to the
amount to be paid to petitioners and the refund to private respondent are concerned.

There is no dispute that the sum of P3,000.00 listed as first installment was received by
Juan Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from
execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous
occasions from May 29, 1975, up to November 3, 1979. Concerning private respondent‗s
assumption of the vendor‗s obligation to the Philippine Veterans Bank, the vendee paid only the
sum of P6,926.41 while the difference of the indebtedness came from CelerinaLabuguin.
Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the
remaining balance was paid to them. Because of the apprehension that the heirs of Juan Galicia,
Sr. are disavowing the contract inked by their predecessor, private respondent filed the complaint
for specific performance.

ISSUE: Whether or not private respondent correctly anchored on estopped or waiver by

acceptance of delayed payments.

HELD:

Both the trial and appellate courts were correct in sustaining the claim of private
respondent anchored on estopped or waiver by acceptance of delayed payments under Article
1235 of the Civil Code in that: 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. Considering that the heirs of Juan Galicia, Sr. accommodated
private respondent by accepting the latter‗s delayed payments not only beyond the grace periods
but also during the pendency of the case for specific performance. Indeed, the right to rescind is
not absolute and will not be granted where there has been substantial compliance by partial
payments. By and large, petitioner‘s actuation is susceptible of but one construction-that they are
now estopped from reneging from their commitment on account of acceptance of benefits arising
from overdue accounts of private respondent. Now, as to the issue of whether payments had in
fact been made, there is no doubt that the second installment was actually paid to the heirs of
Juan Galicia, Sr. due to Josefina Tayag‗s admission in judicio that the sum of P10,000.00 was
fully liquidated. It is thus erroneous for petitioners to suppose that ―the evidence in the records
do not support this conclusion‖. A contrario, when the court of origin, as well as the appellate
court, emphasized the frank representation along this line of Josefina Tayag before the trial court,
petitioners chose to remain completely mute even at this stage despite the opportunity accorded
to them, for clarification.

Consequently, the prejudicial aftermath of Josefina Tayag‗s spontaneous reaction may no

longer be obliterated on the basis of estoppel. Insofar as the third item of the contract is
concerned, it may be recalled that respondent court applied Article 1186 of the Civil Code on
constructive fulfillment which petitioners claim should not have been appreciated because they
are the obliges while the proviso in point speaks of the obligor.

But, petitioners must concede that in a reciprocal obligation like a contract of purchase,
both parties are mutually obligors and also obliges, and any of the contracting parties may, upon
non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek
fulfillment (Article 1191, Civil Code).

Petitioners argue that there was no valid tender of payment nor consignation of the sum
of P18,520.00 which they acknowledge to have been deposited in court on January 22, 1981 five
years after the amount of P27,000.00 had to be paid. This suggestion ignores the fact that
consignation alone produced the effect of payment in the case at bar because it was established
that two or more heirs of Juan Galicia, Sr. claimed the same right to collect.

Moreover, petitioners did not bother to refute the evidence on hand that, aside from the
P18,520.00. These two figures representing private respondent‗s payment of the fourth condition
amount to P32,428.25, less the P3,778.77 paid by petitioners to the bank, will lead us to the sum
of P28,649.48 or a refund of P1,649.48 to private respondent as overpayment of the P27,000.00
balance.
 Mora Solvendi

RAQUEL-SANTOS vs. COURT OF APPEALS

592 SCRA 169, July 07, 2009

FACTS:
Finvest incurred liabilities to PSE representing fines and penalties for non-payment of its
clearing house obligations. PSE also received reports that Finvest. was not meeting its
obligations its clients. PSE suspended Finvest from trading. Finvest‗s total obligation to PSE
totaled to P5,990,839.99. Finvest promised to settle all obligations to its clients and to PSE
subject to verification of the amount due, but PSE granted Finvest‗s request, with the warning
that, should Finvest fail to meet the deadline, PSE might exercise its right to sell Finvest‗s
membership seat and use the proceeds thereof to settle its obligations to the PSE, its member-
brokers and its clients. Finvest protested the imposition of the deadline for being arbitrary on the
ground that the claims against it had not yet been established. At this juncture, Finvest filed a
Complaint with the SEC for accounting and damages with prayer for a temporary restraining
order and/or preliminary injunction and mandamus. Consequently, notices of garnishment and
sale were issued against Raquel-Santos Manila Golf Shares and Sta. Elena Golf Shares. On June
29, 2000, the parties entered into an Agreement, approved by the SEC en banc in its Order of
July 11, 2000, to remand the case to the Securities Investigation and Clearing Division for
service of summonses to Raquel-Santos and Mallari. With the enactment of the Securities
Regulation Code, the case was transferred to the Regional Trial Court (RTC), Makati City, and
docketed as Civil Case No. 00-1589. On October 2, 2001, the RTC issued an Order lifting the
garnishment. The CA held that the sale of Raquel-Santos share in Manila Golf Club was valid.

ISSUES:
1. Whether or notFinvest‗s liability for fines, penalties and charges has been established,
determined and substantiated, hence, liquidated.
2. Whether or not the remedies request by PSE are proper.

HELD:
1. Article 1159 of the Civil Code provides that contracts have the force of law between
the contracting parties and should be complied with in good faith. Being the primary law
between the parties, the contract governs the adjudication of their rights and obligations. A court
has no alternative but to enforce the contractual stipulations in the manner they have been agreed
upon and written.

A debt is liquidated when the amount is known or is determinable by inspection of the terms
and conditions of relevant documents.Under the attendant circumstances, it cannot be said that
Finvest‗s debt is liquidated. At the time PSE left the negotiating table, the exact amount of Finvest‗s
fines, penalties and charges was still in dispute and as yet undetermined. Consequently,
Finvest cannot be deemed to have incurred in delay in the payment of its obligations to PSE. It
cannot be made to pay an obligation the amount of which was not fully explained to it. The
public sale of the pledged seat would, thus, be premature.
2. The CA was correct in applying Article 1191 of the Civil Code, which indicates the
remedies of the injured party in case there is a breach of contract:

In some contracts of sale, such as the sale of real property, prior physical delivery of the
thing sold or its representation is not legally required, as the execution of the Deed of Sale
effectively transfers ownership of the property to the buyer through constructive delivery. Hence,
delivery of the certificate of title covering the real property is not necessary to transfer
ownership.

In the sale of shares of stock, physical delivery of a stock certificate is one of the essential
requisites for the transfer of ownership of the stocks purchased. Rescission creates the obligation
to return the things which were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who demands rescission can
return whatever he may be obliged to restore. Neither shall rescission take place when the things
which are the object of the contract are legally in the possession of third persons who did not act
in bad faith. In this case, indemnity for damages may be demanded from the person causing the
loss. To rescind is to declare a contract void at its inception and to put an end to it as though it
never was.

Rescission does not merely terminate the contract and release the parties from further
obligations to each other, but abrogates it from the beginning and restores the parties to their
relative positions as if no contract has been made. Mutual restitution entails the return of the
benefits that each party may have received as a result of the contract. In this case, it is the
purchase price that Finvest must return.
RIZAL COMMERCIAL BANKING CORPORATION vs. COURT OF APPEALS G.R. No.
133107, March 25, 1999

FACTS:

On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota Corolla
from Toyota Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the
purchase price to be paid in 24 equal monthly installments. Private respondent thus issued 24
postdated checks for the amount of P14, 976.00 each. The first was dated April 10, 1991;
subsequent checks were dated every 10th day of each succeeding month. To secure the balance,
private respondent executed a promissory note and a contract of chattel mortgage over the
vehicle in favor of Toyota Shaw, Inc. The contract of chattel mortgage, in paragraph 11 thereof,
provided for an acceleration clause stating that should the mortgagor default in the payment of
any installment, the whole amount remaining unpaid shall become due. In addition, the
mortgagor shall be liable for 25% of the principal due as liquidated damages.

On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel
mortgage to petitioner Rizal Commercial Banking Corporation (RCBC). All the checks dated
April 10, 1991 to January 10, 1993 were thereafter encashed and debited by RCBC from private
respondent's account, except for RCBC Check No. 279805 representing the payment for August
10, 1991, which was unsigned. Previously, the amount represented by RCBC Check No. 279805
was debited from private respondent's account but was later recalled and re-credited, to him.
Because of the recall, the last two checks, dated February 10, 1993 and March 10, 1993, were no
longer presented for payment. This was purportedly in conformity with petitioner bank's
procedure that once a client's account was forwarded to its account representative, all remaining
checks outstanding as of the date the account was forwarded were no longer presented for patent.

On the theory that respondent defaulted in his payments, the check representing the
payment for August 10, 1991 being unsigned, petitioner, in a letter dated January 21, 1993,
demanded from private respondent the payment of the balance of the debt, including liquidated
damages. The latter refused, prompting petitioner to file an action for replevin and damages
before the Pasay City Regional Trial Court (RTC). Private respondent, in his Answer, interposed
a counterclaim for damages.

ISSUE: Whether or not petitioner‗s claim is meritorious.

HELD:

No. Petitioner's conduct, in the light of the circumstances of this case, can only be
described as mercenary. Petitioner had already debited the value of the unsigned check from
private respondent's account only to re-credit it much later to him. Thereafter, petitioner
encashed checks subsequently dated, and then abruptly refused to encash the last two. More than
a year after the date of the unsigned check, petitioner, claiming delay, demanded from private
respondent payment of the value of said check and that of the last two checks, including
liquidated damages. As pointed out by the trial court, this whole controversy could have been
avoided if only petitioner bothered to call up private respondent and ask him to sign the check.
Good faith, not only in compliance with its contractual obligations, but also in observance of the
standard in human relations, for every person "to act with justice, give everyone his due, and
observe honesty and good faith." behooved the bank to do so. Failing thus, petitioner is liable for
damages caused to private respondent. These include moral damages for the mental anguish,
serious anxiety, besmirched reputation, wounded feelings and social humiliation suffered by the
latter.
 Mora Accipiendi

State Investment vs. Court Of Appeals

198 SCRA 392, 17 February 1992

FACTS:

On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of
stock to petitioner State Investment House Inc. in order to secure a loan of P120,000.00. Prior to the
execution of the pledge, respondent spouses Jose and Marcelina Aquino signed an agreement with
petitioner State for the latter‗s purchase of receivables amounting to P375,000.00. When the 1st
Account fell due, respondent spouses paid the same partly with their own funds and partly from the
proceeds of another loan which they obtained also from petitioner designated as the 2nd Account.
This new loan was secured by the same pledge agreement executed in relation to the 1st Account.
When the new loan matured, State demanded payment. Respondents expressed willingness to pay,
requesting that upon payment, the shares of stock pledged be released. Petitioner State denied the
request on the ground that the loan which it had extended to the spouses Jose and Marcelina Aquino
has remained unpaid.

On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of Notarial
Sale stating that upon request of State and by virtue of the pledge agreement, he would sell at public
auction the shares of stock pledged to State.

ISSUE: Whether or not the conditions to be complied with by the debtor desirous of being released
from his obligation in cases where the creditor unjustly refuses to accept payment have been met by
the spouses Aquino.

HELD:

NO. The conditions had not been complied with. Article 1256 of the civil code states that: 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 consignation of the thing or sum due.‖ Where the
creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation
must comply with two (2) conditions, viz: (a) tender of payment; and (b) consignation of the sum
due. Tender of payment must be accompanied or followed by consignation in order that the effects of
payment may be produced. Thus, in Llamas v. Abaya, the Supreme Court stressed that a written
tender of payment alone, without consignation in court of the sum due, does not suspend the accruing
of regular or monetary interest. In the instant case, respondent spouses Aquino, while they are
properly regarded as having made a written tender of payment to petitioner state, failed to consign in
court the amount due at the time of the maturity of the 2nd Account No. It follows that their
obligation to pay principal-cum-regular or monetary interest under the terms and conditions of the
said Account was not extinguished by such tender of payment alone.
 Compensatio Morae

BPI Investment Corporation vs. Hon. Court Of Appeals

G.R. No. 133632, 15 February 2002

FACTS:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), predecessor of petitioner BPIIC for the
construction of a house on his lot. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio
Litonjua. They paid P350,000 in cash and assumed the P500,000 balance of Roa‗s indebtedness
with AIDC. The latter, however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of P500,000 to be applied to Roa‗s debt and
secured by the same property, at an interest rate of 20% per annum. In June 1984, BPIIC
instituted foreclosure proceedings against private respondents on the ground that they failed to
pay the mortgage indebtedness. Private respondents on the other hand alleged that they were not
in arrears in their payment, but in fact made an overpayment as of June 30, 1984.

ISSUE: Whether or not petitioner may be held liable for moral and exemplary damages.

HELD:

Petitioner claims that it should not be held liable for moral and exemplary damages for it did not
act maliciously when it initiated the foreclosure proceedings. It merely exercised its right under
the mortgage contract because private respondents were irregular in their monthly amortization.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said
damages because it insisted on the payment of amortization on the loan even before it was
released. Further, it did not make the corresponding deduction in the monthly amortization to
conform to the actual amount of loan released, and it immediately initiated foreclosure
proceedings when private respondents failed to make timely payment. But as admitted by private
respondents themselves, they were irregular in their payment of monthly amortization. Thus, we
cannot properly declare BPIIC in bad faith. Consequently, we should rule out the award of moral
and exemplary damages. However, in our view, BPIIC was negligent in relying merely on the
entries found in the deed of mortgage, without checking and correspondingly adjusting its
records on the amount actually released to private respondents and the date when it was released.
Such negligence resulted in damage to private respondents, for which an award of nominal
damages should be given in recognition of their rights which were violated by BPIIC. For this
purpose, the amount of P25,000 is sufficient. Lastly, we sustain the award of P50,000 in favor of
private respondents as attorney‗s fees since they were compelled to litigate.
 Leaño vs. Court Of Appeals
G.R. No. 12901, 21 October 2006

FACTS:

Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to

sell involving a piece of land. In the contract, Leaño bound herself to pay Fernando P10,775.00
at the signing of the contract with the balance of P96,975.00 to be paid within a period of TEN
(10) years at a monthly amortization of P1,747.30. The contract also provided for a grace period
of one month within which to make payments, together with the one corresponding to the month
of grace. Should the month of grace expire without the installments for both months having been
satisfied, an interest of 18% per annum will be charged on the unpaid installments.

ISSUES: Whether or not there was delay on the petitioner‗s part in the payment of the
monthly amortization.

HELD:
YES, there was delay on the petitioner‗s part to pay the monthly amortizations. Article
1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
Since respondent Fernando performed his part of the obligation by allowing Leaño to have
possession over the property and the latter not having paid the monthly amortization in
accordance with the terms of the contract, the petitioner incurred delay and therefore is liable for
damages.

The transaction was not an absolute sale; rather, it was a conditional sale. The very
intention of the parties was to reserve the ownership of the land in the seller until the buyer has
paid the total purchase price.

First, the contract to sell makes the sale, cession and conveyance subject to conditions
set forth on the contract. Second, what was transferred was possession and not ownership.
Finally, the land is covered by the Torrens title, the act of registration of the deed of sale was the
operative act that could transfer ownership over the lot. No deed could be registered in the case
at bar since as stipulated in the contract, such deed shall be executed upon completion of
payment by Leaño. In a contract to sell real property on installments, full payment of the
purchase price is a positive suspensive condition and the failure of the payment is not a breach
but rather shall be an event that will prevent the obligation of the seller to convey the title from
acquiring any obligatory force. The transfer of ownership and title would occur after full
payment of the price.
 Heirs of Bacus vs. Court Of Appeals
371 SCRA 295 3 December 2001
FACTS:
Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land. The
contract contained an option to buy clause. Under said option, the lessee had the exclusive and
irrevocable right to buy 2,000 square meters of the property within five years from a year after
the effectivity of the contract. Close to the expiration of the contract, Luis Bacus died. Thereafter,
the Duray spouses informed one of the heirs of Luis Bacus, that they were willing and ready to
purchase the property under the option to buy clause. Due to the refusal of petitioners to sell the
property, Duray filed a complaint for specific performance against the heirs of Luis Bacus asking
that he be allowed to purchase the lot specifically referred to in the lease contract with option to
buy. On the other hand, petitioners alleged that before Luis Bacus‘ death, private respondents
conveyed to them the former‘s lack of interest to exercise their option because of insufficiency of
funds. They further alleged that private respondents did not deposit the money as required by the
Lupon and instead presented a bank certification which cannot be deemed legal tender.
ISSUES:
1. Whether or not when the respondents opted to buy the property, were they already required to
deliver the money or consign it in court before the execution of the deed of transfer.
2. Whether or not the private respondents incurred in delay when they did not deliver the
purchase price or consign it in court or before the expiration of the contract.
HELD:

1. NO, the petitioners were not required to deliver the money or consign it in court. Obligations
under an option to buy are reciprocal obligations. The performance of one obligation is
conditioned on the simultaneous fulfillment of the other obligation. In an option to buy, the
payment of the purchase price by the creditor is contingent upon the execution and delivery of a
deed of sale by the debtor. In the case at bar, the respondents were not yet obliged to make actual
payment. Consequently, since the obligation was not yet due, consignation in court of the
purchase price was not yet required.

2. NO, the private respondents did not incur delay when they did not deliver the purchase price
or consign it in court or before the expiration of the contract. 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 requires a prior tender of payment. Petitioners‘ contention
that private respondents failed to comply with their obligation under the option to buy because
they failed to actually deliver the purchase price or consign it in court before the contract expired
is not tenable. Ergo, the private respondents did not incur any delay when they did not yet deliver
payment or make consignation before the expiration of the contract. In reciprocal obligations,
neither party incurs delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Only from the moment one of the parties fulfills his
obligation, does delay by the other begins.
 In the case at bar, as early as March 15, 1990, respondents communicated with the
petitioners that they intended to exercise their exclusive right to buy the parcel of land stipulated
in the contract but which was not given due course by the petitioners unless there is delivery of
the sum of money. As there was no compliance with what was incumbent upon the petitioners
under the option to but private respondents had not incurred in delay when the cashier‗s check
was issued even after the contract expired.
 Integrated Packaging Corporation vs. Court of Appeals
G.R. No. 115117 8 June 2000
FACTS:
Petitioner and private respondent executed an order agreement whereby private
respondent bound itself to deliver to petitioner 3,450 reams of printing papers under specified
schedule of delivery. As of July 30, 1979, private respondent had delivered to petitioner 1,097
reams of printing paper out of the total 3,450 reams stated in the agreement. Petitioner alleged it
wrote private respondent to immediately deliver the balance because further delay would greatly
prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered
again to petitioner various quantities of printing paper amounting to P766,101.70. However,
petitioner encountered difficulties paying private respondent said amount. Accordingly, private
respondent made a formal demand upon petitioner to settle the outstanding account. Private
respondent filed a collection suit against petitioner for the sum of P766,101.70, representing the
unpaid purchase price of printing paper bought by petitioner on credit. In its answer, petitioner
denied the material allegations of the complaint. It alleged that private respondent was able to
deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total disregard of
their agreement; that private respondent failed to deliver the balance of the printing paper despite
demand therefore, hence, petitioner suffered actual damages and failed to realize expected
profits.
ISSUES:
1. Whether or not private respondent violated the order agreement.
2. Whether or not private respondent is liable for petitioner‗s breach of contract with Philacor.

HELD:

Anent the 1st issue, NO. The transaction between the parties is a contract of sale whereby
Fil-Anchor obligates itself to deliver printing paper to Integrated which, in turn, binds itself to
pay a sum of money. Both parties conceded that the order agreement gives rise to reciprocal
obligations such that the obligation of one is dependent upon the obligation of the other.
Reciprocal obligations are to be performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other. Fil-Anchor undertakes to deliver
printing paper of various quantities subject to petitioner‗s corresponding obligation to pay, on a
maximum 90-day credit, for the materials. Petitioner Integrated did not fulfill its side of the
contract as its last payment in August 1981 could only cover materials covered by delivery
invoices dated September and October of 1980. Consequently, Fil-Anchor‗s suspension of its
deliveries to petitioner whenever the latter failed to pay on time is legally justified. Fil-Anchor
has the right to cease making further delivery; hence, it did not violate the order agreement. On
the contrary, it was Integrated which breached the agreement as it failed to pay on time the
materials delivered by private respondent.

Anent the 2nd issue, NO. Fil-Anchor cannot be held liable under the contracts entered
into by petitioner with Philacor because it is not a party to said agreements. It is also not a
contract pour autriu. The contracts could not affect third persons like private respondent because
of the basic civil law principle of relativity of contracts which provides that contracts can only
bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof.
 Roberto Z. Laforteza, et.al. vs. Alonzo Machuca
G.R. No. 137552, June 16, 2000

FACTS:

In the exercise of the Special Power of Attorney executed by their co-heirs, by Roberto Z.
Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to
Sell) with the plaintiff over the subject house and lot for the sum of P630,000.00. On September
18, 1998, defendant heirs, through their counsel wrote a letter to the plaintiff furnishing the latter
a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to
produce the balance of P600,000.00 under the Memorandum of Agreement which plaintiff
received on the same date. The plaintiff requested a 30-day extension within which he would pay
the balance of the purchase price. This was granted by Roberto Laforteza but not by Gonzalo
Laforteza, the second attorney-in-fact.

On November 15, 1989, plaintiff informed the defendant heirs, through defendant
Roberto Z. Laforteza, that he already has the money. However, the defendants, refused to accept
the told him that the subject property was no longer for sale. Thereafter, plaintiff reiterated his
request to tender payment of the balance but the defendants insisted on the rescission of the
Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific
performance.

ISSUE: Whether or not the rescission of the agreement for failure by the private respondent to
fulfill his obligations was validly done.

HELD:

Admittedly, the failure of the respondent to pay the balance of the purchase price was a
breach of the contract and was a ground for rescission thereof. The extension of thirty (30) days
allegedly granted to the respondent by Roberto Z. Laforteza was correctly found by the Court of
Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear
thereon as required by the Special Powers of Attorney. However, the evidence reveals that after
the expiration of the six-month period provided for in the contract, the petitioners were not ready
to comply with what was incumbent upon them, i.e. the delivery of the reconstituted title of the
house and lot. It was only on September 18, 1989 or nearly eight months after the execution of
the Memorandum of Agreement when the petitioners informed the respondent that they already
had a copy of the reconstituted title and demanded the payment of the balance of the purchase
price. The respondent could not therefore be considered in delay for in reciprocal obligations,
neither party incurs in delay if the other party does not comply or is not ready to comply in a
proper manner with what was incumbent upon him.
 Fraud(Dolo)

Regala vs. Carin

G.R. No. 188715, April 6, 2011

FACTS:

Petitioner and respondent are adjacent neighbor‘s at Spirig Street, BF Resort Village, Las
Piñas City. When petitioner decided to renovate his one storey residence by constructing a
second floor, he under the guise of merely building an extension to his residence, approached
respondent sometime in May 1998 for permission to bore a hole through a perimeter wall shared
by both their respective properties, to which respondent verbally consented on condition that
petitioner would clean the area affected by the work. As earlier indicated, petitioner‘s real
intention was to build a second floor, in fact with a terrace atop the dividing wall. In the course
of the construction of the second floor, respondent and his wife Marietta suffered from the dust
and dirt which fell on their property.

ISSUE: Whether or not the injuries sustained by respondent was done maliciously.

HELD:

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that
malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill
will. While the Court harbors no doubt that the incidents which gave rise to this dispute have
brought anxiety and anguish to respondent, it is unconvinced that the damage inflicted upon
respondent‘s property was malicious or willful, an element crucial to merit an award of moral
damages under Article 2220 of the Civil Code. Necessarily, the Court is not inclined to award
exemplary damages. Petitioner, however, cannot steer clear from any liability whatsoever.
Respondent and his family‘s rights to the peaceful enjoyment of their property have, at the very
least, been inconvenienced from the incident borne of petitioner‘s construction work. Any
pecuniary loss or damage suffered by respondent cannot be established as the records are bereft
of any factual evidence to establish the same. Nominal damages may thus be adjudicated in order
that a right of the plaintiff, respondent herein, which has been violated or invaded by the
defendant, petitioner herein, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.
 Dolo Incidente

The International Corporate vs. Sps. Gueco

G.R. No. 141968 12 February 2001

FACTS:

The Gueco Spouses obtained a loan from petitioner International Corporate Bank (now
Union Bank of the Philippines) to purchase a car. In consideration thereof, the Spouses executed
promissory notes which were payable in monthly installments and chattel mortgage over the car
to serve as security for the notes. The Spouses defaulted in payment of installments. After some
negotiations and computation, the amount of car loan was lowered. Finally, Dr. Gueco delivered
a manager‗s check in the amount of reduced car loan but the car was not released because of his
refusal to sign the Joint Motion to Dismiss. Petitioner, however, insisted that the joint motion to
dismiss is standard operating procedure in their bank to effect a compromise and to preclude
future filing of claims, counterclaims or suits for damages.

ISSUE: Whether or not there was fraud in the part of herein petitioner.

RULING:

Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the
voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects
which naturally and necessarily arise from such act or omission. We fail to see how the act of the
petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as
fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint
motion to dismiss is a standard operating procedure of petitioner bank. However, this cannot in
anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr.
Gueco, as the case filed by petitioner against it before the lower court would be dismissed with
prejudice. The whole point of the parties entering into the compromise agreement was in order
that Dr. Gueco would pay his outstanding account and in return petitioner would return the car
and drop the case for money and replevin before the Metropolitan Trial Court.

Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss cannot be said
to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the
parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only
be awarded when the breach was attended by fraud or bad faith. The law presumes good faith.
Dr. Gueco failed to present an iota of evidence to overcome this presumption. Necessarily, the
claim for exemplary damages must fail. In no way, may the conduct of petitioner be
characterized as wanton, fraudulent, reckless, oppressive or malevolent.
 Republic of the Philippines vs. the Court of Tax Appeals
G.R. No. 139050, 23 October 2000

FACTS:

On 12 December 1992, a shipment of bales of textile gray cloth arrived at the Manila
International Container Port (MICP). There has been a mistake in the name of the consignee
provided in the shipment's Inward Foreign Manifest. Forthwith, the shipping agent, FIL-JAPAN,
requested for an amendment of the Inward Foreign Manifest so as to correct the name of the
consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc. Subsequently, FIL-
JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in
turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs
Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment under Hold
Order on the ground that GQ GARMENTS, Inc., could not be located in its given address and
was thus suspected to be a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l)
(3-5) of the Tariff and Customs Code were initiated.

ISSUE: Whether or not AGFHA, Inc. committed fraud in the importation of bales of cloth.

HELD:

The requisites for the forfeiture of goods under the Tariff and Customs Code are: (a) the
wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or
the wrongful making or delivery by the same person of any invoice, letter or paper - all touching
on the importation or exportation of merFdise; (b) the falsity of such declaration, affidavit,
invoice, letter or paper; and (c) an intention on the part of the importer/consignee to evade the
payment of the duties due. Petitioner asserts that all of these requisites are present in this case. It
contends that it did not presume fraud, rather the events positively point to the existence of fraud.
On the other hand, AGFHA, Inc. maintains that there has only been an inadvertent error and not
an intentional wrongful declaration by the shipper to evade payment of any tax due.

Fraud must be proved to justify forfeiture. It must be actual, amounting to intentional

wrong-doing with the clear purpose of avoiding the tax. Mere negligence is not equivalent to the
fraud contemplated by law. What is here involved is an honest mistake, not even directly
attributable to private respondent, which will not deprive the government of its right to collect
the proper tax. The Collector of Customs, Court of Tax Appeals and the Court of Appeals are
unanimous in concluding that no fraud has been committed by AGFHA, Inc. in the importation
of the bales of cloth. Therefore, the forfeiture cannot be justified.
 Malicious
Prosecution

Diaz vs. Davao Light

GR No. 160959, 2 April 2007
FACTS:
Plaintiff asks for damages for defendant‗s alleged malicious prosecution of a criminal
case of theft of electricity against him, for plaintiff‗s filing of a charge of violation of P.D. 401 as
amended after dismissal of the theft case, the filing of a damage suit against him before the RTC
of Cebu City which was dismissed and the filing of another damage suit before the same Cebu
RTC which is still pending. Damages are also being sought for defendant‗s removal of Electric
Meter, but this is a subject matter of a case pending before Branch 13 of this Court and therefore
said court retains jurisdiction over the said cause of action.
The RTC held that while the City Prosecutor, and later the Secretary of Justice,
concluded that there was no probable cause for the crime of theft, this did not change the fact
that plaintiff made an illegal connection for electricity. A person‗s right to litigate should not be
penalized by holding him liable for damages.
On October 1, 2003, the CA affirmed the decision of the RTC. It concluded that the
evidence on hand showed good faith on the part of DLPC in filing the subject complaints. It
pointed out that Diaz had been using the electrical services of DLPC without its consent. As to
the effect of the compromise agreement, the CA ruled that it did not bar the filing of the criminal
action. Thus, under the principle of damnum absque injuria, the legitimate exercise of a person‗s
right, even if it causes loss to another, does not automatically result in an actionable injury.

ISSUES: Whether or not DLPC acted in bad faith in instituting the criminal cases against Diaz.

HELD:

It is an established rule that in order for malicious prosecution to prosper, the following
requisites must be proven by petitioner: (1) the fact of prosecution and the further fact that the
defendant (respondent) was himself the prosecutor, and that the action finally terminated with an
acquittal; (2) that in bringing the action, the prosecutor acted without probable cause; and (3) that
the prosecutor was actuated or impelled by legal malice, that is, by improper or sinister motive.
The foregoing are necessary to preserve a person‗s right to litigate which may be emasculated by
the undue filing of malicious prosecution cases. From the foregoing requirements, it can be
inferred that malice and want of probable cause must both be clearly established to justify an
award of damages based on malicious prosecution. DLPC was not motivated by malicious intent
or by a sinister design to unduly harass petitioner, but only by a well-founded anxiety to protect
its rights. Respondent DLPC cannot therefore be faulted in availing of the remedies provided for
by law.
 Yasoña vs. De Ramos
G.R. No. 156339, October 6, 2004

FACTS:

Aurea Yasoña and her son, Saturnino, went to the house of Jovencio de Ramos to ask for
financial assistance in paying their loans to Philippine National Bank (PNB), otherwise their
residential house and lot would be foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded
to the request. They agreed that, upon payment by Jovencio of the loan to PNB, half of
Yasoñas‗property would be sold to him. Jovencio paid Aurea‗s bank loan. As agreed upon,
Aurea executed a deed of absolute sale in favor of Jovencio over half of the lot consisting of 123
square meters. Thereafter, the lot was surveyed and separate titles were issued by the Register of
Deeds of Sta. Cruz, Laguna in the names of Aurea and Jovencio.

Twenty-two years later, in August 1993, Aurea filed an estafa complaint against brothers
Jovencio and Rodencio de Ramos on the ground that she was deceived by them when she asked
for their assistance in 1971 concerning her mortgaged property. In her complaint, Aurea alleged
that Rodencio asked her to sign a blank paper on the pretext that it would be used in the
redemption of the mortgaged property.

On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis dismissed the
criminal complaint for estafa for lack of evidence. On account of this dismissal, Jovencio and
Rodencio filed a complaint for damages on the ground of malicious prosecution. They alleged
that the filing of the estafa complaint against them was done with malice and it caused
irreparable injury to their reputation, as Aurea knew fully well that she had already sold half of
the property to Jovencio.

ISSUE: Whether or not the filing of the criminal complaint for estafa by petitioners against
respondents constituted malicious prosecution?

HELD:

Malicious prosecution, both in criminal and civil cases, requires the elements of (1)
malice and (2) absence of probable cause.These two elements are present in the present
controversy. The complaint for estafa was dismissed outright as the prosecutor did not find any
probable cause against respondents. A suit for malicious prosecution will prosper where legal
prosecution is carried out without probable cause.
 Degrees of Diligence

Asian Terminals, Inc. vs. Philam Insurance Co., Inc

G.R. Nos. 181163, 181262, and 181319, July 24, 2013

FACTS:

On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation 219
packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4×2 model,
without engine, tires and batteries, on board the vessel S/S Calayan Iris from Japan to Manila.
The shipment, which had a declared value of US$81,368 or P29,400,000, was insured with
Philam against all risks under the marine Policy no. 708-8006717-4. The carrying vessel arrived
at the port of manila on April 20, 1995, and when the shipment was unloaded by the staff of ATI,
it was found that the package marked as 03-245-42K/1 was in bad order. The Turn Over Survey
of bad order cargoes dated April 21, 1995 identified two packages, labelled 03-245-42K/1 and
03/237/7CK/2, as being dented and broken. Thereafter, the cargoes were stored for temporary
safekeeping inside CFS Warehouse in Pier No. 5.

On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc.,
the authorized broker of Universal Motors, and delivered to the latter‗s warehouse in
Mandaluyong City. Upon the request of Universal Motors, a bad order survey was conducted on
the cargoes and it was found that one Frame Axle Sub without LWR was deeply dented on the
buffle plate while six Frame Assembly with Bush were deformed and misaligned. Owing to the
extent of the damage to said cargoes, Universal Motors declared them a total loss.

ISSUE: Whether or not Philam may claim against Westwind and ATI.

HELD:

Petitioner Philam‗s action finds support in Article 2207 of the Civil Code which
provides that if the plaintiff‗s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. In Malayan Insurance Co., Inc. vs.
Alberto, the Court explained the effect of payment by the insurer of the insurance claim in this
wise: We have held that payment by the insurer to the insured operates as an equitable
assignment to the insurer of all the remedies that the insured may have against the third party
whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It
is designed to promote and accomplish justice; and is the mode that equity adopts to compel the
ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.

Negligence as a Question of
Fact
 Yambao vs. Zuñiga
G.R. No. 14617, December 11, 2003

FACTS:

On May 6, 1992 at around 3:30 P.M, the bus owned by petitioner Cecilia Yambao was
being driven by her driver, one Ceferino G. Venturina along EDSA. Suddenly, the bus bumped
HerminigildoZuñiga, a pedestrian. Such was the force of the impact that the left side of the front
windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital
where he was given medical attention, but due to the massive injuries sustained, he succumbed
shortly thereafter.

A complaint against petitioner and her driver for damages was filed at the Regional Trial
Court of Malolos City. In her answer, the petitioner vehemently denied the material allegations of
the complaint. She tried to shift the blame upon the victim, theorizing that Herminigildo bumped
into her bus, while avoiding an unidentified woman who was chasing him. Furthermore, she
alleged that she was not liable for any damages because she exercised the proper diligence of a
good father of a family both in the selection and supervision of her bus driver. The trial court
rendered its decision holding petitioner and her driver liable for the untimely death of Zuñiga and
to indemnify his legal heirs, the herein respondents. The Court of Appeals affirmed the said
decision of the RTC. Petitioner duly moved for reconsideration, but her motion was denied for
lack of merit.

ISSUE: Whether or not the petitioner exercised the diligence of a good father of a family in the
selection and supervision of her employees thus absolving her from any liability.

HELD:

YES. Whether a person is negligent or not is a question of fact. It was Venturina‗s

reckless and imprudent driving of petitioner‗s bus, which is the proximate cause of the victim‗s
death. It is thus evident that petitioner did not exercise the diligence of a good father of a family
in the selection and supervision of her employees. The law governing petitioner‗s liability, as the
employer of bus driver Venturina is Article 2180 of the Civil Code. The diligence of a good
father‖ means diligence in the selection and supervision of employees. Thus, when an employee,
while performing his duties, causes damage to persons or property due to his own negligence,
there arises the juristantum presumption that the employer is negligent, either in the selection of
the employee or in the supervision over him after the selection. The presumption juristantum that
there was negligence in the selection of her bus driver remains unrebutted.
 Smith Bell Dodwell vs. Borja
G.R. No. 143008, June 10, 2002

FACTS:

On September 23, 1987, Smith Bell filed a written request with the Bureau of Customs
for the attendance of the latter‗s inspection team on vessel M/T King Family which was due to
arrive at the port of Manila on September 24, 1987. The vessel contained 750 metric tons of alkyl
benzene and methyl methacrylate monomer.

On the same day, Supervising Customs Inspector Manuel Ma. D. Nalgan instructed
respondent CatalinoBorja to board said vessel and perform his duties as inspector upon the
vessel‗s arrival until its departure. At that time, Borja was a customs inspector of the Bureau of
Customs.

At about 11 o‗clock in the morning on September 24, 1987, while M/T King Family was
unloading chemicals unto two (2) barges owned by ITTC, a sudden explosion occurred setting
the vessels afire. Upon hearing the explosion, Borja, who was at that time inside the cabin
preparing reports, ran outside to check what happened. Again, another explosion was heard.
Seeing the fire and fearing for his life, he hurriedly jumped over board to save himself. However,
the water was likewise on fire due mainly to the spilled chemicals. Despite the tremendous heat,
Borja swam his way for one hour until he was rescued by the people living in the squatters‗ area
and sent to San Juan De Dios Hospital. After weeks of intensive care at the hospital, his
attending physician diagnosed Borja was diagnosed to be permanently disabled due to the
incident. Thus, he made demands against Smith Bell and ITTC for the damages caused by the
explosion. However, both denied liabilities and attributed to each other negligence. After
hearing, the trial court ruled in favor of respondent Borja and held petitioner liable for damages
and loss of income. On appeal, the same ruling was also upheld. Hence this petition.

ISSUE: Whether or not the RTC and the Court of Appeals labored under a misapprehension of
facts regarding the negligence committed.

HELD:
Petitioner avers that both lower courts labored under a misapprehension of the facts. It
claims that the documents adduced in the RTC conclusively revealed that the explosion that
caused the fire on M/T King Family had originated from the barge ITTC-101. However, the
Supreme Court find no cogent reason to overturn factual findings of the RTC and the Court of
Appeals since such findings were supported by substantial evidences. Negligence is a conduct
that creates undue risk of harm to another. It is the failure to observe that degree of care,
precaution and vigilance that the circumstances justly demand, whereby that other person suffers
injury. Petitioner‗s vessel was carrying chemical cargo -- alkyl benzene and methyl
methacrylate monomer. While knowing that their vessel was carrying dangerous inflammable
chemicals, its officers and crew failed to take all the necessary precautions to prevent an
accident. Petitioner was, therefore, negligent. The three elements of QUASI-DELICT are:
1. damages suffered by the plaintiff,
2. fault or negligence of the defendant, and
3. the connection of cause and effect between the fault or negligence of the defendant and the
damages inflicted on the plaintiff.

All these elements were established in this case. As a result of the fire and the
explosion during the unloading of the chemicals from petitioner‗s vessel, Respondent Borja
suffered the following damage: and injuries: (1) chemical burns of the face and arms; (2)
inhalation of fumes from burning chemicals; (3) exposure to the elements while floating in sea
water for about three (3) hours; (4) homonymous hemianopsia or blurring of the right eye
possible toxic origin; and (5) cerebral infract with neo-vascularization, left occipital region with
right sided headache and the blurring of vision of right eye.
 Ilusorio vs. CA
G.R. No. 139130, November 27, 2002

FACTS:

Ramon Ilusorio is a prominent businessman, was the Managing Director of

Multinational Investment Bancorporation and the Chairman and/or President of several other
corporations he was a depositor in good standing of respondent bank, the Manila Banking
Corporation. As he was then running about 20 corporations, and was going out of the country a
number of times, petitioner entrusted to his secretary, Katherine Eugenio, his credit cards and
checkbook with blank checks. Eugenio was able to encash and deposit to her personal account
about seventeen checks drawn against the respondent bank. Petitioner did not bother to check his
statement of account until a business partner apprised him that he saw Eugenio use his credit
cards. Petitioner immediately fired his secretary and filed a criminal case against her for estafa
thru falsification. Respondent bank also lodged a complaint for estafa thru falsification against
Eugenio on the basis of petitioner‗s statement that his signatures in the checks were forged.
Petitioner then requested the respondent bank to credit back and restore to its account the value
of the checks which were wrongfully encashed but the respondent bank refused. Thus, petitioner
filed the instant case. In addition, Manila Bank also sought the expertise of the National Bureau
Investigation in determining the genuineness of the signatures appearing on the checks.

However, in a letter, the NBI informed the trial court that they could not conduct the
desired examination since the standard specimens were not sufficient for purposes of rendering a
definitive opinion. The NBI then suggested that petitioner be asked to submit seven or more
additional standard signatures; however, the petitioner failed to comply with this request. After
evaluating the evidence on both sides, the trial court dismissed the case for lack of sufficient
basis. On appeal, the Court of Appeals affirmed the decision of the trial court.

ISSUE: Whether or not the respondent bank was negligent in not determining the genuineness
of the signatures of the petitioner on the checks.

HELD:

The Supreme Court held that it was the petitioner, not the bank, who was negligent.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do. In the present case, it appears that
petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit
cards, passbooks, check books, bank statements, including custody and possession of cancelled
checks and reconciliation of accounts. Petitioner‗s failure to examine his bank statements
appears as the proximate cause of his own damage. Petitioner failed to examine his bank
statements not because he was prevented by some cause in not doing so, but because he did not
pay sufficient attention to the matter. In view of Article 2179 of the New Civil Code, when the
plaintiff‗s own negligence was the immediate and proximate cause of his injury, no recovery
could be had for damages. Hence, the petition is dismissed.
 NPC vs. CA
G.R. No. L-47379, May 16, 1988

FACTS:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful bidder,
executed a contract in Manila with National Waterworks and Sewerage Authority (NAWASA),
whereby the former undertook to furnish all tools, labor, equipment, and materials (not furnished
by Owner), and to construct the proposed 2ndIpo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and to complete said
works within eight hundred (800) calendar days from the date the Constructor receives the
formal notice to proceed.

The record shows that on November 4, 1967, typhoon Welming hit Central Luzon,
passing through the defendant‗s Angat Hydro-electric Project and Dam at Ipo, Norzagaray,
Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to the
heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the rate of
sixty (60) centimeters per hour. To prevent an overflow of water from the dam, since the water
level had reached the danger height of 212 meters above sea level, the defendant corporation
caused the opening of the spillway gates.

ISSUE: Whether or not NAPOCOR is exempt from liability because the lost or deterioration of
ECI‗s facilities was due to fortuitous event.

HELD: 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.
 Culpa Contractual

Saint Luke’s College of Medicine v. Spouses Perez

G.R. No. 222740, September 28, 2016

FACTS:

th
St. Luke's sent four of its 4 year medical students to a community clinic. They
were tasked to complete a four-week clerkship rotation at the clinic. They were housed in the
second floor of the clinic.

A fire broke out. Unfortunately, the fire resulted in the deaths of the female medical
students. The Bureau of Fire Protection (BFP) conducted an investigation on the incident, and in
a Certification dated April 18, 2011, it certified that the fire was "purely accidental in nature due
to unattended cooking.

ISSUE: Whether or not Saint Luke College of Medicine is liable.

HELD:

Indubitably, institutions of learning have the "built-in" obligation of providing a conducive

atmosphere for learning, an atmosphere where there are no constant threats to life and limb, and
one where peace and order are maintained.

In the case at bar, the Cabiao Community Clinic is to be considered as part of the
campus premises of St. Luke's. In the course description of the clerkship program in preventive
and community medicine, it is stated that the Cabiao Community Clinic serves as the base
operation of the clerkship program. As such, petitioner had the same obligation to their students,
even though they were stationed in the Cabiao Community Clinic, and it was incumbent upon
petitioners to ensure that said Clinic was conducive for learning, that it had no constant threats to
life and limb, and that peace and order was maintained thereat. After all, although away from the
main campus of St. Luke's, the students were still under the same protective and supervisory
custody of petitioners as the ones detailed in the main campus.

In the performance of its contractual and inherent obligations, the Court is mindful of
the attendant difficulties on the part of institutions of learning, and the Court recognizes that the
latter cannot be an insurer of its students against all risks. Thus, as also laid out in the PSBA case,
"the school may still avoid liability by proving that the breach of its contractual obligation to the
students was not due to its negligence, here statutorily defined to be the 'omission of that degree
of diligence which is required by the nature of the obligation and corresponding to the
circumstances of persons, time and place."
 Muaje-Tuazon vs. Wenphil
G.R. No. 162447, December 27, 2006

FACTS:

Annabelle M. Tuazon and Almer R. Abing worked as branch managers of the Wendy's
food chains. In Wendy‗s Biggie Size It! Crew Challenge" promotion contest, branches managed
by petitioners won first and second places, respectively. Because of its success, respondent had a
second run of the contest from April 26 to July 4, 1999. The Meycauayan branch won again. The
MCU Caloocan branch failed to make it among the winners. Before the announcement of the
third round winners, management received reports that as early as the first round of the contest,
the Meycauayan, MCU Caloocan, TandangSora and Fairview branches cheated. An internal
investigation ensued. Petitioners were summoned to the main office regarding the reported
anomaly. Petitioners denied there was cheating. Immediately thereafter, petitioners were notified,
in writing, of hearings and of their immediate suspension. Thereafter, petitioners were dismissed.

ISSUE: Whether or not the respondent guilty of illegal suspension and dismissal.

HELD:

In the present case, the tape receipts presented by respondents showed that there were
anomalies committed in the branches managed by the petitioners. On the principle of respondeat
superior or command responsibility alone, petitioners may be held liable for negligence in the
performance of their managerial duties, unless petitioners can positively show that they were not
involved. Their position requires a high degree of responsibility that necessarily includes
unearthing of fraudulent and irregular activities. Their bare, unsubstantiated and uncorroborated
denial of any participation in the cheating does not prove their innocence nor disprove their
alleged guilt. Additionally, some employees declared in their affidavits that the cheating was
actually the idea of the petitioners.
 RCPI vs. VERCHEZ
G.R. No. 164349, January 31, 2006

FACTS:

Editha Hebron Verchez (Editha) was confined in the hospital due to an ailment. Her
daughter Grace immediately went to the Sorsogon Branch of RCPI whose services she engaged
to send a telegram to her sister Zenaida. As three days after RCPI was engaged to send the
telegram to Zenaida no response was received from her, Grace sent a letter to Zenaida, this time
thru JRS Delivery Service, reprimanding her for not sending any financial aid. Immediately after
she received Grace‗s letter, Zenaida, along with her husband left for Sorsogon. On her arrival at
Sorsogon, she disclaimed having received any telegram. The telegram was finally delivered to
Zenaida 25 days later. On inquiry from RCPI why it took that long to deliver it, RCPI claimed
that delivery was not immediately effected due to the occurrence of circumstances which were
beyond the control and foresight of RCPI.

ISSUE: Whether or not RCPI is negligent in the performance of its obligation?

HELD:

Article 1170 of the Civil Code provides: 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. 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. The
law, recognizing the obligatory force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual undertaking or a contravention of the
tenor thereof.

Considering the public utility of RCPI‗s business and its contractual obligation to transmit
messages, it should exercise due diligence to ascertain that messages are delivered to the persons
at the given address and should provide a system whereby in cases of undelivered messages the
sender is given notice of non-delivery. Messages sent by cable or wireless means are usually
more important and urgent than those which can wait for the mail. RCPI argues, however,
against the presence of urgency in the delivery of the telegram, as well as the basis for the award
of moral damages. RCPI‗s arguments fail. For it is its breach of contract upon which its liability
is, it bears repeating, anchored. Since RCPI breached its contract, the presumption is that it was
at fault or negligent. It, however, failed to rebut this presumption.
 Victory Liner vs. Gammad
G.R. No. 159636, November 25, 2004

FACTS: Respondent was on board a Victory Liner bus bound for Tuguegarao, Cagayan from
Manila. The bus, while running at a high speed, fell on a ravine which resulted in the death of the
respondent and physical injuries to other passengers. Respondent heirs of the deceased filed a
complaint for damages arising from culpa contractual against petitioner. In its answer, the
petitioner claimed that the incident was purely accidental and that it has always exercised
extraordinary diligence in its 50 years of operation.

ISSUE: Whether or not petitioner should be held liable for breach of contract of carriage?

HELD: Petitioner is liable for breach of contract of carriage. A common carrier is bound to carry
its passengers safely as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is
presumed that the common carrier was at fault or was negligent when a passenger dies or is
injured. Unless the presumption is rebutted, the court need not even make an express finding of
fault or negligence on the part of the common carrier. This statutory presumption may only be
overcome by evidence that the carrier exercised extraordinary diligence.

In the instant case, there is no evidence to rebut the statutory presumption that the proximate
cause of respondent‘s death was the negligence of petitioner.
 FGU vs. Sarmiento
G.R. No. 141910, August 6, 2002

FACTS: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver refrigerators aboard
one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries,
Inc. to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north
diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with
an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU
Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc.,
the value of the covered cargoes. FGU, in turn, being the subrogee of the rights and interests of
Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from
GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages
and breach of contract of carriage against GPS and its driver Lambert Eroles.

ISSUE: Whether or not GPS is liable for damages arising from negligence.

HELD: In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. Respondent trucking corporation
recognizes the existence of a contract of carriage between it and petitioner and admits that the
cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation – in this case, the delivery of
the goods in its custody to the place of destination - gives rise to a presumption of lack of care
and corresponding liability on the part of the contractual obligor the burden being on him to
establish otherwise which GPS has failed to do so.
 LRTA vs. Navidad
G.R. No. 145804, February 6, 2003

FACTS: Respondent was drunk when he entered the EDSA LRT station. The security guard
assigned approached the respondent and a sudden misunderstanding or an altercation arose
between the two apparently that led to a fist fight. At the exact moment that respondent fell on
the rails, an LRT train was coming in and was struck by the moving train which caused his death.

ISSUE: Whether or not the liability of LRTA arises from the breach of contract due to failure to
exercise diligence.

HELD: Yes. The liability of LRTA arises from the breach of contract due to failure to exercise
diligence.

The foundation of LRTA‗s liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise the high
diligence required of the common carrier. In the discharge of its commitment to ensure the safety
of passengers, a carrier may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the common carrier is not
relieved of its responsibilities under the contract of carriage.
 University of the East vs Jader
GR No. 132344, February 7, 2000

FACTS: Jader was a graduated at UE College of law and during his last year, he was given an
incomplete grade remarks. He filed an application for removal of the incomplete grade which
was approved by Dean Celedonio Tiongson after the payment of required fees. He took the
exam on March 28 and on May 30, the professor gave him a grade of 5. His name was still on
the tentative list of candidates for graduation. Likewise, his named appeared in the invitation for
the commencement exercises which was held on April 16, 1988. When he learnt of his
deficiency, he dropped from his Bar Review classes thereby made him ineligible to take the bar
exam.

ISSUE: Whether of not UE should be held liable for misleading a student into believing
Jader satisfied all the requirements for graduation when such is not the case.

HELD: The court ruled that the petitioner‘s liability arose from its failure to promptly inform the
result of the examination and in misleading respondent into believing that the latter had satisfied
all the requirements for graduation. However, while petitioner was guilty of negligence and thus
liable to respondent for the latter‘s actual damages, we hold that respondent should not have been
awarded moral damages. As a senior law student respondent should have been responsible
enough to ensure that all his affairs, specifically those pertaining to his academic achievement,
are in order.
 Culpa Aquiliana

Delsan Transport vs. C&A Consortium

G.R. No. 156034, October 1, 2003

FACTS: M/V Delsan Express, a ship owned and operated by petitioner, anchored at the Navotas
Fish Port for the purpose of installing a cargo pump and clearing the cargo oil tank. At around
12:00 midnight of October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan Express received
a report from his radio head operator in Japan that a typhoon was going to hit Manila in about
eight hours. At approximately 8:35 in the morning of October 21, 1994, Capt. Jusep tried to seek
shelter at the North Harbor but could not enter the area because it was already congested. At
10:00 a.m., Capt. Jusep decided to drop anchor at the vicinity of Vitas mouth, 4 miles away from
a Napocor power barge. At that time, the waves were already reaching 8 to 10 feet high. Capt.
Jusep ordered his crew to go full ahead to counter the wind which was dragging the ship towards
the Napocor power barge. To avoid collision, Capt. Jusep ordered a full stop of the vessel. He
succeeded in avoiding the power barge, but when the engine was re-started and the ship was
maneuvered full astern, it hit the deflector wall constructed by respondent.

ISSUE: Whether or not petitioner can be held solidarily liable with the negligence of Capt.
Jusep.

RULING: Petitioner is vicariously liable for the negligent act of Capt. Jusep. Under Article 2180
of the Civil Code an employer may be held solidarily liable for the negligent act of his employee.
Thus -

Art. 2180. The obligation imposed in Article 2176 is demandable not only for one‗s own acts or
omissions, but also for those of persons for whom one is responsible.

Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.

There is no question that petitioner, who is the owner/operator of M/V Delsan Express, is also
the employer of Capt. Jusep who at the time of the incident acted within the scope of his duty.
The defense raised by petitioner was that it exercised due diligence in the selection of Capt.
Jusep because the latter is a licensed and competent Master Mariner. It should be stressed,
however, that the required diligence of a good father of a family pertains not only to the
selection, but also to the supervision of employees. It is not enough that the employees chosen be
competent and qualified, inasmuch as the employer is still required to exercise due diligence in
supervising its employees.
 PCIB v. CA
G.R. No. 121413, January 29, 2001

FACTS: The plaintiff drew and issued its Citibank Check No. SN-04867 in the amount of
P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff ‗s
percentage or manufacturer ‗s sales taxes for the third quarter of 1977. The aforesaid check was
deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the Central
Bank. Upon presentment with the defendant Citibank, the proceeds of the check were paid to
IBAA as collecting or depository bank. The proceeds of the same Citibank check of the plaintiff
was never paid to or received by the payee thereof, the Commissioner of Internal Revenue. The
Acting Commissioner of Internal Revenue addressed to the plaintiff that its check in the amount
of P4,746,114.41 was not paid to the government or its authorized agent and instead encashed by
unauthorized persons, hence, plaintiff has to pay the said amount within fifteen days from receipt
of the letter. Upon advice of the plaintiff‗s lawyers, plaintiff paid to the Bureau of Internal
Revenue, the amount of P4,746,114.41, representing payment of plaintiff‗s percentage tax for
the third quarter of 1977. Plaintiff demanded defendant to reimburse him of the said amount paid
for the second time to BIR but the latter refused.

ISSUE: Whether or not there is contributory negligence on the part of Ford.

RULING: The general rule is that if the master is injured by the negligence of a third person and
by the concurring contributory negligence of his own servant or agent, the latter's negligence is
imputed to his superior and will defeat the superior's action against the third person, assuming, of
course that the contributory negligence was the proximate cause of the injury of which complaint
is made. As defined, proximate cause is that which, in the natural and continuous sequence,
unbroken by any efficient, intervening cause produces the injury and without the result would not
have occurred.

The degree of Ford's negligence, if any, could not be characterized as the proximate cause of the
injury to the parties. The mere fact that the forgery was committed by a drawer-payor's
confidential employee or agent, who by virtue of his position had unusual facilities for
perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to
shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against
the drawer.

Citibank should have scrutinized Citibank Check before paying the amount of the proceeds
thereof to the collecting bank of the BIR. The fact that the drawee bank did not discover the
irregularity seasonably, in the Court‘s view, constitutes negligence in carrying out the bank‗s
duty to its depositors. The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
 SMC and Heirs of Ouano v. C.A
G.R. No. 132344, July 4, 2002

FACTS: San Miguel Corporation entered into a Time Charter Party Agreement with Julius
Ouano. Under the terms of the agreement, SMC chartered the M/V Doña Roberta owned by
Julius Ouano for a period of two years, from June 1, 1989 to May 31, 1991, for the purpose of
transporting SMC‗s beverage products from its Mandaue City plant to various points in
Visayas and Mindanao.

On November 11, 1990, during the term of the charter, SMC issued sailing orders. Meanwhile, at
4:00 a.m. of November 12, 1990, typhoon Ruping was spotted 570 kilometers east-southeast of
Borongan, Samar. SMC Radio Operator Rogelio P. Moreno contacted Captain Inguito through
the radio and advised him to take shelter. Captain Inguito replied that they will proceed since the
typhoon was far away from them, and that the winds were in their favor. However, the M/V
Doña Roberta sank and out of the 25 officers and crew on board the vessel, only five survived.

ISSUE: Whether or not Ouano is liable for the negligence of his employee.

RULING: Yes. If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the responsibilities of ownership
rest on the owner. The charterer is free from liability to third persons in respect of the ship.

The Court concur with the findings of the Court of Appeals that the charter party in these cases
was a contract of affreightment. It appearing that Ouano was the employer of the captain and
crew of the M/V Doña Roberta during the term of the charter, he therefore had command and
control over the vessel. Under the foregoing definitions, as well as the clear terms of the Charter
Party Agreement between the parties, the charterer, SMC, should be free from liability for any
loss or damage sustained during the voyage, unless it be shown that the same was due to its fault
or negligence.

The Court likewise agrees with the CA that Ouano is vicariously liable for the negligent acts of
his employee, Captain Inguito. Under Articles 2176 and 2180 of the Civil Code, owners and
managers are responsible for damages caused by the negligence of a servant or an employee, the
master or employer is presumed to be negligent either in the selection or in the supervision of
that employee. This presumption may be overcome only by satisfactorily showing that the
employer exercised the care and the diligence of a good father of a family in the selection and the
supervision of its employee.
 Solidary v. Independent Liability of Employer and/or Employee

Heirs of Ochoa vs. G&S Transport

G.R. No. 170071 and 170125, March 9, 2011

FACTS: Jose Marcial K. Ochoa died while on board an Avis taxicab owned and operated by G
& S Transport Corporation, a common carrier. The death certificate issued by the Office of the
Civil Registrar of Quezon City cited the cause of his death as vehicular accident it was found that
the death of Jose Marcial Ochoa was caused by negligence on the part of the taxicab driver
employed by G & S Transport Corporation, Bibiano Padilla. However, the taxicab driver,
Bibiano Padilla, was acquitted of the crime of reckless imprudence resulting in homicide.
Regardless, the petitioners alleged that respondent, as a common carrier, was under legal
obligation to observe and exercise extraordinary diligence in transporting its passengers to their
destination safely and securely.

ISSUE: Whether or not the petitioner may proceed with the civil action given that there was
already an acquittal in the related criminal case.

RULING: ln this case, the action filed by the heirs is primarily for the recovery of damages
arising from breach of contract of carriage allegedly committed by G & S. Clearly, it is an
independent civil action arising from contract which is separate and distinct from the criminal
action for reckless imprudence resulting in homicide filed by the heirs against Padilla by reason
of the same incident. Regardless of Padilla‘s acquittal or conviction in said criminal case, same
has no bearing in the resolution of the present case. Thus, the respondent is liable to pay the
petitioners for damages because by not transporting Jose Marcial Ochoa safely to his destination
the former breached its contract with the passenger.
 Pacis vs. Morales
G.R. No. 169467, February 25, 2010

FACTS: Petitioners filed for damages against respondent. Petitioners are the parents of Alfred
Dennis Pacis Jr, a 17- year old student who died in a shooting incident in the Top Gun Firearms
and Ammunitions Store in Baguio City, while respondent is the owner of the gun store. The
bullet which killed Alfred Dennis Pacis Jr. was fired from a gun brought in by a customer of the
gun store for repair. The gun was left by Morales in a drawer of a table located inside the gun
store. Defendant Morales was in Manila at the time. Sales agents Matibagand and Herbolario
were the ones left to look after the gun store. It appears that Matibag and Herbolario, later
brought out the gun from the drawer and placed it on top of the table. Attracted by the sight of
the gun, the young Pacis got hold of the same. Matibag asked Pacis to return the gun. The latter
followed and handed the gun to Matibag. It went off, the bullet hitting the young Pacis in the
head.

ISSUES: Whether or not Morales, as the employer, is liable.

RULING: The court held that respondent did not exercise the degree of care and diligence
required of a good father of a family, much less the degree of care required of someone dealing
with dangerous weapons. For failing to insure that the gun was not loaded, respondent himself
was negligent. Furthermore, it was not shown in this case whether respondent had a License to
Repair which authorizes him to repair defective firearms to restore its original composition or
enhance or upgrade firearms.

Petitioners based their claim for damages under Articles 2176and 2180 of the Civil Code. Unlike
the subsidiary liability of the employer under Article 102 of the Revised Penal Code, the liability
of the employer, or any person for that matter, under Article 2176 of the Civil Code is primary
and direct, based on a person‘s own negligence.

Article 2176 states: Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done.

Such fault or negligence, if there is no pre-existing contractual relation between the parties, is
called quasi-delict and is governed by the provisions of this Chapter.
 Philippine Hawk Corporation vs. Vivian Tan Lee
G.R. No. 166869, February 16, 2010

FACTS: Respondent filed case for damages based on quasi-delicts arising from a vehicular
accident between a motorcycle and bus of Philippine Hawk. The accident resulted in the death of
respondent‗s husband, Silvino Tan, and caused respondent physical injuries.

ISSUE: Whether or not the petitioner can be held liable for his employee‘s negligence; and
Whether or not respondent can be awarded damages base on indemnity for loss of earning
capacity of her husband.

RULING: Whenever an employee‗s negligence causes damage or injury to another, there

instantly arises a presumption that the employer failed to exercise the due diligence of a good
father of the family in the selection or supervision of its employees. To avoid liability for a quasi-
delict committed by his employee, an employer must overcome the presumption by presenting
convincing proof that he exercised the care and diligence of a good father of a family in the
selection and supervision of his employee.

The Court upholds the finding of the trial court and the Court of Appeals that petitioner is liable
to respondent, since it failed to exercise the diligence of a good father of the family in the
selection and supervision of its bus driver, Margarito Avila, for having failed to sufficiently
inculcate in him discipline and correct behavior on the road.

Anent the second issue, the indemnity for loss of earning capacity of the deceased is provided for
by Article 2206 of the Civil Code. Compensation of this nature is awarded not for loss of
earnings, but for loss of capacity to earn money. As a rule, documentary evidence should be
presented to substantiate the claim for damages for loss of earning capacity. By way of
exception, damages for loss of earning capacity may be awarded despite the absence of
documentary evidence when: (1) the deceased is self-employed and earning less than the
minimum wage under current labor laws, in which case, judicial notice may be taken of the fact
that in the deceased's line of work no documentary evidence is available; or (2) the deceased is
employed as a daily wage worker earning less than the minimum wage under current labor laws.
In the computation of loss of earning capacity, only net earnings, not gross earnings, are to be
considered; that is, the total of the earnings less expenses necessary for the creation of such
earnings or income, less living and other incidental expenses. In the absence of documentary
evidence, it is reasonable to peg necessary expenses for the lease and operation of the gasoline
station at 80 percent of the gross income, and peg living expenses at 50 percent of the net income
(gross income less necessary expenses).
 MERCURY DRUG CORPORATION v. HUANG
GR No. 172122 June 22, 2007

FACTS: Petitioner Mercury Drug is the registered owner of a six-wheeler 1990 Mitsubishi
Truck. Respondent spouses Richard and Carmen Huang are the parents of respondent Stephen
Huang and own the red 1991 Toyota Corolla. These two vehicles figured in a road accident. At
the time of the accident, petitioner Del Rosario only had a Traffic Violation Receipt. Respondent
Stephen Huang sustained massive injuries to his spinal cord, head, face and lung. He is paralyzed
for life from his chest down and requires continuous medical and rehabilitation treatment.

ISSUE: Whether or not petitioner Mercury Drug is liable for the negligence of its employee.

RULING: Under Article 2176 and 2180 of the Civil Code which provide:

―Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damages done. Such fault or negligence, if there is no pre-existing
contractual relationship between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.‖

―The obligation imposed by article 2176 is demandable not only for one‗s own acts or
omissions, but also for those of persons for whom one is responsible.‖

The liability of the employer under Article 2180 is direct and immediate. It is not conditioned on
a prior recourse against the negligent employee, or a prior showing of insolvency of such
employee. It is also joint and solidary with the employee. To be relieved of the liability,
petitioner should show that it exercised the diligence of a good father of a family, both in the
selection of the employee and in the supervision of the performance of his duties. However,
petitioner failed to prove diligence of a good father of a family. With this, petitioner Mercury
Drug is liable jointly and severally liable to pay the respondents.
 MENDOZA v. SORIANO
GR No. 164012 June 8, 2007

FACTS: Respondent, while crossing Commonwealth Avenue near Luzon Avenue, was hit by a
speeding Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five meters away and
Macasasa flee. Respondent‗s wife and daughter filed a complaint for damages against Macasasa
and petitioner Flordeliza Mendoza, the registered owner of the vehicle. Petitioner Mendoza
contends that she was not liable since as owner of the vehicle, she had exercised the diligence of
a good father of a family over her employee.

ISSUE: Whether or not petitioner is liable for damages.

RULING: Since petitioner failed to present evidenced to the contrary and conformably with
Article 2180 of the Civil Code, the presumption of negligence of the employer in the
selection and supervision of employees stood.

The records show that Macasasa violated two traffic rules under the Land Transportation and
Office Code. Under Article 2185 of the Civil Code, a person driving a motor vehicle is presumed
negligent if at the time of the mishap, he was violating traffic regulations. Further, under Article
2180, employers are liable for the damages caused by their employees acting within the scope of
their assigned tasks. The liability arises due to the presumed negligence of the employers in
supervising their employees unless they prove that they observed all the diligence of a good
father of a family to prevent the damage. In this case petitioner is held primarily and solidarily
liable for the damages caused by Macasasa.
 CEREZO v. TUAZON
GR No. 141538 March 23, 2004

FACTS: Country Bus Lines passenger bus collided with a tricycle. Tricycle driver Tuazon filed
a complaint for damages against Mrs. Cerezo, as owner of the bus line, her husband Attorney
Juan Cerezo, and bus driver Danilo A. Foronda.

The trial court only held Mrs. Cerezo solely liable for the damages sustained by Tuazon arising
from the negligence of Mrs. Cerezo‗s employee, pursuant to Article 2180 of the Civil Code.

ISSUE: Whether or not petitioner is solidarily liable with the negligence of their employee.

RULING: Mrs. Cerezo‗s liability as an employer in an action for a quasi-delict is not only
solidary, it is also primary and direct. The responsibility of two or more persons who are liable
for a quasi-delict is solidary. Where there is a solidary obligation on the part of debtors, as in this
case, each debtor is liable for the entire obligation. Hence, each debtor is liable to pay for the
entire obligation in full.

Moreover, an employer‗s liability based on a quasi-delict is primary and direct, while the
employer‗s liability based on a delict is merely subsidiary. The words ―primary and direct,‖ as
contrasted with ―subsidiary,‖ refers only to the remedy provided by law for enforcing the
obligation rather than to the character and limits of the obligation. Although liability under
Article 2180 originates from the negligent act of the employee, the aggrieved party may sue the
employer directly.

When an employee causes damage, the law presumes that the employer has himself committed
an act of negligence in not preventing or avoiding the damage.
 Presumption of Fraud/Negligence of Employer

FILCAR TRANSPORT SERVICES v. ESPINAS

G.R. No. 174156, June 20, 2012

FACTS: Respondent was driving his car and he stopped at the intersection because of the red
light, and proceeded when the green light went on. However, in the middle of the street, he was
hit by a vehicle the latter vehicle. Respondent filed a case for damages against the company. In
its defense, the company argued that it cannot be held liable for damages incurred by Jose
because, while the car is indeed registered in the name of the company, it is issued in the name of
the Corporate Secretary of the corporation, and at the time of the accident, was driven by
Timoteo, the Corporate Secretary‗s personal driver, hence there is no employer-employee
relation between it and the personal driver as to make it liable under Article 2176 in relation to
Article 2180 of the New Civil Code.

ISSUE: Whether or not Filcar, as registered owner of the motor vehicle, may be held liable for
the damages caused to Espinas.

RULING: Yes. The rationale for the rule that a registered owner is vicariously liable for damages
caused by the operation of his motor vehicle is explained by the principle behind motor vehicle
registration. The main aim of motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicle on the public highways,
responsibility therefor can be fixed on a definite individual, the registered owner.

Thus, whether there is an employer-employee relationship between the registered owner and the
driver is irrelevant in determining the liability of the registered owner who the law holds
primarily and directly responsible for any accident, injury or death caused by the operation of
the vehicle in the streets and highways.
 FEB LEASING v. SPS BAYLON
G.R. No. 181398, June 29, 2011

FACTS: An Isuzu oil tanker running along Del Monte Avenue in Quezon City hit Loretta V.
Baylon, daughter of respondent spouses Sergio P. Baylon and MaritessVillena-Baylon. At the
time of the accident, the oil tanker was registered in the name of petitioner FEB Leasing and
Finance Corporation. The oil tanker was leased to BG Hauler, Inc. and was being driven by the
latter‗s driver, Manuel Y. Estilloso. The oil tanker was insured8 by FGU Insurance Corp.

ISSUE: Whether or not the registered owner of a financially leased vehicle remains liable
for loss, damage, or injury caused by the vehicle notwithstanding an exemption provision in
the financial lease contract.

In accordance with the law on compulsory motor vehicle registration, this Court has consistently
ruled that, with respect to the public and third persons, the registered owner of a motor vehicle
is directly and primarily responsible for the consequences of its operation regardless of who the
actual vehicle owner might be. Well-settled is the rule that the registered owner of the vehicle is
liable for quasi-delicts resulting from its use. Thus, even if the vehicle has already been sold,
leased, or transferred to another person at the time the vehicle figured in an accident, the
registered vehicle owner would still be liable for damages caused by the accident. The sale,
transfer or lease of the vehicle, which is not registered with the Land Transportation Office, will
not bind third persons aggrieved in an accident involving the vehicle. The compulsory motor
vehicle registration underscores the importance of registering the vehicle in the name of the
actual owner.
 FILIPINAS SYNTHETIC v. DE LOS SANTOS
G.R. NO. 152033, MARCH 16, 2011

FACTS: The wife of respondent Wilfredo de los Santos was fetched by Wilfredo‗s brother
Armando, husband of respondent Carmina Vda. de los Santos, after his wife‘s theater
performance. Armando drove a 1980 Mitsubishi Galant Sigma, a company car assigned to
Wilfredo. Two other members of the cast of production joined Teresa Elena in the Galant Sigma.
While travelling along the Katipunan Road (White Plains), the Galant Sigma collided with the
shuttle bus owned by petitioner and driven by Alfredo S. Mejia, an employee of petitioner
Filipinas Synthetic Corp. The Galant Sigma was dragged about 12 meters from the point of
impact, across the White Plains Road landing near the perimeter fence of Camp Aguinaldo,
where the Galant Sigma burst into flames and burned to death beyond recognition all four
occupants of the car.

ISSUE: Whether or not petitioner can be held liable.

RULING: Under Article 2180 of the New Civil Code, when an injury is caused by the
negligence of the employee, there instantly arises a presumption of law that there was
negligence on the part of the master or employer either in the selection of the servant or
employee, or in supervision over him after selection or both. The liability of the employer under
Article 2180 is direct and immediate; it is not conditioned upon prior recourse against the
negligent employee and a prior showing of the insolvency of such employee. Therefore, it is
incumbent upon the private respondents (in this case, the petitioner) to prove that they exercised
the diligence of a good father of a family in the selection and supervision of their employee.
 VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS
GR No. 54080 November 22, 2000

FACTS: Defendant was the driver of defendant Rudy Samidan of the latter‗s vehicle, a
Forward Cargo Truck. He was driving said truck along the National Highway while Viron Bus,
driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to the right shoulder
of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he
was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to
avoid an incoming bus on its opposite direction. With the driver of another truck dealing
likewise in vegetables, Dulnuan, the two of them and the driver of the Viron bus proceeded to
report the incident to the Police Station.

ISSUE: Whether or not the employer is liable to the negligence of his employee.

RULING: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil
Code, directly and primarily liable for the resulting damages. The presumption that they are
negligent flows from the negligence of their employee. That presumption, however, is only juris
tantum, not juris et de jure. Their only possible defense is that they exercised all the diligence of
a good father of a family to prevent the damage. Article 2180 states that, ―the obligation
imposed by Article 2176 is demandable not only for one‗s own acts or omissions, but also for
those of persons for whom one is responsible.‖

In fine, when the employee causes damage due to his own negligence while performing his
own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable
only by proof of observance of the diligence of a good father of a family.

Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in the
selection and supervision of employees, thus, petitioner as the employer is responsible for
damages, the basis of the liability being the relationship of pater familias or on the employer‗s
own negligence. Hence, with the allegations and subsequent proof of negligence against the
bus driver of petitioner, petitioner (employer) is liable for damages.
 Proof of Employer’s
Fault/Negligence

MERCURY DRUG CORPORATION VS. BAKING

GR No. 57435 May 25, 2007

FACTS: Respondent, went to the clinic of Dr. Cesar Sy for a medical check-up. Dr. Sy gave
respondent two medical prescriptions – Diomicron for his blood sugar and Benalize tablets for
his triglyceride. Respondent then proceeded to petitioner Mercury Drug Corporation to buy the
prescribed medicines. However, the saleslady misread the prescription Diamicron as a
prescription for Dormicum. Unaware that what was given to him was the wrong medicine,
respondent took one pill of dormicum on three consecutive days. On the third day he took the
medicine, and he figured in a vehicular accident. The car he was driving collided with the car of
one Jose Peralta. Respondent fell asleep while driving he could not remember anything about the
collision nor felt its impact. Suspecting that the tablet he took may have bearing on his physical
and mental state at the time of the collision, respondent returned to Dr. Sy. Upon being shown
the medicine, Dr. Sy was shocked to find that what was sold to him was Dormicum, instead of
the prescribed Diamicron.

ISSUE: Whether or not such negligence of the petitioner was the proximate cause of
respondent‗s accident.

RULING: Obviously, petitioner‗s employee was grossly negligent in selling respondent

domicrum, instead of the prescribed diamicron. Considering that a fatal mistake could be a
matter of life and death for a buying patient, the employee should have been very cautious
in dispensing medicines.

Proximate cause is defined as any cause that produces injury in a natural and continuous sequence,
unbroken by any efficient intervening cause, such that the result would not have occurred otherwise.
Proximate cause is determined from the facts of each case, upon a combined consideration of logic,
common sense, policy, and precedent. Article 2180, complementing to Article 2176, states that ―the
obligation imposed by articles 2176 is demandable not only for one‗s own acts or omissions, but
also for those of persons for whom one is responsible.‖

It is thus clear that the employer of a negligent employee is liable for the damages caused by the
latter. When an injury is caused by the negligence of an employee, there instantly arises a
presumption of the law that there has been negligence on the part of the employer either in the
selection of the employee or the supervision over him, after such selection. The presumption,
however, may be rebutted by a clear showing on the part of the employer that he has exercised
the care and diligence of a good father of a family in the selection and supervision of his
employee, which the petitioner failed to prove.
 PLEYTO VS. LOMBOY
GR No. 148737 December 16, 2004

FACTS: Respondent, is the surviving spouse of the late Ricardo Lomboy, who died in
Pasolingan, Gerona, Tarlac, in a vehicular accident. The accident was a head-on collision
between the PRBL bus driven by petitioner Pleyto and the car where Ricardo was a passenger.
Carmela suffered injuries requiring hospitalization in the same accident which resulted in her
father‗s death. According to a witness and one of the bus passengers, Pleyto tried to overtake
Esguerra‗s tricycle but hit it instead. Pleyto then swerved into the left opposite lane. Coming
down the lane, some fifty meters away, was a southbound Mitsubishi Lancer car, driven by
Arnulfo Asuncion. The car was headed for Manila with some passengers. Philippine Rabbit Bus
Lines, Inc. Bus No. 1539 smashed head-on the car, killing Arnulfo and Ricardo instantly.

ISSUE: Whether or not petitioner is Philippine Rabbit Bus Lines, Inc. liable for the negligence
of driver their Pleyto.

RULING: The negligence and fault of appellant driver is manifest. Petitioners presented
several documents in evidence to show the various tests and pre-qualification requirements
imposed upon petitioner Pleyto before his hiring as a driver by PRBL. However, no
documentary evidence was presented to prove that petitioner PRBL exercised due diligence in
the supervision of its employees, including Pleyto.

In order that the defense of due diligence in the selection and supervision of employees may be
deemed sufficient and plausible, it is not enough for the employer to emptily invoke the
existence of company guidelines and policies on hiring and supervision. As the negligence of the
employee gives rise to the presumption of negligence on the part of the employer, the latter has
the burden of proving that it has been diligent not only in the selection of employees but also in
the actual supervision of their work. The mere allegation of the existence of hiring procedures
and supervisory policies without anything more is decidedly not sufficient to overcome such
presumption.
 Proof of Due Diligence

Syki vs. Begasa

G.R. No. 149149, October 23, 2003

FACTS: While respondent was boarding the passenger jeepney, driven by Joaquin Espina and
owned by Aurora Pisuena, while his right foot already inside while his left foot still on the
boarding step of the passenger jeepney, a truck driven by Elizalde Sablayan and owned by
petitioner Ernesto Syki bumped the rear end of the passenger jeepney. Respondent fell and
fractured his left thigh bone.

ISSUE: Whether or not petitioner is liable for the act of his employee.

RULING: In the selection of prospective employees, employers are required to examine them
as to their qualifications, experience, and service records and that employers should formulate
standard operating procedures, monitor their implementation, and impose disciplinary measures.
To establish these factors in a trial involving the issue of vicarious liability, employers must
submit concrete proof, including documentary evidence.

Petitioner‗s attempt to prove its ―deligentissimi patris familias‖ in the selection and
supervision of employees through oral evidence failed as it was unable to buttress the same
with any other evidence, object or documentary. The unsubstantiated and self-serving
testimonies of petitioner and his mechanic arewere, without doubt, insufficient to overcome the
legal presumption that petitioner was negligent in the selection and supervision of his driver
and thus liable for the damages.
 Yambao vs. Zuniga
G.R. No. 146173, December 11, 2003

FACTS: A bus owned by petitioner was being driven by Ceferino G. Venturina along the
northbound lane of EDSA. With Venturina was the bus conductor, Fernando Dumaliang.
Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the impact
that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the
Quezon City General Hospital but due to the massive injuries sustained, he succumbed shortly
thereafter.

ISSUE: Whether petitioner exercised the diligence of a good father of a family in the
selection and supervision of her employees, thus absolving her from any liability.

RULING: The petitioner‗s claim that she exercised due diligence in the selection and
supervision of her driver, Venturina, deserves but scant consideration. Her allegation that before
she hired Venturina she required him to submit his driver‗s license and clearances is worthless,
in view of her failure to offer in evidence certified true copies of said license and clearances.
Bare allegations, unsubstantiated by evidence, are not equivalent to proof under the rules of
evidence. Petitioner‗s own admissions clearly and categorically show that she did not exercise
due diligence in the selection of her bus driver.

For an employer to have exercised the diligence of a good father of a family, he should not be
satisfied with the applicant‗s mere possession of a professional driver‗s license; he must also
carefully examine the applicant for employment as to his qualifications, his experience and
record of service. Petitioner failed to present convincing proof that she went to this extent of
verifying Venturina‗s qualifications, safety record, and driving history. The presumption
juristantum that there was negligence in the selection of her bus driver, thus, remains unrebutted.
 Quasi-Delictual Liability Even in the Existence of Contract

Mindanao Terminal vs Phoenix

G.R. No. 162467, May 8, 2009

FACTS: Mindanao Terminal loaded and stowed the cargoes of fresh green Philippine bananas
and fresh pineapples belonging to Del Monte Fresh Produce aboard the M/V Mistrau. The vessel
set sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then
discovered upon discharge that some of the cargo was in bad condition. The Marine Cargo
Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative
Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey
report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of the
pineapple shipment were so damaged that they no longer had commercial value.

Del Monte Produce insured the shipment under an "open cargo policy" with private respondent
Phoenix Assurance Company of New York (Phoenix), a non-life insurance company, and private
respondent McGee & Co. Inc. (McGee), the underwriting manager/agent of Phoenix.

ISSUES: Whether or not the respondent has a cause of action against petitioner on quasi-delict;
and Whether or not petitioner was careless and negligent in the loading and stowage of the
cargoes and is liable for damages.

RULING: The court held that the only participation of Mindanao Terminal was to load the
cargoes on board the M/V Mistrau under the direction and supervision of the ship‗s officers,
who would not have accepted the cargoes on board the vessel and signed the foreman‗s report
unless they were properly arranged and tightly secured to withstand voyage across the open seas.
Accordingly, Mindanao Terminal cannot be held liable for whatever happened to the cargoes
after it had loaded and stowed them.

It was further held that Phoenix and McGee had no cause of action against Mindanao Terminal
because the latter, whose services were contracted by Del Monte, had no contract with the
assured Del Monte Produce. Even with the absence of a contractual relationship between
Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and McGee could be
based on quasi-delict under Article 2176 of the Civil Code. The insurance carriers may have a
cause of action in light of the Court‗s consistent ruling that the act that breaks the contract may
be also a tort. In fine, a liability for tort may arise even under a contract, where tort is that which
breaches the contract.
 YHT Realty vs. CA
G.R. No. 126780, February 17, 2005

FACTS: Tan befriended McLoughlin and convinced the same to transfer to Tropicana Hotel.
McLoughlin before leaving for Hongkong opened his safety deposit box with his key and with
the key of the management and took therefrom the envelope some banknotes, his passports and
his credit cards. After returning to Manila, he checked out of Tropicana and left for Australia.
When he arrived in Australia, he figured that the envelopes were short of cash. He also noticed
that the jewelry which he bought in Hongkong was likewise missing.

When McLoughlin came back to Philippines, and again registered at Tropicana and rented a
deposit box. On 16 April 1988, upon request to open his deposit box, he discovered that some of
his belongings were again missing. He confronted Tan and the latter admit stealing the money
with the aid of the petitioners. He then complained to the management and consulted his lawyer
regarding the matter. He then imposed that it should be paid by the management but the hotel
refused.

ISSUE: Whether or not petitioner is liable for the loss of the personal properties of respondent.

RULING: Under Article 1170 of the Civil Code, those who in the performance of their
obligations, are guilty of negligence, and are liable for damages. Also, under Article 2180 of the
Civil Code, ―the obligation is demandable not only for one‗s own acts or omissions, but also
for those of persons for whom one is responsible.‖ Thus, when an employee, while performing
his duties, causes damage to persons or property due to his own negligence, there arises the juris
tantum presumption that the employer is negligent, either in the selection of the employee or in
the supervision over him after the selection. For the employer to avoid the solidary liability for a
tort committed by his employee, an employer must rebut the presumption by presenting
adequate and convincing proof that in the selection and supervision of his employee, he or she
exercises the care and diligence of a good father of a family.

The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he
is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and
the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is
suppressed or diminished shall be void.‖
 Medical Malpractice

Ramos vs. CA
G.R. No. 124354, December 29, 1999

FACTS: Erlinda Ramos underwent a surgical procedure to remove stone from her gall bladder
.They hired Dr. Hosaka, a surgeon, to conduct the surgery at the De Los Santos Medical Center
(DLSMC). Hosaka assured them that he would find a good anesthesiologist. But the operation did
not go as planned, Dr. Hosaka arrived 3 hours late for the operation, Dra. Gutierrez, the
anesthesiologist ―botched‖ the administration of the anesthesia causing Erlinda to go into a coma
and suffer brain damage. The botched operation was witnessed by Herminda Cruz, sister in law of
Erlinda and Dean of College of Nursing of Capitol Medical Center. The family of Ramos
(petitioners) sued the hospital, the surgeon and the anesthesiologist for damages. The petitioners
showed expert testimony showing that Erlinda's condition was caused by the anesthesiologist in not
exercising reasonable care in ―intubating‖ Erlinda. Eyewitnesses heard the anesthesiologist saying
―Ang hirap ma-intubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan.‖

ISSUE: Whether or not respondents were negligent and can be held liable.

RULING: Res ipsa loquitur – a procedural or evidentiary rule which means ―the thing or the
transaction speaks for itself.‖ It is a maxim for the rule that the fact of the occurrence of an
injury, taken with the surrounding circumstances, may permit an inference or raise a presumption
of negligence, or make out a plaintiff‘s prima facie case, and present a question of fact for
defendant to meet with an explanation, where ordinarily in a medical malpractice case, the
complaining party must present expert testimony to prove that the attending physician was
negligent.

This doctrine finds application in this case. On the day of operation, she delivered her person
over to the care, custody and control of private respondents who exercised complete and
exclusive control over her. At the time, Erlinda was neurologically sound. However, during the
administration of anesthesia and prior to the performance of cholecystectomy she suffered
irreparable damage to her brain. Thus, without undergoing surgery, she went out of the operating
room already decerebrate and totally incapacitated.
 Reyes vs CA
G.R. No. 130547, October 3, 2000

FACTS: Jorge Reyes had been suffering from a recurring fever with chills. He was taken to the
Mercy Community Clinic and was attended to by Dr. Marlyn Rico, who gave physical
examination and took his medical history. Suspecting typhoid fever, Dr. Rico ordered a Widal
Testto be performed on Jorge. Results of the test from which Dr. Rico concluded that Jorge was
positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr. Rico indorsed Jorge to
respondent Dr. Marvie Blanes. Dr. Marvie Blanes attended to Jorge. Like Dr. Rico, her
impression was typhoid fever. She ordered that a compatibility test with the antibiotic
chloromycetin be done on Jorge. As she did not observe any adverse reaction, she ordered the
first five hundred milligrams and second dose at about three hours later. Jorge did not respond to
the treatment and slipped into cyanosis. Afterwards, Jorge died. According to the medical report,
the cause of his death was ―Ventricular Arrythemia Secondary to Hyperpyrexia and typhoid
fever.‖

ISSUE: Whether or not the private respondent can be held liable.

RULING: Petitioners contend that all requisites for the application of res ipsa loquitur were
present. While it is true that the patient died just a few hours after professional medical
assistance was rendered, there is really nothing unusual or extraordinary about his death. Dr.
Marlyn Rico did not depart from the reasonable standard recommended by the experts. Though
the Widal test is not conclusive, it remains a standard diagnostic test for typhoid fever and were
sufficient to give upon any doctor of reasonable skill the impression that Jorge Reyes had
typhoid fever. That chloromycetin was likewise a proper prescription is best established by
medical authority.
 Solidum vs People of the Philippines
G.R. No. 192123, March 10, 2014

FACTS: Gerald Albert Gercayo was born with an imperforate anus. Two days after his birth,
Gerald underwent colostomy. Gerald, then three years old, was admitted at the Ospital ng
Maynila for a pull-through operation. Dr. Leandro Resurreccion headed the surgical team, and
was assisted by Dr. Joselito Luceño, Dr. Donatella Valeña and Dr. Joseph Tibio. The
anesthesiologists included Dr. Marichu Abella, Dr. Arnel Razon and petitioner Dr. Fernando
Solidum. During the operation, Gerald experienced bradycardia, and went into a coma. His
coma lasted for two weeks, but he regained consciousness only after a month. He could no
longer see, hear or move.

ISSUE: Whether or not respondent is negligent and can be held liable.

RULING: The Court considers the application here of the doctrine of res ipsa loquitur
inappropriate. Hypoxia, or the insufficiency of oxygen supply to the brain that caused the
slowing of the heart rate, scientifically termed as bradycardia, would not ordinarily occur in the
process of a pull-through operation, or during the administration of anesthesia to the patient, but
such fact alone did not prove that the negligence of any of his attending physicians, including
the anesthesiologists, had caused the injury.

In view of the actuations of the anaesthesiologists and the administration of anaesthesia, the
committee find that the same were all in accordance with the universally accepted standards
of medical care and there is no evidence of any fault or negligence on the part of the
anaesthesiologists.
 Rosit vs Davao Doctors Hospital
G.R. No. 210445, December 7, 2015

FACTS: Rosit figured in a motorcycle accident. The X-ray soon taken the next day at the Davao
Doctors Hospital (DDH) showed that he fractured his jaw. Rosit was then referred to Dr.
Gestuvo, a specialist in mandibular injuries, who operated on Rosit. As the operation required the
smallest screws available, Dr. Gestuvo cut the screws on hand to make them smaller. Dr. Gestuvo
knew that there were smaller titanium screws available in Manila, but did not so inform Rosit.
Following the procedure, Rosit could not properly open and close his mouth and was in pain.
Given the X-ray results, Dr. Gestuvo referred Rosit to a dentist. The dentist who checked Rosit,
Dr. Pangan, opined that another operation is necessary and that it is to be performed in Cebu. In
Cebu, Dr. Pangan removed the plate and screws thus installed by Dr. Gestuvo and replaced them
with smaller titanium plate and screws. Three days after the operation, Rosit was able to eat and
speak well and could open and close his mouth normally. On his return to Davao, Rosit
demanded that Dr. Gestuvo reimburse him for the cost of the operation and the expenses he
incurred.

ISSUE: Whether or not Dr. Gestuvo‘s actions were negligent.

RULING: The essential elements of for the application of the doctrine of res ipsa loquitor are
present. The first element was sufficiently established when Rosit proved that one of the screws
installed by Dr. Gestuvo struck his molar. It was for this issue that Dr. Gestuvo himself referred
Rosit to Dr. Pangan. Anent the second element for the res ipsa loquitur doctrine application, it is
sufficient that the operation which resulted in the screw hitting Rosit's molar was, indeed,
performed by Dr. Gestuvo. No other doctor caused such fact. Lastly, the third element that the
injury suffered must not have been due to any voluntary action or contribution of the person
injured was satisfied in this case. It was not shown that Rosit's lung disease could have
contributed to the pain. What is clear is that he suffered because one of the screws that Dr.
Gestuvo installed hit Rosit's molar.
 Nogales vs Capitol Medical Center
G.R. No. 142625, December 19, 2006

FACTS: Corazon Nogales, while on her last trimester, Dr. Estrada noted an increase in her
blood pressure indicating preeclampsia. After examining Corazon, she was admitted there after
at 2:30 a.m. at the CMC. At 6:00 a.m., Corazon was transferred to Delivery Room. Her bag of
water ruptured spontaneously, was fully dilated and started to experience convulsions. Dr.
Estrada ordered the injection of magnesium sulphate, however, Dr. Ely Villaflor administered
only 2.5 grams. Dr. Estrada, assisted by Dr. Villaflor, applied low forceps to extract the baby. At
6:27 a.m., Corazon began to manifest moderate vaginal bleeding which rapidly became profuse.
At 8:00 a.m., Dr. Noe Espinola, was apprised of Corazon's condition. Dr. Espinola ordered
immediate hysterectomy. Due to the inclement weather then, Dr. Espinola arrived an hour later.
Despite Dr. Espinola's efforts, Corazon died at 9:15 a.m. The cause of death was "hemorrhage,
post partum."

ISSUE: Whether or not respondent doctors were negligent and are liable for damages;
and whether or not Capitol Medical Center is vicariously liable.

RULING: Dr. Estrada's liability due to negligence in handling the treatment and management of
Corazon's condition which ultimately resulted in Corazon's death was manifest. On the liability
of other respondents, the Court applied the "borrowed servant" doctrine. This doctrine provides
that once the surgeon enters the operating room and takes charge of the proceedings, the acts or
omissions of operating room personnel, and any negligence associated with such acts or
omissions, are imputable to the surgeon.

Anent the second issue, in general, a hospital is not liable for the negligence of an independent
contractor-physician. There is, however, an exception to this principle. The hospital may be
liable if the physician is the "ostensible" agent of the hospital. This exception is also known as
the "doctrine of apparent authority."

Under the doctrine of apparent authority, a hospital can be held vicariously liable for the
negligent acts of a physician providing care at the hospital, regardless of whether the physician
is an independent contractor, unless the patient knows, or should have known, that the physician
is an independent contractor. In the instant case, CMC impliedly held out Dr. Estrada as a
member of its medical staff. Through CMC's acts, CMC clothed Dr. Estrada with apparent
authority thereby leading the Spouses Nogales to believe that Dr. Estrada was an employee or
agent of CMC. CMC cannot now repudiate such authority.
 Professional Services v. Agana
513 SCRA 478, January 31, 2007

FACTS:
Natividad Agana was rushed to the Medical City General Hospital because of difficulty of bowel
movement and bloody anal discharge. Dr Miguel Ampil diagnosed her to be suffering from
cancer of sigmoid. Dr. Fuentes together with medical staff of Medical City performed
hysterectomy on Natividad, after which Dr. Ampil completed the operation and closed the
incision. However, in the record of operation, attending nurses entered remarks: sponge count
lacking 2, announce to surgeon search (sic) done but to no avail continue for closure. After a
couple of days, Natividad complained of excruciating pain, consulted with Dr. Ampil and Dr.
Fuentes about it but they told her the pain was natural consequence of surgery.

Natividad then went to US to seek treatment and was told she was free of cancer. She flew back
to Philippines still suffering from pains. Two weeks after, her daughter found a piece of gauze
protruding from her vagina to which Dr. Ampil managed to remove by hand. The pain intensified
prompting Natividad to seek treatment at Polymedic General Hospital. While confined, Dr.
Gutierrez detected the presence of another foul smelling gauze in her vagina creating recto-
vaginal fistula. Thus, she underwent another surgery.

ISSUE:
Whether or not there is the existence of an employer-employee relationship between hospital and
doctor.

RULING:
The nature of the relationship between the hospital and the physicians is rendered
inconsequential that for purposes of apportioning responsibility in medical negligence cases, an
employer-employee relationship in effect exists between hospitals and their attending and
visiting physicians.

Private hospitals, hire, fire and exercise real control over their attending and visiting consultant
staff. While consultants are not, technically employees, the control exercised, the hiring, and the
right to terminate consultants all fulfill the important hallmarks of an employer-employee
relationship, with the exception of the payment of wages. In assessing whether such a
relationship in fact exists, the control test is determining. Accordingly, for the purpose of
allocating responsibility in medical negligence cases, an employer-employee relationship in
effect exists between hospitals and their attending and visiting physicians.
 Professional Services v. CA
544 SCRA 170, February 11, 2008

FACTS:
On January 31, 2007, the Court rendered a Decision holding that PSI is jointly and severally
liable with Dr. Ampil for the following reasons: first, there is an employer-employee relationship
between Medical City and Dr. Ampil. The Court relied on Ramos v. Court of Appeals, holding
that for the purpose of apportioning responsibility in medical negligence cases, an employer-
employee relationship in effect exists between hospitals and their attending and visiting
physicians; second, PSI‘s act of publicly displaying in the lobby of the Medical City the names
and specializations of its accredited physicians, including Dr. Ampil, estopped it from denying
the existence of an employer-employee relationship between them under the doctrine of
ostensible agency or agency by estoppel; and third, PSI‘s failure to supervise Dr. Ampil and its
resident physicians and nurses and to take an active step in order to remedy their negligence
rendered it directly liable under the doctrine of corporate negligence.

In its motion for reconsideration, PSI contends that the Court erred in finding it liable under
Article 2180 of the Civil Code, there being no employer-employee relationship between it and its
consultant, Dr. Ampil. PSI stressed that the Court‘s Decision in Ramos holding that "an
employer-employee relationship in effect exists between hospitals and their attending and
visiting physicians for the purpose of apportioning responsibility" had been reversed in a
subsequent Resolution. Further, PSI argues that the doctrine of ostensible agency or agency by
estoppel cannot apply because spouses Agana failed to establish one requisite of the doctrine,
i.e., that Natividad relied on the representation of the hospital in engaging the services of Dr.
Ampil. And lastly, PSI maintains that the doctrine of corporate negligence is misplaced because
the proximate cause of Natividad‘s injury was Dr. Ampil‘s negligence.

ISSUE:
Whether or not PSI is liable under the doctrine of corporate negligence.

RULING:
The duty of providing quality medical service is no longer the sole prerogative and
responsibility of the physician. This is because the modern hospital now tends to organize a
highly-professional medical staff whose competence and performance need also to be monitored
by the hospital commensurate with its inherent responsibility to provide quality medical
care.Such responsibility includes the proper supervision of the members of its medical staff.
Accordingly, the hospital has the duty to make a reasonable effort to monitor and oversee the
treatment prescribed and administered by the physicians practicing in its premises.

Unfortunately, PSI had been remiss in its duty. It did not conduct an immediate investigation on
the reported missing gauzes to the great prejudice and agony of its patient. Dr. Jocson, a member
of PSI‘s medical staff, who testified on whether the hospital conducted an investigation, was
evasive. This shows lack of concern for the patients. Such conduct is reflective of the hospital‘s
manner of supervision. Not only did PSI breach its duty to oversee or supervise all persons who
practice medicine within its walls, it also failed to take an active step in fixing the negligence
committed. This renders PSI, not only vicariously liable for the negligence of Dr. Ampil under
Article 2180 of the Civil Code, but also directly liable for its own negligence under Article 2176.
 Professional Services v. Agana
February 2, 2010

FACTS:
Professional Services, Inc (PSI), together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan
Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and Natividad Agana (later substituted
by her heirs), in a complaint for damages filed in the Regional Trial Court (RTC) of Quezon City,
Branch 96, for the injuries suffered by Natividad when Dr. Ampil and Dr. Fuentes neglected to
remove from her body two gauzes which were used in the surgery they performed on her on
April 11, 1984 at the Medical City General Hospital. PSI was impleaded as owner, operator and
manager of the hospital.

The Court premised the direct liability of PSI to the Aganas on the following:
First, there existed between PSI and Dr. Ampil an employer-employee relationship as
contemplated in the December 29, 1999 decision in Ramos v. Court of Appeals that ―for
purposes of allocating responsibility in medical negligence cases, an employer-employee
relationship exists between hospitals and their consultants
Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the public
impression that he was its agent.
Finally, as owner and operator of Medical City General Hospital, PSI was bound by its duty
to provide comprehensive medical services to Natividad Agana, to exercise reasonable care
to protect her from harm, to oversee or supervise all persons who practiced medicine within
its walls, and to take active steps in fixing any form of negligence committed within its
premises.

ISSUE:
Whether or not there is the existence of an employer-employee relationship between hospital and
doctor.

RULING:

PSI took no heed of the record of operation and consequently did not initiate a review of what
transpired during Natividads operation. Rather, it shirked its responsibility and passed it on to
others to Dr. Ampil whom it expected to inform Natividad, and to Natividad herself to complain
before it took any meaningful step. By its inaction, therefore, PSI failed its own standard of
hospital care. It committed corporate negligence.

The corporate negligence ascribed to PSI is different from the medical negligence attributed to
Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant practicing
within its premises in relation to the patient; hence, the failure of PSI to fulfill its duties as a
hospital corporation gave rise to a direct liability to the Aganas distinct from that of Dr. Ampil.
All this notwithstanding, we make it clear that PSIs hospital liability based on ostensible agency
and corporate negligence applies only to this case, pro hac vice. It is not intended to set a
precedent and should not serve as a basis to hold hospitals liable for every form of negligence of
their doctors-consultants under any and all circumstances. The ruling is unique to this case, for
the liability of PSI arose from an implied agency with Dr. Ampil and an admitted corporate duty
to Natividad.
 Cantre v. Sps. Go
522 SCRA 547, April 27, 2007

FACTS:

Petitioner Dr. Cantre is a specialist in Obstetrics and Gynecology at the Dr. Jesus Delgado
Memorial Hospital. She was the attending physician of respondent Nora S. Go, who was
admitted at the said hospital. Nora gave birth to her fourth child, a baby boy. However, at around
3:30 a.m., Nora suffered profuse bleeding inside her womb due to some parts of the placenta
which were not completely expelled from her womb after delivery. Consequently, Nora suffered
hypovolemic shock. Petitioner and the assisting resident physician performed various medical
procedures to stop the bleeding and to restore Nora‗s blood pressure. Her blood pressure was
frequently monitored with the use of a sphygmomanometer. While petitioner was massaging
Nora‗s uterus for it to contract and stop bleeding, she ordered a droplight to warm Nora and her
baby. Nora remained unconscious until she recovered.

While in the recovery room, her husband, respondent John David Z. Go noticed a fresh gaping
wound two and a half (2 ½) by three and a half (3 ½) inches in the inner portion of her left arm,
close to the armpit. He asked the nurses what caused the injury. He was informed it was a burn.

Nora‘s injury was referred to a plastic surgeon and the costs of the skin grafting and the scar
revision were shouldered by the hospital. Unfortunately, Nora‘s arm would never be the same.
Aside from the unsightly mark, the pain in her left arm remains.

ISSUE:
Whether or not Dr. Cantre should be held liable of the damage caused to Nora Go.

RULING:

In cases involving medical negligence, the doctrine of res ipsa loquitur allows the mere existence
of an injury to justify a presumption of negligence on the part of the person who controls the
instrument causing the injury, provided that the following requisites concur:

1. The accident is of a kind which ordinarily does not occur in the absence of someone‘s
negligence;
2. It is caused by an instrumentality within the exclusive control of the defendant or
defendants; and
3. The possibility of contributing conduct which would make the plaintiff responsible is
eliminated.
As to the first requirement, the gaping wound on Nora‘s arm is certainly not an ordinary
occurrence in the act of delivering a baby, far removed as the arm is from the organs
involved in the process of giving birth. Such injury could not have happened unless
negligence had set in somewhere.

Second, whether the injury was caused by the droplight or by the blood pressure cuff is of
no moment. Both instruments are deemed within the exclusive control of the physician in
charge under the "captain of the ship" doctrine. This doctrine holds the surgeon in charge
of an operation liable for the negligence of his assistants during the time when those
assistants are under the surgeon‘s control. In this particular case, it can be logically inferred
that petitioner, the senior consultant in charge during the delivery of Nora‘s baby, exercised
control over the assistants assigned to both the use of the droplight and the taking of Nora‘s
blood pressure. Hence, the use of the droplight and the blood pressure cuff is also within
petitioner‘s exclusive control.

Third, the gaping wound on Nora‘s left arm, by its very nature and considering her
condition, could only be caused by something external to her and outside her control as she
was unconscious while in hypovolemic shock.
 Dr. Rubi Li v. Sps. Soliman
June 7, 2011

FACTS:
Respondents 11-year old daughter, Angelica Soliman, underwent a biopsy of the mass located in
her lower extremity at the St. Lukes Medical Center (SLMC). Results showed that Angelica was
suffering from osteosarcoma, osteoblastic type, a high-grade (highly malignant) cancer of the
bone which usually afflicts teenage children. Following this diagnosis and as primary
intervention, Angelicas right leg was amputated by Dr. Jaime Tamayo in order to remove the
tumor. As adjuvant treatment to eliminate any remaining cancer cells, and hence minimize the
chances of recurrence and prevent the disease from spreading to other parts of the patient‘s body
(metastasis), chemotherapy was suggested by Dr. Tamayo. Dr. Tamayo referred Angelica to
another doctor at SLMC, herein petitioner Dr. Rubi Li, a medical oncologist.

On August 18, 1993, Angelica was admitted to SLMC. However, she died on September 1, 1993,
just eleven (11) days after the (intravenous) administration of the first cycle of the chemotherapy
regimen. The post-mortem examination indicated the cause of death as Hypovolemic shock
secondary to multiple organ hemorrhages and Disseminated Intravascular Coagulation.

Respondents charged the doctors with negligence and disregard of Angelicas safety, health and
welfare by their careless administration of the chemotherapy drugs, their failure to observe the
essential precautions in detecting early the symptoms of fatal blood platelet decrease and
stopping early on the chemotherapy, which bleeding led to hypovolemic shock that caused
Angelicas untimely demise. It was also averred that petitioner assured the respondents that
Angelica would recover in view of 95% chance of healing with chemotherapy (Magiging normal
na ang anak nyo basta ma-chemo. 95% ang healing) and when asked regarding the side effects,
petitioner mentioned only slight vomiting, hair loss and weakness (Magsusuka ng kaunti.
Malulugas ang buhok. Manghihina). Respondents thus claimed that they would not have given
their consent to chemotherapy had petitioner not falsely assured them of its side effects.

ISSUE:
Whether or not petitioner committed malpractice under the doctrine of informed consent and that
she is liable for the death of the girl.

RULING:

There are four essential elements a plaintiff must prove in a malpractice action based upon the
doctrine of informed consent: (1) the physician had a duty to disclose material risks; (2) he failed
to disclose or inadequately disclosed those risks; (3) as a direct and proximate result of the
failure to disclose, the patient consented to treatment she otherwise would not have consented to;
and (4) plaintiff was injured by the proposed treatment. The gravamen in an informed consent
case requires the plaintiff to point to significant undisclosed information relating to the treatment
which would have altered her decision to undergo it.

There was adequate disclosure of material risks inherent in the chemotherapy procedure
performed with the consent of Angelicas parents. Respondents could not have been unaware in
the course of initial treatment and amputation of Angelicas lower extremity, that her immune
system was already weak on account of the malignant tumor in her knee. When petitioner
informed the respondents beforehand of the side effects of chemotherapy which includes lowered
counts of white and red blood cells, decrease in blood platelets, possible kidney or heart damage
and skin darkening, there is reasonable expectation on the part of the doctor that the respondents
understood very well that the severity of these side effects will not be the same for all patients
undergoing the procedure.

It is difficult to give credence to respondents claim that petitioner told them of 95% chance of
recovery for their daughter, as it was unlikely for doctors like petitioner who were dealing with
grave conditions such as cancer to have falsely assured patients of chemotherapy‘s success rate.
 Culpa Criminal

People v. Delos Santos

355 SCRA 415, March 27, 2001

FACTS:
Several members of the Philippine National Police were undergoing an endurance run on
October 5, 1995 which started at 2:20 am. The PNP trainees were divided into three columns and
were wearing black t-shirts, black short pants, and green and black combat shoes. There were
two rear guards assigned to each rear column. Their duty was to jog backwards facing the
oncoming vehicles and give hand signals for other vehicles. From Alae to Maitum Highway,
Puerto, Cagayan de Oro City, about 20 vehicles passed them, all of which slowed down and took
the left portion of the road when signaled to do so. While they were in Maitum Highway, an
Isuzu Elf truck came at high speed towards them. The vehicle lights were in the high beam. At a
distance of 100 meters, the rear security guards started waving their hands for the vehicle to take
the other side of the road, but the vehicle just kept its speed, apparently ignoring their signals and
coming closer and closer to them. The trainees were hit by the said vehicle, falling like dominoes
one after the other. The driver, Glenn de los Santos did not reduce his speed even after hitting the
first and second columns.

The trial court convicted accused-appellant guilty of complex crime of multiple murder, multiple
frustrated murder and multiple attempted murder, with the use of motor vehicle as the qualifying
circumstance.

ISSUE:
Whether or not the trial court erred in its ruling of Delos Santos‘ liability.

RULING:

The tragic event was more a product of reckless imprudence than of a malicious intent on
GLENNs part.

First, the place of the incident was very dark, as there was no moon. And according to
PAG-ASAs observed weather report within the vicinity of Cagayan de Oro City covering
a radius of 50 kilometers, at the time the event took place, the sky was overcast, i.e., there
was absolutely no break in the thick clouds covering the celestial dome globe; hence, there
was no way for the moon and stars to be seen. Neither were there lampposts that
illuminated the highway.

Second, the jogging trainees and the rear guards were all wearing black T-shirts, black
short pants, and black and green combat shoes, which made them hard to make out on that
 dark and cloudy night. The rear guards had neither reflectorized vests or gloves nor
flashlights in giving hand signals.

Third, GLENN was driving on the proper side of the road, the right lane. On the other
hand, the jogging trainees were occupying the wrong lane, the same lane as GLENNs
vehicle was traversing. Worse, they were facing the same direction as GLENNs truck such
that their backs were turned towards the oncoming vehicles from behind.

Fourth, no convincing evidence was presented to rebut GLENNs testimony that he had
been momentarily blinded by the very bright and glaring lights of the oncoming vehicle at
the opposite direction as his truck rounded the curve. He must have been still reeling from
the blinding effect of the lights coming from the other vehicle when he plowed into the
group of police trainees.

Considering that the incident was not a product of a malicious intent but rather the result of a
single act of reckless driving, GLENN should be held guilty of the complex crime of reckless
imprudence resulting in multiple homicide with serious physical injuries and less serious
physical injuries.
 LG. Foods v. Agraviador
503 SCRA 170, September 26, 2006

FACTS:

On February 26, 1996, Charles Vallereja, a 7-year old son of the spouses Florentino Vallejera and
Theresa Vallejera, was hit by a Ford Fiera van owned by the petitioners and driven at the time by
their employee, Vincent Norman Yeneza y Ferrer. Charles died as a result of the accident. In
time, an Information for Reckless Imprudence Resulting to Homicide was filed against the driver
before the Municipal Trial Court. Unfortunately, before the trial could be concluded, the accused
driver committed suicide, evidently bothered by conscience and remorse. The spouses Vallejera
filed a complaint for damages against the petitioners as employers of the deceased driver,
basically alleging that as such employers, they failed to exercise due diligence in the selection
and supervision of their employees.

ISSUE:
Whether or not the contention of the petitioner that there must first be a judgment of conviction
against their driver as a condition sine qua non to hold them liable and that the case should have
been dismissed for failure of the respondent spouses to make a reservation to institute a separate
civil action for damages when the criminal case against the driver was filed.

RULING:

The complaint sufficiently alleged that the death of the couple‘s minor son was caused by the
negligent act of the petitioner‘s driver; and that the petitioners
themselves were civilly liable for the negligence of their driver for failing to exercise the
necessary diligence required of a good father of the family in the selection and supervision of
[their] employee, the driver, which diligence, if exercised, would have prevented said accident.

Had the respondent spouses elected to sue the petitioners based on Article 103 of the Revised
Penal Code, they would have alleged that the guilt of the driver had
been proven beyond reasonable doubt; that such accused driver is insolvent; that it is the
subsidiary liability of the defendant petitioners as employers to pay for the damage done by their
employee (driver) based on the principle that every person criminally liable is also civilly liable.
Since there was no conviction in the criminal case against the driver, precisely because death
intervened prior to the termination of the criminal proceedings, the spouses recourse was,
therefore, to sue the petitioners for their direct and primary liability based on quasi-delict.
 Contravention of Terms

Magat v. Medialdea
April 20, 1983

FACTS:
In 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay,
Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the
necessary taximeter and a radio transceiver for receiving and sending of messages from mobile
taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines. Since herein
petitioner is known of his good reputation as a businessman, the defendant, through his agent,
entered into a contract with the former. In said contract, the defendant must open a letter of credit
in favor of the petitioner, since the latter would also engage a foreign company for such
taximeter. Defendant and his agent have repeatedly assured plaintiff herein of the defendant's
financial capabilities to pay for the goods ordered by him and in fact he accomplished the
necessary application for a letter of credit with his banker, but he subsequently instructed his
banker not to give due course to his application for a letter of credit and that for reasons only
known to the defendant, he fails and refuses to open the necessary letter of credit to cover
payment of the goods ordered by him.

After some time, it has come to the knowledge of the plaintiff that the defendant has been
operating his taxicabs without the required radio transceivers and when the U.S. Navy
Authorities of Subic Bay, Philippines, were pressing defendant for compliance with his
commitments with respect to the installations of radio transceivers on his taxicabs, he impliedly
laid the blame for the delay upon the plaintiff herein, thus destroying the reputation of the
plaintiff herein with the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff
herein transacts business.

Plaintiff filed a complaint against defendant for alleged breach of contract.

ISSUE:
Whether or not there is a cause of action in the subject complaint.

RULING:

The test of legal sufficiency of the cause of action is adequately satisfied. In a methodical and
logical sequence, the complaint recites the circumstances that led to the perfection of the contract
entered into by the parties. It further avers that while petitioner had fulfilled his part of the
bargain [paragraph 8 of the Complaint], private respondent failed to comply with his correlative
obligation by refusing to open a letter of credit to cover payment of the goods ordered by him
[paragraphs 11 & 12 of the Complaint], and that consequently, petitioner suffered not only loss
of his expected profits, but moral and exemplary damages as well. From these allegations, the
essential elements of a cause of action are present, to wit: [1] the existence of a legal right to the
plaintiff; [2] a correlative duty of the defendant and [3] an act or omission of the defendant in
violation of the plaintiff's right, with consequent injury or damage to the latter for which he may
maintain an action for recovery of damages or other appropriate relief.

Article 1170 of the Civil Code provides:

Those who in the performance of their obligation are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof are liable for damages.

The phrase "in any manner contravene the tenor" of the obligation includes any ilicit act or
omission which impairs the strict and faithful fulfillment of the obligation and every kind of
defective performance. The damages which the obligor is liable for includes not only the value of
the loss suffered by the obligee [daño emergente] but also the profits which the latter failed to
obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those damages that
are the natural and probable consequences of the breach of the obligation and which the parties
have foreseen or could have reasonably foreseen at the time the obligation was constituted; and
in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which
may be reasonably attributed to the non-performance of the obligation
 Specific Performance

Vda. De Mistica v. Naguiat

418 SCRA 73, December 11, 2003

FACTS:

Eulalio Mistica is the owner of a parcel of land located at Malhacan, Meycauayan, Bulacan. A
portion thereof was leased to respondent Bernardino Naguiat sometime in 1970. Thereafter both
parties entered into an agreement for the transfer of ownership of said property. Pursuant to said
agreement, Naguiat gave a downpayment of P2,000.00. He made another partial payment of
P1,000.00 on 7 February 1980. He failed to make any payments thereafter.

On 4 December 1991, petitioner filed a complaint for rescission alleging that the failure and
refusal of respondents to pay the balance of the purchase price constitutes a violation of the
contract which entitles her to rescind the same. Petitioner argued as his defense that the
agreement between them which involves the sale of the subject property is a potestative
obligation. As a potestative obligation, the schedule of payment belongs to the will of the debtor.

ISSUE:
Whether the proper remedy for the parties is rescission or specific performance.

RULING:

In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.
Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a breach of faith by one of them.
Rescission, however, is allowed only where the breach is substantial and fundamental to the
fulfillment of the obligation.

In the present case, the failure of respondents to pay the balance of the purchase price within ten
years from the execution of the Deed did not amount to a substantial breach. In the Kasulatan, it
was stipulated that payment could be made even after ten years from the execution of the
Contract, provided the vendee paid 12 percent interest. The stipulations of the contract constitute
the law between the parties; thus, courts have no alternative but to enforce them as agreed upon
and written.

Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband
never made any demand for the balance of the purchase price. Petitioner even refused the
payment tendered by respondents during her husband‘s funeral, thus showing that she was not
exactly blameless for the lapse of the ten-year period. Had she accepted the tender, payment
would have been made well within the agreed period.
 Co v. CA
August 17, 1999

FACTS:
In 1984, the spouses Co entered into a verbal contract with Custodio for her purchase of their
house and lot worth $100,000.00. One week thereafter, and shortly before she left for the United
States she paid amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same
may be reserved for her purchase, said earnest money to be deducted from the total purchase
price. The purchase price of $100,000.00 is payable in two payments $40,000.00 on December 4,
1984 and the balance of $60,000.00 on January 5, 1985. On January 25, 1985, although the
period of payment had already expired, she paid to the defendant Melody Co in the United
States, the sum of $30,000.00, as partial payment of the purchase price. Spouses Co‗s counsel,
Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15, 1985, demanding that she
pay the balance of $70,000.00 and not receiving any response thereto, said lawyer wrote another
letter to plaintiff dated August 8, 1986, informing her that she has lost her option to purchase‗
the property subject of this case and offered to sell her another property.

ISSUE:
Whether or not Custodio has lost her option to purchase the subject property.

RULING:
Despite the fact that CUSTODIOs failure to pay the amounts of US$ 40,000.00 and US$
60,000.00 on or before December 4, 1984 and January 5, 1985 respectively was a breach of her
obligation under Article 1191 of the Civil Code, the COS did not sue for either specific
performance or rescission of the contract. The COS were of the mistaken belief that CUSTODIO
had lost her option over the Beata property when she failed to pay the remaining balance of
$70,000.00 pursuant to their August 8, 1986 letter. In the absence of an express stipulation
authorizing the sellers to extrajudicially rescind the contract of sale, the COS cannot unilaterally
and extrajudicially rescind the contract of sale.

Accordingly, CUSTODIO acted well within her rights when she attempted to pay the remaining
balance of $70,000.00 to complete the sum owed of $100,000.00 as the contract was still
subsisting at that time.When the COS refused to accept said payment and to deliver the Beata
property, CUSTODIO immediately sued for the rescission of the contract of sale and prayed for
the return of the $30,000.00 she had initially paid.
 Resolution: Nature as Remedy

Heirs of Quirong v. DBP

December 3, 2009

FACTS:
When the late Emilio Dalope died, he left a 589-square meter untitled lot in Sta. Barbara,
Pangasinan, to his wife, Felisa Dalope (Felisa) and their nine children, one of whom was Rosa
Dalope-Funcion. To enable Rosa and her husband Antonio Funcion (the Funcions) get a loan
from respondent Development Bank of the Philippines (DBP), Felisa sold the whole lot to the
Funcions. With the deed of sale in their favor and the tax declaration transferred in their names,
the Funcions mortgaged the lot with the DBP.

On February 12, 1979, the Funcions failed to pay their loan. Thereafter, DBP foreclosed the
mortgage on the lot and consolidated ownership in its name on June 17, 1981. Four years later or
on September 20, 1983 the DBP conditionally sold the lot to Sofia Quirong for the price of
P78,000.00. In their contract of sale, Sofia Quirong waived any warranty against eviction. The
contract provided that the DBP did not guarantee possession of the property and that it would not
be liable for any lien or encumbrance on the same. Quirong gave a down payment of P14,000.00.
Two months after that sale or on November 28, 1983 Felisa and her eight children (collectively,
the Dalopes) filed an action for partition and declaration of nullity of documents with damages
against the DBP and the Funcions before the Regional Trial Court (RTC) of Dagupan City.

ISSUE:
Whether or not the Quirong heirs action for rescission of respondent DBPs sale of the subject
property to Sofia Quirong was already barred by prescription.

RULING:
Rescission is a subsidiary action based on injury to the plaintiff‘s economic interests as described
in Articles 1380 and 1381. Resolution, the action referred to in Article 1191, on the other hand, is
based on the defendant‘s breach of faith, a violation of the reciprocity between the parties. As an
action based on the binding force of a written contract, therefore, rescission (resolution) under
Article 1191 prescribes in 10 years. Ten years is the period of prescription of actions based on a
written contract under Article 1144.

Article 1191 gives the injured party an option to choose between, first, fulfillment of the contract
and, second, its rescission. An action to enforce a written contract (fulfillment) is definitely an
action upon a written contract, which prescribes in 10 years (Article 1144). It will not be logical
to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of
rescission (or resolution) is made to prescribe after only four years as provided in Article 1389
when the injury from which the two kinds of actions derive is the same. With the loss of 80% of
the subject lot to the Dalopes by reason of the judgment of the RTC in Civil Case D-7159, the
Quirong heirs had the right to file an action for rescission against the DBP pursuant to the
provision of Article 1556 of the Civil Code.

Consequently, it prescribed as Article 1389 provides in four years from the time the action
accrued. Since it accrued on January 28, 1993 when the decision in Civil Case D-7159 became
final and executory and ousted the heirs from a substantial portion of the lot, the latter had only
until January 28, 1997 within which to file their action for rescission. Given that they filed their
action on June 10, 1998, they did so beyond the four-year period.
 Heirs of Gaite v. The Plaza
January 26, 2011

FACTS:
On July 16, 1980, The Plaza, Inc., through its President, Jose C. Reyes, entered into a contract
with Rhogen Builders, represented by Ramon C. Gaite, for the construction of a restaurant
building in Greenbelt, Makati for the price of P7,600,000.00. On July 18, 1980, to secure
Rhogen‗s compliance with its obligation, Gaite and FGU Insurance Corporation (FGU) executed
a surety bond in favor of The Plaza. Thereafter, Rhogen commenced construction of the
restaurant building. September 10, 1980, Engineer Angelito Z. Gonzales, ordered Gaite to cease
and desist from continuing with the construction of the building for violation of Sections 301 and
302 of the National Building Code (P.D. 1096) and its implementing rules and regulations. On
October 7, 1980, Gaite wrote Reyes, regarding his actions/observations on the stoppage order
issued.

On the permit for temporary structure, Gaite said the plans were being readied for submission to
the Engineering Department of the Municipality of Makati and the application was being resent
to Reyes for his appropriate action. Gaite thus thought that Reyes would handle the matter by
himself. In his reply-letter Reyes asserted that The Plaza is not the one to initiate a solution to the
situation arising from non-performance of its own contractual undertakings, and that The Plaza
has its rights and remedies to protect its interest.

ISSUE:
Whether or not the petitioner has a cause for rescission of the contract with the respondent.

RULING:
Article 1191 of the Civil Code, which provides for the remedy of rescission or more properly
resolution, a principal action based on breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in the provision is the obligor‘s failure to
comply with an existing obligation. Thus, the power to rescind is given only to the injured party.
The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to
perform his obligation

The construction contract between Rhogen and The Plaza provides for reciprocal obligations
whereby the latters obligation to pay the contract price or progress billing is conditioned on the
formers performance of its undertaking to complete the works within the stipulated period and in
accordance with approved plans and other specifications by the owner. Pursuant to its contractual
obligation, The Plaza furnished materials and paid the agreed down payment. It also exercised
the option of furnishing and delivering construction materials at the jobsite pursuant to Article III
of the Construction Contract. However, just two months after commencement of the project,
construction works were ordered stopped by the local building official and the building permit
subsequently revoked on account of several violations of the National Building Code and other
regulations of the municipal authorities.

Rhogen was already at fault. Respondent The Plaza, on the other hand, was justified in
withholding payment on Rhogens first progress billing, on account of the stoppage order and
additionally due to disappearance of owner-furnished materials at the jobsite. In failing to have
the stoppage and revocation orders lifted or recalled, Rhogen should take full responsibility in
accordance with its contractual undertaking.
 Solar Harvest Inc. v. Davao Corrugated
July 26, 2010

FACTS:

Petitioners entered into an agreement with the respondent for the purchase of corrugated carton
boxes specifically designed for petitioner's business of exporting fresh bananas. The agreement
was not reduced into writing. Petitioner deposited in respondent's US Dollar Savings Account as
full payment for the ordered boxes. Despite such payment, petitioner did not receive any boxes
from respondent. Petitioner wrote a demand letter for reimbursement of the amount paid.
Respondent replied that the boxes had been completed as early as April 3, 1998 and that
petitioner failed to pick them up from the former's warehouse 30 days from completion, as
agreed upon. Petitioner filed a Complaint for sum of money and damages against respondent.
The Complaint averred that the parties agreed that the boxes will be delivered within 30 days
from payment but respondent failed to manufacture and deliver the boxes within such time.

ISSUE:
Whether or not the petitioner would have a cause of action for rescission against the respondent.

RULING:

Evident from the records and even from the allegations in the complaint was the lack of demand
by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The
Complaint only alleged that petitioner made a follow-up upon respondent, which, however,
would not qualify as a demand for the fulfillment of the obligation. Petitioners witness also
testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that,
with respect to their claim for reimbursement, the Complaint alleged and the witness testified
that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the
obligation, petitioner would not have a cause of action for rescission against respondent as the
latter would not yet be considered in breach of its contractual obligation.

Petitioner failed to establish a cause of action for rescission, the evidence having shown that
respondent did not commit any breach of its contractual obligation.

Right to Resolve/Rescind: Requisites

 Reyes v. Tuparan
June 1, 2011

FACTS:
In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ
Building for her pawnshop business for a monthly rental of ₱4,000.00. A close friendship
developed between the two which led to the respondent investing thousands of pesos in
petitioner‗s financing/lending business from February 7, 1990 to May 27, 1990, with interest at
the rate of 6% a month.

On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank
and Loan Bank, Inc. to secure a loan of ₱2,000,000.00 payable in installments. On November 15,
1990, petitioner‗s outstanding account on the mortgage reached ₱2,278,078.13. Petitioner then
decided to sell her real properties for at least ₱6,500,000.00 so she could liquidate her bank loan
and finance her businesses. As a gesture of friendship, respondent verbally offered to
conditionally buy petitioner‗s real properties for ₱4,200,000.00 payable on installment basis
without interest and to assume the bank loan.

On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of
Conditional Sale of Real Properties with Assumption of Mortgage. Respondent, however,
defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due
in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from
time to time. To compensate for her delayed payments, respondent agreed to pay petitioner an
interest of 6% a month. As of August 31, 1992, respondent had only paid ₱395,000.00, leaving a
balance of ₱805,000.00 as principal on the unpaid installments and ₱466,893.25 as unpaid
accumulated interest. `Since December 1990, respondent had taken possession of the subject real
properties and had been continuously collecting and receiving monthly rental income from the
tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it
with petitioner. On September 2, 1992, respondent offered the amount of ₱751,000.00 only
payable on September 7, 1992, as full payment of the purchase price of the subject real
properties and demanded the simultaneous execution of the corresponding deed of absolute sale.

ISSUE:
Whether or not petitioner has the right to rescind of the Deed of Conditional Sale with
Assumption of Mortgage.

RULING:
The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale
with Assumption of Mortgage entered into by and among the two parties and FSL Bank on
November 26, 1990 is a contract to sell and not a contract of sale. Based on the provisions of the
contract, the title and ownership of the subject properties remains with the petitioner until the
respondent fully pays the balance of the purchase price and the assumed mortgage obligation.
Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and
the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent.

Accordingly, the petitioner‘s obligation to sell the subject properties becomes demandable only
upon the happening of the positive suspensive condition, which is the respondent‘s full payment
of the purchase price. Without respondent‘s full payment, there can be no breach of contract to
speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay
in full the purchase price is not the breach of contract contemplated under Article 1191 of the
New Civil Code but rather just an event that prevents the petitioner from being bound to convey
title to the respondent.
 G.G. Sportswear v. World Class Properties
March 2, 2010

FACTS:
Petitioner offered to purchase the 38th floor penthouse unit and 16 parking slots for 32 cars in
World Class's condominium project for the discounted, pre-selling price. After petitioner paid the
reservation fee, the parties, signed a Reservation Agreement that provides for the schedule of
payments, including the stipulated monthly installments on the down payment and the balance on
the purchase price. From May to December 1996, petitioner timely paid the installments due. In
a letter dated January 30, 1997, petitioner requested the return of the outstanding postdated
checks it previously delivered to World Class because it (GG Sportswear) intended to replace
these old checks with new ones from the corporation ‗s new bank. World Class acceded, but
suggested the execution of a new Reservation Agreement to reflect the arrangement involving
the replacement checks, with the retention of the other terms and conditions of the old
Agreement. Petitioner did not object to the execution of a new Reservation Agreement, but
requested that World Class defer the deposit of the replacement checks for 90 days. World Class
denied this request, contending that a deferment would delay the subsequent monthly installment
payments. It likewise demanded that petitioner immediately pay its overdue January 1997
installment to avoid the penalties provided in the Agreement. GG Sportswear did not sign the
second Reservation Agreement. Instead, it sent a letter to World Class, requesting that its check
dated April 24, 1997 be deposited on May 15, 1997 because it was experiencing financial
difficulties. When World Class rejected petitioner ‗s request; petitioner sent another letter
informing World Class that the second Reservation Agreement was incomplete because it did not
expressly provide the time of completion of the condominium unit. World Class countered that
the provisional Contract to Sell it previously submitted to petitioner expressly provided for the
completion date (December 15, 1998) and insisted that petitioner pay its overdue account.

ISSUE:
Whether there was breach on the part of World Class to justify petitioner‘s action for rescission
and refund.

RULING:
GG Sportswear cannot claim that it did not know the time-frame for the project‘s completion
when it entered into the Agreement with World Class. As World Class points out, it is absurd and
unbelievable that Mr. Gidwani, the president of GG Sportswear and an experienced businessman,
did not have an idea of the expected completion date of the condominium project before he
bought the condominium units for P89,624,272.82. Even assuming that GG Sportswear was not
aware of the exact completion date, we note that GG Sportswear signed the Agreement despite
the Agreements omission to expressly state a specific completion date. This directly implies that
a specific completion date was not a material consideration for GG Sportswear when it executed
the Agreement. Thus, even if we believe GG Sportswears contention that it was
dissatisfied with the completion date subsequently indicated in the provisional Contract to Sell,
we cannot consider this dissatisfaction a breach so substantial as to render the Agreement
rescissible. The grant, too, to World Class of a first License to Sell up to August 1998 and a
second License to Sell up to December 1999, to our mind, served as a clear notice of when the
project was to be completed. As we discussed above, the initial lack of a License to Sell is not a
basis to cancel the Agreement and has in fact effectively been cured even if it may be considered
an initial defect.

Moreover, the provisional Contract to Sell that accompanied the second Reservation Agreement
explicitly provided that the condominium project would be ready for turnover no later than
December 15, 1998, a clear expression of the project‘s completion date. While GG Sportswear
claims dissatisfaction with this completion date, it never alleged that the given December 15,
1998 completion date violates the completion date previously agreed upon by the parties.
 Movido v. Reyes Pastor
February 11, 2010

FACTS:
Luis Reyes Pastor filed a complaint for specific performance in the RTC of Imus, Cavite, praying
that petitioner Valentin Movido be compelled to cause the survey of a parcel of land subject of
their contract to sell. In his complaint, he alleged that he and petitioner executed a kasunduan sa
bilihan ng lupa where the latter agreed to sell a parcel of land located in Paliparan, Dasmariñas,
Cavite. Respondent further alleged that another kasunduan was later executed supplementing the
kasunduan sa bilihan ng lupa. It provided that, if a Napocor power line traversed the subject lot,
the purchase price would be lowered. Lastly, respondent alleged that he already paid petitioner
P5 million out of the original purchase price of P8.4 million stated in the kasunduan sa bilihan ng
lupa. He was willing and ready to pay the balance of the purchase price but due to petitioner's
refusal to have the property surveyed despite incessant demands, his unpaid balance could not be
determined with certainty. However, as respondent was not sure whether a Napocor power line
traversed the property, they then executed the kasunduan. After respondent personally inspected
the property, a final agreement was executed. The final agreement also listed a schedule of
payments of the purchase price and included a penalty clause in case of default. The RTC ruled
in favor of petitioner and held that the kasunduan preceded the kasunduan sa bilihan ng lupa. The
CA reversed the RTC and held that the kasunduan sa bilihan ng lupa was the first document
executed by the parties, not the kasunduan. Movido's motion for reconsideration did not have its
desired result, hence, this petition.

ISSUE:
Whether or not Petitioner may correctly avail of rescission.

RULING:
Rescission is only allowed when the breach is so substantial and fundamental as to defeat the
object of the parties in entering into the contract. There is no such substantial or material breach.

th th
It is true that respondent failed to pay the 7 and 8 installments of the purchase price. However,
considering the circumstances of the instant case, particularly the provisions of the kasunduan,
respondent cannot be deemed to have committed a serious breach. In the first place, respondent
was not in default as petitioner never made a demand for payment.

Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both be given effect
rather than be declared conflicting, if there is a way of reconciling them. Petitioner and
respondent would not have entered into either of the agreements if they did not intend to be
bound or governed by them. Indeed, taken together, the two agreements actually constitute a
single contract pertaining to the sale of a land to respondent by petitioner. Their stipulations must
therefore be interpreted together, attributing to the doubtful ones that sense that may result from
all of them taken jointly. Their proper construction must be one that gives effect to all.
 Sps. Tongson v. Emergency Pawnshop
January 15, 2010

FACTS:
Napala offered to purchase from the spouses Tongson their 364- square meter parcel of land,
situated in Davao City and covered by TCT #143020. Finding the offer acceptable, the spouses
executed with Napala a Memorandum of Agreement dated May 8, 1992. Thereafter, respondent
prepared a Deed of Absolute Sale indicating the consideration as only P400,000. To conform
with the consideration stated in the Deed of Absolute Sale, the parties executed another
Memorandum of Agreement, which replaced the first MOA, showing that the selling price of the
land was only P400,000. Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash
to the spouses and issued a postdated PNB check for the remaining amount of P2,800,000.
TCT#143020 was cancelled and TCT#T-186128 was issued in the name of Emergency
Pawnshop Bula, Inc. When presented for payment, the PNB check was dishonored for the reason
―Drawn Against Insufficient Funds‖. Despite the spouses‘ repeated demands to either pay the
full value of the check or to return the subject parcel of land, Napala failed to do either. Spouses
filed a complaint for annulment of contract and damages with a prayer for the issuance of a
temporary restraining order and writ of preliminary injunction.

ISSUE:
Whether or not the complaint for the annulment of the sales contract be granted.

RULING:
While they did not file an action for the rescission of the sales contract, the Spouses Tongson
specifically prayed in their complaint for the annulment of the sales contract, for the immediate
execution of a deed of reconveyance, and for the return of the subject property to them. The
Spouses Tongson likewise prayed for such other reliefs which may be deemed just and equitable
in the premises. In view of such prayer, and considering respondents substantial breach of their
obligation under the sales contract, the rescission of the sales contract is but proper and justified.
Accordingly, respondents must reconvey the subject property to the Spouses Tongson, who in
turn shall refund the initial payment of P200,000 less the costs of suit.

Napalas claims that rescission is not proper and that he should be given more time to pay for the
unpaid remaining balance of P2,800,000 cannot be countenanced. Having acted fraudulently in
performing his obligation, Napala is not entitled to more time to pay the remaining balance of
P2,800,000, and thereby erase the default or breach that he had deliberately incurred. To do
otherwise would be to sanction a deliberate and reiterated infringement of the contractual
obligations incurred by Napala, an attitude repugnant to the stability and obligatory force of
contracts.
 Sanz Maceda v. DBO
August 11, 2010

FACTS:
It appears that on July 28, 1976 plaintiff Bonifacio Maceda, Jr. (Maceda) obtained a loan from
the defendant DBP in the amount of P7.3 million to finance the expansion of the Old Gran Hotel
in Leyte. Upon approval of said loan, plaintiff Maceda executed a promissory note and a
mortgage of real estate. Project cost of the New Gran Hotel was P10.5M. DBP fixed a debt-
equity ratio of 70%-30%, corresponding to DBP and Macedas respective infusion in the hotel
project. Macedas equity infusion was P2.93M, or 30% of P10.5M. The DBP Governor at that
time, Recio Garcia, in-charge of loans for hotels, allegedly imposed the condition that DBP
would choose the building contractor, namely, Moreman Builders Co. (Moreman). The
contractor would directly receive the loan releases from DBP, after verification by DBP of the
construction progress.The period of loan availment was 360 days from date of initial release of
the loan. Similarly, suppliers of equipment and furnishings for the hotel were also to be paid
directly by DBP. The construction deadline was set for December 22, 1977.

Maceda filed a complaint for Rescission of the building contract with Damages against the
contractor Moreman, before the then Manila Court of First Instance Branch 39, which was
docketed as Civil Case No. 113498. In its decision dated November 28, 1978, the CFI rescinded
the building contract, suspended the period of availment, allowed Maceda to himself take over
construction, and directed DBP to release to Maceda the sum of P1.003M, which had previously
been approved for release in January 1978. The DBP was further ordered to give plaintiff
Maceda such other amounts still pending release. Moreman filed an appeal which was
subsequently dismissed in 1990 by the Supreme Court.

ISSUE:
Whether or not the proper remedy is to rescind the subject contract.

RULING:

Maceda put in cash equity worth P6,153,398.05 as of 31 July 1980. Under Article 1191 of the
Civil Code, the aggrieved party has a choice between specific performance and rescission with
damages in either case. However, we have ruled that if specific performance becomes
impractical or impossible, the court may order rescission with damages to the injured party. After
the lapse of more than 30 years, it is now impossible to implement the loan agreement as it was
written, considering the absence of evidence as to the rising costs of construction, as well as the
obvious changes in market conditions on the viability of the operations of the hotel. We deem it
equitable and practicable to rescind the obligation of DBP to deliver the balance of the loan
proceeds to Maceda. In exchange, we order DBP to pay Maceda the value of Macedas cash
equity of P6,153,398.05 by way of actual damages, plus the applicable interest rate. The present
ruling comes within the purview of Macedas and DBPs prayers for other reliefs, just or equitable
under the premises.
 Effects of Resolution

Serrano v. CA
417 SCRA 415

FACTS:
The petitioners, spouses Serrano, were the owners of a parcel of land as well as the house
constructed thereon located at Road 4, Project 6, Diliman, Quezon City and a parcel of land
located in Caloocan City. The couple mortgaged the said properties in favor of the Government
Service Insurance System (GSIS) as security for a loan of P50,000. By June 1969, the couple
was able to pay only the amount of P18,000. On June 23, 1969, the Spouses Serrano, as vendors,
and Spouses Emilio and Evelyn Geli, as vendees, executed a deed of absolute sale with partial
assumption of mortgage over the parcel of land covered by TCT No. 80384 and the house
thereon for the price of P70,000. The Spouses Geli paid the amount of P38,000 in partial
payment of the property, the balance of P32,000 to be paid by them to the GSIS for the account
of the Spouses Serrano. The Spouses Geli thereafter took possession of the property. In the
meantime, Evelyn Geli died intestate and was survived by her husband Emilio Geli and their
children. However, Emilio Geli and his children failed to settle the amount of P32,000 to the
GSIS.

ISSUE:
Whether or not petitioners are obliged to refund to the respondents.

RULING:
Generally, the rule is that to rescind a contract is not merely to terminate it, but to abrogate and
undo it from the beginning; that is, not merely to release the parties from further obligations to
each other in respect to the subject of the contract, but to annul the contract and restore the
parties to the relative positions which they would have occupied if no such contract had ever
been made. Rescission necessarily involves a repudiation of the contract and a refusal of the
moving party to be further bound by it. With the rescission of the deed of sale, etc., the rights of
Emilio Geli under the said deed to redeem the property had been extinguished. The petitioners
cannot even be compelled to subrogate the respondents to their rights under the real estate
mortgage over the property which the petitioners executed in favor of the GSIS since the
payment of the P67,701.84 redemption price was made without the knowledge of the petitioners.
The respondents, however, are entitled to be reimbursed by the petitioners to the extent that the
latter were benefited.
 Gil v. CA
411 SCRA 18

FACTS:
Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel Villarica, were the co-
owners of a parcel of commercial land with an area of 829 square meters, identified as Lot No.
59-C, covered by Transfer Certificate of Title (TCT) No. 432 located in Davao City. The spouses
Angel and Nieves Villarica had constructed a two-storey commercial building on the property.
On October 13, 1953, Concepcion filed a complaint against her sister Nieves with the then Court
of First Instance of Davao City, docketed as Civil Case No. 1160 for specific performance, to
compel the defendant to cede and deliver to her an undivided portion of the said property with an
area of 256.2 square meters. After due proceedings, the court rendered judgment on April 7, 1954
in favor of Concepcion, ordering the defendant to deliver to the plaintiff an undivided portion of
the said property with an area of 256.2 square meter

The CA affirmed in toto the judgment of the Regional Trial Court.

ISSUE:
Whether or not rescission is a remedy available to the petitioners.

RULING:
The right of rescission of a party to an obligation under Article 1191 of the New Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity between them. The
deed of absolute sale executed by Concepcion Gil in favor of Iluminada Pacetes is an executory
contract and not an executed contract is a settled matter. In a perfected contract of sale of realty,
the right to rescind the said contract depends upon the fulfillment or non-fulfillment of the
prescribed condition. The condition pertains in reality to the compliance by one party of an
undertaking the fulfillment of which would give rise to the demandability of the reciprocal
obligation pertaining to the other party. The reciprocal obligation envisaged would normally be,
in the case of the vendee, the payment by the vendee of the agreed purchase price and in the case
of the vendor, the fulfillment of certain express warranties.

The petitioners, as successors-in-interest of the vendor, are not the injured parties entitled to a
rescission of the deed of absolute sale. It was Concepcion‘s heirs, including the petitioners, who
were obliged to deliver to the vendee a certificate of title over the property under the latter‘s
name, free from all liens and encumbrances within 120 days from the execution of the deed of
absolute sale on October 24, 1956, but had failed to comply with the obligation. The
consignation by the vendee of the purchase price of the property is sufficient to defeat the right
of the petitioners to demand for a rescission of the said deed of absolute sale.
 Reyes v. Lim
408 SCRA 560

FACTS:
David Reyes, as seller, and Jose Lim, as buyer, entered into a contract to sell a parcel of land
located along F.B. Harrison Street, Pasay City on November 7, 1994. Harrison Lumber occupied
the property as lessee with a monthly rental of P35,000.00. The contract provided that the total
consideration for the purchase of the property is P28,000,000.00 and upon signing of the
contract, P10,000,000.00 should be paid as down payment. The balance of P18,000,000.00 shall
be paid at a bank designated by the buyer but upon the complete vacation of all the tenants or
occupants of the property. The contract also provided that in the event, the tenants or occupants
of the premises shall not vacate the premises on March 8, 1995, the vendee shall withhold the
payment of the balance of P18,000,000.00 and the vendor agrees to pay a penalty of 4% per
month to the vendee based on the down payment of P10,000,000.00 until the complete vacation
of the premises by the tenants.

David Reyes (Reyes) filed before the trial court a complaint for annulment of contract and
damages against respondents Jose Lim (Lim), Chuy Cheng Keng (Keng) and Harrison Lumber,
Inc. The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property
before the end of January 1995. Reyes also informed Keng and Harrison Lumber that if they
failed to vacate by 8 March 1995, he would hold them liable for the penalty of P400,000 a month
as provided in the Contract to Sell. The complaint further alleged that Lim connived with
Harrison Lumber not to vacate the Property until the P400,000 monthly penalties would have
accumulated and equaled the unpaid purchase price of P18,000,000.

ISSUE:
Whether or not the trial court erred in saying that an action for rescission could prosper only if
the party demanding rescission can return whatever he may be obliged to restore should the court
grant the rescission.

RULING:
The instant case, is precisely one where there is a hiatus in the law and in the Rules of Court. If
left alone, the hiatus will result in unjust enrichment to Reyes at the expense of Lim. The hiatus
may also imperil restitution, which is a precondition to the rescission of the Contract to Sell that
Reyes himself seeks. This is not a case of equity overruling a positive provision of law or judicial
rule for there is none that governs this particular case. This is a case of silence or insufficiency of
the law and the Rules of Court. In this case, Article 9 of the Civil Code expressly mandates the
courts to make a ruling despite the silence, obscurity or insufficiency of the laws. This calls for
the application of equity, which fills the open spaces in the law.
The principle that no person may unjustly enrich himself at the expense of another is embodied
in Article 22 of the Civil Code. This principle applies not only to substantive rights but also to
procedural remedies. One condition for invoking this principle is that the aggrieved party has no
other action based on contract, quasi-contract, crime, quasi-delict or any other provision of law.
Courts can extend this condition to the hiatus in the Rules of Court where the aggrieved party,
during the pendency of the case, has no other recourse based on the provisional remedies of the
Rules of Court.

Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller
himself seeks rescission of the sale because he has subsequently sold the same property to
another buyer. By seeking rescission, a seller necessarily offers to return what he has received
from the buyer. Such a seller may not take back his offer if the court deems it equitable, to
prevent unjust enrichment and ensure restitution, to put the money in judicial deposit.
 Ong v. Tiu
February 1, 2002

FACTS:
The construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its
owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became
heavily indebted to the Philippine National Bank (PNB) for P190M. To save the 2 lots where the
mall was being built from foreclosure, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T.
Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Pre-
Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in
FLADC.The Ongs subscribed to 1,000,000 shares; the Tius subscribed to an additional 549,800
shares in addition to their already existing subscription of 450,200 shares. The Tius nominated
the Vice-President and the Treasurer plus 5 directors; the Ongs nominated the President, the
Secretary and 6 directors (including the chairman) to the board of directors of FLADC and right
to manage and operate the mall; the Tius contributed to FLADC a 4-storey building P20M (for
200K shares) and 2 parcels of land P30M (for 300K shares) and P49.8M (for 49,800 shares); the
Ongs paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for
their subscription to 1M shares).

In February 23, 1996 the Tius rescinded the Pre-Subscription Agreement. Thereafter, the Tius
filed at the Securities and Exchange Commission (SEC) seeking confirmation of their rescission
of the Pre-Subscription Agreement.

ISSUE:
Whether or not the rescission of the Agreement is the proper remedy by the Ongs.

RULING:
What makes a stockholder an officer of a corporation is not simply the fact of his election but,
more important, his ability to perform the powers and functions of that office. The Ongs indeed
prevented the Tius from exercising the powers and functions of their office. Therefore, such
breach of the agreement on the part of the Ongs is substantial and fundamental.

As a legal consequence of rescission, the order of the Court of Appeals to return the cash and
property contribution of the parties is based on law, hence, cannot be considered an act of
misappropriation. For how can the rescission of the Pre-Subscription Agreement be implemented
without returning to the two groups whatever they delivered to the corporation in accordance
with the Agreement?

With regard to the order of the Court of Appeals transferring to the Tiu Group whatever remains
of the assets of FLADC and the management thereof, the same is but an inevitable consequence
of the rescission of the Pre-Subscription Agreement. Restoration of the parties to status quo
ante dictates that the building constructed on the two (2) existing lots of FLADC, the remaining
asset of FLADC, be transferred to the Tiu Group. The status quo ante immediately prior to the
execution of the Pre-Subscription Agreement was that the Tius, then wholly owning FLADC,
had control and custody over this remaining asset.
 Equatorial Realty v. Mayfair Theater
370 SCRA 56

FACTS:
Carmelo & Bauermann, Inc. used to own a parcel of land, together with two twostorey buildings
constructed thereon. On June 1, 1967, Carmelo entered into a lease with Mayfair Theater, Inc. for
a period of 20 years. The lease covered a portion of the second floor and mezzanine. Two years
later, Mayfair entered into a second lease with Carmelo for the lease of another property, a part
of the second floor and two spaces on the ground floor. The lease was also for a period of twenty
years. Both leases contained a provision granting Mayfair a right of first refusal to purchase the
said properties. However, on July 30, 1978, within the 20-year-lease term, the subject properties
were sold by Carmelo to Equatorial Realty Development, Inc. for the sum of P11.3M without
their first being offered to Mayfair.

Mayfair filed a complaint for specific performance and damages. After trial, the court ruled in
favor of Equatorial. On appeal, the Court of Appeals reversed and set aside the judgment of the
lower court. On November 21, 1996, the Supreme Court denied Equatorial‗s petition for review
and declared the contract between Carmelo and Equatorial rescinded. The decision became final
and executory. On September 18, 1997, Equatorial filed an action for the collection of sum of
money against Mayfair claiming payment of rentals or reasonable compensation for the
defendant‗s use of the premises after its lease contracts had expired. The lower court debunked
the claim of the petitioner for unpaid rentals, holding that the rescission of the Deed of Absolute
Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights,
even in expectancy.

ISSUE:
Whether or not Equatorial ever acquired the right to collect rentals.

RULING:
It may be conceded that, theoretically, a rescissible contract is valid until rescinded. However,
this general principle is not decisive to the issue of whether Equatorial ever acquired the right to
collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere
agreement, but by tradition or delivery. Under the factual environment of this controversy as
found by this Court in the mother case, Equatorial was never put in actual and effective control
or possession of the property because of Mayfair‘s timely objection.

The sale to Equatorial may have been valid from inception, but it was judicially rescinded
before it could be consummated. Petitioner never acquired ownership, not because the sale was
void, as erroneously claimed by the trial court, but because the sale was not consummated by a
legally effective delivery of the property sold.
Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not
entitled to any benefits from the rescinded Deed of Absolute Sale because of its bad faith. This
being the law of the mother case decided in 1996, it may no longer be changed because it has
long become final and executory.
 Velarde v. CA
361 SCRA 56

FACTS:
On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by defendant
David Raymundo, as vendor, in favor of plaintiffs Avelina and Mariano Velarde (herein
petitioners) over a house and lot located at Kamias St., Dasmariñas Village, Makati. Among the
terms and conditions of the said contract was the assumption of the payment of the mortgage
obligations on the said property in the amount of Php 1, 800, 000 in favor of the Bank of the
Philippine Islands, Makati, Metro Manila.

In this connection, the parties agreed that plaintiffs were to apply an assumption of mortgage
before the said bank and while pending on BPI‗s approval of the application, plaintiffs were to
continue paying the monthly interests of the loan secured by a real estate mortgage. Pursuant to
the said agreements, plaintiffs paid BPI the monthly interest for three (3) months until the Bank
disapproved their Application for Assumption of Mortgage on December 15, 1986. This
prompted plaintiff not to make any further payment. On January 5, 1985, defendants, thru
counsel, wrote plaintiffs informing them that their non-payment to the mortgage bank constituted
non-performance of their obligation. In response, counsel for plaintiffs wrote defendants
informing them the willingness of plaintiffs to pay the balance only with three (3) conditions
specified therein. However, on January 8, 1987, defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale due to the latter‗s failure to comply with the terms
and conditions of the agreed contract.

ISSUE:
Whether or not the rescission is proper.

RULING:
In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private respondents right to rescind the same in
accordance with law.

The breach committed by petitioners was the nonperformance of a reciprocal obligation, not a
violation of the terms and conditions of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead,
Civil Code provisions shall govern and regulate the resolution of this controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of
the contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage
payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by
petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at
the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an end to it as though it never was.
It is not merely to terminate it and release the parties from further obligations to each other, but
to abrogate it from the beginning and restore the parties to their relative positions as if no
contract has been made.
 Asuncion v. Evangelista
October 13, 1999

FACTS:
Private respondent was the majority stockholder of Embassy Farms, Inc. serving as its president
and chief executive officer. He obtained personal loans from three financial institutions to use as
working capital for the corporation. The loans were secured by real estate mortgage. Private
respondent subsequently defaulted in his loan payments. By June 1984, private respondents
aggregate debt had ballooned to almost six million pesos (P6,000,000.00) in overdue principal
payments, interests, penalties and other financial charges. On August 2, 1984, petitioner and
private respondent executed a Memorandum of Agreement whereby private respondent was
obligated to cede and convey, in a manner absolute and irrevocable, his real properties and
stockholdings in the farm in favor of petitioner in exchange for, among others, the outright
payment by petitioner of a lump sum, the continuous operation of the piggery at his expense and
the assumption by petitioner of all the financial obligations of private respondent upon their
restructuring. Thereafter, petitioner paid private respondent the stipulated lump sum as well as
various sums of money as fees for the restructuring of his loans and for the continued operation
of the farm. Private respondent, however, refused to comply with his obligations under the
Memorandum of Agreement. Hence, petitioner sought the rescission of the Memorandum of
Agreement and ceased infusing capital into the business of private respondent. Private
respondent, on the other hand, justified his refusal to execute any Deed of Sale and deliver the
certificates of stock by accusing petitioner of having failed to assume his debts. Thereafter, the
trial court rendered a decision in favor of private respondent and ordered petitioner to pay
damages. On appeal, the Court of Appeals affirmed the decision of the trial court and ordered its
immediate execution.

ISSUE:
Whether or not rescission is a valid legal recourse in the case at bar.

RULING:

The Memorandum of Agreement entered into by petitioner and private respondent should indeed
be rescinded. It is true that petitioner stopped making further payments to the banks, causing
them to foreclose private respondents mortgaged properties. He, could hardly, however, be
faulted for stopping his further exposure, considering that private respondent had reneged with
his obligation to cede his lands and his shareholdings. Hence, the Court ruled that the respondent
appellate court erred in assessing damages against petitioner for his refusal to fully pay private
respondents loans. Nevertheless, neither is petitioner entitled to recover the amount he spent for
the continued operation of the piggery and as loan restructuring fees. Mutual restitution is
required in rescission, but this presupposes that both parties may be restored in their original
situation. In this case, mutual restitution would require that petitioner restore private respondent
in the effective management of said corporation and that private respondent return said amount
to petitioner. This, however, had been rendered impossible by the foreclosure of the landholdings
of private respondent and the shutdown of the piggery operations.
 Uy v. CA
September 9, 1999

FACTS:
William Uy and Rodel Roxas were agents authorized to sell 8 parcels of land. By virtue of such
authority, they offered to sell the lands to the National Housing Authority (NHA) to be developed
as a housing project. In February 1989, NHA approved the acquisition of the parcels at P23.9M.
The parties executed a series of deeds of absolute sale covering the subject lands. Of the 8
parcels of lands, however, only 5 were paid for by the NHA because of the report it received
from the Land Geosciences Bureau that the remaining area is located at an active landslide area
and not suitable for development into a housing project. NHA cancelled the sale over the
remaining 3 parcels of land.

Uy and Roxas filed a complaint for damages. The RTC rendered the cancellation of contract to
be justified but nonetheless awarded P1.3M as damages in favor of Uy and Roxas. Upon their
appeal, the CA entered a new decision dismissing the complaint and so no reason for the award
of damages.

ISSUE:
Whether or not there was legal basis for NHA to "rescind" the sale of the 3 parcels of land.

RULING:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. The injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of damages in either case. He
may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.

In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for
the other parties to the contract, the vendors, did not commit any breach, much less a substantial
breach, of their obligation. Their obligation was merely to deliver the parcels of land to the NHA,
an obligation that they fulfilled. The NHA did not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was
based on the negation of the cause arising from the realization that the lands, which were the
object of the sale, were not suitable for housing.

There is a need to conduct further geotechnical studies in the NHA property. Another thing to
consider is the vulnerability of the area to landslides and other mass movements due to thick soil
cover. Preventive physical mitigation methods such as surface and subsurface drainage and
regrading of the slope must be done in the area. Accordingly, NHA was justified in cancelling
the contract. The realization of the mistake as regards the quality of the land resulted in the
negation of the motive/cause thus rendering the contract inexistent.
 Damages: Kinds

Tamayo v. Abad Senora

November 15, 2010

FACTS:
In 1995, Antonieto M. Señora (Señora), then 43 years old and a police chief inspector of the
Philippine National Police, was riding a motorcycle and crossing the intersection when a tricycle
allegedly bumped his motorcycle from behind. As a result, the motorcycle was pushed into the
path of an Isuzu Elf Van (delivery van), which was cruising along Sucat Road and heading
towards South Superhighway. The delivery van ran over Señora, while his motorcycle was
thrown a few meters away. He was pronounced dead on arrival. The tricycle was driven by
Leovino F. Amparo (Amparo), who testified that it was the delivery van that bumped Señora‗s
motorcycle. The delivery van, on the other hand, was driven by Elmer O. Polloso (Polloso) and
registered in the name of Cirilo Tamayo (Cirilo). Constancia, testified on his husband‘s behalf
and claimed that, as employer, her husband exercised the due diligence of a good father of a
family in the selection, hiring, and supervision of his employees, including driver Polloso. Cirilo
would tell their drivers not to drive fast and not to be too strict with customers. One of Cirilo‗s
employees, Nora Pascual (Pascual) further testified that Polloso was a careful driver who drove
the truck slowly and followed traffic rules. She also said that Cirilo called for a meeting before
the delivery trucks left and told his drivers to be careful in their driving and to be courteous to
their customers. Leovino F. Amparo, Elmer O. Polloso and Cirilo Tamayo are found liable jointly
and severally to plaintiffs and the court ordered them to indemnify the victim heirs.

ISSUE:
Whether or not lost of earning capacity of the victim should be included as part of civil
indemnification.

RULING:
The award of damages for loss of earning capacity is concerned with the determination of losses
or damages sustained by respondents, as dependents and intestate heirs of the deceased. This
consists not of the full amount of his earnings, but of the support which they received or would
have received from him had he not died as a consequence of the negligent act. Thus, the amount
recoverable is not the loss of the victim‘s entire earnings, but rather the loss of that portion of the
earnings which the beneficiary would have received. Indemnity for loss of earning capacity is
determined by computing the net earning capacity of the victim

Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses)
Life expectancy shall be computed by applying the formula (2/3 x [80 - age at death]) adopted
from the American Expectancy Table of Mortality or the Actuarial of Combined Experience
Table of Mortality. Hence, the RTC erred in modifying the formula and using the retirement age
of the members of the PNP instead of "80."

On the other hand, gross annual income requires the presentation of documentary evidence for
the purpose of proving the victim‘s annual income. The victim‘s heirs presented in evidence
Señora‘s pay slip from the PNP, showing him to have had a gross monthly salary of P12,754.00.
Meanwhile, the victim‘s net income was correctly pegged at 50% of his gross income in the
absence of proof as regards the victim‘s living expenses.

Consequently, the Court sustained the award of P1,887,847.00 as damages for loss of earning
capacity.
 Tan v. OMC Carriers
January 12, 2011

FACTS:
On September 27, 1996, the petitioners filed a complaint for damages with the RTC against
OMC and Bonifacio Arambala. The complaint states that on November 24, 1995, at around 6:15
a.m., Arambala was driving a truck with a trailer owned by OMC, along Meralco Road, Sucat,
Muntinlupa City. When Arambala noticed that the truck had suddenly lost its brakes, he told his
companion to jump out. Soon thereafter, he also jumped out and abandoned the truck. Driverless,
the truck rammed into the house and tailoring shop owned by petitioner Leticia Tan and her
husband Celedonio Tan, instantly killing Celedonio who was standing at the doorway of the
house at the time.

The petitioners alleged that the collision occurred due to OMC‘s gross negligence in not properly
maintaining the truck, and to Arambala‘s recklessness when he abandoned the moving truck.
Thus, they claimed that the respondents should be held jointly and severally liable for the actual
damages that they suffered, which include the damage to their properties, the funeral expenses
they incurred for Celedonio Tan‘s burial, as well as the loss of his earning capacity. The
petitioners also asked for moral and exemplary damages, and attorney‘s fees.

The respondents denied any liability for the collision, essentially claiming that the damage to the
petitioners was caused by a fortuitous event, since the truck skidded due to the slippery condition
of the road caused by spilled motor oil.

ISSUE:
What are the proper amount of damages petitioner is entitled to.

RULING:

Death of person would automatically entitle heirs of decedent actual damages. The funeral
expense also is fully proven. The temperate damages are also awarded because actual cost of
damages on properties and the exact earning capacity of the decedent cannot be determined.
Exemplary damages also was awarded base on the nature of offense to avoid repetition.
Attorney‗s fee is also proper in this case. Accordingly, legal interest at the rate of 6% per annum
on the amounts awarded starts to run from May 14, 2003, when the trial court rendered
judgment. From the time this judgment becomes final and executory, the interest rate shall be
12% per annum on the judgment amount and the interest earned up to that date, until the
judgment is wholly satisfied.

Respondents OMC Carriers, Inc. and Bonifacio Arambala are ordered to jointly and severally
pay the petitioners the following: (1) P50,000.00 as indemnity for the death of Celedonio Tan;
(2) P72,295.00 as actual damages for funeral expenses; (3) P200,000.00 as temperate damages
for the damage done to petitioner Leticia‗s house, tailoring shop, household appliances and shop
equipment; (4) P300,000.00 as damages for the loss of Celedonio Tan‗s earning capacity; (5)
P500,000.00 as moral damages; (6) P200,000.00 as exemplary damages; and (7) 10% of the total
amount as attorney‗s fees; and costs of suit. In addition, the total amount adjudged shall earn
interest at the rate of 6% per annum from May 14, 2003, and at the rate of 12% per annum, from
the finality of this Resolution on the balance and interest due, until fully paid.
 Victory Liner v. Heirs of Malecdan
394 SCRA 341

FACTS:
Andres Malecdan was a 75 year-old farmer residing in Barangay Nungnungan 2, Municipality of
Cauayan, Province of Isabela. On July 15, 1994, at around 7:00 p.m., while Andres was crossing
the National Highway on his way home from the farm, a Dalin Liner bus on the southbound lane
stopped to allow him and his carabao to pass. However, as Andres was crossing the highway, a
bus of petitioner Victory Liner, driven by Ricardo C. Joson, Jr., bypassed the Dalin bus. In so
doing, respondent hit the old man and the carabao on which he was riding. As a result, Andres
Malecdan was thrown off the carabao, while the beast toppled over. The Victory Liner bus sped
past the old man, while the Dalin bus proceeded to its destination without helping him.

The incident was witnessed by Andres Malecdans neighbor, Virgilio Lorena, who was resting in
a nearby waiting shed after working on his farm. Malecdan sustained a wound on his left
shoulder, from which bone fragments protruded. He was taken by Lorena and another person to
the Cagayan District Hospital where he died a few hours after arrival. The carabao also died soon
afterwards. Lorena executed a sworn statement before the police authorities. Subsequently, a
criminal complaint for reckless imprudence resulting in homicide and damage to property was
filed against the Victory Liner bus driver Ricardo Joson, Jr.

ISSUE:
Whether or not the affirmation by the CA of granting the award of moral and exemplary damages
and attorney‗s fees considering that there is no finding of bad faith and gross negligence on the
part of the petitioner was not established.

RULING:
To justify an award of actual damages, there should be proof of the actual amount of loss
incurred in connection with the death, wake or burial of the victim. We cannot take into account
receipts showing expenses incurred sometime after the burial of the victim, such as expenses
th th st
relating to the 9 day, 40 day and 1 year death anniversaries. In this case, the trial court
awarded P88,339.00 as actual damages. While these were duly supported by receipts, these
th
included the amount of P5,900.00, the cost of one pig which had been butchered for the 9 day
death anniversary of the deceased. This item cannot be allowed. We, therefore, reduce the
amount of actual damages to P82,439.00.00. The award of P200,000.00 for moral damages
should likewise be reduced. The trial court found that the wife and children of the deceased
underwent intense moral suffering as a result of the latters death. Under Art. 2206 of the Civil
Code, the spouse, legitimate children and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the death of the deceased.
Under the circumstances of this case an award of P100,000.00 would be in keeping with the
purpose of the law in allowing moral damages.
On the other hand, the award of P50,000.00 for indemnity is in accordance with current rulings
of the Court.
Art. 2231 provides that exemplary damages may be recovered in cases involving quasi-delicts if
the defendant acted with gross negligence. Exemplary damages are imposed not to enrich one
party or impoverish another but to serve as a deterrent against or as a negative incentive to curb
socially deleterious actions. In this case, petitioners driver Joson, Jr. was grossly negligent in
driving at such a high speed along the national highway and overtaking another vehicle which
had stopped to allow a pedestrian to cross. Worse, after the accident, Joson, Jr. did not stop the
bus to help the victim. Under the circumstances, we believe that the trial courts award of
P50,000.00 as exemplary damages is proper.

Finally, private respondents are entitled to attorneys fees. Under Art. 2008 of the Civil Code,
attorneys fees may be recovered when, as in the instant case, exemplary damages are awarded. In
the recent case of Metro Manila Transit Corporation v. Court of Appeals, an award of P50,000.00
as attorneys fees was held to be reasonable. Hence, private respondents are entitled to attorneys
fees in that amount.
 GOVERNMENT SERVICE INSURANCE SYSTEM vs. SPOUSES GONZALO
Facts:

In December 1969, the spouses Deang obtained a housing loan from the GSIS in the
amount of P8,500.00 which was secured by a real estate mortgage and spouses Daeng deposited
the owners duplicate copy of the title with the GSIS.. The loan was to mature on December 23,
1979. On January 19, 1979, the spouses Deang settled their debt with the GSIS and requested for
the release of the owners duplicate copy of the title since they intended to secure a loan from a
private lender and use the land covered by it as collateral security for the loan of P50,000.00.
which they applied for with one Milagros Runes. They would use the proceeds of the loan
applied for the renovation of the spouses residential house and for business. However, personnel
of the GSIS were not able to release the owners duplicate of the title as it could not be found
despite diligent search. As a result, GSIS commenced the reconstitution proceedings with the
Court of First Instance of Pampanga for the issuance of a new owners copy of the same and
released the reconstituted copy of the owners duplicate to the spouses Deang. On July 6, 1979,
the spouses Deang filed complaint against GSIS for damages, claiming that as result of the delay
in releasing the duplicate copy of the owners title, they were unable to secure a loan from
Milagros Runes, the proceeds of which could have been used in defraying the estimated cost of
the renovation of their residential house and which could have been invested in some profitable
business undertaking.

Issue:

Whether or not GSIS is libalbe for damages.

Ruling:

Under the facts, there was a pre-existing contract between the parties. GSIS and the spouses
Deang had a loan agreement secured by a real estate mortgage. The duty to return the owners
duplicate copy of title arose as soon as the mortgage was released. Negligence is obvious as the
owners duplicate copy could not be returned to the owners. As an obligor in good faith, GSIS is
liable for all the natural and probable consequences of the breach of the obligation. The inability
of the spouses Deang to secure another loan and the damages they suffered thereby has its roots
in the failure of the GSIS to return the owners duplicate copy of the title. In a breach of contract,
moral damages are not awarded if the defendant is not shown to have acted fraudulently or with
malice or bad faith. The fact that the complainant suffered economic hardship or worries and
mental anxiety is not enough. There is likewise no factual basis for an award of actual damages.
Actual damages to be compensable must be proven by clear evidence. However, it is also
apparent that the spouses Deang suffered financial damage because of the loss of the owners
duplicate copy of the title. Temperate damages may be granted.

Article 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has
been suffered but its amount cannot, from the nature of the case, be proved with certainty.

The rationale behind temperate damages is precisely that from the nature of the case, definite
proof of pecuniary loss cannot be offered. When the court is convinced that there has been such
loss, the judge is empowered to calculate moderate damages, rather than let the complainant
suffer without redress from the defendants wrongful act.
 BPI Investment v. D.G. Carreon
Facts:

Petitioner BPI Investment Corp. (BPI), formerly known as Ayala Investment and Development
Corp, was engaged in money market operations. Respondent D. G. Commercial Corp. was a
client of petitioner. The individual respondents, spouses Daniel and Aurora Carreon and Josefa
Jaceil also placed with BPI their personal money in money market placements. On April 21,
1982, petitioner wrote respondents Daniel Carreon, demanding the return of an alleged
overpayment amounting to P410, 937.09. The respondents, however, asserted that there was no
overpayment and asked for time to go over the documents and papers. Upon the request of
petitioners, the spouses Daniel and Aurora Carreon sent to BPI a proposed memorandum of
agreement dated May 7, 1982. The agreement provided that respondent company, in the spirit of
goodwill, agreed to temporarily reimburse BPI the amount of P410, 937.09 while the said
controversy (transactions of the placement) would be checked within the period of five years. On
May 10, 1982, BPI Investments, without responding to the memorandum and proposal of D. G.
Carreon filed with the Court of First Instance of Rizal, Branch 36, Makati, a complaint for
recovery of a sum of money against D. G. Carreon with preliminary attachment. On July 30,
1982, respondents D. G. Carreon filed with the trial court an answer to the complaint, with
counterclaim. D.G. Carreon asked for compensatory damages in an amount to be proven during
the trial; spouses Daniel and Aurora Carreon asked for moral damages of P1,000,000.00 because
of the humiliation, great mental anguish, sleepless nights and deterioration of health due to the
filing of the complaint and indiscriminate and wrongful attachment of their property, especially
their residential house and payment of their money market placement of P109,283.75. Josefa
Jeceil asked for moral damages of P500,000.00, because of sleepless nights and mental anguish,
and payment of her money market placement of P73,857.57; all defendants claimed for
exemplary damages and attorneys fees of P100,000.00.

Issue:

Whether or not respondents are entitled to damages.

Ruling:

Petitioner BPI Investments may not be guilty of gross negligence, it failed to prove by
clear and convincing evidence that D. G. Carreon indeed received money in excess of what was
due them. The alleged payments in the complaint were admitted by plaintiff itself to be
withdrawals from validly issued commercial papers, duly verified and signed by at least two
authorized high-ranking officers of BPI Investments.
 Accion Pauliana

Khe hong cheng vs. Court of Appeals

Facts:

Petitioner Khe Hong Cheng, is the owner of Butuan Shipping Lines. Its vessel M/V
Prince Eric was used by Philippine Agricultural Trading Corporation to ship 3,400 bags of Copra
at Masbate for delivery to Dipolog. The shipment was covered by a marine insurance policy
issued by American Home Insurance Company (eventually Philam). However, M/V Prince Eric
sank, which resulted to the total loss of the shipment. Insurer Philam paid the amount of P
354,000.00, which is the value of the copra, to Philippine Agricultural Trading Corporation.
American Home was thereby subrogated unto the rights of the consignee and filed a case to
recover money paid to the latter, based on breach of common carriage. While the case was
pending, Khe Hong Cheng executed deeds of donations of parcels of land in favor of his
children. As a consequence of a favorable judgment for American Home, a writ of execution to
garnish Khe Hong Cheng‗s property was issued. But the writ of execution could not be
implemented because Cheng‗s property were already transferred to his children. Consequently,
American filed a case for the rescission of the deeds of donation executed by petitioner in favor
of children on the ground that they were made in fraud of his creditors. Petitioner answered that
the action should be dismissed for it already prescribed. Petitioner posited that the registration of
the donation was on December 27, 1989 and such constituted constructive notice. And since the
complaint was filed only in 1997, more than four (4) years after registration, the action is thereby
barred by prescription.

Issue:

Whether or not the action for the rescission of the deed of donation has prescribed, and
whether or not accion pauliana/ rescission of the deed of donation is proper.

Ruling:

NO for the first issue. Although the Civil Code provides that ―The action to claim
rescission must be commenced within four (4) years‖ is silent as to where the prescriptive period
would commence, the general rule is such shall be reckoned from the moment the cause of action
accrues; i.e., the legal possibility of bringing the action. Since accion pauliana is an action of last
resort after all other legal remedies have been exhausted and have been proven futile, in the case
at bar, it was only in February 25, 1997, barely a month from discovering that petitioner Khe
Hong Cheng had no other property to satisfy the judgment award against him that the action for
rescission accrued. So the contention of Khe Hong Cheng that the action accrued from the time
of the constructive notice; i.e., December 27, 1989, the date that the deed of donation was
registered, is untenable.

YES for the second issue. For an accion pauliana to accrue, the following requisites must
concur: first, the plaintiff asking for rescission has a credit prior to the alienation, although
demandable late. Second, that the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person. Third, that the creditor has no other legal remedy to satisfy
his claim; but would benefit by rescission of the conveyance to the third person. Fourth, that the
act being impugned is fraudulent, and fifth, that the third person who received the property
conveyed, if by onerous title, has been an accomplice in the fraud. All the above enumerated
elements are presents in the case at bar.
 Fortuitous
Event/Requisite

Philippine Realty vs. Ley Construction and Development Corporation

Facts:

Ley Construction and Development Corporation (LCDC) was the project contractor for
the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the
project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of
PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations.
Sometime between April 1988 and October 1989, the two corporations entered into four major
construction projects, as evidenced by four duly notarized ―construction agreements.‖ LCDC
committed itself to the construction of the buildings needed by PRHC, which in turn committed
itself to pay the contract price agreed upon. These were the four construction projects the parties
entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra
buildings) and a Tektite Building. Both parties agreed that their foremost objective should be to
ensure that the Tektite Building project would be completed. To achieve this goal, they entered
into another agreement. Abcede asked LCDC to advance the amount necessary to complete
construction. Its president acceded, on the absolute condition that it be allowed to escalate the
contract price. It wanted PRHC to allow the escalation and to disregard the prohibition contained
in Article VII of the agreements. Abcede replied that he would take this matter up with the board
of directors of PRHC. The board of directors turned down the request for an escalation
agreement. Neither PRHC nor Abcede gave notice to LCDC of the alleged denial of the
proposal. However, on 9 August 1991 Abcede sent a formal letter to LCDC, asking for its
conformity, to the effect that should it infuse P36 million into the project, a contract price
escalation for the same amount would be granted in its favor by PRHC. In a letter dated 18
January 1993, LCDC, through counsel, demanded payment of the agreed escalation price of P 36
million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation
price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction
of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages.
This claim was set forth in PRHC‗s earlier 7 December 1992 letter

Issue:

Whether or not LCDC was delayed in the performance of its obligation to construct the
buildings for PRHC and, corollary thereto, whether or not the latter is entitled to liquidated
damages for this supposed delay in the construction of the Tektite Building and Projects 1 and 2.

Ruling:

Article 1174 of the Civil Code provides: Except in cases expressly specified by the law,
or when it is otherwise declared by stipulation or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not be foreseen,
or which though foreseen, were inevitable. A perusal of the construction agreements shows that
the parties never agreed to make LCDC liable even in cases of force majeure. Neither was the
assumption of risk required. Thus, in the occurrence of events that could not be foreseen, or
though foreseen were inevitable, neither party should be held responsible.

Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an
obligation due to an act of God or force majeure, 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 shortage in supplies and cement may be characterized as force majeure. In the
present case, hardware stores did not have enough cement available in their supplies or
stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures
and interruptions of water supply all clearly fall under force majeure. Since LCDC could
not possibly continue constructing the building under the circumstances prevailing, it
cannot be held liable for any delay that resulted from the causes aforementioned.
 Megaworld Globus Asia, Inc. vs. Tanseco
Facts:

On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent
Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or
less) condominium unit at a pre-selling project, "The Salcedo Park," located along Senator Gil
Puyat Avenue, Makati City. The purchase price was P16,802,037.32, to be paid as follows: (1)
30% less the reservation fee of P100,000, or P4,940,611.19, by postdated check payable on July
14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August
14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the
stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco
would pay the balance within seven days from receipt of a notice of turnover.

Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of
P2,520,305.63 pending delivery of the unit. Megaworld, however, failed to deliver the unit
within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month
grace period.A few days shy of three years later, Megaworld, by notice dated April 23, 2002
(notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to
delivery. Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld‗s
failure to deliver the unit on time, she was demanding the return of P14,281,731.70 representing
the total installment payment she had made, with interest at 12% per annum from April 30, 1999,
the expiration of the six-month grace period. Tanseco pointed out that none of the excepted
causes of delay existed. Tanseco filed on June 5, 2002 with the Housing and Land Use
Regulatory Boards (HLURB) Expanded National Capital Region Field Office a complaint
against Megaworld for rescission of contract, refund of payment, and damages. In its Answer,
Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control;
and argued that default had not set in, Tanseco not having made any judicial or extrajudicial
demand for delivery before receipt of the notice of turnover.

Issue:

Whether or not Megaworld cause of delay is considered a fortuitous event.

Ruling:

The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the
part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery
on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of
compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld
having failed to comply with its obligation under the contract, it is liable therefor. That
Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does not abate
her cause. For demand would have been useless, Megaworld admittedly having failed in its
obligation to deliver the unit on the agreed date. Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.

The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the
control of a business corporation. A real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency
movements, as well as business risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito.
 Sicam vs Jorge
Facts:

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

On October 19, 1987, two armed men entered the pawnshop and took away whatever
cash and jewelry were found inside the pawnshop vault. Petitioner Sicam sent respondent Lulu a
letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident
in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter to petitioner Sicam
expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited
with Far East Bank near the pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from
the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for
withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a
complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary
damages as well as attorney's fees. However, petitioner Sicam contends that he is not the real
party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de
R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the
safekeeping of the articles pledged with it and could not be made liable for an event that is
fortuitous.

After trial ,the RTC rendered its Decision dismissing respondents‗ complaint as well as
petitioners‗ counterclaim. The RTC held that robbery is a fortuitous event which exempts the
victim from liability for the loss and under Art. 1174 of the Civil Code. It further held that the
corresponding diligence required of a pawnshop is that it should take steps to secure and protect
the pledged items and should take steps to insure itself against the loss of articles which are
entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to
do and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop
business are expected to foresee.

Issue:

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

HELD:

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is

therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the same.

To constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations
must be independent of human will; (b) it must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must
be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d)
the obligor must be free from any participation in the aggravation of the injury or loss.

Petitioner Sicam had testified that there was a security guard in their pawnshop at the
time of the robbery and that when he started the pawnshop business in 1983, he thought of
opening a vault with the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be stored in a vault inside the
pawnshop. The very measures which petitioners had allegedly adopted show that to them the
possibility of robbery was not only foreseeable, but actually foreseen and anticipated. The
testimony, in effect, contradicts petitioners‗ defense of fortuitous event. Moreover, petitioners
failed to show that they were free from any negligence by which the loss of the pawned jewelry
may have been occasioned. Robbery per se, just like carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on the part of herein petitioners. The presentation of
the police report of the Parañaque Police Station on the robbery committed based on the report of
petitioners' employees is not sufficient to establish robbery. Such report also does not prove that
petitioners were not at fault. Also, the robbery in this case took place in 1987 when robbery was
already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the
pawn with a nearby bank for safekeeping. Thus, petitioners are negligent in securing their
pawnshop.
 Huibonhoa vs. CA
Facts:

On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with

siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that
Florencia T. Huibonhoa would lease from them (Gojoccos) three (3) adjacent commercial lots at
Ilaya Street, Binondo, Manila, described as lot nos. 26-A, 26-B and 26-C, covered by Transfer
Certificates of Title Nos. 76098, 80728 and 155450, all in their (Gojoccos') names. On June 30,
1983, pursuant to the said memorandum of agreement, the parties inked a contract of lease of the
same three lots for a period of fifteen (15) years commencing on July 1, 1983 and renewable
upon agreement of the parties. Subject contract was to enable the lessee, Florencia T. Huibonhoa,
to construct a "four-storey reinforced concrete building with concrete roof deck, according to
plans and specifications approved by the City Engineer's Office." The parties agreed that the
lessee could let/sublease the building and/or its spaces to interested parties under such terms and
conditions as the lessee would determine and that all amounts collected as rents or income from
the property would belong exclusively to the lessee. The lessee undertook to complete
construction of the building "within eight (8) months from the date of the execution of the
contract of lease." The parties also agreed that upon the termination of the lease, the ownership
and title to the building thus constructed on the said lots would automatically transfer to the
lessor, even without any implementing document therefor. Real estate taxes on the land would be
borne by the lessor while that on the building, by the lessee, but the latter was authorized to
advance the money needed to meet the lessors' obligations such as the payment of real estate
taxes on their lots. The lessors would deduct from the monthly rental due all such advances made
by the lessee. The construction of the building was not met on the date agreed upon due to the
assassination of the then Senator Benigno Aquino Jr. It was claimed that increase in the value of
the materials was a fortuitous event, which the lower courts did not consider as such.

Issue:

Whether or not the assassination of Senator Benigno Aquino Jr., which caused inflation,
was a fortuitous event.

Ruling:

The Supreme Court found no merit in petitioner‗s submission that the assassination of
the late Senator Benigno Aquino, Jr. was a fortuitous event that justified a modification of the
terms of the lease contract.

A fortuitous event is that which could not be foreseen, or which even if foreseen, was
inevitable. To exempt the obligor from liability for a breach of an obligation due to an "act of
God", the following requisites 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 unforeseeable 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.

In the case under scrutiny, the assassination of Senator Aquino may indeed be considered
a fortuitous event. However, the said incident per se could not have caused the delay in the
construction of the building. What might have caused the delay was the resulting escalation of
prices of commodities including construction materials. Be that as it may, there is no merit in
Huibonhoa's argument that the inflation borne by the Filipinos in 1983 justified the delayed
accrual of monthly rental, the reduction of its amount and the extension of the lease by three (3)
years.

Inflation is the sharp increase of money or credit or both without a corresponding

increase in business transaction. There is inflation when there is an increase in the volume of
money and credit relative to available goods resulting in a substantial and continuing rise in the
general price level. While it is of judicial notice that there has been a decline in the purchasing
power of the Philippine peso, this downward fall of the currency cannot be considered
unforeseeable considering that since the 1970's we have been experiencing inflation. It is simply
a universal trend that has not spared our country. Conformably, this Court upheld the petitioner's
view in Occena v. Jabson that even a worldwide increase in prices does not constitute a sufficient
cause of action for modification of an instrument. It is only when an extraordinary inflation
supervenes that the law affords the parties a relief in contractual obligations.

In Filipino Pipe and Foundry Corporation v. NAWASA, the Court explained

extraordinary inflation thus: "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 of said currency‗, and such decrease or increase could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation.
 Ace Agro vs. CA
Facts:

Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling

Corporation entered into a service contract covering the period from January 1, 1990 to
December 31, 1990. According to the agreement, the former shall clean soft drink bottles and
repair wooden shells for private respondent. The service contract was suspended on account of a
fire on April 25, 1990 which destroyed the area where petitioner did its work. Respondent
terminated the service contract due to the fire. Petitioner sent several letters for reconsideration,
which the respondent willingly considered through its letters dated August 29, 1990 and
November 7, 1990 directing petitioner to resume its work. Petitioner, however, refused to
continue its work on two reasons. First, the August 29 letter did not allow them to resume their
work on respondent‗s premises which will be quite costly for them. Second, petitioner requested
for an extension of two (2) months for their contract on account of the fire which the respondent
did not heed into.

Issue:

Whether or not force majeure or fortuitous event is present in the case.

Ruling:

Pursuant to Article 1174 of the Civil Code, ―Except in cases expressly specified by law,
or when it is otherwise declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not be foreseen,
or which though foreseen, were inevitable.‖ The requisites for an event to be considered a
fortuitous event are as follows: First, the cause of breach must be independent of the will of the
obligor. Second, the event must be unforeseeable or inevitable. Third, the event must be such as
to render it impossible for the debtor to fulfill his obligation in a normal manner. And fourth, the
debtor must be free from any participation in, or aggravation of, the injury to the creditor. In this
case, all the mentioned requisites are present.
 Effects of Fortuitous Events upon Obligations

Dioquino vs Laureano
Facts:

Petitioner Dioquino met respondent Laureano at the MVO office when the former went
to register his car at the said office. Respondent was a patrol officer of the MVO office and at the
time was waiting for a jeepney to take him to the office of the Provincial Copmmander.
Petitioner requested respondent to introduce him to one of the clerks in the MVO office, who
could facilitate the registration of his car and the request was graciously attended to. Afterwards,
respondent rode on the car of petitioner with petitioner‗s driver to the office of the provincial
commander. Along the way, some mischievous boys stoned the car and its windshield was
broken. Respondent chased and was able to catch one of the boys and took him to petitioner. The
petitioner, however, did not file charges against the boy and his parents because the stone
throwing was merely accidental and due to force majeure. Respondent refused to pay the
windshield himself, even after petitioner tried to settle and even asked respondent‗s wife to
convince her husband, since the same due to force majeure. Petitioner prevailed in the trial court.
Hence, this appeal to the Court was filed.

Issue:

Whether or not the respondent is liable for the broken windshield of petitioner‗s car.

Ruling:

The damage to the windshield caused by the mischievous boys was a fortuitous event
resulting in a loss, which must be borne by the owner of the car. Article 1174 of the Civil Code
provides that if the nature of the obligation requires the assumption risk, compels the conclusion
that in the absence of a legal provision or an express covenant, ―no one should be held to
account for fortuitous cases.‖ Where the risk is quite evident such that the possibility of danger is
not only foreseeable, but also actually foreseen, then it could be said that the nature of the
obligation is such that a party could rightfully be deemed to have assumed it. It is not enough
therefore that the event should not have been foreseen or anticipated, but it must be one
impossible to foresee or to avoid in order that a party may be said to have assumed the risk
resulting from the nature of the obligation itself. In the case, there is no assumption of risk by the
borrower of a car to respond to damages for the broken windshield caused by an accidental
stone-throwing incident by boys playing along the road. Decision reversed as to the liability of
respondent.
 Bachelor Express vs CA
Facts:

On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and driven by Cresencio
Rivera, came from Davao City on its way to Cagayan de Oro City passing Butuan City. While at
Tabon-Tabon, Butuan City, the bus picked up a passenger. About 15 minutes later, a passenger at
the rear portion suddenly stabbed a PC soldier which caused commotion and panic among the
passengers. When the bus stopped, passengers Ornominio Beter and Narcisa Rautraut were
found lying down the road, the former already dead as a result of head injuries and the latter also
suffering from severe injuries which caused her death later. The passenger-assailant alighted
from the bus and ran toward the bushes but was killed by the police. Thereafter, the heirs of
Ornomino Beter and Narcisa Rautraut (Ricardo Beter and Sergia Beter are the parents of
Ornominio while Teofilo Rautraut and Zotera Rautraut are the parents of Narcisa) filed a
complaint for sum of money against Bachelor Express, its alleged owner Samson Yasay, and the
driver Rivera. After due trial, the trial court issued an order dated 8 August 1985 dismissing the
complaint. The CA however reversed the RTC decision.

Issue:

Whether or not the petitioner be absolved from liability for the death of its passengers.

Ruling:

The sudden act of the passenger who stabbed another passenger in the bus is within the
context of force majeure. However, in order that a common carrier may be absolved from
liability in case of force majeure, it is not enough that the accident was caused by force majeure.
The common carrier must still prove that it was not negligent in causing the injuries resulting
from such accident. Considering the factual findings of the Court of Appeals-the bus driver did
not immediately stop the bus at the height of the commotion; the bus was speeding from a full
stop; the victims fell from the bus door when it was opened or gave way while the bus was still
running; the conductor panicked and blew his whistle after people had already fallen off the bus;
and the bus was not properly equipped with doors in accordance with law-it is clear that the
petitioners have failed to overcome the presumption of fault and negligence found in the law
governing common carriers.. The argument that the petitioners are not insurers of their
passengers deserves no merit in view of the failure of the petitioners to observe extraordinary
diligence in transporting safely the passengers to their destination as warranted by law.
 Vasquez vs CA
FACTS:

A vessel sailed from Manila to Cebu despite the knowledge by the captain and officers
that a typhoon was building up somewhere in Mindanao. When it passed Tanguigui Island, the
weather suddenly changed and the vessel struck a reef, sustained leaks and eventually sunk. The
ship sunk with the children of the petitioners who sued for damages before the CFI of Manila,
which was granted. Respondents defense of force majeure to extinguish its liability were not
entertained. On appeal, the judgment was reversed.

ISSUE:

Whether or not the defense of force majeure is tenable.

HELD:

A fortuitous event is constituted by the following: 1) The event must be independent of

the human will; 2) the occurrence must render it impossible for the debtor to fulfill the obligation
in a normal manner; and 3) the obligor must be free of participation in the aggravation of the
injury suffered by the obligee or if it could be foreseen, it must have been impossible to avoid.
There must be an entire exclusion of human agency from the cause of the injury or loss. Such is
not the case at bar. The vessel still proceeded even though the captain already knew that they
were within the typhoon zone and despite the fact that they were kept posted about the weather
conditions. They failed to exercise that extraordinary diligence required from them, explicitly
mandated by the law, for the safety of the passengers.
 Yobido vs CA
Facts:

On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee
and Jasmin, boarded at Mangagoy , Surigao Del Sur, a Yobido Liner bus bound for Davao City.
Along Picop Road in Km. 17, Sta.Maria, Agusan del Sur, the left front tire of the bus exploded.
The bus fell into a ravine around threefeet from the road and struck a tree. The incident resulted
in the death of 28-year-old Tito Tumboy and physical injuries to other passengers. On Nov. 21,
1988, a complaint for breach of contract of carriage, damages and attorney‗s fees was filed by
Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its
driver, before the Regional Trial Court of Davao City. When the defendants therein filed their
answer to the complaint, they raised the affirmative defense of caso fortuito. They also filed a
third-party complaint against Philippine Surety and Insurance, Inc. This third-party defendant
filed an answer with compulsory counterclaim. At the pre-trial conference, the parties agreed to a
stipulation of facts.

On August 29, 1991, the lower court rendered a decision dismissing the action for lack of
merit. On the issue of whether or not the tire blowout was a caso fortuito, it found that the falling
of the bus to the cliff was a result of no other outside factor than the tire bolw-out. It held that the
ruling in the La Mallorca and Pampanga Bus Co. v. De Jesus that a tire blowout is a mechanical
defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had
been subjected to a more thorough or rigid check-up before it took to the road that morning‖ is
inapplicable to this case. It reasoned out that in said case. It reasoned out that in said case, it was
found that the blowout was caused by the established fact that the inner tube of the left front tire
was pressed between the inner circle of the left wheel and the rim which had slipped out of the
left wheel. In this case, however,‖ the cause of the explosion remains a mystery until at
present.As such, the court added, the tire blowout was a caso fortuito which is completely an
extraordinary circumstance independent of the will‖ of the defendants who should be relieved of
whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to Article
1174 of the Civil Code.

Issue:

Whether or not the Trial Court erred in their findings that the tire blowout was a caso
fortuito.

Ruling:

On August 23, 1193, the Court of Appeals rendered the decision reversing the decision of
the trial court. Article 1755 provides that (a) common carrier is bound to carry the passenger
safely as far as human care and foresight can provide, using the utmost diligence very cautious
persons, with a due regard for all the circumstances.

Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is

presumed to have been at fault or to have acted negligently. The disputable presumption may
only be overcome by evidence that the carrier had observed extraordinary diligences as
prescribed by Articles 1733, 1755 and 1756 of the Civil Code or that the injury of the passenger
was due to fortuitous event. Consequently, the court need make an express finding of fault or
negligence on the part of the carrier to hold it responsible for damages sought by the passenger.
The decision of the Court of Appeals was affirmed subject to the modification that petitioners
shall, in addition to the monetary awards therein, be liable for the award of exemplary damages
in the amount of P20,000.00.
 Juntilla vs Fontanar
Facts;

The plaintiff was a passenger of the public utility jeepney on the course of the trip from
Danao City to Cebu City. The jeepney was driven by defendant BerfolCamoro. It was registered
under the franchise of defendant Clemente Fontanar but was actually owned by defendant
Fernando Banzon. When the jeepney reached Mandaue City, the right rear tire exploded causing
the vehicle to turn turtle. The plaintiff who was sitting at the front seat was thrown out of the
vehicle and momentarily lost consciousness. When he came to his senses, he found that he had a
lacerated wound on his right palm and injuries on his left arm, right thigh and on his back.
Because of his shock and injuries, he went back to Danao City but on the way, he discovered that
his "Omega" wrist watch was lost. Upon his arrival in Danao City, he immediately entered the
Danao City Hospital to attend to his injuries, and also requested his father-in-law to proceed
immediately to the place of the accident and look for the watch. In spite of the efforts of his
father-in-law, the wrist watch could no longer be found.

Issue:

Whether or not the accident that happened was due to a fortuitous event, thereby,
absolving the respondents from any obligation.

Ruling:

The accident was not due to a fortuitous event. There are specific acts of negligence on
the part of the respondents. The passenger jeepney turned turtle and jumped into a ditch
immediately after its right rear tire exploded. It was running at a very high speed before the
accident and was overloaded. The petitioner stated that there were three passengers in the front
seat and fourteen passengers in the rear. While the tire that blew-up was still good because the
grooves were still visible, this does not make the explosion of the tire a fortuitous event. No
evidence was presented to show that the accident was due to adverse road conditions or that
precautions were taken by the jeepney driver to avert possible accidents. The blowing-up of the
tire, therefore, could have been caused by too much air pressure and aggravated by the fact that
the jeepney was overloaded and speeding at the time of the accident. The accident was caused
either through the negligence of the driver or because of mechanical defects in the tire. Common
carriers are obliged to supervise their drivers and ensure that they follow rules and regulations
such as not to overload their vehicles, not to exceed safe and legal speed limits, and to know the
correct measures to take when a tire blows up. The source of a common carrier's legal liability is
the contract of carriage, and by entering into the said contract, it binds itself to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of a
very cautious person, with a due regard for all the circumstances. The driver and the owner of the
vehicle are liable for damages.
 Philamagen Insurance vs MGG Marine
Facts:

On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an
aggregate value of P5,836,222.80 with petitioner Philippine American General Insurance
Company. The cargo were loaded on board the M/V Peatheray Patrick-G to be transported from
Mandaue City to Bislig, Surigao del Sur.After having been cleared by the Coast Guard Station in
Cebu the previous day, the vessel left the port of Mandaue City for Bislig, Surigaodel Sur on
March 2, 1987. The weather was calm when the vessel started its voyage.

The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently
sunk off Cawit Point, Cortes, Surigaodel Sur. As a consequence thereof, the cargo belonging to
San Miguel Corporation was lost. Subsequently, San Miguel Corporation claimed the amount of
its loss from petitioner.

The Court of Appeals observed respondents from any liability because the cargo was lost
due to a fortuitous event; strong winds and huge waves caused the vessel to sink.

Issue:

Whether the loss of the cargo was due to the occurrence of a natural disaster, and if so,
whether such natural disaster was the sole and proximate cause of the loss or whether private
respondents were partly to blame for failing to exercise due diligence to prevent the loss of the
cargo.

Ruling:

Common carriers, from the nature of their business and for reasons of public policy, are
mandated to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them. Owing to this high degree of diligence required of them,
common carriers, as a general rule, are presumed to have been at fault or negligent if the goods
transported by them are lost, destroyed or if the same deteriorated.

The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel
encountered strong winds and huge waves ranging from six to ten feet in height. The vessel listed
at the port side and eventually sunk at Cawit Point, Cortes, Surigaodel Sur.

In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left
the port of Mandaue City, the Captain confirmed with the Coast Guard that the weather condition
would permit the safe travel of the vessel to Bislig, Surigaodel Sur. Thus, he could not be
expected to have foreseen the unfavorable weather condition that awaited the vessel in Cortes,
SurigaodelSur. It was the presence of the strong winds and enormous waves which caused the
vessel to list, keel over, and consequently lose the cargo contained therein. The appellate court
likewise found that there was no negligence on the part of the crew of the M/V Peatheray
Patrick-G. Since the presence of strong winds and enormous waves at Cortes, Surigaodel Sur on
March 3, 1987 was shown to be the proximate and only cause of the sinking of the M/V
Peatheray Patrick-G and the loss of the cargo belonging to San Miguel Corporation, private
respondents cannot be held liable for the said loss.
 Mindez vs. Morillo
Facts:

On February 1991 a verbal agreement was entered into between Ephraim Morillo and
Mindex Resources Corporation fro the lease of the former‗s 6x6 10-wheeler cargo truck for use
in Mindex‗s mining operations in Oriental Mindoro at a stipulated rental of P300.00 per hour for
a minimum of 8 hours a day or a total of P2,400.00 daily. Mindex was paying its rentals until
April 10, 1991. On April 11, unidentified persons burned the truck while it was parked
unattended at San Teodoro, Oriental Mindoro due to mechanical trouble. Upon learning the
burning incident, Morillo offered to sell the truck to Mindex but the latter refused. Instead, it
replaced the vehicle‗s burned tires and had it towed to a shop for repair and overhauling. On
April 15, 1991, Morillo sent a letter to Mindex proposing that he will entrust the said vehicle in
the amount of P275,000.00 that is its cost price without charging for the encumbrance of
P76,800.00.

Mindex responded by a hand written letter expressing their reservations on the above
demands due to their tight financial situation. However, he made counter offers which state that
they will pay the rental of the 6x6 truck in the amount of P76,000.00, repair and overhaul the
truck on their own expenses and return it to Morillo on good running condition after repair. April
18, Morillo replied that he will relinquish to Mindex the damaged truck; that he is amenable to
receive the rental in the amount of P76, 000.00; and that Mindex will pay P50,000.00 monthly
until the balance of P275,000.00 is fully paid. Except for his acceptance of the proffered
P76,000.00 unpaid rentals. Morillo‗s stand has not been changed as he merely lowered the first
payment on the P275,000.00 valuation of the truck from P150,000.00 to P50,000.00.

The parties had since remain intransigent and so on August, Morillo pulled out the truck
from the repair shop of Mindex and had it repaired elsewhere for which he spent the amount of
P132,750.00. The RTC found petitioner responsible fro the destruction of loss of the leased 6x6
truck and ordered it to pay respondent P76,000.00 as balance of the unpaid rental for the 6x6
truck with interest of 12%, P132,750.00 representing the cost of repair and overhaul of the truck
with interest of 12% until fully paid; and P20,000.00 as attorney‗s fees.

The appellate court sustained RTC‗s finding. The CA found petitioner was not without fault for
the loss and destruction of the truck and thus liable therefore. However, it modified the 12%
interest on the P76,000.00 rentals and P132,750.00 repair cost to 6% per annum form June 22,
1994 to the date of finality of the said decision. It affirmed the award of attorney‗s fees.

Issue:

Whether or not the CA is correct in finding the petitioner liable due to negligence and
cannot be exonerated due to the defense of fortuitous event.

Ruling:

As stated by the Court of Appeals, ―the burning of the subject truck was impossible to foresee,
but not impossible to avoid. Mindex could have prevented the incident by immediately towing
the truck to a motor shop for repair. In this case, petitioner was found negligent and thus liable
for the loss or destruction of the leased truck. Article 1174 of the Civil Code states that, ―No
person shall be responsible for a fortuitous event that could not be foreseen or, though foreseen,
was inevitable. In other words, there must be an exclusion of human intervention form the cause
of injury on loss. In this case, the petitioner is contributory negligent to the incident.
 NAPOCOR vs. Phillip Bros
Facts:

On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to
bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-
Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO)
prequalified and was allowed to participate as one of the bidders. After the public bidding was
conducted, PHIBRO‗s bid was accepted. NAPOCOR‗s acceptance was conveyed in a letter
dated July 8, 1987, which was received by PHIBRO on July 15, 1987.

On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon
plague Australia, the shipment‗s point of origin, which could seriously hamper PHIBRO‗s
ability to supply the needed coal unless a ―strike-free‖ clause is incorporated in the charter party
or the contract of carriage. In order to hasten the transfer of coal, PHIBRO proposed to
NAPOCOR that they equally share the burden of a ―strike-free‖ clause. NAPOCOR refused. On
August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit.
Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as
agreed upon by the parties in the July contract, PHIBRO effected its first shipment only on
November 17, 1987.

Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal
to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding but its
application was denied for not meeting the minimum requirements. However, PHIBRO found
that the real reason for the disapproval was its purported failure to satisfy NAPOCOR‗s demand
for damages due to the delay in the delivery of the first coal shipment. Thus, PHIBRO filed an
action for damages with application for injunction against NAPOCOR with the Regional Trial
Court, Branch 57, Makati City. In its complaint, PHIBRO alleged that NAPOCOR‗s act of
disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with
malice and bad faith. PHIBRO prayed for actual, moral and exemplary damages and attorney‗s
fees.

On the other hand NAPOCOR averred that the strikes in Australia could not be invoked
as reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July 28,
1987 those strikes had already ceased. Furthermore, NAPOCOR claimed that due to PHIBRO‗s
failure to deliver the coal on time, it was compelled to purchase coal from ASEA at a higher
price. NAPOCOR claimed for actual damages in the amount of P12,436,185.73, representing the
increase in the price of coal, and a claim of P500,000.00 as litigation expenses.

On January 16, 1992, the trial court rendered a decision in favor of PHIBRO. Unsatisfied,
NAPOCOR elevated the case to the Court of Appeals which affirmed in toto the latter‗s
decision. Hence, this present petition.

Issue:

Whether or not the lower court erred in holding that PHIBRO‗s delay in the delivery of
imported coal was due to force majeure.

Ruling:

It was disclosed from the records of the case that what prevented PHIBRO from
complying with its obligation under the July 1987 contract was the industrial disputes which
besieged Australia during that time. The Civil Code provides that no person shall be responsible
for those events which could not be foreseeen, or which, though foreseen, were inevitable. This
means that when an obligor is unable to fulfill his obligation because of a fortuitous event or
force majeure, he cannot be held liable for damages for non-performance.
 In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR
explicitly agreed in Section XVII of the ―Bidding Terms and Specifications that neither seller
(PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance
of its obligations, other than the payment of money due, if any such delay or failure is due to
Force Majeure. Strikes‖ then are undoubtedly included in the force majeure clause of the Bidding
Terms and Specifications.
 Transmissibility of Rights and Obligations

Ong Genato vs Bayhon

Facts:

On October 18, 1990, respondents Benjamin M. Bayhon, Melanie Bayhon, Benjamin

Bayhon Jr., Brenda Bayhon, AlinaBayhon-Campos, Irene Bayhon-Tolosa and the minor Gino
Bayhon, as represented by his mother Jesusita M. Bayhon, filed an action before the RTC,
Quezon City, Branch 76, docketed as Civil Case No. Q-90-7012. In their Complaint, respondents
sought the declaration of nullity of a dacion en pago allegedly executed by respondent Benjamin
Bayhon in favor of petitioner William OngGenato

Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from the
petitioner a loan amounting to PhP 1,000,000.00; that to cover the loan, he executed a Deed of
Real Estate Mortgage over the property covered by Transfer Certificate of Title (TCT) No.
38052; that, however, the execution of the Deed of Real Estate Mortgage was conditioned upon
the personal assurance of the petitioner that the said instrument is only a private memorandum of
indebtedness and that it would neither be notarized nor enforced according to its tenor.

Respondent further alleged that he filed a separate proceeding for the reconstitution of
TCT No. 38052 before the RTC, Quezon City, Branch 87. Petitioner William OngGenato filed an
Answer in Intervention in the said proceeding and attached a copy of an alleged dacion en pago
covering said lot. Respondent assailed the dacion en pago as a forgery alleging that neither he
nor his wife, who had died 3 years earlier, had executed it.

In his Answer, petitioner Genato denied the claim of the respondent regarding the death
of the latter‗s wife. He alleged that on the date that the real estate mortgage was to be signed,
respondent introduced to him a woman as his wife. He alleged that the respondent signed the
dacion en pago and that the execution of the instrument was above-board.

Issue:

Whether or not the subject dacion en pago is a simulated or fictitious contract and hence,
void.

Ruling:

The evidence shows that at the time it was allegedly signed by the wife of the respondent,
his wife was already dead. This finding of fact cannot be reversed. As a general rule, obligations
derived from a contract are transmissible, as Article 1311, par.1 of the Civil Code provides.

The loan in this case was contracted by respondent. He died while the case was pending
before the Court of Appeals. While he may no longer be compelled to pay the loan, the debt
subsists against his estate. No property or portion of the inheritance may be transmitted to his
heirs unless the debt has first been satisfied. Notably, throughout the appellate stage of this case,
the estate has been amply represented by the heirs of the deceased, who are also his co-parties in
Civil Case No. Q-90-7012. Pursuant to this provision, petitioner‗s remedy lies in filing a claim
against the estate of the deceased respondent.
 Union Bank vs. Santibanez
Facts:

On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim M.
Santibañez entered into a loan agreement in the amount of P128,000.00. The amount was
intended for the payment of the purchase price of one unit Ford 6600 Agricultural All-Purpose
Diesel Tractor. In view thereof, Efraim and his son, Edmund, executed a promissory note in
favor of the FCCC, the principal sum payable in five equal annual amortizations of P43,745.96
due on May 31, 1981 and every May 31st thereafter up to May 31, 1985.

On December 13, 1980, the FCCC and Efraim entered into another loan agreement, this
time in the amount of P123,156.00. It was intended to pay the balance of the purchase price of
another unit of Ford 6600 Agricultural All-Purpose Diesel Tractor, with accessories, and one unit
Howard Rotamotor Model AR 60K. Again, Efraim and his son, Edmund, executed a promissory
note for the said amount in favor of the FCCC. Aside from such promissory note, they also
signed a Continuing Guaranty Agreement for the loan dated December 13, 1980.

Sometime in February 1981, Efraim died, leaving a holographic will. Subsequently in

March 1981, testate proceedings commenced before the RTC of Iloilo City. On April 9, 1981,
Edmund, as one of the heirs, was appointed as the special administrator of the estate of the
decedent. During the pendency of the testate proceedings, the surviving heirs, Edmund and his
sister Florence SantibañezAriola, executed a Joint Agreement dated July 22, 1981, wherein they
agreed to divide between themselves and take possession of the three tractors; that is, two
tractors for Edmund and one tractor for Florence. Each of them was to assume the indebtedness
of their late father to FCCC, corresponding to the tractor respectively taken by them.

On August 20, 1981, a Deed of Assignment with Assumption of Liabilities was executed
by and between FCCC and Union Savings and Mortgage Bank, wherein the FCCC as the
assignor, among others, assigned all its assets and liabilities to Union Savings and Mortgage
Bank. Demand letters for the settlement of his account were sent by petitioner Union Bank of the
Philippines (UBP) to Edmund, but the latter failed to heed the same and refused to pay. Thus, on
February 5, 1988, the petitioner filed a Complaint for sum of money against the heirs of
EfraimSantibañez, Edmund and Florence, before the RTC of Makati City.

Issue:

Whether in testate succession, there can be no valid partition among the heirs.

Ruling:

In testate succession, there can be no valid partition among the heirs until after the will
has been probated. The law enjoins the probate of a will and the public requires it, because unless
a will is probated and notice thereof given to the whole world, the right of a person to dispose of
his property by will may be rendered nugatory. It presupposes that the properties to be
partitioned are the same properties embraced in the will.

The court then agrees with the appellate court that the provisions stated in the will is an
all-encompassing provision embracing all the properties left by the decedent which might have
escaped his mind at that time he was making his will, and other properties he may acquire
thereafter. This being so, any partition involving the said tractors among the heirs is not valid.
The joint agreement executed by Edmund and Florence, partitioning the tractors among
themselves, is invalid, specially so since at the time of its execution, there was already a pending
proceeding for the probate of their late father‗s holographic will covering the said tractors.
 San Augustin vs. CA
Facts:

On February 11, 1974, the Government Service Insurance System (GSIS) sold to
MacariaVda de Caiquep, a parcel or residential land located in Pasig City, part of the GSIS Low
Cost Housing Project evidenced by a Deed of Absolute Sale.

On February 19, 1974, the Register of Deeds of Rizal issued in the name of Caiquep,
Transfer Certificate of Title. The next day, Caiquep sold the subject lot to private respondent
MaximoMenez. Sometime in 1979, for being suspected as a subversive, military men ransacked
Menez's‗ house in Rizal. He surrendered to the authorities and was detained for two years. When
released, another order for his arrest was issued so he hid in Mindanao for another four years or
until March 1984. In December 1990, he discovered that the subject TCT was missing. He
consulted a lawyer but the latter did not act immediately on the matter. Upon consulting a new
counsel, an Affidavit of Loss was filed with the Register of Deeds and a certified copy of TCT
was issued. Private respondent also declared the property for tax purposes and obtained a
certification thereof from the Assessor‗s office. His search for the registered owner to different
parts of the country failed prompting the former to file a petition for the issuance of owner‗s
duplicate copy to replace the lost one.

During the hearing, only Menez and counsel were present because the Register of Deeds
and the Provincial Prosecutor were not notified. The trial court granted his petition after Menez
presented his evidence ex parte. San Agustin claimed this was the first time he became aware of
the case of his aunt Ma. Vda de Caiquep and the present occupant of the property. He filed A
Motion to Reopen Reconstitution Proceedings but RTC denied said motion. Petitioner moved for
motion for reconsideration but was again denied.

Issue:

Whether or not petitioner is bound by the contract entered into by his predecessor-
ininterest.

Ruling:

Petitioner is bound by contracts entered into by his predecessor‗s-in-interest. Heirs are

bound by contracts entered into by their predecessors-in-interest. In this case, the GSIS has not
filed any action for the annulment of Deed of Absolute Sale of the lot the latter sold to Caiquep,
nor the forfeiture of the lot in question.

In the Court‗s view, the contract of sale remains valid between the parties, unless and
until annulled in the proper suit filed by the rightful party, the GSIS. For now, the said contract of
sale is binding upon the heirs of MacariaVda de Caiquep., including petitioner who alleges to be
one of her heirs, in line with the rule that heirs are bound by contracts entered into by their
predecessors-in-interest.
 Projext Builders, Inc. vs. CA
Facts:

On August 21, 1975, plaintiff and defendant PBI entered into an agreement whereby it
was agreed that plaintiff would provide a maximum amount of P2,000,000.00 against which said
defendant would discount and assign to plaintiff on a ‗with recourse non-collection basis‗ its
(PBI‗s) accounts receivable under the contracts to sell specified in said agreement. Eventually,
the same parties entered into an agreement whereby it was agreed that PBI‗s credit line with
plaintiff be increased to P5,000,000.00. It was stipulated that the credit line of P5,000,000.00
granted includes the amount already assigned/discounted.Against the above-mentioned ‗credit
line,‗ defendant PBI discounted with plaintiff on different dates accounts receivables with
different maturity dates from different condominium-unit buyers. The total amount of receivables
discounted by defendant PBI is P7,986,815.38 and consists of twenty accounts. Of such
receivables amounting to P7,986,815.38 plaintiff released to defendant PBI the amount of
P4,549,132.72 and the difference of P3,437,682.66 represents the discounting fee or finance fee.

To secure compliance with the terms and conditions of the agreement defendants
executed a Deed of Real Estate Mortgage in favor of plaintiff. When defendants allegedly
defaulted in the payment of the subject account, plaintiff foreclosed the mortgage and plaintiff
was the highest bidder in the amount of P3,500,000.00. The foreclosed property was redeemed a
year later but after application of the redemption payment, plaintiff claims that there is still a
deficiency in the amount of P1,323,053.08.

A collection suit was then filed by IFC against PBI. However, PBI denied liability
alleging that IFC has no case or right of action because the obligation is fully paid out of the
proceeds of foreclosure sale of its property. Further, it alleged that a proper accounting of the
transaction between the parties will show that it is the IFC who is liable to PBI.

The trial court dismissed the complaint but the Court of Appeals reversed it. It ordered
PBI to pay IFC the deficiency in the amount of P1,237,802.48 and the monetary interests.

Issue:

Whether or not said Republic Act No. 5980 should govern the transaction between
petitioners and private respondent which in reality was bilateral, not trilateral, and respondent
financing company was not really subrogated in the place of the supposed seller or assignor.

Ruling:

The assignment of the contracts to sell falls within the purview of the Act. The term credit
has been defined to - "(c) x xx mean any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract, any contract to sell, or sale or contract of sale of property or service,
either for present or future delivery, under which, part or all of the price is payable subsequent to
the making of such sale or contract; any rental-purchase contract; any option, demand, lien,
pledge, or other claim against, or for the delivery of, property or money, any purchase, or other
acquisition of or any credit upon the security of, any obligation or claim arising out of the
foregoing; and any transaction or series of transactions having a similar purpose or effect.

An assignment of credit is an act of transferring, either onerously or gratuitously, the right

of an assignor to an assignee who would then be capable of proceeding against the debtor for
enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection of the
contract, and ownership of the right, including all appurtenant accessory rights, is thereupon
acquired by the assignee. The assignment binds the debtor only upon acquiring knowledge of the
assignment but he is entitled, even then, to raise against the assignee the same defenses he could
set up against the assignor. Where the assignment is on account of pure liberality on the part of
the assignor, the rules on donation would likewise be pertinent; where valuable consideration is
involved, the assignment partakes of the nature of a contract of sale or purchase.
 Kinds of Obligations: Pure

Hongkong and Shanghai vs Sps. Broqueza

Facts:

Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of

Hongkong and Shanghai Banking Corporation (HSBC). They are also members of respondent
Hongkong Shanghai Banking Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP, plaintiff
below). 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 [Editha] Broqueza obtained a car loan in the amount of
Php175,000.00. 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 are petitioners EdithaBroqueza and Fe
Gerong. The employees then filed an illegal dismissal case before the National Labor Relations
Commission (NLRC) against HSBC. The legality or illegality of such termination is now
pending before this appellate Court in CA G.R. CV No. 56797, entitledHongkong Shanghai
Banking Corp. Employees Union, et al. vs. National Labor Relations Commission, et al. Because
of their dismissal, petitioners were not able to pay the monthly amortizations of their respective
loans. Thus, respondent HSBCL-SRP considered the accounts of petitioners delinquent.
Demands to pay the respective obligations were made upon petitioners, but they failed to pay.

HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L.

Custodio, filed Civil Case No. 52400 against the spouses Broqueza on 31 July 1996. On 19
September 1996, HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits were civil
actions for recovery and collection of sums of money.

Issue:

Whether or not the Court of Appeals has departed from the accepted and usual course of
judicial proceedings in reversing the decision of the Regional Trial Court and the Metropolitan
Trial Court.

Ruling:

Article 1179 of the Civil Code applies. The spouses Broqueza‗s obligation to pay
HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the prior monthly
check-off from EdithaBroqueza‗s salary is of no moment. Once EdithaBroqueza defaulted in her
monthly payment, HSBCL-SRP made a demand to enforce a pure obligation. In their Answer,
the spouses Broqueza admitted that prior to EdithaBroqueza‗s dismissal from HSBC in
December 1993, she "religiously paid the loan amortizations, which HSBC collected through
payroll check-off."16A definite amount is paid to HSBCL-SRP on a specific date.
EdithaBroqueza authorized HSBCL-SRP to make deductions from her payroll until her loans are
fully paid. EdithaBroqueza, however, defaulted in her monthly loan payment due to her
dismissal. Despite the spouses Broqueza‗s protestations, the payroll deduction is merely a
convenient mode of payment and not the sole source of payment for the loans. HSBCL-SRP
never agreed that the loans will be paid only through salary deductions. Neither did HSBCL-SRP
agree that if EdithaBroqueza ceases to be an employee of HSBC, her obligation to pay the loans
will be suspended. HSBCL-SRP can immediately demand payment of the loans at anytime
because the obligation to pay has no period. Moreover, the spouses Broqueza have already
incurred in default in paying the monthly installments
 Conditional Obligation

DBP vs. CA
Facts:

Private respondents were the original owners of a parcel of agricultural land situated in
Barrio Capucao, Ozamis City, with an area of 113,695 square meters, more or less. On 30 May
1977, private respondents mortgaged said land to petitioner. When private respondents defaulted
on their obligation, petitioner foreclosed the mortgage on the land and emerged as sole bidder in
the ensuing auction sale. Consequently, Transfer Certificate of Title No. T-10913 was eventually
issued in petitioner's name.On 6 April 1984, petitioner and private respondents entered into a
Deed of Conditional Sale wherein petitioner agreed to reconvey the foreclosed property to
private respondents. It has been provided in the Deed that upon completion of payment, the
vendor shall deliver the title a good and sufficient deed of conveyance covering the property,
subject matter of this deed of conditional sale, in accordance with the provisions of law. On 6
April 1990, upon completing the payment of the full repurchase price, private respondents
demanded from petitioner the execution of a Deed of Conveyance in their favor.
Petitioner then informed private respondents that the prestation to execute and deliver a deed
of conveyance in their favor had become legally impossible in view of Sec. 6 of Rep. Act 6657
(the Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec. 1 of E.O.
407 issued 10 June 1990.
Aggrieved, private respondents filed a complaint for specific performance with damages
against petitioner before the Regional Trial Court of Ozamis City, Branch XV. During the pre-
trial, the trial court narrowed down the issue to whether or not Sec. 6 of the CARL (Rep. Act
6657) had rendered legally impossible compliance by petitioner with its obligation to execute a
deed of conveyance of the subject land in favor of private respondents. The trial court ordered
both parties to file their separate memorandum and deemed the case submitted for decision
thereafter.
Issue:

Whether or not the obligation has become legally impossible.

Ruling:

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss

of those already acquired, shall depend upon the happening of the event which constitutes the
condition. The deed of conditional sale between petitioner and private respondents was executed
on 6 April 1984. Private respondents had religiously paid the agreed installments on the property
until they completed payment on 6 April 1990. Petitioner, in fact, allowed private respondents to
fulfill the condition of effecting full payment, and invoked Section 6 of Rep. Act 6657 only after
private respondents, having fully paid the repurchase price, demanded the execution of a Deed of
Sale in their favor. It will be noted that Rep. Act 6657 was enacted on 10 June 1988. Following
petitioner's argument in this case, its prestation to execute the deed of sale was rendered legally
impossible by Section 6 of said law. In other words, the deed of conditional sale was
extinguished by a supervening event, giving rise to an impossibility of performance.
 Suspensive Condition

Tomimbang vs. Tomimbang

Facts:

Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door
apartment located at 149 Santolan Road, Murphy, Quezon City. Petitioner failed to obtain a loan
from PAG-IBIG Fund, hence, respondent offered to extend a credit line to petitioner on the
following conditions: (1) petitioner shall keep a record of all the advances; (2) petitioner shall
start paying the loan upon the completion of the renovation; (3) upon completion of the
renovation, a loan and mortgage agreement based on the amount of the advances made shall be
executed by petitioner and respondent; and (4) the loan agreement shall contain comfortable
terms and conditions which petitioner could have obtained from PAG-IBIG. A conflict between
the siblings ensued leading to a new agreement whereby petitioner was to start making monthly
payments on her loan. Upon respondent's demand, petitioner turned over to respondent all the
records of the cash advances for the renovations. Subsequently, or from June to October of 1997,
petitioner made monthly payments of P18, 700.00, or a total ofP93, 500.00. Petitioner never
denied the fact that she started making such monthly payments. Thereafter, the petitioner can no
longer be found and also stopped making the monthly payments. Thus, a complaint was filed
against the petitioner demanding payment of the loan plus interest. Petitioner contended that the
loan is not yet due and demandable as the renovation of the apartment is not yet completed.

Issue:

Whether or not the loan is already due and demandable.

Ruling:

The loan is already due and demandable due to the subsequent agreement entered in to by
the parties. Article 1291 of the Civil Code provides, thus: Art. 1291. Obligations may be
modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the
debtor; (3) Subrogating a third person in the rights of the creditor. The petitioner admitted that
she started to comply with the demand of the respondent to pay on a monthly basis. Her partial
performance of her obligation is unmistakable proof that indeed the original agreement between
her and respondent had been novated by the deletion of the condition that payments shall be
made only after completion of renovations. Hence, by her very own admission and partial
performance of her obligation, there can be no other conclusion but that under the novated
agreement, petitioner's obligation is already due and demandable.
 Gonzales vs Heirs
Facts:

On December 1, 1983, Paula Cruz together with the plaintiffs heirs of Thomas and Paula
Cruz, entered into a Contract of Lease/Purchase with the defendant, Felix L. Gonzales, the sole
proprietor and manager of Felgon Farms, of a half-portion of a 'parcel of land containing an area
of 12 hectares, more or less, and an accretion of 2 hectares, more or less, situated in Rodriguez
Town, Province of Rizal. The contract of Lease/Purchase contains the following provisions:

'1.......The terms of this Contract is for a period of one year upon the signing thereof. After the
period of this Contract, the LESSEE shall purchase the property on the agreeable price of One
Million Pesos (P1,000,000.00) payable within Two (2) Years period with an interest of 12% per
annum subject to the devalued amount of the Philippine Peso, according to the following
schedule of payment: Upon the execution of the Deed of Sale 50% - and thereafter 25% every
six (6) months thereafter, payable within the first ten (10) days of the beginning of each period of
six (6) months.

'2.......The LESSEE shall pay by way of annual rental an amount equivalent to Two Thousand
Five Hundred (P2,500.00) Pesos per hectare, upon the signing of this contract on Dec. 1, 1983.
'9.......The LESSORS hereby commit themselves and shall undertake to obtain a separate and
distinct T.C.T. over the herein leased portion to the LESSEE within a reasonable period of time
which shall not in any case exceed four (4) years, after which a new Contract shall be executed
by the herein parties which shall be the same in all respects with this Contract of Lease/Purchase
insofar as the terms and conditions are concerned.

The defendant Gonzales paid the P2,500.00 per hectare or P15,000.00 annual rental on
the half-portion of the property in accordance with the second provision of the Contract of
Lease/Purchase and thereafter took possession of the property, installing thereon the defendant
Jesus Sambrano as his caretaker. The defendant Gonzales did not, however, exercise his option to
purchase the property immediately after the expiration of the one-year lease on November 30,
1984. He remained in possession of the property without paying the purchase price provided for
in the Contract of Lease/Purchase and without paying any further rentals thereon. A letter was
sent by one of the plaintiffs-heirs Ricardo Cruz to the defendant Gonzales informing him of the
lessors' decision to rescind the Contract of Lease/Purchase due to a breach thereof committed by
the defendant. The letter also served as a demand on the defendant to vacate the premises within
10 days from receipt of said letter. The defendant Gonzales refused to vacate the property and
continued possession thereof. The property subject of the Contract of Lease/Purchase is currently
the subject of an Extra-Judicial Partition. Title to the property remains in the name of the
plaintiffs' predecessorsin-interest, Bernardina Calixto and Severo Cruz. Alleging breach of the
provisions of the Contract of Lease/Purchase, the plaintiffs filed a complaint for recovery of
possession of the property - subject of the contract with damages, both moral and compensatory
and attorney's fees and litigation expenses.

Issue:

Whether or not the trial court gravely erred in holding that plaintiffs-appellants could not
validly rescind and terminate the lease/purchase contract

Ruling:

Alleging that petitioner has not purchased the property after the lapse of one year,
respondents seek to rescind the Contract and to recover the property. Petitioner, on the other
hand, argues that he could not be compelled to purchase the property, because respondents have
not complied with paragraph nine, which obligates them to obtain a separate and distinct title in
their names. He contends that paragraph nine was a condition precedent to the purchase of the
property. Both the trial court and the Court of Appeals (CA) interpreted this provision to mean
that the respondents had obliged themselves to obtain a TCT in the name of petitioner-lessee.
The trial court held that this obligation was a condition precedent to petitioner's purchase of the
property. Since respondents had not performed their obligation, they could not compel petitioner
to buy the parcel of land. The CA took the opposite view, holding that the property should be
purchased first before respondents may be obliged to obtain a TCT in the name of
petitionerlessee-buyer. The record shows that at the time the contract was executed, the land in
question was still registered in the name of Bernardina Calixto and Severo Cruz, respondents'
predecessors-ininterest. There is no showing whether respondents were the only heirs of Severo
Cruz or whether the other half of the land in the name of Bernardina Calixto was adjudicated to
them by any means. In fact, they admit that extrajudicial proceedings were still ongoing. Hence,
when the Contract of Lease/Purchase was executed, there was no assurance that the respondents
were indeed the owners of the specific p
 Insular Life vs Young
Facts:

Respondent Robert Young obtained a short term loan of P170,000,000.00 from interbank
to finance the purchase 45% equity in Insular Savings Bank. He did this under the assumption
that Araneta would purchase 99.82% of the banks outsanding capital stock and consolidate all
shares in Young‗s name. However, Araneta backed and Young was left with a massive debt.
Young entered into a Memorandum of Agreement where Insular Life and its Pension Fund
whereby Insular Life would purchase shares of stock if Young would abide by certain conditions:
one of them being to infuse additional capital of P50,000,000.00 into the Bank.

It was discovered that Young was pilfering funds from the bank through check kiting
operations and he tendered his resignation. He also defaulted on his obligations. His shares of
stock were purchased by Insular Life in a public auction. The shares were then consolidated in its
name. On January 7, 1992, Young filed a case for annulment of notarial sale, specific
performance and damages.

Issue:

Whether or not the respondent court erred in declaring the MOA dated October 9, 1991
valid and enforceable between the parties despite respondent Young's failure to comply with the
terms and conditions thereof.

Ruling:

Contrary to the findings of the Court of Appeals, the foregoing provisions of the MOA
negate the existence of a perfected contract of sale. The MOA is merely a contract to sell since
the parties therein specifically undertook to enter into a contract of sale if the stipulated
conditions are met and the representation and warranties given by Young prove to be true. The
obligation of petitioner Insular Life to purchase, as well as the concomitant obligation of Young
to convey to it the shares, are subject to the fulfillment of the conditions contained in the MOA.
Once the conditions, representation and warranties are satisfied, then it is incumbent upon the
parties to perform their respective obligations under the contract. Conversely, in the event that
these conditions are not met or complied with, no obligation on the part of either party arises.
This is in accord with Article 1181 of the Civil Code which provides that "(i)n conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition." And
when the obligation assumed by a party to a contract is expressly subjected to a condition, the
obligation cannot be enforced against him unless the condition is complied with.
 Direct Funders vs. Lavina
Facts:

Herein petitioner was granted with a writ of possession. During the hearing for the
issuance of temporary restraining order filed by herein private respondent, it was made clear to
the respondent Judge that the property in question was occupied by the petitioner by virtue of a
writ of possession issued by the Regional Trial Court of Pasig, Branch 157 in LRC Case No. R-
5475 in a petition for the issuance of writ of possession thereof way back on October 23, 1997.

The petitioners assail the decision of the CA affirming the decision of the RTC in issuing
a writ of mandatory preliminary injunction despite the orders of a co-equal court in deciding that
the property in question was in the lawful possession of the petitioner.

Issue:

Whether or not conditional agreement was followed.

Ruling:

The Supreme Court ruled in favor of petitioner. It found that the conditional sale
agreement is officious and ineffectual. First, it was not consummated. Second, it was not
registered and duly annotated on the Transfer Certificate of Title (No. 12357) covering the
subject property. Third, it was executed about eight (8) years after the execution of the real estate
mortgage over the subject property. To emphasize, the mortgagee (United Savings Bank) did not
give its consent to the change of debtor. It is a fundamental axiom in the law on contracts that a
person not a party to an agreement cannot be affected thereby. Worse, not only was the
conditional sale agreement executed without the consent of the mortgagee-creditor, United
Savings Bank, the same was also a material breach of the stipulations of the real estate mortgage
over the subject property. The conditions of the conditional sale agreement were not fulfilled,
hence, respondent‗s claim to the subject property was as heretofore stated ineffectual. Article
1181 of the Civil Code reads: Art. 1181. In conditional obligations, the acquisition of rights, as
well as the extinguishments or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.‖
 Potestative Suspensive Condition

Vda. De Mistica vs Naguiat

Facts:

Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a parcel of

land, and a portion thereof was leased to Bernardino sometime in 1970. On April 5, 1979, Eulalio
Mistica entered into a contract to sell with Bernardino over a portion of the aforementioned lot
containing an area of 200 square meters. This agreement was reduced to writing in a Kasulatan.
Pursuant to said agreement, Bernardino gave a downpayment of P2,000.00 and another partial
payment of P1,000.00 on February 7, 1980. However, he failed to make any payments thereafter.
Eulalio Mistica died sometime in October 1986.

On December 4, 1991, petitioner filed a complaint for rescission alleging that the failure
and refusal of respondents to pay the balance of the purchase price constitutes a violation of the
contract which entitles her to rescind the same; that respondents have been in possession of the
subject portion and they should be ordered to vacate and surrender possession of the same to
petitioner; that the reasonable amount of rental for the subject land is P200.00 a month; that on
account of the unjustified actuations of respondents, petitioner has been constrained to litigate
where she incurred expenses for attorney‗s fees and litigation expenses.

Issue:

Whether or not there is a potestative suspensive condition in the Kasulatan.

Ruling:

The failure of respondents to pay the balance of the purchase price within ten years from
the execution of the Deed did not amount to a substantial breach. It was stipulated that payment
could be made even after ten years from the execution of the Contract, provided the vendee paid
12 percent interest. Moreover, it is undisputed that during the ten-year period, petitioner and her
deceased husband never made any demand for the balance of the purchase price. Petitioner even
refused the payment tendered by respondents during her husband‗s funeral, thus showing that
she was not exactly blameless for the lapse of the ten-year period. Had she accepted the tender,
payment would have been made well within the agreed period.

If petitioner would like to impress upon the Court that the parties intended otherwise, she
has to show competent proof to support her contention. Instead, she argues that the period cannot
be extended beyond ten years, because to do so would convert the buyer‗s obligation to a purely
potestative obligation that would annul the contract under Article 1182 of the Civil Code

The Code prohibits purely potestative, suspensive, conditional obligations that depend on
the whims of the debtor, because such obligations are usually not meant to be fulfilled. Indeed, to
allow the fulfillment of conditions to depend exclusively on the debtor‗s will would be to
sanction illusory obligations. The Kasulatan does not allow such thing. First, nowhere is it stated
in the Deed that payment of the purchase price is dependent upon whether respondents want to
pay it or not. Second, the fact that they already made partial payment thereof only shows that the
parties intended to be bound by the Kasulatan.
 Hermosa vs. Longara
Facts:

Intestate Fernando Hermosa, Sr. asked for three (3) credit advances from respondent
Epifanio M. Longara. Two (2) of said credit advances were made during his lifetime and in his
favor and in his son while the last credit was made after his death and in favor of his grandson.
Evidences show that said credits were asked by the intestate ―on condition that their payment
should be made by him, as soon as he receives funds derived from the sale of his property in
Spain.

After the intestate‗s death and upon authorization of the probate court, the administration
of the intestate‗s property, his wife, sold the property and the same was paid for subsequently. As
a consequence, respondent filed an action for the payment of the aforesaid credits which was
upheld by the lower court and by the Court of Appeals. However, the same was contested by
herein petitioners, heirs of the intestate, on the ground that the obligation contracted by the
intestate was subject to a condition exclusively dependent upon the will of the debtor condicion
potestiva and therefore null and void, in accordance with article 1115 of the Old Civil Code.

Issue:

Whether or not the condition made in the obligation is a purely suspensive condition
dependent or potestative upon the exclusive will of the debtor.

Ruling:

The condition of the obligation was that the payment was to be made ―as soon as he
(obligor) receives funds from the sale of his property in Spain.‖ The will to sell on the part of the
debtor (intestate) was present in fact or presumed legally to exist although the price and other
condition thereof were still within his discretion and final approval. But in addition to this
acceptability of the sale to him (obligor), there were still other conditions that had to concur to
effect the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the
property under the condition demanded by the vendor.
 Trillana vs Quezon Colleges
Facts:

Damasa Crisostomo subscribed 200 shares of capital stock with a par value of P100 each
through a letter sent to the Board of Trustees of the Quezon College, enclosed with the letter are
a sum of money as her initial payment and her assurance of full payment after she harvested fish.
On October 26, 1948, Damasa Crisostomo passed away. As no payment appears to have been
made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a
claim before the CFI of Bulacan in her testate proceeding, for the collection of the sum of
P20,000, representing the value of the subscription to the capital stock of the Quezon College,
Inc. which was then opposed by the administrator of the estate.

Issue:

Whether or not the condition entered into by both parties are valid.

Ruling:

The need for express acceptance on the part of the Quezon College, Inc. becomes the
more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the
subscription after she has harvested fish, a condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil
Code which provides as follows: "If the fulfillment of the condition should depend upon the
exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon
chance, or upon the will of a third person, the obligation shall produce all its effects in
accordance with the provisions of this code." It cannot be argued that the condition solely is void,
because it would have served to create the obligation to pay, unlike a case, exemplified by
Osmeña vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it
referred merely to the fulfillment of an already existing indebtedness.
 Positive Suspensive
Condition

Visayan Sawmill vs. CA

Facts:

On May 1, 1983, herein plaintiff-appellee and defendants appellants entered into a sale
involving scrap iron, subject to the condition that plaintiff appellee will open a letter of credit in
the amount of P250,00.00 in favor of defendant-appellant corporation on or before May 15,
1983. On May 24, 1983, plaintiff-appellee informed defendans-appellants by telegram that the
letter of credit was opened May 12, 1983 at the BPI main office in Ayala, but that transmittal was
delayed. On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete
City Branch of BPI dated May 26, 1983, that a domestic letter of credit had been opened in favor
of Visayan Sawmill Company.

On July 19, 1983 plaintiffs then demanded that defendants comply with the deed of sale.
On July 20, 1983 defendant corporation informed plaintiff‗s lawyer that it is unwilling to
continue with the sale due to plaintiff‗s failure to comply with the essential preconditions of the
contract. Private respondent prayed for judgment ordering the petitioner corporation to comply
with the contract by delivering to him the scrap iron subject thereof.

Issue:

Whether or not the private respondent‗s non-compliance with essential precondition

justified the cancellation of the contract.

Ruling:

The Supreme Court held that the nature of the transaction between the petitioner
company and the private respondent is a mere contract to sell, and not a contract of sale. The
petitioner company‗s obligation is subject to a positive suspensive condition, which is the
private respondent‗s opening, making or indorsing of an irrevocable and unconditional letter of
credit. The failure of the private respondent to comply with the positive suspensive condition
cannot even be considered a breach but simply an event that prevented the obligation of
petitioner company to convey title from acquiring binding force. Hence, the petition is granted
and the assailed decision is reversed.
 Leano vs. CA
Facts:

On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leaño, as

vendee executed a contract to sell involving a piece of land. In the contract, Carmelita Leaño
bound herself to pay Hermogenes Fernando the sum of PhP107,750.00 as the total purchase price
of the lot.

The contract also provided for a grace period of one month within which to make
payments, together with the one corresponding to the month of grace. Should the month of grace
expire without the installments for both months having been satisfied, an interest of 18% per
annum will be charged on the unpaid installments. Should a period of ninety days elapse from
the expiration of the grace period without the overdue and unpaid installment paid with proper
interests, Fernando, as vendor, was authorized to declare the contract cancelled. The defendant
later filed an ejectment case for failure of petitioner to pay within the terms of contract.

Issue:

Whether or not the petitioner was in delay the payment of the monthly amortizations.

Ruling:

While the contract provided that the total purchase price shall be paid in monthly
installments by claiming that the ten-year period, the same contract specified that the purchase
price shall be paid in monthly installments for which the corresponding penalty shall be imposed
in case of default. Petitioner Leano cannot ignore the provision on payment of monthly
installments by claiming that the ten-year period within which to pay has not elapsed.

Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs
in delay if the other does not comply or is not ready to comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.

In the case at bar, respondent Fernando performed his part of the obligation by allowing
petitioner Leano to continue in possession and use of the property. Clearly, when petitioner
Leano did not pay the monthly amortization in accordance with the terms and conditions of the
contract, she was in delay and liable for damages. However, the default committed by the
petitioner Leano in respect of the obligation could be compensated by the interest and surcharges
imposed upon her under the contract in question. Petition denied, judgment affirmed in toto.
 Effect of Non-Fulfillment of Suspensive Condition

De Leon vs. Ong

Facts:

On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels of land to Benita T.
Ong(respondent). The said properties were mortgaged to a financial institution; Real Savings
& Loan Association Inc. (RSLAI). The parties then executed a notarized deed of absolute sale
with assumption of mortgage. As indicated in the deed of mortgage, the parties stipulated that the
petitioner (de Leon) shall execute a deed of assumption of mortgage in favor of Ong
(respondent)after full payment of the P415,000. They also agreed that the respondent (Ong) shall
assume the mortgage. The respondent then subsequently gave petitioner P415,000 as partial
payment. On the other hand, de Leon handed the keys to Ong and de Leon wrote a letter to
inform RSLAI that the mortgage will be assumed by Ong. Thereafter, the respondent took repairs
and made improvements in the properties. Subsequently, respondent learned that the same
properties were sold to a certain Viloria after March 10, 1993 and changed the locks, rendering
the keys given to her useless. Respondent proceeded to RSLAI but she was informed that the
mortgage has been fully paid and that the titles have been given to the said person. Respondent
then filed a complaint for specific performance and declaration of nullity of the second sale and
damages. The petitioner contended that respondent does not have a cause of action against him
because the sale was subject to a condition which requires the approval of RSLAI of the
mortgage. Petitioner reiterated that they only entered into a contract to sell. The RTC dismissed
the case. On appeal, the CA upheld the sale to respondent and nullified the sale to Viloria.
Petitioner moved for reconsideration to the SC.

Issue:

Whether or not the parties entered into a contract of sale.

Ruling:

In a contract of sale, the seller conveys ownership of the property to the buyer upon the
perfection of the contract. Should the buyer default in the payment of the purchase price, the
seller may either sue for the collection thereof or have the contract judicially resolved and set
aside. The non-payment of the price is therefore a negative resolutory condition. On the other
hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire
ownership of the property until he fully pays the purchase price. For this reason, if the buyer
defaults in the payment thereof, the seller can only sue for damages.

The deed executed by the parties (as previously quoted) stated that petitioner sold the
properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million. With
regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner
15
upon the execution of the deed, with the balance payable directly to RSLAI (on behalf of
petitioner) within a reasonable time. Nothing in said instrument implied that petitioner reserved
ownership of the properties until the full payment of the purchase price. On the contrary, the
terms and conditions of the deed only affected the manner of payment, not the immediate
transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to
respondent as buyer. Otherwise stated, the said terms and conditions pertained to the
performance of the contract, not the perfection thereof nor the transfer of ownership.
 Heirs of Sandejas vs. Lina
Facts:

Eliodoro Sendejas, Sr., served as administrator of the estate of Remedios R. Sandejas.

Eliodoro, in his capacity as seller, bound and obligated himself, administrators, and assigns, to
sell forever and absolutely and in their entirety parcels of lands which formed part of the estate
of the late Remedios to one Mr. Alex A. Lina for the consideration of P1 Million. Eliodoro died
and Mr. Alex Lina served as temporary administrator of the estate until he was replaced by the
heir of Eliodoro, Sixto Sandejas. Mr. Lina filed an Omnibus motion to approve the deed of
conditional sale executed between Plaintiff-in-Intervention Alex A. Lina and Eliodoro Sandejas,
Sr. on June 7, 1982. The administrator Sixto filed a motion to dismiss.

Issue:

Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title to the property
referred to in the subject document which was found to be in the nature of a contract to sell -
where the suspensive condition set forth therein, was not complied with.

Ruling:

Petitioners argue that the CA erred in ordering the conveyance of the disputed 3/5 of the
parcels of land, despite the nonfulfillment of the suspensive condition -- court approval of the
sale. They assert that because this condition had not been satisfied, their obligation to deliver the
disputed parcels of land was converted into a money claim.

Petitioners admit that the agreement between the deceased Eliodoro Sandejas Sr. and
respondent was a contract to sell, in which case the payment of the purchase price is a positive
suspensive condition. The vendor's obligation to convey the title does not become effective in
case of failure to pay. On the other hand, the agreement between Eliodoro Sr. and respondent is
subject to a suspensive condition -- the procurement of a court approval, not full payment. There
was no reservation of ownership in the agreement. Petitioners were supposed to deed the
disputed lots over to respondent. They could do this upon the court's approval, even before full
payment. Hence, their contract was a conditional sale, rather than a contract to sell. When a
contract is subject to a suspensive condition, its birth or effectivity can take place only if and
when the condition happens or is fulfilled. Thus, the intestate court's grant of the Motion for
Approval of the sale filed by respondent resulted in petitioners' obligation to execute the Deed of
Sale of the disputed lots in his favor. The condition having been satisfied, the contract was
perfected. Henceforth, the parties were bound to fulfill what they had expressly agreed upon.
 Period or Term

COMMISSIONER OF INTERNAL REVENUE vs. PRIMETOWN PROPERTY GROUP

G.R. No. 162155 August 28, 2007

Facts: On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group,
Inc., applied for the refund or credit of income tax respondent paid in 1997. According to Yap,
because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent
paid its quarterly corporate income tax and remitted creditable withholding tax from real estate
sales to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax
refund or tax credit. On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent
to submit additional documents to support its claim. Respondent complied but its claim was not
acted upon. Thus, on April 14, 2000, it filed a petition for review in the Court of Tax Appeals
(CTA). On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-
year prescriptive period for filing a judicial claim for tax refund or tax credit. Respondents now
assail that decision for dismissal of the CTA.

Issue: Whether or not the period for the filing of the action has expired.

Ruling: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter — the computation of legal
periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a
leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the number of days is
irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal
periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that
Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law,
governs the computation of legal periods. Lex posteriori derogate priori. Following this formula,
respondent‗s petition (filed on April 14, 2000) was filed on the last day of the 24th calendar
month from the day respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
 NATIONAL MARKETING CORPORATION v. TECSON
G.R. No. L-29131 August 27, 1969

Facts: On November 14, 1955, in the civil case entitled "Price Stabilization Corporation vs.
Miguel D. Tecson and Alto Surety and Insurance Co., Inc.," the CFI ordered Tecson and Alto
Surety to pay jointly and severally PRATRA and for Tecson to indemnify Alto Surety.

A copy of the decision was served upon Tecson and Alto Surety on November 21, 1955. On
December 21, 1965, the National Marketing Corporation, as successor to all the properties,
assets, rights, and choses in action of the Price Stabilization Corporation, filed a complaint
against Tecson and Alto Surety for the revival of the judgment. Tecson moved to dismiss upon
the ground of lack of jurisdiction and prescription of action. The CFI indeed dismissed the
complaint for having prescribed.

The National Marketing Corp. appealed to the CA, which certified the case to the SC.

Issue: Whether or not the action for the revival of a judgment was barred by the statute of
limitations.

Ruling: Pursuant to Art. 1144(3) of the Civil Code, an action upon a judgment "must be brought
within 10 years from the time the right of action accrues," which, in the language of Art. 1152
"commences from the time the judgment sought to be revived has become final." This took place
on December 21, 1955. The issue is thus confined to the date on which 10 years from December
21, 1955 expired.

Pursuant to Art. 7 of the Civil Code, whenever months are referred to in the law, it shall be
understood that the months are of 30 days, not the "natural" or "solar" or "calendar" months,
unless they are designated by name. This concept was later modified by Sec. 13 of the Revised
Administrative Code, pursuant to which, a month shall be understood to refer to a calendar
month. In the language of the SC in People vs. Del Rosario, with the approval of the Civil Code
of the Philippines (RA 386), it shall be understood that years are of 365 days.

The order appealed from was affirmed.

 Condition v. Term

ERNEST BERG v. MAGDALENA ESTATE INC

G.R. No. L-3784 October 17, 1952

Facts: The complaint avers that plaintiff and defendant are co-owners of said property, the
former being the owner of one-third interest and the latter of the remaining two-thirds. The
division is asked because plaintiff and defendant are unable to agree upon the management of the
property and upon the partition thereof.

Defendant answered setting up a special defense and counterclaim. As a special defense,

defendant claims that on September 22, 1943, it sold to plaintiff one-third of the property in
litigation subject to the express condition that should either vendor or vendee decide to sell his
undivided share, the party selling would grant to the other party first an irrevocable option to
purchase the same at the seller‗s price. It avers that in January 1946, plaintiff fixed the sum of
P200,000 as the price of said share and offered to sell it to defendant, which offer was accepted
and for the payment of said price plaintiff gave defendant a period of time which, including the
extensions granted would expire on May 31, 1947. Defendant claims that in spite of its
acceptance of the offer, plaintiff refused to accept the payment of the price, and for this refusal
defendant suffered damages in the amount of P100,000. For these reasons, defendant asks for
specific performance.

Issue: Whether or not the obligation is one subject to a term.

Ruling: No, the obligation is rather subject to a condition. Under Article 1125 of the old Civil
Code, obligations with a term, for the fulfilment of which a day certain has been fixed, shall be
demandable only when the day arrives. A day certain is understood to be that which must
necessarily arrive, even though it is not known when. In order that an obligation may be with a
term, it is, therefore, necessary that it should arrive, sooner or later; otherwise, if its arrival is
uncertain, the obligation is conditional. Viewing in this light the clause on which defendant relies
for the enforcement of its right to buy the property, it would seem that it is not a term, but a
condition.

Considering the first alternative, that is, until defendant shall have obtained a loan from the
National City Bank of New York, it is clear that the granting of such loan is not definite and
cannot be held to come within the terms day certain. And if it is considered that the period given
was until such time as defendant could raise money from other sources, then it is also to be
indefinite and contingent, and so it is also a condition and not a term within the meaning of the
law. In any event, it is apparent that the fulfillment of the condition contained in this second
alternative is made to depend upon defendant‗s exclusive will, and viewed in this light, the
plaintiff‗s obligation to sell did not arise, for, under article 1115 of the old Civil Code, when the
fulfillment of the condition depends upon the exclusive will of the debtor the conditional
obligation shall be void
 LIRAG TEXTILE MILLS vs. COURT OF APPEALS.
G.R. No. L-30736 April 14, 1975

Facts: On May 11, 1960 and for some time prior and subsequent thereto, defendant Felix Lirag
was a member of the Board of Directors of the Philippine Chamber of Industries; and for about
two months, more or less, prior to May 11, 1960, plaintiff Cristina Alcantara worked in a
temporary capacity with defendant Lirag Textile Mills, Inc. During this same period of time,
defendant Felix Lirag was a director and Chairman of the Board of Directors of defendant Lirag
Textile Mills, Inc.

On May 9, 1960, defendant Lirag Textile Mills, Inc. wrote a letter to plaintiff (Alcantara)
advising him that, effective May 11, 1960, his temporary designation as Technical Assistant to
the Administrative Officer was made permanent and as Assistant to the Administrative Officer of
the Lirag Textile Mills, Inc. Plaintiff's tenure of employment, per defendant Lirag Textile Mills,
Inc.'s above letter of May 9, 1960 was to be 'for an indefinite period, unless sooner terminated by
reason of voluntary resignation or by virtue of a valid cause or causes.

On March 4, 1960, per letter of defendant Lirag Textile Mills, Inc. of that date, signed by its
Executive Vice President and General Manager, plaintiff was advised that effective November
15, 1960 he (Alcantara) was promoted to the position of Assistant Administrative Officer.
Subsequently, on July 22, 1961, defendant Lirag Textile Mills, Inc. wrote plaintiff (Alcantara) a
letter advising him that because the company 'has suffered some serious reverses, both in terms
of pecuniary loss and in market opportunities,' the company was terminating his services and
effecting his separation from defendant corporation effective at the close of working hours of
August 22, 1961. Because of this, plaintiff Alcantara filed a complaint before the Regional Trial
Court against defendant Lirag Textile Mills Inc. for illegal dismissal as in accordance with the
employment contract between herein then plaintiff and then defendant. Respondent Court of
Appeals affirmed the decision of the lower court.

Issue: Whether or not there has been a violation of the written contract for a period of
employment between petitioner and private respondent.

Ruling: Yes. It is clear that petitioner Lirag Textile Mills, Inc. violated the contract of
employment with private respondent Alcantara when the former terminated his services without
a valid cause. The act was attended with bad faith and deceit because said petitioner made false
allegations of a supposed valid cause knowing them to be false, thus making itself liable for
payment of actual, moral and exemplary damages, plus attorney‘s fees to private respondent
Alcantara. Petitioner Lirag Textile Mills, Inc. cannot with impunity be allowed the absolute and
unilateral power to terminate without valid cause a contract of employment with a definite period
it voluntarily entered into merely on the basis of its whim or caprice and under the false pretense
of financial distress. To countenance its wrongful act would be to place its employees in the
disadvantageous position of not being able to protect themselves from the arbitrary, oppressive
and wrongful acts of an economically powerful employer. The laudable ends of social justice
would not be served in that manner, especially in the era of a compassionate society.
 DAGUHOY ENTERPRISES vs. RITA L. PONCE
G.R. No. L-6515 October 18, 1954

Facts: In the year 1950, defendant-appellant Domingo Ponce was Chairman and Manager and
his son Buhay M. Ponce was Secretary-Treasurer, of the plaintiff corporation Daguhoy
Enterprises, Inc. on June 24th of said year Rita L. Ponce, wife of Domingo, executed in favor of
plaintiff corporation a deed of mortgage over a parcel of land including the improvements
thereon, situated in Manila, to secure the payment of a loan of P5,000 granted to her by said
corporation, payable within six years with interest at 12 per cent per annum. On March 10, 1951,
Rita L. Ponce with the consent of her husband Domingo executed another mortgage deed
amending the first one, whereby the loan was increased from P5,000 to P6,190, the terms and
conditions of the mortgage remaining the same. Rita and Domingo presented the two mortgage
deeds for registration in the office of the register of deeds, but the said register after going over
the papers noted defects and deficiencies and advised Rita and Domingo to cure the defects and
furnish the necessary data. Instead of complying with the suggestion and requirements, the two
withdrew the two mortgage deeds and then mortgaged the same parcel of land in favor of the
Rehabilitation Finance Corporation (RFC) to secure a loan.

Issue: Whether or not the debtor lost the benefit of the period because of the condition.

Ruling: Although the original loan of P5,000.00 including the increase of P1,190 was payable
within six years from June 1950, and so did not become due and payable until 1956, the trial
court held that under article 1198 of the new Civil Code, the debtor lost the benefit of the period
by reason of her failure to give the security in the form of the two deeds of mortgage and register
them, including the defendants' act in withdrawing said two deeds from the office of the register
of deeds and then mortgaging the same property in favor of the RFC; and so the obligation
became pure and without any condition and consequently, the loan became due and immediately
demandable. On this, we agree with the trial court.
 VICTORIAS PLANTERS ASSOCIATION vs. VICTORIAS MILLING
G.R. No. L-6648 July 25, 1955

Facts: From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros Occidental,
executed identical milling contracts, under which the sugar central "North Negros Sugar Co.
Inc." would mill the sugar produced by the sugar cane planters of the Manapla and Cadiz
districts.

The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed with Miguel J.
Ossorio, a contract whereby Ossorio was given a period up to December 31, 1916 within which
to make a study of and decide whether he would construct a sugar central or mill with a capacity
of milling 300 tons of sugar cane every 24 hours and setting forth the mutual obligations and
undertakings of such central and the planters and the terms and conditions under which the sugar
cane produced by said planters would be milled in the event of the construction of such sugar
central by Ossorio. Such central was in fact constructed by said Ossorio in Manapla, Negros
Occidental, through the North Negros Sugar Co., Inc., where after the standard form of milling
contracts were executed.

The parties cannot stipulate as to the milling contracts executed by the planters by Victorias,
Negros Occidental, other than as follows: 1) a number of them executed such milling contracts
with the North Negros Sugar Co., Inc.; 2) while a number of them executed milling contracts
with the Victorias Milling Co., Inc., which was likewise organized by Miguel J. Ossorio and
which had constructed another Central at Victorias, Negros Occidental. The North Negros Sugar
Co., Inc. had its first milling during the 1918-1919 crop years, and the Victorias Milling Co., had
its first milling during the 1921-1922 crop year. Subsequent millings took place every successive
crop year thereafter, except the 6-year period, comprising 4 years of the last World War II and 2
years of post-war reconstruction of respondent's central at Victorias, Negros Occidental.

After the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed central at
Manapla, Negros Occidental, and in 1946, it advised the North Negros Planters Association, Inc.
that it had made arrangements with the respondent Victorias Milling Co., Inc. for said respondent
corporation to mill the sugar cane produced by the planters of Manapla and Cadiz holding
milling contracts with it. Thus, after the war, all the sugar cane produced by the planters of
petitioner associations, in Manapla, Cadiz, as well as in Victorias, who held milling contracts,
were milled in only one central, that of the respondent corporation at Victorias. Beginning with
the year 1948, and in the SLU SOL 1-C Page 267

following years, when the planters-members of the North Negros Planters Association, Inc.
considered that the stipulated 30-year period of their milling contracts executed in the year 1918
had already expired and terminated in the crop year 1947-1948, and the planters-members of the
Victorias Planters Association, Inc. likewise considered the stipulated 30-year period of their
milling contracts, as having likewise expired and terminated in the crop year 1948-1949, under
the pertinent provisions of the standard milling contract. Notwithstanding the repeated
representations made by the herein petitioners with the respondent corporation, the herein
respondent has refused and still refuses to accede to the same, contending that under the
provisions of the milling contract.

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

Ruling: No. Fortuitous event relieves the obligor from fulfilling a contractual obligation.

The fact that the contracts make reference to "first milling" does not make the period of thirty
(30) years one of thirty (30) milling years. The term "first milling" used in the contracts under
consideration was for the purpose of reckoning the thirty-year period stipulated therein. Even if
the thirty-year period provided for in the contracts be construed as milling years, the deduction or
extension of six (6) years would not be justified. At most on the last year of the thirty-year period
stipulated in the contracts the delivery of sugar cane could be extended up to a time when all the
amount of sugar cane raised and harvested should have been delivered to the appellant's mill as
agreed upon.
 Potestative Period

JESPAJO REALTY CORPORATION vs. COURT OF APPEALS

G.R. No. 113626 September 27, 2002

Facts: The subject of this controversy is an apartment building owned by Jespajo Realty
Corporation. Said corporation, represented by its President, Jesus L. Uy, entered into separate
contracts of lease with Tan Te Gutierrez and Co Tong. The lease period shall be effective as of
February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in
the payment of his monthly rentals. The lessee may, at his option, terminate this contract any
time by giving sixty (60) days prior written notice of termination to the lessor. However,
violation of any of the terms and conditions of this contract shall be a sufficient ground for
termination thereof by the lessor. For the duration of the contract, the lessee agrees to an
automatic 20% yearly increase in the monthly rentals. On January 2, 1990, the lessor corporation
sent a written notice to the lessees informing them of the former's intention to increase the
monthly rentals on the occupied premises to P3,500.00 monthly effective February 1, 1990. The
lessees through its counsel in a letter dated March 10, 1990 manifested their opposition alleging
that the same is in contravention of the terms of the contract of lease as agreed upon. Due to the
opposition and the failure of the lessees to pay the increased monthly rentals in the amount of
P3,500.00, the lessor through its counsel in a letter dated April 10, 1990 demanded that the
lessees vacate the premises and pay the amount of P7,000.00 corresponding to the months of
February and March, 1990. The lessees exerted effort to pay the rentals due for the months of
February and March 1990 at the monthly rate stipulated in the contract but was refused by the
lessor so that on May 2, 1990, they instituted before the Metropolitan Trial Court of Manila,
Branch 16 a case for consignation. The trial judge in the consignation case issued an order
allowing the plaintiffs therein to deposit with the City Treasurer of Manila the amount of
P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez representing their
respective rentals for thirteen (13) months from February, 1990 to January, 1991. More than six
(6) months from the filing of the case for consignation, the lessor instituted an ejectment suit
against the lessees before the Metropolitan Trial Court of Manila Branch 20. The court in its
decision dismissed the ejectment suit for lack of merit. Regional Trial Court is constrained to
reverse the appealed decision and ordered another judgment to be entered in favor of appellant.
This was, however, reversed by the Court of Appeals.

Issue: Whether or not the subject contract of lease did not provide for a definite period; hence it
falls under the ambit of Art. 1687 of the NCC, making the agreement effective on a month-to-
month basis since rental payments are made monthly. SLU SOL 1-C Page 269

Ruling: No. The Court held that Art. 1687 finds no application in the case at bar. The lease
contract between petitioner and respondents is with a period subject to a resolutory condition.
Art. 1687 provides that if the period for the lease has not been fixed, it is understood to be from
year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week
to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even
though a monthly rent is paid, and no period for the lease has been set, the courts may fix a
longer term for the lease after the lessee has occupied the premises for over one year.

If the rent is weekly, the courts may likewise determine a longer period after the lessee has been
in possession for over six months. In case of daily rent, the courts may also fix a longer period
after the lessee has stayed in the place for over one month. The wording of the agreement is
unequivocal: The lease period shall continue for an indefinite period provided the lessee is up-to-
date in the payment of his monthly rentals. The condition imposed in order that the contract shall
remain effective is that the lessee is up-to-date in his monthly payments. It is undisputed that the
lessees Gutierrez and Co Tong religiously paid their rent at the increasing rate of 20% annually.
The agreement between the lessor and the lessees are therefore still subsisting, with the original
terms and conditions agreed upon, when the petitioner unilaterally increased the rental payment
to more than 20% or P3,500.00 a month.
 PILAR N. BORROMEO vs. COURT OF APPEALS
G.R. No. L-22962 September 28, 1972

Facts: Before the year 1933, defendant [Jose A. Villamor] was a distributor of lumber belonging
to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City. Defendant being
a friend and former classmate of plaintiff [Canuto O. Borromeo] used to borrow from the latter
certain amounts from time to time. On one occasion with some pressing obligation to settle with
Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his
land and house in Cebu City.

Mr. Miller filed civil action against the defendant and attached his properties including those
mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be
registered because not properly drawn up. Plaintiff then pressed the defendant for settlement of
his obligation, but defendant instead offered to execute a document promising to pay his
indebtedness even after the lapse of ten years.

Liquidation was made and defendant was found to be indebted to plaintiff in the sum of
P7,220.00, for which defendant signed a promissory note therefor on November 29, 1933 with
interest at the rate of 12% per annum, agreeing to pay 'as soon as I have money'. The note further
stipulates that defendant 'hereby relinquish, renounce, or otherwise waive my rights to the
prescriptions established by our Code of Civil Procedure for the collection or recovery of the
above sum of P7,220.00…at any time even after the lapse of ten years from the date of this
instrument'. After the execution of the document, plaintiff limited himself to verbally requesting
defendant to settle his indebtedness from time to time. Plaintiff did not file any complaint against
the defendant within ten years from the execution of the document as there was no property
registered in defendant's name, who furthermore assured him that he could collect even after the
lapse of ten years. After the last war, plaintiff made various oral demands, but defendants failed
to settle his account, — hence the present complaint for collection.

Issue: Whether or not the period stipulated in the contract is valid.

Ruling: What emerges in the light of all the principles set forth above is that the first ten years
after November 29, 1933 should not be counted in determining when the action of creditor, now
represented by petitioners, could be filed. From the joint record on appeal, it is undoubted that
the complaint was filed on January 7, 1953. If the first ten-year period was to be excluded, the
creditor had until November 29, 1953 to start judicial proceedings. After deducting the first ten-
year period which expired on November 29, 1943, there was the additional period of still another
ten years.

proceedings. After deducting the first ten-year period which expired on November 29, 1943,
there was the additional period of still another ten years.
 BENITO GONZALEZ vs. FLORENTINO DE JOSE
G.R. No. 43429 October 24, 1938

Facts: Defendant Florentino de Jose executed two (2) promissory notes on June 22, 1922 and
September 13, 1922 in favor of plaintiff Benito Gonzales. The two (2) promissory notes were
both worded as follows: I promise to pay Mr. Benito Gonzalez the sum of P (amount) as soon as
possible. Defendant appealed from the decision of the Court of First Instance of Manila ordering
him to pay the plaintiff the sum of P547.95 within thirty (30) days from the date of notification
of said decision, plus the costs. The defendant interposed the defense of prescription because the
action was not filed by the plaintiff within the prescriptive period prescribed by law.

Issue: Whether or not the action has already prescribed.

Ruling: No. The words as soon as possible in the promissory notes denote that such is an
obligation subject to a potestative condition. Article 1128 of the Civil Code provides: If the
obligation does not specify a term, but it is to be inferred from its nature and circumstances that
it was intended to grant the debtor time for its performance, the period of the term shall be fixed
by the court. The action to ask the court to fix the period has already prescribed in accordance
with section 43 (1) of the Code of Civil Procedure. This period of prescription is ten (10) years,
which has already elapsed from the execution of the promissory notes until the filing of the
action on June 1, 1934. The action which should be brought in accordance with Article 1128 is
different from the action for the recovery of the amount of the notes, although the effects of both
are the same, being, like other civil actions, subject to the rules of prescription.
 Effect
s

GUILLERMINA BALUYUT vs. EULOGIO POBLETE

G.R. No. 144435 February 6, 2007

Facts: On July 20, 1981, herein petitioner, Guillermina Baluyut (Baluyut), loaned from the
spouses Eulogio and Salud Poblete the sum of P850,000.00. As evidence of her indebtedness,
Baluyut signed, on even date, a promissory note for the amount borrowed. Under the promissory
note, the loan shall mature in one month. To secure the payment of her obligation, she conveyed
to the Poblete spouses, by way of a real estate mortgage contract, a house and lot she owns,
covered by Transfer Certificate of Title (TCT) No. 137129 and located in Barrio Mapuntod, then
Municipality of Mandaluyong, Province of Rizal. Upon maturity of the loan, Baluyut failed to
pay her indebtedness. The Poblete spouses subsequently decided to extrajudicially foreclose the
real estate mortgage. On August 27, 1982, the mortgaged property was sold on auction by the
Provincial Sheriff of Rizal to the Poblete spouses who were the highest bidders, as evidenced by
a Certificate of Sale issued pursuant thereto. Baluyut failed to redeem the subject property within
the period required by law prompting Eulogio Poblete to execute an Affidavit of Consolidation
of Title. Subsequently, TCT No. 43445 was issued in the name of Eulogio and the heirs of Salud,
who in the meantime, died. However, Baluyut remained in possession of the subject property and
refused to vacate the same. Hence, Eulogio and the heirs of Salud filed a Petition for the issuance
of a writ of possession with the RTC of Pasig. The case was docketed as Case No. R-3457.
Subsequently, the trial court issued an order granting the writ of possession. However, before
Eulogio and the heirs of Salud could take possession of the property, Baluyut filed an action for
annulment of mortgage, extrajudicial foreclosure and sale of the subject property, as well as
cancellation of the title issued in the name of Eulogio and the heirs of Salud, plus damages. The
case was docketed as Civil Case No. 52268 and was subsequently consolidated with Case No. R-
3457. In the meantime, Eulogio died and was substituted by his heirs. After trial on the merits,
the trial court issued a Decision on September 13, 1995 dismissing Baluyut‘s complaint.
Aggrieved by the trial court‘s Decision, herein petitioner filed an appeal with the CA.

Issue: Whether or not the Honorable Court of Appeals gravely erred when it granted a writ of
possession to the herein respondents even though the decision and the resolution are both
palpably infirm in holding that (1) no prior demand to pay is necessary for a loan to mature when
there is conflict between the date of maturity of the loan (2) the sheriff who conducted the
foreclosure proceedings should be presumed to have regularly performed his duty in conducting
the foreclosure proceedings (3) the Petitioner-Appellant failed to invoke her right to be sent an
Assessment Notice by the highest bidder 30 days before the expiration of the right of legal
redemption during the trial and on appeal.

Ruling: The issue regarding the date of maturity of the loan is factual and settled is the rule that
only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court, as the Supreme Court is not a trier of facts. It is settled that an issue not raised
during trial could not be raised for the first time on appeal. When the terms of an agreement are
reduced to writing, it is deemed to contain all the terms agreed upon.

As to the second assigned error, the prevailing jurisprudence is that foreclosure proceedings have
in their favor the presumption of regularity and the burden of evidence to rebut the same is on the
petitioner. Moreover, the fact that the records of the foreclosure proceedings involving the
subject property could not be found does not necessarily mean that the legal requirements of
posting and publication had not been complied with.

With regards to the third issue, the mortgagor or redemptioners are not required to be furnished
by the purchaser an Assessment Notice or Notice of Redemption prior to the expiration of the
period of redemption.
 MALAYAN REALTY, INC v. UY HAN YONG
G.R. No. 163763 November 10, 2006

Facts: Malayan Realty Inc., entered into a verbal lease contract with Uy Han Yong over an
apartment unit located in Manila. After several years, Malayan sent Uy a written notice
informing him that the lease contract would no longer be renewed or extended. Despite Uy‗s
receipt of the notice, he refused to vacate the property, prompting Malayan to file before the
Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment.

MeTC held that Uy could not be ejected on the ground of termination of the contract. The MeTC
dismissed Malayan‗s complaint. Malayan appealed to the Regional Trial Court (RTC) which set
aside the judgment of the MeTC. On the basis of Article 1687 of the New Civil Code, the RTC
extended the lease contract for a period of five years.

Malayan asserts that an extension of the period of a lease may be sought by thetenant before, and
not after the termination of the lease; and that Uy had sufficient time to request for extension,
given that the notice of termination of the lease was served upon him more than 30 days before
its effectivity, but that Uy did not so request even after the complaint was filed in court. Malayan
thus maintains that no ―equitable reason‖ justifies Uy‗s continued possession of the property for
more than four years from the time the complaint for ejectment was filed.

The Court of Appeals (CA) modified the RTC decision by shortening the extension of the lease
contract to one year from the finality of the decision.

Issue: Whether or not CA erred in granting a one-year extension of the lease reckoned from the
finality of the decision.

Ruling: Under Article 1687 of the New Civil Code if the period of a lease contract has not been
specified by the parties, it is understood to be from month to month, if the rent agreed upon is
monthly. The lease contract thus expires at the end of each month, unless prior thereto, the
extension of said term has been sought by appropriate action and judgment is eventually
rendered therein granting the relief.

In the case at bar, the lease period was not agreed upon by the parties. Rental was paid monthly,
and Uy Han Yong has been occupying the premises since 1958. As earlier stated, a written notice
was served upon respondent on January 17, 2001 terminating the lease effective August 31,
2001. As Uy han Yong was notified of the expiration of the lease, effectively his right to stay in
the premises had come to an end on August 31, 2001. The 2nd paragraph of Article 1687
provides, however, that in the event that the lessee has occupied the leased premises for over a
year, the courts may fix a longer term for the lease.

The power of the courts to establish a grace period is potestative or discretionary, depending on
the particular circumstances of the case. Thus, a longer term may be granted where equities come
into play, and may be denied where none appears, always with due deference to the parties'
freedom to contract.
In the present case, Uy has remained in possession of the property from the time the complaint
for ejectment was filed on September 18, 2001 up to the present time. Effectively, Uy‗s lease has
been extended for more than five years, which time is, under the circumstances, deemed
sufficient as an extension and for him to find another place to stay.
 KASAPIAN NG MANGGAGAWA NG COCA-COLA vs. COURT OF APPEALS
G.R. No. 132344 February 17, 2000

Facts: On June 1998, a Collective Bargaining Agreement which was in effect between petitioner
union and private respondent company expired. With the intervention of the NCMB
Administrator, on December 26, 1998, both parties executed and signed a MOA providing for
salary increases and other economic and non-economic benefits. As part of the MOA, 61
employees were regularized. Consequently, petitioner demanded the payment and benefits of the
newly regularized employees retroactive to December 1, 1998. Petitioner then demanded
renegotiation of the CBA which private respondent refused. On December 9, 1999, despite the
pendency of petitioner‗s complaint before the NLRC, private respondent closed its Manila and
Antipolo plants resulting in the termination of employment of 646 employees. The affected
employees were considered on paid leave from December 9, 1999 to February 29, 2009 and were
paid their corresponding salaries. The Petitioners amended their complaint to include union
busting, illegal dismissal, etc.

Issue: Whether or not closing the Antipolo plant was valid.

Ruling: Under Article 280 of the Labor Code, all those who have been with the company for one
year by said date must automatically be considered regular employees by operation of law. The
61 employees all qualify as regular employees by this provision. The characterization of the
employee‗s services as no longer necessary or sustainable, and therefore properly terminable, is
an exercise of business judgment on the part of the employer. The wisdom or soundness of such
characterizing or decision is not subject to discretionary review on the part of the Labor Arbiter
nor of the NLRC so long, of course, as violation of law or merely arbitrary and malicious action
is not shown. As found by the NLRC, the private respondent‗s decision to close the plant was a
result of a study conducted which established that the most prudent course of action for the
private respondent was to stop operations in said plants and transfer production to other more
modern and technologically advanced plants of private respondent.
 ZENAIDA M. SANTOS vs. CALIXTO SANTOS
G.R. No. 133895 October 2, 2001

Facts: Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private
respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa Santos-Carreon. The
spouses Jesus and Rosalia were the parents of the respondents and the husband of the petitioner.
The spouses owned a parcel of registered land with a four-door apartment administered by
Rosalia who rented them out.

On January 19, 1959, the spouses executed a deed of sale of the properties in favor of their
children Salvador and Rosa. Rosa in turn sold her share to Salvador on November 20, 1973,
which resulted in the issuance of new TCT. Despite the transfer of the property to Salvador,
Rosalia continued to lease and receive rentals from the apartment units. On January 9, 1985,
Salvador died, followed by Rosalia who died the following month. Shortly after, petitioner
Zenaida, claiming to be Salvador‗s heir, demanded the rent from Antonio Hombrebueno, a
tenant of Rosalia. When the latter refused to pay, Zenaida filed an ejectment suit against him
with the Metropolitan Trial Court of Manila, which eventually decided in Zenaida‘s favor.

On January 5, 1989, private respondent instituted an action for reconveyance of property with
preliminary injunction against petitioner in the Regional Trial Court of Manila, where they
alleged that the two deeds of sale were simulated for lack of consideration. The petitioner on the
other hand denied the material allegations in the complaint and that she further alleged that the
respondents‘ right to reconveyance was already barred by prescription and laches considering the
fact that from the date of sale from Rosa to Salvador up to his death, more or less twelve (12)
years had lapsed, and from his death up to the filing of the case for reconveyance, four (4) years
has elapsed. In other words, it took respondents about sixteen (16) years to file the case.
Moreover, petitioner argues that an action to annul a contract for lack of consideration prescribes
in ten (10) years and even assuming that the cause of action has not prescribed, respondents are
guilty of laches for their inaction for a long period of time.

The trial court decided in favor of private respondents in as much as the deeds of sale were
fictitious, the action to assail the same does not prescribe.

Upon appeal, the Court of Appeals affirmed the trial court‗s decision. It held that the subject
deeds of sale did not confer upon Salvador the ownership over the subject property, because even
after the sale, the original vendors remained in dominion, control, and possession thereof.

Issue: Whether or not the cause of action of the respondents had prescribed and/or barred by
laches.

Ruling: The cause of action by the respondents had not prescribed nor is it barred by laches.
First, the right to file an action for the reconveyance of the subject property to the estate of
Rosalia has not prescribed since deeds of sale were simulated and fictitious. The complaint
amounts to a declaration of nullity of a void contract, which is imprescriptible. Hence,
respondents‘ cause of action has not prescribed.

Second, neither is their action barred by laches. The elements of laches are: 1) conduct on the
part of the defendant, or of one under whom he claims, giving rise to the situation of which the
complainant seeks a remedy; 2) delay in asserting the complainant‗s rights, the complainant
having knowledge or notice of the defendant‗s conduct as having been afforded an opportunity
to institute a suit; 3) lack of knowledge or notice on the part of the defendant that the
complainant would assert the right in which he bases his suit; and 4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the suit is not held barred. These
elements must all be proved positively. The lapse of four (4) years is not an unreasonable delay
sufficient to bar respondent‗s action. Moreover, the fourth (4th) element is lacking in this case.
The concept of laches is not concerned with the lapse of time but only with the effect of
unreasonable lapse. The alleged sixteen (16) years of respondents‘ inaction has no adverse effect
on the petitioner to make respondents guilty of laches.
 MANUEL D. MELOTINDOS vs. MELECIO TOBIAS
G.R. No. 146658 October 28, 2002

Facts: Eighty-seven-year old petitioner, Atty. Manuel D. Melotindos, was the lessee of the
ground floor of a house in Malate, Manila. He had been renting the place since 1983 on a month-
to-month basis from its owner, respondent Melecio Tobias, who was then residing in Canada.
Sometime in the last quarter of 1995, owing to his sickly mother who needed constant medical
attention and filial care, respondent demanded from petitioner either to pay an increased rate of
monthly rentals or else to vacate the place so he and his mother could use the house during her
regular medical check-up in Manila.

For two (2) years nothing came out of the demand to vacate, hence, in 1997 respondent insisted
upon raising the rental fee once again. On 1 June 1998, respondent asked petitioner to restore the
premises to him for some essential repairs of its dilapidated structure. This time he did not offer
petitioner anymore the option to pay higher rentals. The renovation of the house was commenced
but had to stop midway because petitioner refused to vacate the portion he was occupying and
worse he neglected to pay for the lease for four (4) months from May to August 1998. Hence for
the second time, or on 19 October 1998, respondent demanded the payment of the rental arrears
as well as the restoration of the house to him.

On 3 February 1999, since petitioner was insisting on keeping possession of the house but did
not pay the rental for January 1999, although he had settled the arrears of four (4) months,
respondent was compelled to file a complaint for ejectment. The MeTC of Manila decided the
ejectment complaint in favor of respondent and ordered petitioner to vacate the leased premises
and to pay rental arrears in the amount of P60,000.00 as of December 1998 and P6,000.00 for
every month thereafter until he finally restored possession thereof to respondent plus attorney‗s
fees of P15,000.00 and the costs of suit.

The RTC of Manila upheld in toto the MeTC Decision and denied the subsequent motion for
reconsideration for failure to set the date of hearing thereof not later than ten (10) days from its
filing. Petitioner‗s recourse to the Court of Appeals by petition for review was also unsuccessful
since the assailed Decision was affirmed in its entirety as the ensuing motion for reconsideration
thereof was denied for late filling, i.e., the motion was filed only on 30 October 2000 beyond the
fifteen (15) – day period from his receipt of the CA Decision on 9 October 2000 as shown by the
registry return receipt.

Issue: Whether or not the lower courts erred in their rulings.

Ruling: It is not only the evidence on record but petitioner‗s pleadings themselves that confirm
his default in paying the rental fees for more than three (3) months in 1999 and 1998 prior to the
filing of the ejectment complaint. There is also sufficient basis for the courts a quo to conclude
that respondent desperately needed the property in good faith for his own family and for the
repair and renovation of the house standing thereon. These facts represent legal grounds to eject
a tena
 LL AND COMPANY vs. HUANG CHAO CHUN
G.R. No. 142378 March 7, 2002

Facts: LL and Co. alleged that Huang Chao Chun and Yang Tung Fa violated their amended
lease contract when they did not pay the monthly rentals. It also alleged that the amended lease
contract expired on September 15, 1996 but Huang Chao Chun and Yang Tung Fa refused to
surrender possession and pay the rental arrearages despite repeated demands. LL and Co. filed an
unlawful detainer against them.

Huang Chao Chun and Yang Tung Fa were joined by the Tsai Chun International Resources in
their answer wherein they alleged that the actual lessee was the corporation. The MTC dismissed
the case ruling that the lessees could extend the contract entered into by the parties unilaterally
for another 5 years for reasons of justice and equity. This was affirmed by the RTC and by the
CA.

Issue: Whether or not the court could still extend the term of the lease after its expiration.

Ruling: In general, the power of the courts to fix a longer term for a lease is discretionary, to be
exercised only in accordance with the particular circumstances of a case. Thus, courts are not
bound to extend the lease.

Art. 1673 provides that the lessor may judicially eject the lessee upon the expiration of "the
period agreed upon or that which is fixed for the duration of the leases." Where no period has
been fixed by the parties, the courts, pursuant to Art. 1687, have the potestative authority to set a
longer period of lease.

In the present case, the contract of lease provided for a fixed period of 5 years. Because the lease
period was for a determinate time, it ceased on the day fixed without need of a demand. Here, the
5-year period expired on September 15, 1996, whereas the complaint for ejectment was filed on
October 6, 1996. Because there was no longer any lease that could be extended, the MeTC made
a new contract for the parties, a power it did not have.

Furthermore, the extension of a lease contract must be made before the term of the agreement
expires, not after. Because the lease contract ended on September 15, 1996, Huang Chao Chun
and Yang Tung Fa can be ejected from the premises.
 BRENT SCHOOL, INC. v. RONALDO ZAMORA
G.R. No. L-48494 February 5, 1990

Facts: The root of the controversy at bar is an employment contract in virtue of which Doroteo
R. Alegre as engaged as athletic director by Brent School, Inc. at a yearly compensation of
P20,000. The contract fixed a specific term for its existence, five (5) years, i.e., from July 18,
1971, the date of execution of the agreement, to July 17, 1976. Subsequent subsidiary
agreements dated March 15, 1973, August 28, 1973, and September 14, 1974 reiterated the same
terms and conditions, including the expiry date, as those contained in the original contract. Some
three (3) months before the expiration of the stipulated period, or more precisely on April 20,
1976, Alegre was given a copy of the report filed by Brent School with the Department of Labor
advising of the termination of his services effective on July 16, 1976. Alegre objected to this
termination of his employment contending that since his services were necessary and desirable in
the usual business of his employer, and his employment had lasted for five (5) years, he had
acquired the status of a regular employee and could not be removed except for valid cause.

Issue: Whether or not Alegre's contention is tenable.

Ruling: No. The provisions of the Labor Code recognize the existence and legality of term
employments. The case at bar is one which involves term employment. Therefore, Alegre‗s
employment was terminated upon the expiration of his last contract with Brent School on July
16, 1976 without the necessity of any notice. The advance written advice given the Department
of Labor with copy to said petitioner was a mere reminder of the impending expiration of his
contract, not a letter of termination, nor an application for clearance to terminate which needed
the approval of the Department of Labor to make the termination of his services effective. In any
case, such clearance should properly have been given, not denied.
 LOURDES VALERIO LIM vs. PEOPLE OF THE PHILIPPINES
G.R. No. L-34338 November 21, 1984

Facts: On January 10, 1966, Lim (Appellant) went to the house of Maria Ayroso and proposed to
sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco
consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she
could sell the tobacco. Of the total value of P799.50, the appellant had paid to Ayroso only
P240.00, and this was paid on three different times. Demands for the payment of the balance of
the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister,
Salud Bantug. Salud Bantug further testified that she had gone to the house of the appellant
several times, but the appellant often eluded her; and that the 'camarin' of the appellant was
empty. Although the appellant denied that demands for payment were made upon her, it is a fact
that on October 19, 1966, she wrote a letter to Salud Bantug stating that she could not pay in full
the amount of P799.50 because it is also hard to demand payment from her suki in the market of
Cabanatuan. Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 or a total
of P240.00. As no further amount was paid, the complainant filed a complaint against the
appellant for estafa.

Issue: Whether or not the Article 1197 of the Civil Code can be applied in this case.

Ruling: No. It is clear in the agreement that the proceeds of the sale of the tobacco should be
turned over to the complainant 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. Anent the argument that petitioner was not an agent because the
agreement does not say that she would be paid the commission if the goods were sold, 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. The agreement constituted her as an agent with the obligation to return the tobacco if
the same was not sold.
 PACIFIC BANKING CORPORATION v. COURT OF APPEALS
G.R. No. L-45656 May 5, 1989

Facts: On April 15, 1955, herein private respondents Joseph and Eleanor Hart discovered an area
consisting of 480 hectares of tidewater land in Tambac Gulf of Lingayen which had great
potential for the cultivation of fish and salt making. They organized Insular Farms Inc., applied
for and, after eleven months, obtained a lease from the Department of Agriculture for a period of
25 years, renewable for another 25 years.

Subsequently Joseph Hart approached businessman John Clarkin, then President of Pepsi-Cola
Bottling Co. in Manila, for financial assistance.

On July 15, 1956, Joseph Hart and Clarkin signed a Memorandum of Agreement pursuant to
which: a) of 1,000 shares out-standing, Clarkin was issued 500 shares in his and his wife's name,
one share to J. Lapid, Clarkin's secretary, and nine shares in the name of the Harts were indorsed
in blank and held by Clarkin so that he had 510 shares as against the Harts' 490; b) Hart was
appointed President and General Manager as a result of which he resigned as Acting Manager of
the First National City Bank at the Port Area, giving up salary of P 1,125.00 a month and related
fringe benefits.

Due to financial difficulties, Insular Farms Inc. borrowed P 250,000.00 from Pacific Banking
Corporation sometime in July of 1956.

On July 31, 1956 Insular Farms Inc. executed a Promissory Note of P 250,000.00 to the bank
payable in five equal annual installments, the first installment payable on or before July 1957.
Said note provided that upon default in the payment of any installment when due, all other
installments shall become due and payable.

This loan was effected and the money released without any security except for the Continuing
Guaranty executed on July 18, 1956, of John Clarkin, who owned seven and half percent of the
capital stock of the bank, and his wife Helen.

Unfortunately, the business floundered and while attempts were made to take in other partners,
these proved unsuccessful. Nevertheless, petitioner Pacific Banking Corporation and its then
Executive Vice President, petitioner Chester Babst, did not demand payment for the initial July
1957 installment nor of the entire obligation, but instead opted for more collateral in addition to
the guaranty of Clarkin.

As the business further deteriorated and the situation became desperate, Hart agreed to Clarkin's
proposal that all Insular Farms shares of stocks be pledged to petitioner bank in lieu of additional
collateral and to insure an extension of the period to pay the July 1957 installment. Said pledge
was executed on February 19, 1958.

Less than a month later, on March 3,1958, Pacific Farms Inc, was organized to engage in the
same business as Insular Farms Inc. The next day, or on March 4, 1958, Pacific Banking
Corporation, through petitioner Chester Babst wrote Insular Farms Inc. giving the latter 48 hours
to pay its entire obligation.

On March 7, 1958, Hart received notice that the pledged shares of stocks of Insular Farms Inc.
would be sold at public auction on March 10, 1958 at 8:00 A.M. to satisfy Insular Farms'
obligation.

On March 8, 1958, the private respondents commenced the case below by filing a complaint for
reconveyance and damages with prayer for writ of preliminary injunction before the Court of
First Instance of Manila docketed as Civil Case No. 35524. On the same date the Court granted
the prayer for a writ of pre- preliminary injunction.

However, on March 19, 1958, the trial court, acting on the urgent petitions for dissolution of
preliminary injunction filed by petitioners PBC and Babst on March 11 and March 14,1958,
respectively, lifted the writ of preliminary injunction.

The next day, or on March 20, 1958 respondents Hart received a notice from PBC signed by
Babst that the shares of stocks of Insular Farms will be sold at public auction on March 21,1958
at 8:00 A.M.

In the morning of March 21, 1958, PBC through its lawyer notary public sold the 1,000 shares of
stocks of Insular Farms to Pacific Farms for P 285,126.99. The latter then sold its shares of
stocks to its own stockholders, who constituted themselves as stockholders of Insular Farms and
then resold back to Pacific Farms Inc. all of Insular Farms assets except for a certificate of public
convenience to operate an ice plant.

Issue: Whether or not the Court of Appeals committed a grave error that "an agreement to extend
the time of payment in order to be valid must be for a definite time," which was relied upon by
the trial court in overruling the private respondents' claim that petitioners had granted them orally
an indefinite extension of time to pay the loan.

Ruling: The principle relied upon in that case was the dead man's statute. The Court stated that
the reason for not believing the purported agreement for extension of time to pay the note was
that there was no sufficient proof of the purported agreement because:

Here we have only the defendant's statement as to the purported agreement for an indefinite
period of grace, with one now dead. Such proof falls far short of satisfying the rules of evidence.
(Phil. Engineering v. Green, 48 Phil. p. 468)

In the case at bar, the parties to the purported agreement, Hart and Babst, were still alive, and
both testified in the trial court regarding the purported extension. Their testimonies are in fact,
quoted in the decision of the respondent Court of Appeals (pp. 49-54, Rollo).

We also note, that the rule which states that there can be no valid extension of time by oral
agreement unless the extension is for a definite time, is not absolute but admits of qualifications
and exceptions.
The general rule is that an agreement to extend the time of payment, in order to be valid, must be
for a definite time, although it seems that no precise date be fixed, it being sufficient that the time
can be readily determined. (8 C.J. 425)

In case the period of extension is not precise, the provisions of Article 1197 of the Civil Code
should apply. In this case, there was an agreement to extend the payment of the loan, including
the first installment thereon which was due on or before July 1957.
 Alternative Obligation

FELIPE AGONCILLO vs. CRISANTO JAVIER

G.R. No. L-12611 August 7, 1918

Facts: On February 27 1904, AnastasioAlano, JloseAlano and Florencio Alano executed in favor
of the plaintiff, Dra. Marcela Marino a document stipulating that the Alanos as testamentary heirs
of deceased Rev. Anastacio Cruz, would pay the sum of P2,730.50 within one (1) year with
interest of 12 percent per annum representing the amount of debt incurred by Cruz. Moreover,
the agreement provided that the Alanos are to convey the house and lot bequeathed to them by
Cruz in the event of failure to pay the debt in money at its maturity.

No part of interest or principal due has been paid except the sum of P200 paid in 1908 by
AnastacioAlano. In 1912, Anastasio died intestate. On August 8, 1914, CFI of Batangas
appointed Crisanto Javier as administrator of Anastasio‗s estate. On March 17, 1916, the
plaintiffs filed the complaint against Florencio, Jose and Crisanto praying that unless defendants
pay the debt for the recovery of which the action was brought, they be required to convey to
plaintiffs the house and lot described in the agreement, that the property be appraised and if its
value is found to be less than the amount of the debt, with accrued interest at the stipulation rate,
judgment be rendered in favor of the plaintiffs for the balance.

Issue: Whether or not the agreement that the defendant-appellant, at the maturity of the debt,
will pay the sum of the money lent by the appellees or will transfer the rights to the ownership
and possession of the house and lot bequeathed to the former by the testator in favor of the
appellees, is valid.

Ruling: Yes, this stipulation is valid because it is simply an alternative obligation, which is
expressly allowed by law. The agreement to convey the house and lot on an appraised value in
the event of failure to pay the debt in money at its maturity is valid. It is simply an undertaking
that if debt is not paid in money, it will be paid in another way. The agreement is not open to the
objection that the agreement is pactocomisorio. It is not an attempt to permit the creditor to
declare the forfeiture of the security upon the failure of the debtor to pay at its maturity. It is
simply provided that if the debt is not paid in money, it shall be paid by the transfer of the
property at a valuation. Such an agreement unrecorded, creates no right in rem, but as between
the parties, it is perfectly valid and specific performance by its terms may be enforced unless
prevented by the creation of superior rights in favor of third persons. The contract is not
susceptible of the interpretation that the title to the house and lot in question was to be
transferred to the creditor ipso facto upon the mere failure of the debtors to pay the debt at its
maturity. The obligations assumed by the debtors were in the alternative, and they had the right
to elect which they would perform. The conduct of parties shows that it was not their
understanding that the right to discharge the obligation by the payment of the money was lost to
the debtors by their failure to pay the debt at its maturity. The plaintiff accepted the payment
from Anastacio in 1908, several years after the debt matured.
It is quite clear therefore that under the terms of the contract, and the parties themselves have
interpreted it, the liability of the defendant as to the conveyance of the house and lot is subsidiary
and conditional, being dependent upon their failure to pay the debt in money. It must follow
therefore that if the action to recover the debt was prescribed, the action to compel a conveyance
of the house and lot is likewise barred, as the agreement to make such conveyance was not an
independent principal undertaking, but merely a subsidiary alternative pact relating to the
method by which the debt must be paid.
 ONG GUAN CAN vs. THE CENTURY INSURANCE
G.R. No. L-22738 December 2, 1924

Facts: A building of plaintiff Ong Guan Cuan was insured with defendant Century Insurance
Company (Century) against fire for P30,000 as well as the merchandise therein for P15,000. On
February 28 1923, the building and the merchandise were burned while the policies issued were
in force. Under the conditions of the policies, the defendant may at its option reinstate or replace
the destroyed property instead of paying for the amount of the loss and that it is not bound to
reinstate exactly or completely the damaged property. Century proposed reconstruction of the
house destroyed but plaintiff denied that the new house which will be constructed would be
smaller and of materials of lower kind than those employed in the construction of the house
which was destroyed. Plaintiff filed a complaint compelling defendant to pay the sum of
P45,000, the value of the insurance of the building and the merchandise. On April 19, 1924, the
CFI of Iloilo City rendered judgment in favor of the plaintiff. Hence the defendant appealed from
the judgment and prayed that it be permitted to rebuild the house as provided in the conditions of
the insurance policies.

Issue: Whether or not defendant Century may be allowed to rebuild the house as its option
instead of payment of the insured value as stipulated in the insurance policies.

Ruling: No. The conditions in the insurance policies that the parties entered into allowed
Century to either pay the insured value of the house, or rebuild it making the obligation of the
company an alternative one. In alternative obligations, the debtor, Century, must notify the
creditor of his election stating which of the two prestations it is disposed to fulfill. The objective
is to give the creditor opportunity to give consent or deny the election of the debtor. Only after
said notice shall election take legal effect when consented by the creditor (Article 120 Civil
Code) or if impugned by the latter when declared proper by a competent court. In the instant
case, appellant company did not give formal notice of its election to rebuild the house and the
proposed reconstruction of the house was rejected by the creditor. In alternative obligations, the
value of the prestations must be equivalent or similar in value to each other. The proposed
rebuilding of the house by the insurance company would be of lesser value than the other
prestation. The petitioner would build a smaller house and of materials of lower kind than those
employed in the construction of the burned house. The other prestation is payment of the amount
of P45,000 corresponding to the value of the burned building (P30, 000) and the value of the
merchandise burned (P15,000). Therefore, the only recourse of the insurer is to pay the stipulated
value of the insurance policy.
 CLARA TAMBUNTING DE LEGARDA vs. VICTORIA DESBARATS MIAILHE
G.R. No. L-3435 April 28, 1951

Facts: On June 3, 1944, plaintiffs filed a complaint against the original defendant William J. B.
Burke, alleging defendant's unjustified refusal to accept payment in discharge of a mortgage
indebtedness in his favor, and praying that the latter be ordered (1) to receive the sum of
P75,920.83 deposited by plaintiff Clara Tambunting de Legarda, the mortgagor, on the same date
with the clerk of this court in payment of the mortgage indebtedness of said plaintiff to defendant
herein, (2) to execute the corresponding deed of release of mortgage, and (30 to pay damages in
the sum of P1,000. The court then decided in favor of plaintiff Legarda. After the war and the
subsequent defeat of the Japanese occupants, defendant filed a case in court claiming the plaintiff
Clara de Legarda violated her agreement with defendant, by forcing to deposit worthless
Japanese military notes when they originally agreed that the interest was to be condoned until
after the occupation and that payment was rendered either in Philippine or English currency.
Defendant was later substituted upon death by his heir Miailhe and the Courts judges in
defendant‘s favor. Plaintiff now assails said decision.

Issue: Whether or not the tender of payment made by plaintiff is valid.

Ruling: The option to demand payment of the indebtedness has to be exercised upon maturity of
the obligation, which is February 17, 1943. On this date, the only currency available is the
Philippine currency, or the Japanese Military notes, because all other currencies, including the
English, were outlawed by a proclamation issued by the Japanese Imperial Commander on
January 3, 1942. This means that the right of election ceased to exist on that date because it had
become legally impossible. And this is so because in alternative obligations there is no right to
choose undertakings that are impossible or illegal. In other words, the obligation on the part of
the debtor to pay the mortgage indebtedness has since then ceased to be alternative. It appears,
therefore, that the tender of payment made by the plaintiff in Japanese Military notes was a valid
tender because it was the only currency permissible at the time, and the same was made in
accordance with the agreement because payment in Japanese Military notes during the
occupation is tantamount to payment in the Philippine currency.
 ESTANISLAO REYES vs. SEBASTIANA MARTINEZ
G.R. No. 32226 December 29, 1930

Facts: Estanislao Reyes filed an action before the Court of First Instance of Laguna against the
Martinez heirs upon four several causes of action in which the plaintiff seeks to recover five
parcels of land, containing proximately one thousand coconut trees, and to obtain a declaration of
ownership in his favor as against the defendants with respect to said parcels; to recover from the
defendants the sum of P9,377.50, being the alleged proceeds of some coconut trees; to recover
from the defendants the sum of P43,000, as alleged value of the proceeds of the lands involved in
the receivership in the case of Martinez vs. Grano, to which the plaintiff supposes himself to be
entitled, but which have gone, so he claims, to the benefit of the defendants in said receivership
and lastly, to recover the sum of the P10,000 from the defendants as damages resulting from their
improper meddling in the administration of the receivership property. The plaintiff has been
laboring along for several years in an unsuccessful legal battle with the defendants, springing
from his claim to be the owner of the property involved in the receivership. This cause of action
is founded upon the contract and the claim put forth by the plaintiff is to have the five parcels
adjudge to him in lieu of another parcel formerly supposed to contain one thousand trees
between him and certain of the Martinez heirs. By this contract, Reyes was to be given the parcel
described in clause 8, but in a proviso to said clause, the parties contracting with Reyes agreed to
assure to him certain other land containing an equivalent number of trees in case he should so
elect. The litigation shows that the plaintiff elected to take and hold the parcel described in clause
8, and his right thereto has all along been recognized in the dispositions made by the court with
respect to said land. Thus, Reyes must be taken to have elected to take that particular parcel and
he is now estopped from asserting a contrary election to take the five parcels of land described in
his complaint. However, the title of the parcel is in the heirs of Inocente Martinez and it does not
appear that they have transferred said title to Reyes.

Issue: Whether or not Reyes is entitled to the damages against the party‗s signatory to the
contract of March 5, 1921 for the value of the said property.

Ruling: Yes. The claim of the defendants to the interest of P8,000 from July 31, 1926 cannot be
conceded as the judgment itself bears interest at the lawful rate from the date the same was
rendered. The Martinez heirs are ordered to procure the sufficient deed conveying to appellant
Estanislao Reyes the parcels of land mentioned in paragraph 8 of the contract. The judgment
against Reyes in favor of the Martinez heirs is enjoined.
 Facultative
Obligation

MARTINA QUIZANA vs. GAUDENCIO REDUGERIO

G.R. No. L-6220 May 7, 1954

Facts: This is an appeal to the Court from a decision rendered by the Court of the First Instance
of Marinduque, wherein the defendant Gaudencio Redugerio was to pay the plaintiff Martina
Quizana the sum of P550 with the interest from the time of the filing of the complaint and from
an order of the same court denying a motion of the defendant for the reconsideration of the
judgment on the ground that they were deprived of their day in court. There were actionable
documents attached to the complaint signed by the defendant-appellant spouses Redugerio and
Pastrado on October 4, 1948 and containing the provision that Quizana is to be paid on January
1949 and in case of failure, they will mortgage the coconut plantation in Sta. Cruz, Marinduque.
The defendants admitted that they offered the transfer of possession but was eventually refused
by the petitioner. So eventually, the defendants appealed in the CFI which set the hearing on
August 16, 1951. However, the counsel for defendants presented an urgent motion for
continuance for the date of hearing coincides with his appearance in two (2) criminal cases
previously set for trial before hearing on the aforesaid date. The motion was not acted upon until
the day of the trial. The CFI denied the motion for continuance, and in the absence of defendants,
rendered its questioned decision.

Issue: Whether or not the trial court was correct in ignoring the 2nd part of the written obligation
and solely basing its decision on the last part of the 1st part; i.e., that payment should have been
made on January 21, 1949.

Ruling: Yes, the acceptance of plaintiff of the written obligation without objection and protest
and the fact that he kept and based his action therein, are concrete and positive proof that he
agreed and consented to all the terms, including the paragraph on the constitution of the
mortgage. Article 1206 provides: When only one prestation has been agreed upon but the
obligation may render substitution, the obligation is facultative obligation. The defendant-
appellant shall present a duly executed deed of mortgage over the property in the written
obligation, with a period of payment to be agreed upon by the parties with the approval of the
court.
 Joint Obligation

MARSMAN DRYSDALE LAND vs. PHILIPPINE GEOANALYTICS

G.R. No. 183374 June 29, 2010

Facts: Marsman Drysdale, Inc. (Marsman) and Gotesco Properties, Inc. (Gotesco) entered into a
joint venture agreement for the construction and development of an office building on a land
owned by Marsman. They agreed on a 50-50 ratio on the proceeds of the project, but did not
agree on how losses would be divided. The joint venture engaged the services of Philippine
Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, seismic study and geotechnical
engineering. PGI completed its seismic study but failed to complete its subsurface soil
exploration because the area where drilling was to be made had not been cleared. The building
project was subsequently shelved due to unfavorable economic conditions. PGI billed the joint
venture for work done, but was not paid despite its repeated demands. PGI, thus, filed a
collection case against Marsman and Gotesco. Marsman passed the obligation to Gotesco
because under the joint venture agreement, Gotesco was solely liable for the monetary expenses
of the project, and Marsman‘s participation was limited to the land. Gotesco, on the other hand,
asserted that PGI had no cause of action against it as PGI had yet to complete the services in its
contract, and it was Marsman‘s failure to clear the property of debris, which prevented PGI from
completing its work.

Issue: Who between Marsman and Gotesco was liable to pay PGI its unpaid claims.

Ruling: Marsman and Gotesco are jointly liable to PGI. PGI was never a party to the joint
venture agreement. While the joint venture agreement clearly spelled out the capital
contributions of Marsman (land) and Gotesco (cash) and the funding mechanism, it cannot be
used to defeat the lawful claim of PGI against the two joint venturerspartners. PGI‘s contract
clearly listed the joint venturers Marsman and Gotesco as the beneficial owner of the project, and
all billing invoices indicated the consortium as the client. When there are two or more debtors,
the obligation is presumed to be joint unless the law or the obligation expressly states that the
liability is solidary, or unless the nature of the obligation requires solidary liability (Articles 1207
and 1208, Civil Code). In this case, since solidary liability was not required by law, or the
contract, or by the nature of the obligation, the obligation to PGI was presumed to be joint
between Marsman and Gotesco. A joint venture being a form of partnership, it is to be governed
by the laws on partnership. Under the laws on partnership, particularly Article 1797 of the Civil
Code, the losses and profits shall be distributed in accordance with the agreement; if only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be
in the same proportion. In the joint venture agreement, Marsman and Gotesco agreed on a 50-50
ratio on the proceeds of the project, but did not provide for the splitting of losses. Applying
Article 1797, the same ratio applies in splitting the obligation-loss of the joint venture to PGI.
 PURITA ALIPIO vs. COURT OF APPEALS
G.R. No. 134100 September 29, 2000

Facts: Respondent Romeo Jaring was the lessee of a 14.5 hectares fishpond in Barilto, Bataan.
The lease was for a period of five (5) years ending September 12, 1990. On June 19, he
subleased the fishpond for the remaining period of his lease to the spouses Placido and Purita
Alipio and the spouses Bienvenido and Remedons Manuel. The stipulated amount of the rent was
P 485,600.00 payable in two (2) installments of P300,00.00 and P185,600 with second
installment falling due on June 30, 1989. Each of the four sublease parties signed the contract.
The first installment was duly paid, but the second installment the sub lessees only satisfied a
portion thereof, leaving an unpaid of P50,600.00. Despite due demand, the lessees failed to
comply with their obligation so that on October 13,1989 private respondent sued Alipio and
Manuel spouses for the collection of the said amount before the RTC, and in the alternative, he
prayed for the rescission of the sublease contract should the defendant failed to pay the
balance.Petitioner Purita moved to dismiss the case on the ground that her husband had passed
away on December 1988. She based her action on Rule 3 Section 31 of 1964 Rules of Court.

Issue: Whether or not a creditor can sue the surviving spouses for the collection of debt which is
owned by the conjugal partnership of gains, and not in a proceeding for the settlement of the
estate of the decedent.

Ruling: No, creditor cannot sue the surviving spouse of a decedent in an ordinary proceeding for
the collection of the sum of money chargeable against the conjugal partnership and that the
proper remedy is for him to file a claim in the settlement of the estate of the decedent. Article
161(1) states that: All debts and obligation contracted by the husband for the benefits of the
conjugal partnership, and those contracted by the wife, also for the same purpose, in the cases
where she may legally bind the partnership. When petitioner‗s husband died, their conjugal
partnership was automatically dissolved and debts chargeable against it are to be paid in the
settlement of estate proceeding in accordance with Rule 73 Section 2: When marriage dissolved
by death of the husband or wife, the community property shall be inventoried, administered and
liquidated, and the debts thereof paid in the testate or intestate proceeding of the deceased
spouse. If both spouses have died, the conjugal partnership shall be liquidated in the testate or
intestate proceeding of either.
 PH CREDIT CORPORATION vs. COURT OF APPEALS
G.R. No. 109648 November 22, 2001

Facts:

I. CA-G.R. SP NO. 23324

PH Credit Corp. filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille
and Federico C. Lim, for sum of money. After service of summons upon the defendants, they
failed to file their answer within the reglementary period, hence they were declared in default.
Judgment is rendered in favor of plaintiff PH Credit Corporation.

After the aforesaid decision has become final and executory, a Writ of Execution was issued and
consequently implemented by the assigned Deputy Sheriff. Personal and real properties of
defendant Carlos M. Farrales were levied and sold at public auction wherein PH Credit Corp.
was the highest bidder. Motion for the issuance of a writ of possession was filed and the same
was granted. Petitioner claims that she, as a third-party claimant with the court below, filed an
Urgent Motion for Reconsideration and/or to Suspend the Order dated October 12, 1990, but
without acting thereon, respondent Judge issued the writ of possession on October 26, 1990. She
claims that the actuations of respondent Judge were tainted with grave abuse of discretion.
Respondent Judge issued an order considering the assailed Order as well as the writ of
possession as of no force and effect thus the issue here has become moot and academic.

II. CA-G.R. SP NO. 25714

Petitioner claims that the respondent Judge‗s Order dated January 31, 1991 was tainted with
grave abuse of discretion based on the following grounds:

1. Respondent Judge refused to consider as ―waived‖ private respondent‗s objection that his
obligation in the January 31, 1984 decision was merely joint and not solidary with the defendants
therein. According to petitioner, private respondent assailed the levy on execution twice in 1984
and once in 1985 but not once did the latter even mention therein that his obligation was joint for
failure of the dispositive portion of the decision to indicate that it was solidary. Thus, private
respondent must be deemed to have waived that objection, petitioner concludes.

2. The redemption period after the auction sale of the properties had already lapsed that the
purchaser therein became the absolute owner thereof. Thus, respondent Judge allegedly abused
his discretion in setting aside the auction sale after the redemption period had expired.

3. Respondent Judge erred in applying the presumption of a joint obligation in the face of the
conclusion of fact and law contained in the decision showing that the obligation is solidary.

Issue: Whether or not the Court of Appeals erred when it disregarded the body of the decision
and concluded that the obligation was merely a joint obligation due to the failure of the
dispositive portion of the decision dated 31 January 1984 to state that the obligation was joint
and solidary.
Ruling: No. A solidary obligation is one in which each of the debtors is liable for the entire
obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation
from any or all of the debtors. On the other hand, a joint obligation is one in which each debtors
is liable only for a proportionate part of the debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor. The well-entrenched rule is that solidary
obligations cannot be inferred lightly. They must be positively and clearly expressed. A liability
is solidary only when the obligation expressly so states, when the law so provides or when the
nature of the obligation so requires.

In the dispositive portion of the January 31, 1984 Decision of the trial court, the word solidary
neither appears nor can it be inferred therefrom. The fallo merely stated that the following
respondents were liable: Pacific Lloyd Corporation, Thomas H. Van Sebille, Carlos M. Farrales
and Federico C. Lim. Under the circumstances, the liability is joint, as provided by the Civil
Code, which we quote: Art. 1208. If from the law, or the nature or the wording of the obligations
to which the preceding article refers, the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or debtors. Hence the
execution must conform with that which is ordained or decreed in the dispositive portion of the
decision.

The only exception when the body of a decision prevails over the fallo is when the inevitable
conclusion from the former is that there was a glaring error in the latter, in which case the body
of the decision will prevail. In this instance, there was no clear declaration in the body of the
January 31, 1984 Decision to warrant a conclusion that there was an error in the fallo. Nowhere
in the former can we find a definite declaration of the trial court that, indeed, respondent‗s
liability was solidary. If petitioner had doubted this point, it should have filed a motion for
reconsideration before the finality of the Decision of the trial court.
 Solidary Obligation

CDCP vs. REBECCA G. ESTRELLA

G.R. No. 147791 September 8, 2006

Facts: On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel
E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City. However, they never
reached their destination because their bus was rammed from behind by a tractor-truck of CDCP
in the South Expressway. The strong impact pushed forward their seats and pinned their knees to
the seats in front of them. They regained consciousness only when rescuers created a hole in the
bus and extricated their legs from under the seats. They suffered physical injuries as a result.
Thereafter, respondents filed a Complaint for damages against CDCP, BLTB, Espiridion
Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila, Branch 13.

Issue: Whether the accused are jointly or solidarily liable.

Ruling: The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-
delict under Article 2176 of the Civil Code. The liability for the negligent conduct of the
subordinate is direct and primary, but is subject to the defense of due diligence in the selection
and supervision of the employee. In the instant case, the trial court found that petitioner failed to
prove that it exercised the diligence of a good father of a family in the selection and supervision
of Payunan, Jr. It is well-settled in Fabre, Jr. v. Court of Appeals, that the owner of the other
vehicle which collided with a common carrier is solidarily liable to the injured passenger of the
same. The petition was thusly denied.
 REPUBLIC GLASS CORPORATION vs. LAWRENCE C. QUA
G.R. No. 144413 July 30, 2004

Facts: The parties were stockholders of Ladtek, Inc. Ladtek obtained loans from Metrobank and
PDCP with the parties as sureties. Among themselves, they executed agreements for
contribution, indemnity, and pledge of shares of stocks, stating that in case of default in the
payment of loans, the parties would reimburse each other the proportionate share of any sum that
any might pay to creditors.

Ladtek defaulted on its loan obligations. Hence, Metrobank filed a collection case. During the
pendency of the case, RGC and Gervel paid Metrobank. The bank executed a waiver and
quitclaim in favor of the 2. Upon Qua‗s refusal to reimburse, RGC and Gervel foreclosed the
pledged shares of stocks owned by Qua at a public auction.

Qua filed a complaint for injunction and damages. The RTC ordered RGC and Gervel to return
the foreclosed shares of stock to Qua. This was set aside on their motion for reconsideration. On
appeal, the CA set aside the RTC decision and held that there was an implied novation of the
agreement and that the payment did not extinguish the entire obligation and did not benefit Qua.

Issue: Whether or not payment of the entire obligation is an essential condition for
reimbursement.

Ruling: Payment of any amount will not automatically result in reimbursement. If a solidary
debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so
far as his payment exceeded his share in the obligation. This is because, if a solidary debtor pays
an amount equal to his proportionate share in the obligation, then he in effect pays only what is
due from him. If the debtor pays less than his share in the obligation, he cannot demand
reimbursement because his payment is less than his actual debt.

RGC and Gervel made partial payment to PDCP. The release from solidary liability that PDCP
executed in RGC and Gervel‘s favor stated that their payment served as "full payment of their
corresponding proportionate share" in Ladtek‘s foreign currency loan. Since they only made
partial payments, RGC and Gervel should clearly and convincingly show that their payments to
Metrobank and PDCP exceeded their proportionate shares in the obligations before they can seek
reimbursement from Qua. This RGC and Gervel failed to do. RGC and Gervel never claimed that
their payments exceeded their shares in the obligations. Consequently, RGC and Gervel cannot
validly seek reimbursement from Qua.
 INIMACO v. NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 101723 May 11, 2000

Facts: On September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo
Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto
Alegarbes filed a complaint with the Department of Labor and Employment in Cebu City against
Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin, Lo
Kuan Chin, and petitioner Industrial Management Development Corporation (INIMACO), for
payment of separation pay and unpaid wages. Hence the petition for certiorari issued by the
National Labor Relations Commission on the alleged ground that it committed grave abuse of
discretion amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by
the Labor Arbiter which deviated from the dispositive portion of the Decision dated March 10,
1987, thereby holding that the liability of the six respondents in a case adjudicated by the NLRC
is solidary despite the absence of the word solidary in the dispositive portion of the Decision,
when their liability should merely be joint.

Issue: Whether petitioner's liability is solidary or not.

Ruling: In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The
said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon
and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development
Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred
therefrom that the liability of the six respondents is solidary, thus their liability should merely be
joint. Granting that the Labor Arbiter has committed a mistake in failing to indicate in the
dispositive portion that the liability of respondents therein is solidary, the correction -- which is
substantial none of the parties in the case before the Labor Arbiter appealed the Decision dated
March 10, 1987, hence the same became final and executory. It was, therefore, removed from the
jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Thus, the proceedings
held for the purpose of amending or altering the dispositive portion of the said decision are null
and void for lack of jurisdiction. Also, the Alias Writ of Execution is null and void because it
varied the tenor of the judgment in that it sought to enforce the final judgment against "Antonio
Gonzales/Industrial Management Development Corp. (INIMACO) and/or Filipinas Carbon and
Mining Corp. and Gerardo Sicat," which makes the liability solidary.
 METRO MANILA TRANSIT vs. COURT OF APPEALS
G.R. No. 104408 June 21, 1993

Facts: At about six o'clock in the morning of August 28, 1979, plaintiff-appellant Nenita
Custodio boarded as a paying passenger a public utility jeepney with plate No. D7 305 PUJ
Pilipinas 1979, then driven by defendant Agudo Calebag and owned by his co-defendant
Victorino Lamayo, bound for her work at Dynetics Incorporated located in Bicutan, Taguig,
Metro Manila, where she then worked as a machine operator earning P16.25 a day. While the
passenger jeepney was travelling at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro
Manila another fast moving vehicle, a Metro Manila Transit Corp. (MMTC, for short) bus
bearing plate no. 3Z 307 PUB (Philippines) "79 driven by defendant Godofredo C. Leonardo was
negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound for its terminal at Bicutan.
As both vehicles approached the intersection of DBP Avenue and Honeydew Road they failed to
slow down and slacken their speed; neither did they blow their horns to warn approaching
vehicles. As a consequence, a collision between them occurred, the passenger jeepney ramming
the left side portion of the MMTC bus. The collision impact caused plaintiff-appellant Nenita
Custodio to hit the front windshield of the passenger jeepney and (she) was thrown out
therefrom, falling onto the pavement unconscious with serious physical injuries. She was brought
to the Medical City Hospital where she regained consciousness only after one (1) week. Thereat,
she was confined for twenty-four (24) days, and as a consequence, she was unable to work for
three and one half months (31/2).

Issue: Whether or not Lamayo, the owner of the jeepney and employer of driver Calebag, who
failed to exercise due diligence in the selection and supervision of employees should be held
solidarily liable for damages caused to the MMTC bus through the fault and negligence of its
employees.

Ruling: Yes. With the allegation and subsequent proof of negligence against the defendant driver
and of an employer-employee relation between him and his co-defendant MMTC in this
instance, the case in undoubtedly based on a quasi-delict under Article 2180. In order that the
defense of due diligence in the selection and supervision of employees may be deemed sufficient
and plausible, it is not enough to emptily invoke the existence of said company guidelines and
policies on hiring and supervision. As the negligence of the employee gives rise to the
presumption of negligence on the part of the employer, the latter has the burden of proving that it
has been diligent not only in the selection of employees but also in the actual supervision of their
work. The mere allegation of the existence of hiring procedures and supervisory policies, without
anything more, is decidedly not sufficient to overcome such presumption.
 Mutual Agency

BALDOMERO INCIONG vs. COURT OF APPEALS

G.R. No. 96405 June 26, 1996

Facts: In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications
(PBC) in the amount of P50k. For that he executed a promissory note in the same amount. Naybe
was able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-
makers. The promissory note went due and it was left unpaid. PBC demanded payment from the
three but still no payment was made. PBC then sue the three but PBC later released Pantanosas
from its obligations. Naybe left for Saudi Arabia hence can‘t be issued summons and the
complaint against him was subsequently dropped. Inciong was left to face the suit. He argued
that that since the complaint against Naybe was dropped, and that Pantanosas was released from
his obligations, he too should have been released.

Issue: Whether or not Inciong should be held liable.

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

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

Because the promissory note involved in this case expressly states that the three signatories
therein are jointly and severally liable, any one, some or all of them may be proceeded against
for the entire obligation. The choice is left to the solidary creditor (PBC) to determine against
whom he will enforce collection. Consequently, the dismissal of the case against Pontanosas may
not be deemed as having discharged Inciong from liability as well. As regards Naybe, suffice it
to say that the court never acquired jurisdiction over him. Inciong, therefore, may only have
recourse against his co-makers, as provided by law.
 PHILIPPINE BLOOMING MILLS vs. PHILIPPINE BLOOMING MILLS CO.,
G.R. No. L-31195 June 5, 1973

Facts: Ching was the Senior Vice President of PBM. In his personal capacity and not as a
corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977 withTraders Royal
Bank. On 24 March and 6 August 1980, TRB granted PBM letters of credit on application of
Ching in his capacity as Senior Vice President of PBM. Under the trust receipts, PBM had the
right to sell the merchandise for cash with the obligation to turn over the entire proceeds of the
sale to TRB as payment of PBM‗s indebtedness.

On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching signed as co-maker
in the notarized Promissory Note evidencing this trust loan. PBM later defaulted in its payment
of credit to TRB and on its P3,500,000 trust loan.On 1 April 1982, PBM and Ching filed a
petition for suspension of payments with the Securities and Exchange Commission .The petition
sought to suspend payment of PBM‗s obligations and prayed that the SEC allow PBM to
continue its normal business operations free from the interference of its creditors. One of the
listed creditors of PBM was TRB. On 13 May 1983, ten months after the SEC placed PBM under
rehabilitation receivership, TRB filed with the trial court a complaint for collection against PBM
and Ching.

Issue: Whether or not Ching is liable for obligations PBM contracted after execution of the Deed
of Suretyship.

Ruling: Ching is liable for credit obligations contracted by PBM against TRB before and after
the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed
itself, referring to amounts PBM may now be indebted or may hereafter become indebted to
TRB. The law expressly allows a suretyship for future debts. Article 2053 of the Civil Code
provides: A guaranty may also be given as security for future debts, the amount of which is not
yet known; there can be no claim against the guarantor until the debt is liquidated.

Ching would like the Court to rule that his liability is limited, at most, to the amount stated in
PBM‗s rehabilitation plan. In claiming this reduced liability, Ching invokes Article 1222 of the
Civil Code. In granting the loan to PBM, TRB required Ching‗s surety precisely to insure full
recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was the very
purpose of the surety. Thus, Ching cannot use PBM‗s failure to pay in full as justification for his
own reduced liability to TRB. As surety, Ching agreed to pay in full PBM‗s loan in case PBM
fails to pay in full for any reason, including its insolvency. TRB, as creditor, has the right under
the surety to proceed against Ching for the entire amount of PBM‗s loan under Article 1216
which reads: The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously.
 Mutual Guaranty

QUEENSLAND-TOKYO COMMODITIES vs. THOMAS GEORGE

G.R. No. 172727 September 8, 2010

Facts: QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995,
Guillermo Mendoza, Jr. and Oniler Lontoc of QTCI met with respondent Thomas George,
encouraging the latter to invest with QTCI. On July 7, 1995, respondent finally invested with
QTCI. On the same day, Collado, in behalf of QTCI, and respondent signed the Customer‗s
Agreement. Forming part of the agreement was the Special Power of Attorney executed by
respondent, appointing Mendoza as his attorney-in-fact with full authority to trade and manage
his account. On June 20, 1996, the Securities and Exchange Commission issued a Cease-and-
Desist Order against QTCI. Alarmed by the issuance of the CDO, respondent demanded from
QTCI the return of his investment, but it was not heeded. He then sought legal assistance, and
discovered that Mendoza and Lontoc were not licensed commodity futures salesmen. On
February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages with
the SEC against QTCI, Lau, and Collado, and against the unlicensed salesmen, Mendoza and
Lontoc.

Issue: Whether or not QTCI can be held jointly and severally liable.

Ruling: The evidence on record established that petitioners indeed permitted an unlicensed
trader and salesman, like Mendoza, to handle respondent‗s account. On the other hand, the
record is bereft of proof that respondent had knowledge that the person handling his account was
not a licensed trader. Under Article 1412, respondent can, therefore, recover the amount he had
given under the contract. Petitioners Collado and Lau next fault the CA in making them
solidarily liable for the payment of respondent‗s claim. In holding Lau and Collado jointly and
severally liable with QTCI, the SEC Hearing Officer explained in this wise: Article 1216 which
reads: The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. It is therefore safe to conclude that although Lau may not have participated nor
been aware of the unlawful acts, he is however deemed to have been grossly negligent in
directing the affairs of QTCI.
 SHRIMP SPECIALISTS, INC. vs. FUJI
G.R. No. 168756 December 7, 2009

Facts: Shrimp Specialists and Fuji entered into a Distributorship Agreement, under which Fuji
agreed to supply prawn feeds on credit basis to Shrimp Specialists. The prawn feeds would be
used in prawn farms under Shrimp Specialists‘ technical supervision and management. In 1987,
Shrimp Specialists began purchasing prawn feeds from Fuji and paid for them in the regular
course of business. From 3 June 1989 to 24 July 1989, Fuji delivered prawn feeds, and Shrimp
Specialists issued 9 postdated checks as payment. Shrimp Specialists alleges that it issued a stop-
payment order for the checks because it discovered that earlier deliveries were contaminated
with aflatoxin. Shrimp Specialists claims that it verbally informed Fuji about the contamination
and Fuji promised to send stocks of better quality. Shrimp Specialists states that it continued to
purchase prawn feeds from Fuji, but the stocks were still contaminated with aflatoxin. Fuji
denies that the feeds were contaminated. Fuji adds that when the checks were presented for
payment, the drawee bank dishonored all the checks due to a stop-payment order. In January
1990, Ervin Lim, Fuji‘s Vice-President and owner, and Edward Lim, Shrimp Specialists‘ Finance
Officer, met in Ozamiz City to discuss the unpaid deliveries. After the meeting, both agreed that
Shrimp Specialists would issue another set of checks to cover the ones issued earlier. This
agreement was reduced into writing and signed by both parties on behalf of their corporations.
Fuji states that it accepted the checks in good faith and believed that the account would finally be
paid since Edward Lim assured Ervin Lim of the payment. However, upon presentment of the
replacement checks, these were again dishonored due to another stop-payment order issued by
Shrimp Specialists. Fuji filed a civil complaint for sum of money against Shrimp Specialists and
Eugene Lim.

Issue: Whether or not the CA erred in interpreting the provision "to inform in advance in case
the same checks cannot be deposited for failure to replace the defective feeds."

Ruling: It is a rule that ‗a statement is not competent as an admission where it does not, under a
reasonable construction, appear to admit or acknowledge the fact which is sought to be proved
by it.‘ An admission or declaration to be competent must have been expressed in definite, certain
and unequivocal language. As correctly ruled by the CA, the statement "to inform in advance in
case the same checks cannot be deposited for failure to replace the defective feeds" is not
expressed in definite, certain and unequivocal language that Fuji admitted to delivering defective
feeds. The CA pointed out that the inspection and discovery of the alleged defective feeds were
made as early as March 1989 while the feeds subject of this case were delivered to Shrimp
Specialists only from 3 June to 24 July 1989.
 ASSET BUILDERS CORPORATION vs. STRONGHOLD INSURANCE COMPANY,
INCORPORATED
G.R. No. 187116 October 18, 2010

Facts: On April 28, 2006, Asset Builders Corporation entered into an agreement with Lucky Star
Drilling & Construction Corporation as part of the completion of its project to construct the ACG
Commercial Complex. Based from the Purchase Order, Lucky Star was to supply labor,
materials, tools, and equipment including technical supervision to drill one exploratory
production well on the project site. To guarantee faithful compliance with their agreement, Lucky
Star engaged respondent Stronghold which issued two bonds in favor of petitioner. The first,
SURETY BOND G(16) No. 141558, dated May 9, 2006, covers the sum of P575,000.00. On
May 20, 2006, ABC paid Lucky Star P575,000.00, representing 50% of the contract price. Lucky
Star, thereafter, commenced the drilling work. By July 18, 2006, just a few days before the
agreed completion date of 60 calendar days, Lucky Star managed to accomplish only ten (10)
% of the drilling work. On August 3, 2006, ABC sent a Notice of Rescission of Contract with
Demand for Damages to Lucky Star.

Issue: Whether or not respondent, as surety, can be held liable under its bonds.

Ruling: Respondent, along with its principal, Lucky Star, bound itself to the petitioner when it
executed in its favor surety and performance bonds. The contents of the said contracts clearly
establish that the parties entered into a surety agreement. As provided in Article 2047, the surety
undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety
agreement an ancillary contract as it presupposes the existence of a principal contract. In the case
at bench, when Lucky Star failed to finish the drilling work within the agreed time frame despite
petitioner‗s demand for completion, it was already in delay. Due to this default, Lucky Star‗s
liability attached and, as a necessary consequence, respondent‗s liability under the surety
agreement arose. Undeniably, when Lucky Star reneged on its undertaking with the petitioner
and further failed to return the P575, 000.00downpayment that was already advanced to it,
respondent, as surety, became solidarily bound with Lucky Star for the repayment of the said
amount to petitioner. The clause, ―this bond is callable on demand,‖ strongly speaks of
respondent‗s primary and direct responsibility to the petitioner. Accordingly, after liability has
attached to the principal, the petitioner can exercise the right to proceed against Lucky Star or
respondent or both. Article 1216 of the New Civil Code states: The creditor may proceed against
any one of the solidary debtors or some or all of them simultaneously. The demand made against
one of them which may subsequently be directed against the others, so long as the debt has not
been fully collected. Respondent should be answerable to petitioner on account of Lucky Star‗s
non-performance of its obligation as guaranteed by the performance bond.
 EPARWA SECURITY v. LICEO DE CAGAYAN UNIVERSITY
G.R. No. 150402 November 28, 2006

Facts: On 1 December 1997, Eparwa and LDCU, entered into a Contract for Security Services.
LDCU agreed to pay Eparwa P5, 000.00 per guard a month payable within fifteen days after
Eparwa presents its service invoice. Eparwa shall furnish LDCU a monthly copy of SSS
contribution of guards and monthly payroll of each guard assigned at LDCU‗s premises on a
monthly basis. On 21 December 1998, 11 security guards whom Eparwa assigned to LDCU from
1 December 1997 to 30 November 1998 filed a complaint before the National Labor Relations
Commission‗s, the complaint was filed against both Eparwa and LDCU for underpayment of
salary, legal holiday pay, 13th month pay, rest day, service incentive leave, night shift
differential, overtime pay, and payment for attorney‗s fees.LDCU made a cross-claim and
prayed that Eparwa should reimburse LDCU for any payment to the security guards.

Issue: Whether or not LDCU alone is ultimately liable to the security guards for the wage
differentials and premium for holiday and rest day pay.

Ruling: Under Articles 106, 107 and 109 of the Labor Code read: Art. 106. Contractor or
subcontractor. Whenever an employer enters into a contract with another person for the
performance of the former‗s work, the employees of the contractor and of the latter‗s
subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event
that the contractor or subcontractor fails to pay the wages of his employees in accordance with
this Code, the employer shall be jointly and severally liable with his contractor or subcontractor
to such employees to the extent of the work performed under the contract, in the same manner
and extent that he is liable to employees directly employed by him.

For the security guards, the actual source of the payment of their wage differentials and premium
for holiday and rest day work does not matter as long as they are paid. This is the import of
Eparwa and LDCU‗s solidary liability. Creditors, such as the security guards, may collect from
anyone of the solidary debtors. Solidary liability does not mean that, as between themselves, two
solidary debtors are liable for only half of the payment. LDCU‗s ultimate liability comes into
play because of the expiration of the Contract for Security Services. There is no privity of
contract between the security guards and LDCU, but LDCU‗s liability to the security guards
remains because of Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded
from asking LDCU for an adjustment in the contract price because of the expiration of the
contract, but Eparwa‗s liability to the security guards remains because of their employer-
employee relationship. In lieu of an adjustment in the contract price, Eparwa may claim
reimbursement from LDCU for any payment it may make to the security guards.
 CARLOS DIMAYUGA vs. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK
G.R. No. L-42542 August 5, 1991

Facts: On February 6, 1962, petitioner borrowed from the plaintiff-respondent, sum of the ten
thousand (P10,000.00) pesos as evidenced by a promissory note executed and signed by Pedro
Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on May 7, 1962 with interest
at the rate of 10 percent (10%) per annum in case of the non-payment at maturity as evidenced
by and in accordance with the terms and conditions of the promissory note executed jointly and
severally by defendants.

In the aforementioned promissory note, Carlos Dimayuga bound himself to pay jointly and
severally with Pedro Tanjuatco interest at the rate 10% per annum on the said amount of
P10,000.00 until fully paid. Moreover, both undertook to ―jointly and severally authorize the
respondent Philippine Commercial and Industrial Bank, as its option to apply to the payment of
this note any and all funds, securities or other real or personal property of value which hands
(sic) on deposit or otherwise belonging to anyone or all of us. Upon the default of the promisors
to pay, a complaint was filed on July 11, 1969 by the PCIB for some money.

Defendant Carlos Dimayuga, however, had remitted to the plaintiff-respondent the amount
totalling P4, 000.00 by way of partial payments made from August 1, 1969 to May 7, 1970 as
evidenced by corresponding receipts thereto. These payments were nevertheless applied to past
interest, charges and partly on the principal. On May 28, 1974, the trial court rendered a decision
holding defendants jointly and severally liable to pay the plaintiff the sum of P9,139.60 with
interest at 10% per annum until fully paid plus P913.96 as attorneys‘ fees. On July 11, 1974,
petitioner filed a motion alleging that since Pedro Tanjuatco died on December 23, 1973, the
money claim of the respondents should be dismissed and prosecuted against the estate of the late
Pedro Tanjuacto. On June 22, 1974, the trial court denied the motion for lack of merit. Not
satisfied, the petitioner appealed to the respondent court. The Court of Appeals dismissed the
appeal. Hence, this petition.

Issue: Whether or not the position of the petitioner that Pedro Tanjuatco, having died on
December 23, 1973, the money claim of PCIB should be dismissed and prosecuted against the
estate of the late Tanjuatco.

Ruling: From the evidence presented, there can be no dispute that Carlos Dimayuga bound
himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the obligation with
PCIB in the amount of P10,000 plus 10% interest per annum. In addition, as above stated, in case
of non-payment, they undertook among others to jointly and severally authorize respondent
bank, as its option to apply to the payment of this note, any and all funds, securities, real or
personal properties, etc. belonging to anyone or all of them. Otherwise stated, the promissory
note in question provides in unmistakable language that the obligation of petitioner Dimayuga is
joint and several with Pedro C. Tanjuatco.
It is well and settled under the law and jurisprudence that when the obligation is solidary the
creditor may bring his action in toto against the debtors obligated in solidum. As expressly
allowed by Article 1216 of the Civil Code, the creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. ―Hence, there is nothing improper in the
creditor‘s filing of an action against surviving solidary debtors alone, instead of instituting a
proceeding for the settlement of the estate of the deceased debtor wherein his claim could be
filed. ―The notice is undoubtedly left to the solidary creditor to determine against whom he will
enforce collection. Thus, the appeal interposed by the petitioner-appellant is dismissed for lack of
merit and decision of the Court of First is affirmed in toto.
 MANOLO P. CERNA vs. COURT OF APPEALS
G.R. No. L-48359 March 30, 1993

Facts: On or about October 16, 1972, Celerino Delgado and Conrad Leviste entered into a loan
agreement which was evidenced by a promissory note. On the same date, Delgado executed a
chattel mortgage 2 over a Willy's jeep owned by him. And acting as the attorney-in-fact of herein
petitioner, Manolo P. Cerna, he also mortgage a "Taunus' car owned by the latter. The period
lapsed without Delgado paying the loan. This prompted Leviste to a file a collection suit against
Delgado and petitioner as solidary debtors. Petitioner claimed that the claim should be filed in
the proceedings for the settlement of Delgado's estate as the action did not survive Delgado's
death. Moreover, he also stated that since Leviste already opted to collect on the note, he could
no longer foreclose the mortgage.

Issue: Whether or not petitioner can be held solidary liable.

Ruling: Granting, however, that petitioner was obligated under the mortgage contract to answer
for Delgado's indebtedness, under the circumstances, petitioner could not be held liable because
the complaint was for recovery of a sum of money, and not for the foreclosure of the security. We
agree with petitioner that the filing of collection suit barred the foreclosure of the mortgage.
Hence, Leviste, having chosen to file the collection suit, could not now run after petitioner for
the satisfaction of the debt. This is even more true in this case because of the death of the
principal debtor, Delgado. Leviste was pursuing a money claim against a deceased person. It
appears in this case that the second motion was filed to circumvent the effects of the finality of
the decision of the Court of Appeals in Ca-G.R. No. 03088. Petitioner intended the second
motion and the subsequent proceedings as remedies for his lapsed appeal. It delayed the
proceedings in this case and unduly burdened the courts. Petitioner should have allowed the trial
of the case to go on where his defences could still be presented and heard.
 Indivisible Obligations

NATIVIDAD P. NAZARENO v. COURT OF APPEALS.

G.R. No. 13884 October 18, 2000

Facts: Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on April
15, 1970, while Maximino, Sr. died on December 18, 1980. They had five children, namely,
Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. Natividad and Maximino, Jr. are the
petitioners in this case, while the estate of Maximino, Sr., Romeo, and his wife Eliza Nazareno
are the respondents.

During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in Quezon
City and in the Province of Cavite. Upon the reorganization of the courts in 1983, the case was
transferred to the RTC of Naic, Cavite. Romeo was appointed administrator of his father‗s
estate.

In the course of the intestate proceedings, Romeo discovered that his parents had executed
several deeds of sale conveying a number of real properties in favor of his sister, Natividad. One
of the deeds involved six lots in Quezon City which were allegedly sold by Maximino, Sr., with
the consent of Aurea, to Natividad on January 29, 1970 for the total amount of P47,800.00. By
the virtue of these deeds, TCTs were issued to Natividad for lots 3-B, 3, 10, 11,13, and 14.
Unknown to Romeo, Natividad sold Lot 3-B which had been occupied by Romeo, his wife Eliza
and Maximino Jr. since 1969, to Maximino Jr. on July 31, 1982. When Romeo found out about
the sale to Maximino, Jr., he and his wife Eliza locked Maximino, Jr. out of the house.

On March 1, 1990, Natividad and Maximino, Jr. filed a third-party complaint against the spouses
Romeo and Eliza. They alleged that Lot 3, which was included in the Deed of Absolute Sale of
January 29, 1970 to Natividad, had been surreptitiously appropriated by Romeo by securing for
himself a new title in his name. They alleged that Lot 3 is being leased by the spouses Romeo
and Eliza to third persons. In the trial court, it rendered a decision declaring the nullity of the
Deed of Sale dated January 29, 1970 except as to lots 3, 3-b, 13 and 14 which had passed on to
third persons. On motion for reconsideration, the trial court modified its decision. On appeal to
the Court of Appelas, the decision of the trial court was modified in the sense that the titles to Lot
3 (in the name of Romeo Nazareno) and Lot 3-B ( in the name of Maximino Nazareno, Jr.), as
well as to Lots 10 and 11 were cancelled and ordered restored to the estate of Maximino, Sr.

Issue: Whether or not the the Deed of Absolute Sale on January 29, 1970 is an indivisible
contract founded on an indivisible obligation

Ruling: An obligation is indivisible when it cannot be validly performed in parts, whatever may
be the nature of the thing which is the object thereof. The indivisibility refers to the prestation
and not to the object thereof. In the present case, the Deed of Sale of January 29, 1970
supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible because the
performance of the contract cannot be done in parts; otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in basing the indivisibility of a contract on the
number of obligors. The decision of the Court of Appeals is affirmed.
 Penalty: Legal v. Conventional

AURELIO P. ALONZO vs. SAN JUAN.

G.R. No. 137549 February 11, 2005

Facts: Petitioners Alonzo and Sison alleged that they are the registered owners of a parcel of
land located at Lot 3, Block 11, M. Agoncillo St., Novaliches, Quezon City, evidenced by TCT
No. 152153. At around June 1996, petitioners discovered that a portion on the left side of the
parcel of land was occupied by the respondents San Juan, without their knowledge or consent. A
demand letter was sent to the respondents requiring them to vacate the said premises, but they
refused to comply. Petitioners then filed a complaint against the respondents. During the
pendency of the case, the parties agreed to enter into a Compromise Agreement which the trial
court approved in a judgment by compromise dated May 7, 1997. In the Compromise
Agreement, it was expressly stipulated that should any two of the installments of the purchase
price be not paid by the respondents, the said agreement shall be considered null and void.
Alleging that the respondents failed to abide by the provisions of the Compromise Agreement by
their failure to pay the amounts due thereon, petitioners then filed an Amended Motion for
Execution. Petitioners alleged that the respondents failed to pay the installments for July 31,
1997 and August 31, 1997 on their due dates, thus the Compromise Agreement submitted by the
parties became null and void. With this, the trial court found no reason to direct the issuance of
the writ of execution and denied the petitioners' Amended Motion for Execution. Petitioners filed
their motion for reconsideration to which the respondents opposed. The trial court likewise
denied the petitioners' motion for reconsideration.

Issue: Whether or not the petitioners have a right to enforce the provision on Compromise
Agreement by asking for the issuance of a writ of execution because of the failure of the
respondents to pay.

Ruling: The Supreme Court held that the items 11 and 12 of the Compromise Agreement
provided, in clear terms, that in case of failure to pay on the part of the respondents, they shall
vacate and surrender possession of the land that they are occupying and the petitioners shall be
entitled to obtain immediately from the trial court the corresponding writ of execution for the
ejectment of the respondents. This provision must be upheld, because the Agreement supplanted
the complaint itself. When the parties entered into a Compromise Agreement, the original action
for recovery of possession was set aside and the action was changed to a monetary obligation.
Once approved judicially, the Compromise Agreement cannot and must not be disturbed except
for vices of consent or forgery. For failure of the respondents to abide by the judicial
compromise, petitioners are vested with the absolute right under the law and the agreement to
enforce it by asking for the issuance of the writ of execution. Doctrinally, a Compromise
Agreement is immediately final and executory.
 JESUS T. DAVID vs. COURT OF APPEALS
G.R. No. 115821 October 13, 1999

Facts: In a civil case, the RTC issued a writ of attachment over real properties of Valentin
Afable. The judge ordered Afable to pay Jesus David P67K plus interest until fully paid.
However, the judge issued an order amending his decision, so that the legal rate of interest
should be computed from January 4, 1966 instead of from July 24, 1974.

Afable appealed to the CA and then to the SC. In both instances, the decision of the lower court
was affirmed. The record of the case was remanded to the court presided by Judge Edgardo Cruz
for the final execution.

Judge Cruz issued an alias writ of execution by virtue of which Sheriff Melchor Peña conducted
a public auction. Sheriff Peña informed David that the total amount of the judgment was P271K.
The amount included a computation of simple interest. David, however, claimed that the
judgment award should be P3M because the amount due ought to be based on compounded
interest.

Although the auctioned properties were sold to David, Sheriff Peña did not issue the certificate
of sale because there was an excess in the bid price of P2.9M, which David failed to pay despite
notice. This excess was computed by the Sheriff on the basis of David's bid price of P3M minus
P271K computed in the judgment award.

David filed a motion praying that Judge Cruz issue an order directing Sheriff Peña to prepare and
execute a certificate of sale. His reason was that compound interest, which is allowed by Art.
2212 of the Civil Code, should apply in this case. Judge Cruz denied the motion. David elevated
the orders to the CA. However, the CA dismissed the petition.

Issue: Whether what should be paid was simple interest only or compounded interest.

Ruling: Art. 2212 contemplates the presence of stipulated or conventional interest which has
accrued when demand was judicially made. In cases where no interest had been stipulated by the
parties, no accrued conventional interest could further earn interest upon judicial demand. When
the judgment sought to be executed ordered the payment of simple "legal interest" only and said
nothing about payment of compound interest, but the respondent judge orders payment of
compound interest, then he goes beyond the confines of a judgment which had become final. In
the instant case, the CA made the finding that no interest was stipulated by the parties. Thus, the
decision of the CA was affirmed.
 Penalties v. Interests

REPUBLIC OF THE PHILIPPINES v. THI THU THUY T. DE GUZMAN

G.R. No. 175021 June 15, 2011

Facts: Respondent is the proprietress of Montaguz General Merchandise (MGM), a contractor

accredited by the PNP for the supply of office and construction materials and equipment, and for
the delivery of various services such as printing and rental, repair of various equipment, and
renovation of buildings, facilities, vehicles, tires, and spare parts. On December 8, 1995, the PNP
Engineering Services (PNPES), released a Requisition and Issue Voucher for the acquisition of
various building materials amounting to Two Million Two Hundred Eighty-Eight Thousand Five
Hundred Sixty-Two Pesos and Sixty Centavos (P2,288,562.60) for the construction of a four-
storey condominium building with roof deck at Camp Crame, Quezon City. Respondent averred
that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief,
executed a Contract of Agreement (the Contract) wherein MGM, for the price of P2,288,562.60,
undertook to procure and deliver to the PNP the construction materials itemized in the purchase
order attached to the Contract. Respondent claimed that after the PNP Chief approved the
Contract and purchase order, MGM, on March 1, 1996, proceeded with the delivery of the
construction materials, as evidenced by Delivery Receipt Nos. 151-153, Sales Invoice Nos. 038
and 041, and the Report of Public Property Purchase issued by the PNP‗s Receiving and
Accounting Officers to their Internal Auditor Chief. Respondent asseverated that following the
PNP‗s inspection of the delivered materials on March 4, 1996, the PNP issued two Disbursement
Vouchers; one in the amount of P2,226,147.26 in favor of MGM, and the other, in the amount of
P62,415.34, representing the three percent (3%) withholding tax, in favor of the Bureau of
Internal Revenue (BIR).

Issue: Whether or not the Court of Appeals committed a serious error in law by affirming the
decision of the trial court.

Ruling: Since the obligation herein is for the payment of a sum of money, the legal interest rate
to be imposed, under Article 2209 of the Civil Code is six percent (6%) per annum: Art. 2209. If
the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum. Following the guidelines above, the legal interest of 6% per annum is to be imposed
from November 16, 1997, the date of the last demand, and 12% in lieu of 6% from the date this
decision becomes final until fully paid. Petitioner‗s allegations of sham dealings involving our
own government agencies are potentially disturbing and alarming. If Cruz‗s testimony were true,
this should be a lesson to the PNP not to dabble in spurious transactions. Obviously, if it can
afford to give a 2% commission to other contractors for the mere use of their business names,
then the petitioner is disbursing more money than it normally would in a legitimate transaction. It
is recommended that the proper agency investigate this matter and hold the involved personnel
accountable to avoid any similar occurrence in the future
 JOSE MARQUES vs. FAR EAST BANK AND TRUST COMPANY
G.R. No. 171379 January 10, 2011

Facts: On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction with
FEBTC, in the sum of US$80,765.00, for the shipment of various high-technology equipment
from the United States, with the merchandise serving as collateral. The foregoing importation
was covered by a trust receipt document signed by Marques on behalf of Maxilite. Sometime in
August 1993, FEBIBI, upon the advice of FEBTC, facilitated the procurement and processing
from Makati Insurance Company of four separate and independent fire insurance policies over
the trust receipted merchandise. On 9 March 1995, a fire gutted the Aboitiz Sea Transport
Building along M.J. Cuenco Avenue, Cebu City, where Maxilite‗s office and warehouse were
located. As a result, Maxilite suffered losses amounting to at least P2.1 million, which Maxilite
claimed against the fire insurance policy with Makati Insurance Company. Makati Insurance
Company denied the fire loss claim on the ground of non-payment of premium. FEBTC and
FEBIBI disclaimed any responsibility for the denial of the claim. Maxilite and Marques sued
FEBTC, FEBIBI, and Makati Insurance Company. Maxilite prayed for (1) actual damages
totaling P2.3 million representing full insurance coverage and business opportunity losses, (2)
moral damages, and (3) exemplary damages. On the other hand, Marques sought paymentof
actual, moral and exemplary damages, attorney‗s fees, and litigation expenses. Maxilite and
Marques also sought the issuance of a preliminary injunction or a temporary restraining to enjoin
FEBTC from (1) imposing penalties on their obligations; (2) foreclosing the real estate mortage
securing their straight loan accounts; and (3) initiating actions to collect their obligations.

Issue: Whether or not the Court of Appeals erred in reducing (1) the interest rate from 12% to
6% per annum to be imposed on respondents' liabilities.

Ruling: The Court agrees with the Court of Appeals in reducing the interest rate from 12% to 6%
as the obligation to pay does not arise from a loan or forbearance of money. In Eastern Shipping
Lines, Inc. v. Court of Appeals, the Court laid down the following guidelines for the application
of the proper interest rates:

With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

a. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

b. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be the amount finally adjudged.

c. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to forbearance of credit.
 PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs. MENCHAVEZ
G.R. No. 160545 March 9, 2010

Facts: On December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA,
obtained a P1M loan from the respondent, with monthly interest of P40,000.00 payable for 6
months, or a total obligation of P1,240,000.00 payable within 6 mos. To secure the payment of
the loan, Pantaleon issued a promissory. Pantaleon signed the promissory note in his personal
capacity and as duly authorized by the Board of Directors of PRISMA. The petitioners failed to
completely pay the loan within the 6-month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding balance of
P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid
balance, plus 4% monthly interest. In their Answer, the petitioners admitted the loan of
P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest
was not provided in the promissory note. Pantaleon also denied that he made himself personally
liable and that he made representations that the loan would be repaid within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a loan that
would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month
period. RTC ordered the petitioners to jointly and severally pay the respondent the amount of
P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4% monthly
interest. CA favored respondent but noted that the interest of 4% per month, or 48% per annum,
was unreasonable and should be reduced to 12% per annum. MR denied hence this petition.

Issue: Whether or not the parties agreed to the 4% monthly interest on the loan. If so, does the
rate of interest apply to the 6-month payment period only or until full payment of the loan?

Ruling: Petition is meritorious. Interest due should be stipulated in writing; otherwise, 12% per
annum. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. When the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.
Courts have no authority to alter the contract by construction or to make a new contract for the
parties; a court‘s duty is confined to the interpretation of the contract the parties made for
themselves without regard to its wisdom or folly, as the court cannot supply material stipulations
or read into the contract words the contract does not contain. It is only when the contract is vague
and ambiguous that courts are permitted to resort to the interpretation of its terms to determine
the parties‘ intent.

In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his personal
capacity and as authorized by the Board, executed the promissory note. Thus, the P1M loan shall
be payable within 6 months. The loan shall earn an interest of P40,000.00 per month, for a total
obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be
computed at 4% interest per month, but no such rate of interest was stipulated in the promissory
note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that ―no interest shall be due unless it has
been expressly stipulated in writing.‖ The payment of interest in loans or forbearance of money is
allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the
agreement for the payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of interest at a stipulated rate. The collection of interest
without any stipulation in writing is prohibited by law.

The interest of P40,000.00 per month corresponds only to the six-month period of the loan, or
from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note.
Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum.

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00
per month for six months, not to a 4% rate of interest payable within a 6-month period.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month for a period
of 6 months, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the
rate of 12% per annum shall apply. The amounts already paid by the petitioners during the
pendency of the suit, amounting toP1,228,772.00 as of February 12, 1999, should be deducted
from the total amount due, computed as indicated above. We remand the case to the trial court
for the actual computation of the total amount due.
 THERESA MACALALAG vs. PEOPLE OF THE PHILIPPINES
G.R. No. 164358 December 20, 2006

Facts: On two separate occasions, particularly on 30 July 1995 and 16 October 1995, petitioner
Theresa Macalalag obtained loans from Grace Estrella (Estrella), each in the amount of
P100,000.00, each bearing an interest of 10% per month. Macalalag consistently paid the
interests. Finding the interest rates so burdensome, Macalalag requested Estrella for a reduction
of the same to which the latter agreed. On 16 April 1996 and 1 May 1996, Macalalag executed
Acknowledgment/Affirmation Receipts promising to pay Estrella the face value of the loans in
the total amount of P200,000.00 within two months from the date of its execution plus 6%
interest per month for each loan. Under the two Acknowledgment/Affirmation Receipts, she
further obligated herself to pay for the two (2) loans the total sum of P100,000.00 as liquidated
damages and attorney's fees in the total sum of P40,000.00 as stipulated by the parties the
moment she breaches the terms and conditions thereof.

As security for the payment of the aforesaid loans, Macalalag issued two Philippine National
Bank (PNB) Checks on 30 June 1996, each in the amount of P100,000.00, in favor of Estrella.
However, the said checks were dishonored for the reason that the account against which the same
was drawn was already closed. Estrella sent a notice of dishonor and demand to make good the
said checks to Macalalag, but the latter failed to do so. Hence, Estrella filed two criminal
complaints for Violation of Batas Pambansa Blg. 22 before the Municipal Trial Court in Cities
(MTCC) of Bacolod City.The MTCC found the accused Theresa Macalalag guilty beyond
reasonable doubt of the crime charged and is likewise ordered to pay as civil indemnity the total
amount of P200,000.00 with interest at the legal rate from the time of the filing of the
informations until the amount is fully paid; less whatever amount was thus far paid and validly
deducted from the principal sum originally claimed. On appealed, the Court of Appeals, affirmed
the RTC and the MTCC decisions with modification to the effect that accused was convicted
only of one (1) count of Violation of Batas Pambansa Blg. 22.

Issue: Whether or not petitioner's payments over and above the value of the said checks would
free her from criminal liability.

Ruling: The Court argued that, Even if we agree with petitioner Macalalag that the interests on
her loans should not be imputed to the face value of the checks she issued, petitioner Macalalag
is still liable for Violation of Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that
before the institution of the two cases against her, she has made a total payment of P156,000.00.
Applying this amount to the first check (No. C-889835), what will be left is P56,000.00, an
amount insufficient to cover her obligation with respect to the second check. As stated above,
when Estrella presented the checks for payment, the same were dishonored on the ground that
they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed
to pay the full face value of the second check issued.
Only a full payment of the face value of the second check at the time of its presentment or during
the five-day grace period15 could have exonerated her from criminal liability. A contrary
interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the
interest of the banking system and the legitimate public checking account user,16 as the drawer
could very well have himself exonerated by the mere expediency of paying a minimal fraction of
the face value of the check. Hence, the Petition is denied.
 ANTONIO TAN vs. COURT OF APPEALS
G.R. No. 116285 October 19, 2001

Facts: On May 14, 1978, petitioner Antonio Tan obtained two loans in the total amount of four
million pesos from respondent Cultural Center of the Philippines (CCP), evidenced by 2
promissory notes with maturity dates on May 14, 1979 and July 6, 1979, respectively. Petitioner
defaulted but later he had the loans restructured by respondent CCP. Petitioner accordingly
executed a promissory note on August 31, 1979 in the amount of P3,411,421.32 payable in five
(5) installments. Petitioner however, failed to pay any of the supposed installments and again
offered another mode of paying restructured loan which respondent CCP refused to consent. On
May 30, 1984, respondent wrote petitioner demanding the full payment, within ten (10) days,
from receipt of the letter, of the latter‗s restructured loan which as of April 30, 1984 amounted to
P6,088,735. On August 29, 1984, respondent CCP filed with the RTC of Manila a complaint for
a collection of a sum of money. Eventually, petitioner was ordered to pay said amount, with 25%
thereof as attorney‗s fees and P500, 000.00 as exemplary damages. On appeal, the Court of
Appeals, reduced the attorney‗s fees to 5% of the principal amount to be collected from
petitioner and deleted the exemplary damages. Still unsatisfied with the decision, petitioner seeks
for the deletion of the attorney‗s fees and the reduction of the penalties.

Issue: Whether or not interests and penalties may be both awarded.

Ruling: Article 1226 of the New Civil Code provides that 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. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The
penalty may be enforced only when it is demandable in accordance with the provisions. In the
case at bar, the promissory note expressly provides for the imposition of both interest and
penalties in case of default on the part of the petitioner in the payment of the subject restructured
loan. Since the said stipulation has the force of law between the parties and does not appear to be
inequitable or unjust, it must be respected.
 EASTERN SHIPPING LINES vs. COURT OF APPEALS
G.R. No. 97412 July 12, 1994

Facts: On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan
for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under
Bill of Lading No. YMA-8. The shipment was insured under plaintiff's Marine Insurance Policy
No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12,
1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On
January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal. On January 8 and 14, 1982,
defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's
warehouse. The latter excepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake. Plaintiff contended that due to the losses/damage sustained by said
drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants who failed and refused to pay the same.
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the
rights of action of said consignee against defendants.

Issue: Whether or not the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date of the decision appealed from is
rendered; whether or not the applicable rate of interest is twelve percent or six percent.

Ruling: When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
 Escalation v. Acceleration Clause

SPOUSES SILOS vs. PHILIPPINES NATIONAL BANK

G.R. No. 181045, 2 July 2014

Facts: Spouses Eduardo and Lydia Silos secured a revolving credit line with Philippine National
Bank (PNB) through a real estate mortgage as a security. After two years, their credit line
increased. Spouses Silos then signed a Credit Agreement, which was also amended two years
later and several Promissory Notes (PN) as regards their Credit Agreements with PNB. The said
loan was initially subjected to a 19.5% interest rate per annum. In the Credit Agreements,
Spouses Silos bound themselves to the power of PNB to modify the interest rate depending on
whatever policy that PNB may adopt in the future, without the need of notice upon them. Thus,
the said interest rates played from 16% to as high as 32% per annum. Spouses Silos acceded to
the policy by pre-signing a total of twenty-six (26) PNs leaving the individual applicable interest
rates at hand blank since it would be subject to modification by PNB.

Spouses Silos regularly renewed and made good on their PNs, religiously paid the interests
without objection or fail. However, during the 1997 Asian Financial Crisis, Spouses Silos
th
faltered when the interest rates soared. Spouses Silos 26 PN became past due, and despite
repeated demands by PNB, they failed to make good on the note. Thus, PNB foreclosed and
auctioned the involved security for the mortgage. Spouses Silos instituted an action to annul the
foreclosure sale on the ground that the succeeding interest rates used in their loan agreements
was left to the sole will of PNB, the same fixed by the latter without their prior consent and thus,
void. The Regional Trial Court (RTC) ruled that such stipulation authorizing both the increase
and decrease of interest rates as may be applicable is valid. The Court of Appeals (CA) affirmed
the RTC decision.

Issue: May the bank, on its own, modify the interest rate in a loan agreement without violating
the mutuality of contracts?

Ruling: No. Any modification in the contract, such as the interest rates, must be made with the
consent of the contracting parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the agreement. In the case of loan
agreements, the rate of interest is a principal condition, if not the most important component.
 EQUITABLE PCI BANK vs. ANTONIO A. BELLONES
A.M. No. P-05-1973 March 18, 2005

Facts: Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the Regional
Trial Court (RTC), Branch 16, Cebu City, entitled, Ng Sheung Ngor, doing business under the
name and style Ken Marketing,‗ Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs.
Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants for Annulment and/or Reformation of
Documents and Contracts. Respondents Antonio A. Bellones and Generoso B. Regalado are the
sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City. For garnishing accounts
maintained by Equitable PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai
Bank Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of
Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against
Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other real
property by petitioner.

Issue: Whether or not respondents violated the Rules of Court.

Ruling: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff Regalado
violated EPCIB‗s right to choose which property may be levied upon to be sold at auction for
the satisfaction of the judgment debt. Thus, it is clear that when EPCIB offered its real
properties, it exercised its option because it cannot immediately pay the full amount stated in the
writ of execution and all lawful fees in cash, certified bank check or any other mode of payment
acceptable to the judgment obligee. In the case at bar, EPCIB cannot immediately pay by way of
Manager‗s Check so it exercised its option to choose and offered its real properties. With the
exercise of the option, Sheriff Regalado should have ceased serving notices of garnishment and
discontinued their implementation. This is not true in the instant case. Sheriff Regalado was
adamant in his posture even if real properties have been offered which were sufficient to satisfy
the judgment debt.
NEW SAMPAGUITA BUILDERS CONSTRUCTION vs. PHILIPPINE NATIONAL BANK
G.R. No. 148753 July 30, 2004

Facts: On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by
Petitioner NSBCI authorizing the company to apply for or secure a commercial loan with the
PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank and the NSBCI,
using or mortgaging the real estate properties registered in the name of its President and
Chairman of the Board Petitioner Eduardo R. Dee as collateral; and authorizing petitioner-
spouses to secure the loan and to sign any and all documents which may be required by
Respondent PNB, and that petitioner-spouses shall act as sureties or co-obligors who shall be
jointly and severally liable with Petitioner NSBCI for the payment of any [and all] obligations.
On August 15, 1989, Resolution No. 77 was approved by granting the request of Respondent
PNB thru its Board NSBCI for an P8 Million loan broken down into a revolving credit line of
P7.7M and an unadvised line of P0.3M for additional operating and working capital to mobilize
its various construction projects.

The loan of Petitioner NSBCI was secured by a first mortgage on the following: a) three (3)
parcels of residential land located at Mangaldan, Pangasinan; b) six (6) parcels of residential land
situated at San Fabian, Pangasinan; and c) a residential lot and improvements thereon located at
Mangaldan. The loan was further secured by the joint and several signatures of Petitioners
Eduardo Dee and Arcelita Marquez Dee, who signed as accommodationmortgagors since all the
collaterals were owned by them and registered in their names. Moreover Petitioner NSBCI
executed three promissory notes. In addition, petitioner corporation also signed the Credit
Agreement dated August 31, 1989 relating to the revolving credit line‗ of P7.7 Million and the
Credit Agreement dated September 5, 1989 to support the ‗unadvised line‗ of P300,000.00.

On August 31, 1989, petitioner-spouses executed a Joint and Solidary Agreement‗ (JSA) in favor
of Respondent PNB ‗unconditionally and irrevocably binding themselves to be jointly and
severally liable with the borrower for the payment of all sums due and payable to the Bank under
the Credit Document. Later on, Petitioner NSBCI failed to comply with its obligations under the
promissory notes.

On June 18, 1991, Petitioner Eduardo R. Dee on behalf of Petitioner NSBCI sent a letter to the
Branch Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment
of interests and restructuring of its loan for another term. Subsequently, NSBCI tendered
payment to Respondent PNB of three (3) checks aggregating P1,000,000.00. In a meeting held
on August 12, 1991, Respondent PNB‗s representative, Mr. Rolly Cruzabra, was informed by
[Petitioner] Eduardo Dee of his intention to remit to Respondent PNB postdated checks covering
interests, penalties and part of the loan principals of his due account.

On August 22, 1991, Respondent bank‗s Crispin Carcamo wrote Petitioner Eduardo Dee,
informing him that Petitioner NSBCI‗s proposal was acceptable, provided the total payment
should be P4,128,968.29 that would cover the amount of P1,019,231.33 as principal,
P3,056,058.03 as interests and penalties, and P53,678.93 for insurance, with the issuance of post-
dated checks to be dated not later than November 29, 1991.

On November 12, 1991, PNB‗s Mr. Carcamo wrote Petitioner Eduardo Dee informing him that
unless the dishonored checks were made good, said PNB branch shall recall its recommendation
to the Head Office for the restructuring of the loan account and refer the matter to its legal
counsel for legal action. Petitioners did not heed respondent‗s warning and as a result, the PNB
Dagupan Branch sent demand letters to Petitioner NSBCI at its office address at 1611 ERDC
Building, E. Rodriguez Sr. Avenue, Quezon City, asking it to settle its past due loan account.
Petitioners nevertheless failed to pay their loan obligations within the time frame given them and
as a result, Respondent PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a
Petition for Sale The sheriff foreclosed the real estate mortgage and sold at public auction the
mortgaged properties of petitioner-spouses, with Respondent PNB being declared the highest
bidder for the amount of P10,334,000.00. Copies of the Sheriff‗s Certificate of Sale were sent by
registered mail to petitioner corporation‗s address petitioner-spouses‗ address. On April 6, 1992,
the PNB Dagupan Branch Manager sent a letter to petitioners at their address informing them
that the properties securing their loan account had been sold at public auction, that the Sheriff‗s
Certificate of Sale had been registered with the Registry of Deeds of Pangasinan and that a
period of one (1) year therefrom was granted to them within which to redeem their properties.
Petitioners failed to redeem their properties within the one-year redemption period and so
Respondent PNB executed a Deed of Absolute Sale consolidating title to the properties in its
name. Respondent PNB informed Petitioner NSBCI that the proceeds of the sale conducted on
February 26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43 and
thus demanded from the latter the deficiency of P2,172,476.43 plus interest and other charges
until the amount was fully paid. Petitioners refused to pay the above deficiency claim which
compelled Respondent PNB to institute the instant Complaint for the collection of its deficiency
claim.

Issue: Whether or not the escalation clause is valid and whether or not it is violative of the
principle of mutuality of contracts.

Ruling: In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5
percent in the first, and 21.5 percent in the second and again in the third. However, a uniform
clause therein permitted respondent to increase the rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future, without even giving prior notice to
petitioners. The Court holds that petitioners' accessory duty to pay interest did not give
respondent unrestrained freedom to charge any rate other than that which was agreed upon. No
interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to
specify and agree upon rates that could be subsequently upgraded at whim by only one party to
the agreement. The unilateral determination and imposition of increased rates is violative of the
principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-sided
impositions do not have the force of law between the parties, because such impositions are not
based on the parties‗ essential equality. Although escalation clauses are valid in maintaining
fiscal stability and retaining the value of money on long-term contracts, giving respondent an
unbridled right to adjust the interest independently and upwardly would completely take away
from petitioners the right to assent to an important modification in their agreement and would
also negate the element of mutuality in their contracts. The clause cited earlier made the
fulfillment of the contracts dependent exclusively upon the uncontrolled will of respondent and
was therefore void. Besides, the pro forma promissory notes have the character of a contract
d‗adhésion, where the parties do not bargain on equal footing, the weaker party‗s the debtor‗s
participation being reduced to the alternative to take it or leave it.
 RODELO G. POLOTAN vs. COURT OF APPEALS
G.R. No. 119379 September 25, 1998

Facts: Private respondent Security Diners International Corporation (Diners Club), a credit card
company, extends credit accommodations to its cardholders for the purchase of goods and other
services from the member establishments. Said goods and services are reimbursed later on by
cardholders upon proper billing. Petitioner Rodelo G. Polotan, Sr. applied form contained terms
and conditions governing the use and availment of the Diners Club card, among which is for the
cardholder to pay all charges made through the use of the said card within the period indicated in
the statement of account and any remaining unpaid balance to earn 3% interest per annum plus
prime rate of Security Bank & Trust Company. Notably, in the application from submitted by
petitioner, Ofriciano Canlas obligated himself to pay jointly and severally with petitioner the
latter‘s obligation to private respondent.

Upon acceptance of his application, petitioner was issued Diners Club card No. 3651-212766-
3005. As of May 8, 1987, petitioner incurred credit charges plus appropriate interest and service
charges in the aggregate amount of P33,819.84 which had become due and demandable.
Demands for payment made against petitioner proved futile. Hence, private respondent filed a
Complaint for Collection of Sum of Money against petitioner before the lower court.

Issue: Whether or not petitioner is liable for payment of credit charges plus interest and service
charges.

Ruling: A contract of adhesion is one in which one of the contracting parties imposes a ready-
made form of contract which the other party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party ,merely affixes his signature or his
―adhesion‖ thereto, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as
ordinary contracts, the reason being that the party who adheres to the contract is free to reject it
entirely.

In this case, petitioner, in effect claims that the subject contract is one-sided in that the contract
allows for the escalation of interests, but does not provide for a downward adjustment of the
same in violation of Central Bank Circular 905. Admittedly, the second paragraph of the
questioned provision which provides that "The Cardholder hereby authorizes Security Diners to
correspondingly increase the rate of such interest in the event of changes in prevailing market
rates" is an escalation clause. However, it cannot be said to be dependent solely on the will of the
private respondent as it is also dependent on the prevailing market rates. Escalation clauses are
not basically wrong or legally objectionable as long as they are not solely potestative but based
on the reasonable and valid grounds. Obviously, the fluctuation in the market rates is beyond the
control of private respondent.

Legal
Rate
 DARIO NACAR vs. GALLERY FRAMES
G.R. No. 189871 August 13, 2013

Facts: Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr.
Nacar alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence
the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed
the decision of the Labor Arbiter and the decision became final on May 27, 2002.

After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he
alleged that his backwages should be computed from the time of his illegal dismissal (January
24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the
motion as he ruled that the reckoning point of the computation should only be from the time
Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15,
1998). The LA reasoned that the said date should be the reckoning point because Nacar did not
appeal hence as to him, that decision became final and executory.

Issue: Whether or not the Labor Arbiter is correct.

Ruling: No. By the nature of illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the
consequences of illegal dismissal upon execution of the decision does not constitute an alteration
or amendment of the final decision being implemented. The illegal dismissal ruling stands; only
the computation of monetary consequences of this dismissal is affected, and is not a violation to
the principle of immutability of final judgements. That the amount respondents shall now pay has
greatly increased is a consequence that it cannot avoid as it is the risk that it ran when it
continued to seek recourses against the Labor Arbiter‘s decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its
interpretation of when separation pay in lieu of reinstatement is allowed. When that happens, the
finality of the illegal dismissal decision becomes the reckoning point instead of the reinstatement
that the law decrees. In allowing separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages are to be computed up to
that point.
 Reduction of Conventional
Penalties

SPOUSES MALLARI vs. PRUDENTIAL BANK

G.R. No. 197861 June 5, 2013

Facts: In 1984, Petitioner Florentino Mallari obtained a loan from respondent Prudential Bank in
the amount of P300,000.00. It was subject to an interest rate of 21% per annum and, in case of
default, a penalty of 12% per annum of the total amount due and attorneys fees equivalent of
15% of the total amount due. This was secured by a Deed of Assignment (DOA) over petitioner's
time deposit account. In 1989, Spouses Florentino and Aurea Mallari obtained another loan from
respondent for P1.7 million, stipulating interest of 23% per annum with the same penalties in
case of default. This was secured by Real Estate Mortgage (REM).

Petitioners defaulted. When computed in 1992, the total debt was P571,218.54 and
P2,991,294.82 for the first and second loans respectively.

Respondent tried to extrajudicially foreclose the mortgage. Petitioners on the other hand tried to
nullify the mortgage claiming that the Bank imposed onerous terms and conditions and that the
bank was unilaterally increasing its charges and interest over and above those stipulated. The
Bank claimed that the basis for its computation was all written in the Promissory Notes.

The RTC ruled in favor of respondent bank. CA affirmed.

Issue: Whether or not an interest rate of 23% per annum and 12% per annum penalty is
unconscionable.

Ruling: No. The Court has also ruled affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, unconscionable and exorbitant. Thus, the 23% per
annum interest rate imposed on petitioners‘ loan in this case can by no means be considered
excessive or unconscionable. And neither is the 12% per annum penalty charge unconscionable
as the court found in DBP vs. Family Foods (2009) and Ruiz vs. Court of Appeals (2003).
 RGM INDUSTRIES, INC v. UNITED PACIFIC CAPITAL CORPORATION
G.R. No. 194781 June 27, 2012

Facts: The respondent is a domestic corporation engaged in the business of lending and
financing. On March 3, 1997, it granted a thirty million peso short-term credit facility in favor of
the petitioner. The loan amount was sourced from individual funders on the basis of a direct-
match facility for which a series of promissory notes were issued by the petitioner for the
payment of the loan.

The petitioner failed to satisfy the said promissory notes as they fell due and the loan had to be
assumed in full by the respondent which thereby stepped into the shoes of the individual funders.

On April 4, 1998, the petitioner issued in favor of the respondent a consolidated promissory note
in the principal amount of P27,852,075.98 for a term of fourteen (14) days and maturing on April
28, 1998. The stipulated interest on the consolidated promissory note was 32% per annum. In
case of default, a penalty charge was imposed in an amount equivalent to 8% per month of the
outstanding amount due and unpaid computed from the date of default.

The petitioner failed to satisfy the consolidated promissory note, the principal balance of which
as of April 28, 1998 was P27,668,167.87.

The respondent thus sent demand letters to the petitioner but the latter failed to pay and instead
asked for restructuring of the loan. The respondent declined the request and on October 5, 1999,
filed the herein complaint for collection of sum of money against the petitioner.

The RTC ruled in favor of the respondent holding that RGM Industries should pay respondent
the amount of P27,668.167.87 representing the outstanding principal obligation plus interest at
the rate of 32% per annum and penalty charges at the rate of 8% per month from date of default
on the consolidated promissory note until fully paid, and an amount equivalent to 25% of the
amount due as and for attorney's fees, and to pay the costs of suit.

The CA affirmed the RTC's judgment but modified the interest rates and penalty charges
imposed. The CA held that the interest rates levied by the respondent were excessive and
unconscionable hence, must be reduced to 12% per annum. The CA likewise lowered the penalty
charges to 2% per month considering that the P7,504,522.27 paid by the petitioner was already
applied thereto and the nature of the contract between the parties was a short-term credit facility.
The attorney's fees were reduced from 25% to 10% of the outstanding obligation.

Issue: Whether or not the CA erred in reducing the interest rates and penalty charges to 12% per
annum and 2% per month, respectively.

Ruling: The Supreme Court affirmed the interest rate decreed by the CA. Stipulated interest
rates are illegal if they are unconscionable and courts are allowed to temper interest rates when
necessary. However, the SC further reduced the penalty charges at 2% per month to 1% per
month or 12% per annum in view of the following factors: (1) respondent has already received
P7,504,522.27 in penalty charges, and (2) the loan extended to respondent was a short-term
credit facility.
 PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs.

ARTHUR F. MENCHAVEZ
G.R. No. 160545 March 9, 2010

Facts: On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA,
obtained a P1,000,000.00 loan from the respondent, with a monthly interest of P40,000.00
payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6) months.
The stipulation is that Prisma will pay P40,000.00 monthly from January to June 1994. Panteleon
issued a promissory note to secure the payment of the loan. Pantaleon signed the promissory note
in his personal capacity, and as duly authorized by the Board of Directors of PRISMA. The
petitioners failed to completely pay the loan within the stipulated six (6)-month period. As of
January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the
respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of
January 4, 1997, to which it applied a 4% monthly interest. Thus, on August 28, 1997, the
respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus
4% monthly interest, P30,000.00 in attorney‗s fees, P1,000.00 per court appearance and costs of
suit On October 27, 2007, the RTC rendered a Decision finding that the respondent issued a
check for P1,000,000.00 in favor of the petitioners for a loan that would earn an interest of 4% or
P40,000.00 per month, or a total of P240,000.00 for a 6-month period. It noted that the
petitioners made several payments amounting to P1,228,772.00, but they were still indebted to
the respondent for P3,526,117.00 as of February 11, 1999 after considering the 4% monthly
interest. the CA modified the RTC Decision by imposing a 12% per annum interest, computed
from the filing of the complaint until finality of judgment, and thereafter, 12% from finality until
fully paid.

Issue: Whether or not the parties agreed to the 4% monthly interest on the loan. If so, does the
rate of interest apply to the 6-month payment period only or until full payment of the loan?

Ruling: The Supreme Court ruled that in the present case, the respondent issued a check for
P1,000,000.00. It is a familiar doctrine in obligations and contracts that the parties are bound by
the stipulations, clauses, terms and conditions they have agreed to, which is the law between
them, the only limitation being that these stipulations, clauses, terms and conditions are not
contrary to law, morals, public order or public policy. The payment of the specific sum of money
of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent.
There is nothing from the records and, in fact, there is no allegation showing that petitioners
were victims of fraud when they entered into the agreement with the respondent. Therefore, as
stipulated by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period
of six (6) months, or from December 8, 1993 to June 8, 1994, for a total principal and interest
amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The
amounts already paid by the petitioners during the pendency of the suit, amounting to
P1,228,772.00 as of February 12, 1999, should be deducted from the total amount due, computed
as indicated above. We remand the case to the trial court for the actual computation of the total
amount due.
BONIFACIO SANZ MACEDA vs. DEVELOPMENT BANK OF THE PHILIPPINES
G.R. No. 174979 August 11, 2010

Facts: On July 28, 1976 plaintiff Bonifacio Maceda, Jr. (Maceda) obtained a loan from the
defendant DBP in the amount of P7.3 million to finance the expansion of the Old Gran Hotel in
Leyte. Upon approval of said loan, plaintiff Maceda executed a promissory note and a mortgage
of real estate. Project cost of the New Gran Hotel was P10.5M. DBP fixed a debt-equity ratio of
70%-30%, corresponding to DBP and Maceda‘s respective infusion in the hotel project.
Maceda‘s equity infusion was P2.93M, or 30% of P10.5M. The DBP Governor at that time,
Recio Garcia, in-charge of loans for hotels, allegedly imposed the condition that DBP would
choose the building contractor, namely, Moreman Builders Co. (Moreman). The contractor
would directly receive the loan releases from DBP, after verification by DBP of the construction
progress. The period of loan availment was 360 days from date of initial release of the loan.
Similarly, suppliers of equipment and furnishings for the hotel were also to be paid directly by
DBP. The construction deadline was set for December 22, 1977. Maceda filed a complaint for
Rescission of the building contract with Damages against the contractor Moreman, before the
then Manila Court of First Instance Branch 39, which was docketed as Civil Case No. 113498. In
its decision dated November 28, 1978, the CFI rescinded the building contract, suspended the
period of availment, allowed Maceda to himself take over construction, and directed DBP to
release to Maceda the sum of P1.003M, which had previously been approved for release in
January 1978. The DBP was further ordered to give plaintiff Maceda such other amounts still
pending release. Moreman filed an appeal which was subsequently dismissed in 1990 by the
Supreme Court.

Issue: Whether or not the damages awarded in favor of Maceda are unreasonable and excessive

Ruling: The trial court also awarded the following amounts: P700,000 as moral damages;
P150,000 as exemplary damages; P500,000 as temperate damages; and P100,000 as attorney‘s
fees. We find these amounts appropriate under the circumstances, and not unconscionable or
exorbitant. In accordance with our ruling in Sta. Lucia Realty and Development v. Spouses
Buenaventura, the applicable interest rate on the P6,153,398.05 to be paid by DBP to Maceda is
6% per annum, to be reckoned from the time of the filing of the complaint on 15 October 1984,
because the case at bar involves a breach of obligation and not a loan or forbearance of money.
 PHILIPPINE NATIONAL BANK vs. SPOUSES ENCINA
G.R. No. 174055 February 12, 2008

Facts: On September 6, 1996, plaintiffs-appellants obtained an additional P200,000.00 loan with

defendant-appellee PNB as additional capital for palay production, embodied in a credit
agreement and a promissory note, secured by the same parcels of land. The loan obligations of
plaintiffs-appellants ENCINA were fully paid on February 4, 1997. Another loan in the amount
of P400,000.00 as capital for a common carrier business was obtained by plaintiffs-appellants
ENCINA with defendant-appellee PNB, secured by a promissory note and a time loan
commercial credit agreement, likewise secured by the parcels of land. PNB subsequently granted
a P1,250,000.00 all-purpose credit facility to plaintiffs-appellants ENCINA to be used by
plaintiffs-appellants ENCINA exclusively for their metal craft business. Plaintiffs-appellants
ENCINA availed of the amount of P1,050,000.00 of the credit facility, evidenced by a
promissory note dated February 13, 1998 secured by the same parcels of land as well. Plaintiffs-
appellants ENCINA later on availed of the remaining P200,000.00 credit facility, secured by a
promissory note dated May 22, 1998. On the maturity date of the P1,250,000.00 loan obligation,
plaintiffs-appellants ENCINA failed to pay, prompting defendant-appellee PNB to demand the
same from plaintiffs-appellants Encina, in letters dated January 5, 1999, January 21, 1999, March
5, 1999, April 16, 1999, and May 27, 1999. Demands from defendant-appellee PNB were left
unheeded, prompting PNB to file a petition for sale of the mortgaged properties with defendant-
appellee Ex-Officio Sheriff of the Regional Trial Court of San Jose, Occidental Mindoro on
September 20, 1999.

Issue: Whether or not the promissory note and the mortgage was valid and whether the interest
rates are void.

Ruling: The Supreme Court ruled that Encina freely and voluntarily agreed to the provisions in
regard to repayment of the principal when they affixed their signatures thereto. Thus, the said
mortgage contract binds them because Article 1159 of the New Civil Code provides that
obligations arising from contracts have the force of law between the contracting parties. Since
the promissory notes and the real estate mortgage are valid and only the unilaterally imposed
interest rates are wholly void, plaintiffs-appellants Encina have still to be directed to pay
defendant-appellee PNB the principal amount of the loan which remains valid with interest at the
legal rate of 12% per annum from the date the loan was granted up to full payment, less
payments already made, within ninety (90) days from the finality of the decision, otherwise, the
defendant-appellee PNB shall be entitled to foreclose the mortgaged property and sell the same
at public auction to satisfy the loan.
 RESTITUTA M. IMPERIAL vs. ALEX A. JAUCIAN
G.R. No. 149004 April 14, 2004

Facts: Petitioner obtained six (6) separate loans amounting to P 320,000.00 from the respondent.
In the written agreement, they agreed upon the 16% interest per month plus penalty charge of 5%
per month and the 25% attorney‘s fee, failure to pay the said loans on the stipulated date.

Petitioner executed six (6) separate promissory notes and issued several checks as guarantee for
payment. When the said loans become overdue and unpaid, especially when the petitioner‘s
checks issued were dishonored, respondent made repeated oral and written demands for
payment.

The petitioner was able to pay only P 116,540.00 as found by the RTC. Although she alleged that
she had already paid the amount of P 441,780.00 and the excess of P 121,780.00 is more than the
interest that could be legally charged, the Court affirms the findings of RTC that petitioner is still
indebted to the respondent.

Issue: Whether or not the stipulated interest of 16% per month, 5% per month for penalty charge
and 25% attorney‘s fee are usurious.

Ruling: Yes. The rate must be equitably reduced for being iniquitous, unconscionable and
exorbitant. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905,
nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their assets.

When the agreed rate is iniquitous or unconscionable, it considered contrary to morals, if not
against the law. Such stipulation is void. Since the stipulation is void, it is as if there was no
express contract thereon. Hence, courts may reduce the interest rate as reason and equity
demand.

The interest rate of 16% per month was reduced to 1.167% per month or 14% per annum and the
penalty charge of 5% per month was also reduced to 1.167% per month or 14% per annum.

The attorney‘s fees here are in the nature of liquidated damages and the stipulation therefor is
aptly called a penal clause. So long as the stipulation does not contravene the law, morals, public
order or public policy, it is binding upon the obligor. Nevertheless, in the case at bar, petitioner‘s
failure to comply fully with her obligation was not motivated by ill will or malice. The partial
payments she made were manifestations of her good faith. Hence the attorney‘s fees were
reduced to 10% of the total due and payable.
 TEDDY G. PABUGAIS vs. DAVE P. SAHIJWANI
G.R. No. 156846 February 23, 2004

Facts: Pursuant to an ―Agreement And Undertaking‖ on December 3, 1993, petitioner Teddy G.

Pabugais, in consideration of the amount of P15,487,500.00, agreed to sell to respondent Dave P.
Sahijwani a lot containing 1,239 square meters located at Jacaranda Street, North Forbes Park,
Makati, Metro Manila. Respondent paid petitioner the amount of P600,000.00 as
option/reservation fee and the balance of P14,887,500.00 to be paid within 60 days from the
execution of the contract, simultaneous with delivery of the owner‘s duplicate Transfer
Certificate of Title in respondent‘s name with Deed of Absolute Sale; the Certificate of Non-Tax
Delinquency on real estate taxes and Clearance on Payment of Association Dues. The parties
further agreed that failure on the part of respondent to pay the balance of the purchase price
entitles petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by the
latter of the necessary documents obliges him to return to respondent the said option/reservation
fee with interest at 18% per annum.

Petitioner failed to deliver the required documents. In compliance with their agreement, he
returned to respondent the latter‘s P600,000.00 option/reservation fee by way of Far East & Trust
Company Check, which was, however, dishonored.

Petitioner claimed that he twice tendered to respondent, through his counsel, the amount of
P672,900.00 (representing the P600,000.00 option/reservation fee plus 18% interest per annum
computed from December 3, 1993 to August 3, 1994) in the form of Far East Bank & Trust
Company Manager‘s Check No. 088498, dated August 3, 1994, but said counsel refused to
accept the same. On August 11, 1994, petitioner wrote a letter to respondent saying that he is
consigning the amount of tendered with the Regional Trial Court of Makati City. On August 15,
1994, petitioner filed a complaint for consignation.

Respondent‘s counsel, on the other hand, admitted that his office received petitioner‘s letter
dated August 5, 1994, but claimed that no check was appended thereto. He averred that there was
no valid tender of payment because no check was tendered and the computation of the amount to
be tendered was insufficient, because petitioner verbally promised to pay 3% monthly interest
and 25% attorney‘s fees as penalty for default, in addition to the interest of 18% per annum on
the P600,000.00 option/reservation fee.

Issue: Whether or not assigning the amount of P672,900.00 to Atty. De Guzman is prohibited.

Ruling: The amount consigned with the trial court can no longer be withdrawn by petitioner
because respondent‘s prayer in his answer that the amount of consigned be awarded to him is
equivalent to an acceptance of the consignation, which has the effect of extinguishing
petitioner‘s obligation.

Moreover, petitioner failed to manifest his intention to comply with the ―Agreement And
Undertaking‖ by delivering the necessary documents and the lot subject of the sale to respondent
in exchange for the amount deposited. Withdrawal of the money consigned would enrich
petitioner and unjustly prejudice respondent.

The withdrawal of the amount deposited in order to pay attorney‘s fees to petitioner‘s counsel,
Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids lawyers from
acquiring by assignment, property and rights which are the object of any litigation in which they
may take part by virtue of their profession. Furthermore, Rule 10 of the Canons of Professional
Ethics provides that ―the lawyer should not purchase any interest in the subject matter of the
litigation which he is conducting.‖ The assailed transaction falls within the prohibition because
the Deed assigning the amount of P672,900.00 to Atty. De Guzman, Jr., as part of his attorney‘s
fees was executed during the pendency of this case with the Court of Appeals. In his Motion to
Intervene, Atty. De Guzman, Jr., not only asserted ownership over said amount, but likewise
prayed that the same be released to him. That petitioner knowingly and voluntarily assigned the
subject amount to his counsel did not remove their agreement within the ambit of the prohibitory
provisions. To grant the withdrawal would be to sanction a void contract.
 ANTONIO LO vs. COURT OF APPEALS
G.R. No. 141434 September 23, 2003

Facts: At the core of the present controversy are two parcels of land measuring a total of 2,147
square meters, with an office building constructed thereon. Petitioner acquired the subject parcels
of land in an auction sale on November 9, 1995 for P20,170,000 from the Land Bank of the
Philippines (Land Bank).Private respondent National Onion Growers Cooperative Marketing
Association, Inc., an agricultural cooperative, was the occupant of the disputed parcels of land
under a subsisting contract of lease with Land Bank. The lease was valid until December 31,
1995. Upon the expiration of the lease contract, petitioner demanded that private respondent
vacate the leased premises and surrender its possession to him. Private respondent refused on the
ground that it was, at the time, contesting petitioner‗s acquisition of the parcels of land in
question in an action for annulment of sale, redemption and damages. Petitioner filed an action
for ejectment before the MTC. He asked, inter alia, for the imposition of the contractually
stipulated penalty of P5,000 per day of delay in surrendering the possession of the property to
him. On September 3, 1996, the trial court decided the case in favor of petitioner. On appeal to
the RTC, the MTC decision was affirmed in toto.

Issue: Whether or not the Court of Appeals erred in reducing the penalty awarded by the trial
court, the same having been stipulated by the parties.

Ruling: No. Generally, courts are not at liberty to ignore the freedom of the parties to agree on
such terms and conditions as they see fit as long as they are not contrary to law, morals, good
customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated
penalty in the contract if it is iniquitous or unconscionable, or if the principal obligation has been
partly or irregularly complied with. This power of the courts is explicitly sanctioned by Article
1229 of the Civil Code which provides: Article 1229. The judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. The question of whether a penalty is reasonable or iniquitous is
addressed to the sound discretion of the court and depends on several factors, including, but not
limited to, the following: the type, extent and purpose of the penalty, the nature of the obligation,
the mode of breach and its consequences, the supervening realities, the standing and relationship
of the parties. In this case, the stipulated penalty was reduced by the appellate court for being
unconscionable and iniquitous.
 TOLOMEO LIGUTAN vs. COURT OF APPEALS
G.R. No. 138677 February 12, 2002

Facts: Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount
of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a
promissory note binding themselves, jointly and severally, to pay the sum borrowed with an
interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the
outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10% of
the total amount due by way of attorney‗s fees if the matter were indorsed to a lawyer for
collection or if a suit were instituted to enforce payment. The obligation matured on 8 September
1981; the bank, however, granted an extension but only up until 29 December 1981.Despite
several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982,
amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to
petitioners informing them that they had five days within which to make full payment. Since
petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the
Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount.

Issue: Whether or not the penalty in the obligation is iniquitous and unconscionable.

Ruling: The question of whether a penalty is reasonable or iniquitous can be partly subjective
and partly objective. Its resolution would depend on such factors as, but not necessarily confined
to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach
and its consequences, the supervening realities, the standing and relationship of the parties, and
the like, the application of which, by and large, is addressed to the sound discretion of the court.
The stipulated penalty might likewise be reduced when a partial or irregular performance is made
by the debtor. The stipulated penalty might even be deleted such as when there has been
substantial performance in good faith by the obligor, when the penalty clause itself suffers from
fatal infirmity, or when exceptional circumstances so exist as to warrant it. Given the
circumstances, not to mention the repeated acts of breach by petitioners of their contractual
obligation, the Court sees no cogent ground to modify the ruling of the appellate court. Anent the
stipulated interest of 15.189% per annum, petitioners, for the first time, question its
reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that
has not been raised and ventilated before the courts below. In any event, the interest stipulation,
on its face, does not appear as being that excessive. The essence or rationale for the payment of
interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or
a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement
to that effect, the two being distinct concepts which may separately be demanded.
 SPOUSES PASCUAL vs. RODRIGO V. RAMOS
G.R. No. 144712 July 4, 2002

Facts: Rodrigo Ramos, herein respondent alleged that on June 3, 1987 the spouses Silvestre and
Celia Pascual, herein petitioners executed in his favor a Deed of Absolute Sale with Right to
repurchase over two parcels of land and improvements thereon, located in Bulacan for PHP
150,000.00. The Pascuals did not exercise their right to repurchase within the stipulated one year
period, thus, the respondent prayed that the ownership or title over the subject lands and
improvements thereon be consolidated in his favor. The Pascuals admitted the signing of the
deed but claimed that what the parties have agreed upon was a real estate mortgage and that there
was no limiting period as when to repurchase and that they have even overpaid Ramos. The
Pascuals then prayed that Ramos be ordered to execute a Deed of Cancellation, Release of the
Deed of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mortgage and to pay
damages. The parties having presented their own evidences, the trial court found out that the
transaction between the parties was actually a loan in the amount of PHP 150,000.00, the
payment of which is secured by a mortgage of the property. It was also found out that the
Pascuals had made payment in the total sum of PHP 344,000.00 and that with interest at 7% per
annum, overpaying the loan by PHP 141,500.00. The trial court then rendered decision in favor
of the defendants. Ramos moved for the reconsideration of the decision averring that what was
stipulated in the Sinumpaang Salaysay was 7% per month as interest. Making the necessary
computations, there was PHP 793,000.00 still due from the Pascuals. With this, the trial court
then issued an Order modifying its earlier decision; however, the trial court declared the interest
too onerous, reducing the interest rate to 5%. The Pascuals then were rendered to pay PHP
511,000.00 to Ramos.

Issue: Whether or not the Pascuals are liable for 5% interest per month.

Ruling: The Supreme Court held that the Pascuals are liable for the interest. It must be stressed
that the Pascuals never raised as a defense or basis for their counterclaim the nullity of the
stipulated interest. The Pascuals should accept not only the favorable aspect of the trial court‘s
declaration that the document is actually an equitable mortgage but also the necessary
consequence of such declaration, that is, that interest on the loan as stipulated by the parties in
that same document should be paid. It is a basic principle in civil law that parties are bound by
the stipulations in the contracts voluntarily entered into by them. The interest rate of 7% per
month was voluntarily agreed upon by Ramos and the Pascuals. With the suspension of the
Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be
imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent
exercised by Ramos on the Pascuals, the interest agreed upon is binding upon them.
 FIRST METRO INVESTMENT CORPORATION vs. ESTE DEL SOL
G.R. No. 141811 November 15, 2001

Facts: Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred
Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and
development of the Este del Sol Mountain Reserve, a sports/resort complex project. Under the terms
of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on
the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan
was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the
beginning of the thirteenth month from the date of the first release in accordance with the Schedule
of Amortization. In case of default, an acceleration clause was, among others, provided and the
amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and
such amount shall bear interest at the highest rate permitted by law from the date of default until full
payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded
quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or
charges thereon until the unpaid balance is fully paid, plus attorney‗s fees equivalent to twenty-five
(25%) percent of the sum sought to be recovered, which in no case shall be less than Twenty
Thousand Pesos (P20,000.00) if the services of a lawyer were hired. In accordance with the terms of
the Loan Agreement, respondent Este del Sol executed several documents as security for payment,
among them, (a) a Real Estate Mortgage and (b) individual Continuing Suretyship agreements by co-
respondents Valentin S. Daez, Jr., et al. Respondent Este del Sol also executed, as provided for by the
Loan Agreement, an Underwriting Agreement whereby petitioner FMIC shall underwrite on a best-
efforts basis the public offering of 120,000 common shares of respondent Este del Sol‗s capital stock
for a one-time underwriting fee of P200,000.00. The Underwriting Agreement also provided that for
supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an
annual supervision fee of 200,000.00 per annum for a period of four consecutive years. The
Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner
FMIC a consultancy fee of P332,500.00 per annum for a period of four consecutive years.
Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement,
a Consultancy Agreement was also executed on January 31, 1978 whereby respondent Este del Sol
engaged the services of petitioner FMIC for a fee as consultant to render general consultancy
services. Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a
revised Schedule of Amortization, it appeared to have incurred a total obligation of P12,679,630.98
per the petitioner‗s Statement of Account dated June 23, 1980.

Issue: Whether or not the appellate court erred in reversing the decision of the trial court as
regards to the payment of penalties.

Ruling: No. First, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury
Law but simply suspended the latter‗s effectivity. Thus, retroactive application of a Central Bank
Circular cannot, and should not, be presumed. Second, several facts and circumstances taken
altogether show that the Underwriting and Consultancy Agreements were simply cloaks or
devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect
excessively usurious interest. The Underwriting and Consultancy Agreements which were
executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were
exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful
loan is usurious when it is intended that additional compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by the borrower for the lender‗s services
which are of little value or which are not in fact to be rendered, such as in the instant case. In this
connection, Article 1957 of the New Civil Code clearly provides that: Art. 1957. Contracts and
stipulations, under any cloak or device whatever, intended to circumvent the laws against usury
shall be void. The borrower may recover in accordance with the laws on usury. In usurious loans,
the entire obligation does not become void because of an agreement for usurious interest; the
unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest
is void, consequently, the debt is to be considered without stipulation as to the interest. Thus, the
Court agrees with the factual findings and conclusion of the appellate court, wherein it held that
the stipulated penalties, liquidated damages and attorney‗s fees, excessive, iniquitous and
unconscionable. Accordingly, the 20% penalty on the amount due and 10% of the proceeds of the
foreclosure sale as attorney‗s fees would suffice to compensate the appellee, especially so
because there is no clear showing that the appellee hired the services of counsel to effect the
foreclosure; it engaged counsel only when it was seeking the recovery of the alleged deficiency.
Attorney‗s fees as provided in penal clauses are in the nature of liquidated damages. So long as
such stipulation does not contravene any law, morals, or public order, it is binding upon the
parties. Nonetheless, courts are empowered to reduce the amount of attorney‗s fees if the same is
iniquitous or unconscionable. Articles 1229 and 2227 of the New Civil Code provide that: Art.
1229. The judge shall equitably reduce the penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable. Art. 2227. Liquidated
damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable. In the case at bar, the amount of Three Million One Hundred
Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75)
for the stipulated attorney‗s fees equivalent to twenty-five (25%) percent of the alleged amount
due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and
unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorney‗s
fees to ten (10%) percent is appropriate and reasonable under the facts and circumstances of this
case.
 DOMEL TRADING CORPORATION vs. COURT OF APPEALS
G.R. No. 84813 September 22, 1999

Facts: NNRMC ordered from petitioner Domel Trading Corporation (DOMEL) 22,000 bundles
of buri midribs . On June 4, 1981, private respondent again ordered 300,000 pieces of rattan
poles .The specifications and provisions of both transactions, which served as their agreement,
were printed in two separate purchase orders. In accordance with their agreement, NNRMC, on
July 9, 1981, opened a letter of credit with Philippine National Bank (PNB) in favor of DOMEL
in the amount of P1,997,000.00 to cover its order for 206,943 pieces of rattan poles. On July 13,
1981, NNRMC opened another letter of credit in favor of DOMEL in the amount of
P1,236,000.00 to cover the price of 93,057 pieces of rattan poles and 22,000 bundles of buri
midribs.

DOMEL failed to deliver the buri midribs and rattan poles within the stipulated period. Thus,
DOMEL and NNRMC agreed to restructure the latter‗s purchase orders in a Memorandum of
Agreement. Under the agreement, NNRMC extended the expiry date of its two letters of credit to
November 5, 1981. It also reduced the quantity of the rattan poles from 300,000 to only 100,000
pieces while the quantity of buri midribs remained at 22,000 bundles. Further, DOMEL
undertook to deliver the goods on or before October 31, 1981.

However, no deliveries were again made on the said date. Consequently, demands were made by
NNRMC on January 19, 1982 for the payment of damages, which demands were ignored by
DOMEL. Hence, NNRMC filed a complaint for damages before the RTC.

Issue: Whether or not the decision of the Court of Appeals which modified the decision of the
lower court granting private respondent‗s prayer for damages was correct.

Ruling: SC agreed in the reduction of the amount of liquidated damages to only P150,000.00.
The amount of P2,000.00 as penalty for every day of delay is excessive and unconscionable.
Article 1229 of the Civil Code states, thus: The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. Article 2227 of the Civil Code likewise states, thus: Liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous
or unconscionable.

In determining whether a penalty clause is iniquitous and unconscionable, a court may very well
take into account the actual damages sustained by a creditor who was compelled to sue the
defaulting debtor, which actual damages would include the interest and penalties the creditor
may have had to pay on its own from its funding source.

In this case, NNRMC was only able to prove that it incurred the amounts of P5,995.83 as
opening charges on the two Letters of Credit and an additional P1,911.85 as amendment charges
on the same Letters of Credit. Other than that, NNRMC failed to prove it had suffered actual
damages resulting from the non-delivery of the specified buri midribs and rattan poles. In fact,
what it allegedly suffered are what it calls Foregone Interest Income and Foregone Profit from
the two Letters of Credit. Such could not be considered as actual damages.
 LETICIA Y. MEDEL, DR. RAFAEL MEDEL vs. COURT OF APPEALS
G.R. No. 131622 November 27, 1998

Facts: On June 3, 1981, private respondent NDC-NACIDA Raw Materials Corporation

(NNRMC) ordered from petitioner Domel Trading Corporation (DOMEL) 22,000 bundles of
buri midribs at P16.00 per bundle to be delivered within 30 working days from the date of the
opening of a letter of credit. On June 4, 1981, private respondent again ordered 300,000 pieces of
rattan poles at P9.65 per piece for a total price of P2,895,000.00, also to be delivered within 60
days from the date of the opening of a letter of credit. The specifications and provisions of both
transactions, which served as their agreement, were printed in two separate purchase orders. In
accordance with their agreement, NNRMC, on July 9, 1981, opened a letter of credit with
Philippine National Bank (PNB) in favor of DOMEL in the amount of P1,997,000.00 to cover its
order for 206,943 pieces of rattan poles. On July 13, 1981, NNRMC opened another letter of
credit in favor of DOMEL in the amount of P1,236,000.00 to cover the price of 93,057 pieces of
rattan poles and 22,000 bundles of buri midribs. In violation of their agreement, DOMEL failed
to deliver the buri midribs and rattan poles within the stipulated period. Thus, on September 23,
1981, DOMEL and NNRMC agreed to restructure the latter‗s purchase orders in a Memorandum
of Agreement. Under the agreement, NNRMC extended the expiry date of its two letters of credit
to November 5, 1981. It also reduced the quantity of the rattan poles from 300,000 to only
100,000 pieces while the quantity of buri midribs remained at 22,000 bundles. Further, DOMEL
undertook to deliver the goods on or before October 31, 1981. However, no deliveries were again
made on the said date. Consequently, demands were made by NNRMC on January 19, 1982 for
the payment of damages, which demands were ignored by DOMEL. Hence, NNRMC filed a
complaint for damages before the Regional Trial Court of Pasig. After trial, judgment was
rendered in favor of plaintiff and against defendant. Both DOMEL and NNRMC assail the
above-quoted decision in separate petitions which have been consolidated before this Court.
Based on the pleadings submitted by the parties, this Court has resolved to give due course to the
petition and decides the same. DOMEL submits it has not breached its contractual obligation to
NNRMC inasmuch as it was the fault of the latter for not inspecting and examining the rattan
poles as well as the buri midribs already shipped by the suppliers and stored in the former‗s
warehouse. In short, DOMEL claims that NNRMC must first inspect the ordered items before
delivery could be made.

Issue: Whether or not the decision of the Court of Appeals in CA-G.R. CV No. 08952 which
modified the decision of the lower court granting private respondent‗s prayer for damages, was
correct.

Ruling: While the Supreme Court did not agree with the Court of Appeals that the failure of
NNRMC to conduct the inspection mitigated DOMEL‗s liability for liquidated damages,
nevertheless, it agreed in the reduction of the amount of liquidated damages to only P150,000.00.
The amount of P2,000.00 as penalty for every day of delay is excessive and unconscionable.
Article 1229 of the Civil Code states, thus:The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. Article 2227 of the Civil Code likewise states, thus: Liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous
or unconscionable.

In determining whether a penalty clause is iniquitous and unconscionable, a court may very well
take into account the actual damages sustained by a creditor who was compelled to sue the
defaulting debtor, which actual damages would include the interest and penalties the creditor
may have had to pay on its own from its funding source. In this case, NNRMC was only able to
prove that it incurred the amounts of P5,995.83 as opening charges on the two Letters of Credit
and an additional P1,911.85 as amendment charges on the same Letters of Credit. Other than
that, NNRMC failed to prove it had suffered actual damages resulting from the nondelivery of
the specified buri midribs and rattan poles. In fact, what it allegedly suffered are what it calls
Foregone Interest Income and Foregone Profit from the two Letters of Credit. Such could not be
considered as actual damages.
 PACITA F. REFORMINA vs. TOMOL
G.R. No. L-59096 October 11, 1985

Facts: This is a Petition for Review on certiorari of the Resolution of CFI-Cebu Judge Tomol for
an action for Recovery of Damages for injury to Person and Loss of Property.

On June 7, 1972, judgment was rendered by the Court of First instance of Cebu in Civil Case No.
R-11279, the dispositive portion of which reads—

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants
and against the defendants and third party plaintiffs as follows: Ordering defendants and third
party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following
persons: (g) Plaintiffs Pacita and Francisco Reformina the sum of P131,084.00 which is the value
of the boat F B Pacita III together with its accessories, fishing gear and equipment minus
P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month
as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the
time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal
interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with
costs against defendants and third party plaintiffs.

Issue: Whether or not legal interest meant 6% as provided for under Article 2209 of the Civil
Code.

Ruling: Article 2209 of the Civil Code is applicable in case at bar. It must be noted that the
decision herein sought to be executed is one rendered in an Action for Damages for injury to
persons and loss of property and does not involve any loan, much less forbearances of any
money, goods or credits. As correctly argued by the private respondents, the law applicable to the
said case is Article 2209 of the New Civil Code which reads — Art. 2209. If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal interest which is six percent per annum.

The above provision remains untouched despite the grant of authority to the Central Bank by Act
No. 2655, as amended. To make Central Bank Circular No. 416 applicable to any case other than
those specifically provided for by the Usury Law will make the same of doubtful
constitutionality since the Monetary Board will be exercising legislative functions which was
beyond the intendment of P.D. No. 116.
 Extinguishment Of Obligations:
Payment

SONNY LO vs. KJS

G.R. No. 149420 October 8, 2003

Facts: Lo, doing business under the name San‘s Enterprises, ordered scaffolding equipments
from KJS worth P540,425.80. Lo paid a downpayment of P150,000 and the balance was to be
paid in 10 monthly installments.

KJS delivered the scaffoldings to Lo, who paid the first two installments. However, his business
encountered financial difficulties and he was unable to settle his obligation despite oral and
written demands.

Lo and KJS executed a Deed of Assignment, whereby Lo assigned to KJS his receivables in the
amount of P335,462.14 from Jomero Realty Corporation. The agreement also stipulated: ―The
ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further
acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of
these presents.‖

When KJS tried to collect the said credit from Jomero, it refused to honor the Deed of
Assignment because it claimed that Lo was also indebted to it. KJS sent a letter to Lo demanding
payment but he refused claiming that his obligation had been extinguished when they executed
the Deed of Assignment.

Issue: Whether or not the Deed of Assignment extinguished Lo‘s obligation.

Ruling: NO, he failed to comply with his warranty. In dacion en pago as a special mode of
payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt. The undertaking really partakes in one sense of the nature of sale – the
creditor is really buying the thing or property of the debtor, payment for which is to be charged
against the debtor‘s debt.

The assignment of credit, which is in the nature of a sale of personal property, produced the
effects of a dation in payment, which may extinguish the obligation. However, as in any other
contract of sale, the vendor or assignor is bound by certain warranties. Paragraph 1 of Article
1628 of the Civil Code provides: The vendor in good faith shall be responsible for the existence
and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but
not for the solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.

Lo, as assignor, is bound to warrant the existence and legality of the credit at the time of the sale
or assignment. When Jomero claimed that it was no longer indebted to Lo since the latter also
had an unpaid obligation to it, it essentially meant that its obligation to Lo has been extinguished
by compensation. As a result, KJS alleged the non-existence of the credit and asserted its claim
to Lo‘s warranty under the assignment. Lo was therefore required to make good its warranty and
pay the obligation.

Furthermore, Lo breached his obligation under the Deed of Assignment as he did not ―execute
and do all such further acts and deeds as shall be reasonably necessary to effectually enable said
ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true
intent and meaning of these presents.‖ By warranting the existence of the credit, Lo should have
ensured its performance in case it is found to be inexistent. He should be held liable to pay to
KJS the amount of his indebtedness.
 PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS
G.R. No. 108630 April 2, 1996

Facts: Private respondent Loreto Tan is the owner of a parcel of land in Bacolod City.
Expropriation proceedings were instituted by the government against private respondent Tan and
other property owners before a trial court in Negros Occidental. Tan filed a motion requesting
issuance of an order for the release to him of the expropriation price of P32,480.00. The trial
court required petitioner PNB-Bacolod Branch to release to Tan the amount of P32,480.00
deposited with it by the government. Through its Assistant Branch Manager Juan Tagamolila,
PNB issued a manager's check for P32,480.00 and delivered the same to one Sonia Gonzaga
without Tan's knowledge, consent or authority. Sonia Gonzaga deposited it in her account with
Far East Bank and Trust Co. (FEBTC) and later on withdrew the said amount. Private respondent
Tan subsequently demanded payment in the amount of P32,480.00 from petitioner, but the same
was refused on the ground that petitioner had already paid and delivered the amount to Sonia
Gonzaga on the strength of a Special Power of Attorney (SPA) allegedly executed in her favor by
Tan. When he failed to recover the amount from PNB, private respondent filed a motion with the
court to require PNB to pay the same to him. Petitioner filed an opposition contending that Sonia
Gonzaga presented to it a copy of the May 22, 1978 order and a special power of attorney by
virtue of which petitioner delivered the check to her.

Issue: Whether or not payment was made to Loreto Tan.

Ruling: There is no question that no payment had ever been made to private respondent as the
check was never delivered to him. When the court ordered petitioner to pay private respondent
the amount of P32,480.00, it had the obligation to deliver the same to him. Under Art. 1233 of
the Civil Code, a debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been completely delivered or rendered, as the case may be. The
burden of proof of such payment lies with the debtor. In the instant case, neither the SPA nor the
check issued by petitioner was ever presented in court. The testimonies of petitioner's own
witnesses regarding the check were conflicting. Tagamolila testified that the check was issued to
the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," while Elvira Tibon, assistant
cashier of PNB, stated that the check was issued to the order of "Loreto Tan."

Furthermore, contrary to petitioner's contention that all that is needed to be proved is the
existence of the SPA, it is also necessary for evidence to be presented regarding the nature and
extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically, to
determine whether the document indeed authorized her to receive payment intended for private
respondent.
 CATHAY PACIFIC AIRWAYS vs. SPOUSES VAZQUEZ
G.R. No. 150843 March 14, 2003

Facts: Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez
together with two friends went to Hong Kong for business and pleasure. On their return flight to
Manila, they were booked on Cathay Pacific‗s flight CX-905. Upon boarding, Dr. Vazquez was
informed by ground attendant Clara Chiu that they were being upgraded to first class from
business class because Business Class was fully booked. Dr. Vazquez refused the upgrade,
explaining that it would not look good for them as hosts to travel in First Class while their guests
remained in the Business Class Section. Moreover, they were going to discuss business matters
during the flight. He also told Ms. Chiu that she could have other passengers transferred to the
First Class Section instead of them. Ms. Chiu informed them that since they were Marco Polo
Club members they had the priority to be upgraded to First Class. Dr. Vazquez continued to
refuse, so Ms. Chiu told them that if they would not avail of the privilege, they would not be
allowed to take the flight. Eventually, Dr. Vazquez gave in and proceeded to the First Class
Cabin.

Issue: Whether or not by upgrading the seating accommodations of the Vazquezes from Business
Class to First Class, Cathay Pacific Airways breached its contract of carriage with the Vazquezes.

Ruling: In previous cases, the breach of contract of carriage consisted in either the bumping off
of a passenger with confirmed reservation or the downgrading of a passenger‗s seat
accommodation from one class to a lower class. In this case, what happened was the reverse. The
Vazquezes knew that as members of the Marco Polo Club, they had priority for upgrading of
their seat accommodation at no extra cost when an opportunity arises. But, just like other
privileges, such priority could be waived. The Vazquezes should have been consulted first
whether they wanted to avail of the privilege or consent to a change of seat accommodation
before their seat assignments were given to other passengers. The Vazquezes had every right to
decline the upgrade and insist on the Business Class accommodation they had booked for. They
clearly waived their priority or preference when they asked that other passengers be given the
upgrade. It should not have been imposed on them over their vehement objection. By insisting on
the upgrade, Cathay Pacific breached its contract of carriage with the Vazquezes. The Court,
however, is not convinced that the upgrading or the breach of contract was attended by fraud or
bad faith. Bad faith and fraud are allegations of fact that demand clear and convincing proof. The
court is not persuaded by the Vazquezes‗s argument that the overbooking of the Business Class
Section constituted bad faith on the part of Cathay Pacific Airways.
 CITIBANK, N.A. vs. MODESTA R. SABENIANO
G.R. No. 156132 October 16, 2006

Facts: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to
do commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners
Citibank and FNCB Finance. Respondent filed a complaint against petitioners claiming to have
substantial deposits, the proceeds of which were supposedly deposited automatically and directly
to respondent‗s account with the petitioner Citibank and that allegedly petitioner refused to
despite repeated demands. Petitioner alleged that respondent obtained several loans from the
former and in default, Citibank exercised its right to set-off respondent‗s outstanding loans with
her deposits and money. RTC declared the act illegal, null and void and ordered the petitioner to
refund the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of the respondent.

Issue: Whether or not petitioner may exercise its right to set-off respondent‗s loans with her
deposits and money in Citibank-Geneva.

Ruling: Petition is partly granted with modification.

1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and

P203,150.00 plus 14.5% per annum.

2. The remittance of US $149,632.99 from respondent‗s Citibank-Geneva account is declared

illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its
equivalent using exchange rate at the time of payment.

3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000,
attorney‗s fees of P200,000.

4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive
off interest.
 TELENGTON BROTHERS & SONS, INC vs. UNITED STATES LINES, INC.
G.R. No. 132284 February 28, 2006

Facts: On June 22, 1981, United States Lines, a foreign company which is engaged in overseas
shipping, filed a suit against Telengton Brothers and Sons, a domestic corporation. In the case,
United States Lines is seeking payment of demurrage charges plus interest and damages. As
stipulated, a consignee who fails to deliver their containerized cargo within the 10 day free
period is liable to pay demurrage charges. Petitioner is alleged to have incurred P94,000 which it
refused to pay despite repeated demands. Petitioner disclaims liability alleging that it has never
entered into a contract nor signed an agreement to be bound by it. RTC ruled that petitioner is
liable to respondent and all be computed as of the date of payment which the Court of Appeals
affirmed the decision.

Issue: Whether or not the re-computation of the judgment award in accordance with Article 1250
of the Civil Code is proper.

Ruling: The Supreme Court found the trial court‘s decision as affirmed by the Court of Appeals,
erroneous. The Court holds that there has been an extraordinary inflation within the meaning of
Article 1250 of the Civil Code. There is no reason for ordering the payment of an obligation in
an amount different from what has been agreed upon because of the purported supervening event
of an extraordinary inflation. The assailed decision is affirmed with modification that the order
for re-computation as of the date of payment in accordance with the provisions of Article 1250 of
New Civil Code is deleted.
C.F. SHARP vs. NORTHWEST AIRLINES, INC
G.R. No. 133498 April 18, 2002

Facts: On May 9, 1974, respondent, through its Japan Branch, entered an International
Passenger Sales Agency Agreement with petitioner, authorizing the latter to sell its air transport
tickets. Petitioner, however, failed to remit the proceeds of the ticket sales, for which reason the
respondent filed a collection suit against petitioner before the Tokyo District Court. The said
court ordered petitioner to pay respondent including damages for the delay. Unable to execute
the decision in Japan, respondent filed a case to enforce said judgment with the regional trial
court of Manila, which dismissed the case. This was affirmed by the Court of Appeals, and was
subsequently partly affirmed by the Supreme Court. CF Sharp was then ordered to pay
Northwest so that the RTC issued a writ of execution of decision ruling that Sharp is to pay
Northwest the sum of 83,158,195 yen at the exchange rate prevailing on the date of the foreign
judgment plus 6% per annum until fully paid, 6% damages and 6% interest. An appeal, the Court
of Appeals reduced the interest and it ruled that the basis of the conversion of petitioner‘s
liability in its peso equivalent should be the prevailing rate at the time of payment and not the
rate on the date of the foreign judgment.

Issue: Whether or not the basis for the payment of the amount due is the value of the currency at
the time of the establishment of the obligation.

Ruling: No, the rule that the value of currency at the time of the establishment of the obligation
shall be the basis of payment finds application only when there is an official pronouncement or
declaration of the existence of an extraordinary inflation or deflation. Hence, petitioners
contention that Article 1250 of the Civil Code which provides that in case of an extra ordinary
inflation or deflation of the currency stipulated should supervene, the value of the currency at the
time of establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.

In addition, under RA 529, stipulations on the satisfaction of obligations in foreign currency are
void. Payments of monetary obligations, subject to certain exceptions, shall be discharged in the
currency, which is the legal tender of the Philippines. But since the law doesn‘t provide for the
rate of exchange for the payment of foreign currency obligations incurred after its enactment,
jurisprudence held that the exchange rate should be the prevailing rate at time of payment.
 ALBERT R. PADILLA vs. SPOUSES PAREDES
G.R. No. 124874 March 17, 2000

Facts: On October 20, 1988, petitioner Albert R. Padilla and private respondents Floresco and
Adelina Paredes entered into a contract to sell involving a parcel of land in San Juan, La Union.
At that time, the land was untitled although private respondents were paying taxes thereon.
Under the contract, petitioner undertook to secure title to the property in private respondents'
names. Of the P312,840.00 purchase price, petitioner was to pay a down payment of P50,000.00
upon signing of the contract, and the balance was to be paid within ten days from the issuance of
a court order directing issuance of a decree of registration for the property. On December 27,
1989, the court ordered the issuance of a decree of land registration for the subject property. The
property was titled in the name of private respondent Adelina Paredes. Private respondents then
demanded payment of the balance of the purchase price. Petitioner then made several payments
to private respondents, some even before the court issued an order for the issuance of a decree of
registration and they also offered to pay the land through a check. Still, petitioner failed to pay
the full purchase price even after the expiration of the period set. In a letter dated February 14,
1990, private respondents, through counsel, demanded payment of the remaining balance, with
interest and attorney's fees, within five days from receipt of the letter. Otherwise, private
respondents stated they would consider the contract rescinded. On February 28, 1990, petitioner
made a payment of P100,000.00 to private respondents, still insufficient to cover the full
purchase price. Shortly thereafter, in a letter dated April 17, 1990 private respondents offered to
sell to petitioner one-half of the property for all the payments the latter had made, instead of
rescinding the contract. If petitioner did not agree with the proposal, private respondents said
they would take steps to enforce the automatic rescission of the contract. Petitioner did not
accept private respondents' proposal. Instead, in a letter dated May 2, 1990, he offered to pay the
balance in full for the entire property, plus interest and attorney's fees. Private respondents
refused the offer. On May 14, 1990, petitioner instituted an action for specific performance
against private respondents, alleging that he had already substantially complied with his
obligation under the contract to sell. He also averred that he had already spent P190,000.00 in
obtaining title to the property, subdividing it, and improving its right-of-way. The lower court
decided in favor of the petitioners stating that the breach committed was only casual and slight
but the Court of Appeals reversed the ruling and favored respondents' rescission of the contract
to sell.

Issue: Whether or not the payment made by petitioner is one which is contemplated on the
contract.

Ruling: Petitioner‗s offer to pay is clearly not the payment contemplated in the contract. While
he might have tendered payment through a check, this is not considered payment until the check
is encashed. Besides, a mere tender of payment is not sufficient. Consignation is essential to
extinguish petitioner's obligation to pay the purchase price. The Supreme Court also affirmed the
decision of the Court of Appeals where the respondents have the right to rescind the contract on
the ground that there is failure on the part of the petitioners to pay the balance within ten days
upon the conveyance of the Court of the Title of Land to respondents. Thus, private respondents
are under no obligation, and may not be compelled, to convey title to petitioner and receive the
full purchase price.
 NORBERTO TIBAJIA vs. COURT OF APPEALS.
G.R. No. 100290 June 4, 1993

Facts: A suit of collection of sum of money was filed by Eden Tan against the spouses. A writ of
attachment was issued, the Deputy Sheriff filed a return stating that a deposit made by Tibajia in
the amount of P442,750 in another case, had been garnished by him. RTC ruled in favor of Eden
Tan and ordered the spouses to pay her an amount in excess of P3,000,000. Court of Appeals
modified the decision by reducing the amount for damages. Tibajia Spouses delivered to Sheriff
Bolima the total money judgment of P398483.70. Tan refused to accept the payment and insisted
that the garnished funds be withdrawn to satisfy the judgment obligation.

Issue: Whether or not payment by means of check is considered payment in legal tender.

Ruling: The ruling applies the statutory provisions which lay down the rule that a check, whether
a manager‘s check or ordinary check, is not legal tender and an offer of a check in payment of a
debt is not a valid tender of payment, and the creditor may validly refuse payment by check. The
decision of the Court of Appeals is affirmed.
 DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS
G.R. No. 138703 June 30, 2006

Facts: Sometime in March 1968, the Development Bank of the Philippines granted to
respondents Philippine United Foundry and Machineries Corporation and Philippine Iron
Manufacturing Company, Inc. an industrial loan in the amount of P2,500,000 consisting of
P500,000 in cash and P2,000,000 in DBP Progress Bonds. Subsequently, DBP granted to
respondents another loan in the form of a five-year revolving guarantee amounting to P1,700,000
which was reflected in a mortgage contract. The outstanding accounts of respondents with DBP
were restructured in view of their failure to pay. Thus, the outstanding principal balance of the
loans and advances were consolidated into a single account. Notwithstanding the restructuring,
respondents were still unable to comply with the terms and conditions of the new promissory
notes. As a result, respondents requested DBP to refinance the matured obligation. DBP initiated
foreclosure proceedings. Before DBP could proceed with the foreclosure proceedings,
respondents instituted the present suit for injunction. Respondents‘ cause of action arose from
their claim that DBP was collecting from them an unconscionable obligation of P62,954,473.68
out of a mere P6,200,000 loan. After trial, the court rendered a decision in favor of respondents.
The Court of Appeals affirmed the decision.

Issue: Whether or not the condition of interest in the contracts are unconscionable.

Ruling: The second set of promissory notes executed by respondents must govern the
contractual relation of the parties for they unequivocally express the terms and conditions of the
parties‘ loan agreement, which are binding and conclusive between them. A mortgage is a mere
accessory contract and its validity would depend on the validity of the loan secured by it. Hence,
the consideration of the mortgage contract is the same as that of the principal contract from
which it receives life, and without which it cannot exist as an independent contract. The debtor
cannot escape the consequences of the mortgage contract once the validity of the loan is upheld.
As correctly pointed out by PMO, the original loans alluded to by respondents had been
refinanced and restructured in order to extend their maturity dates. Refinancing is an exchange of
an old debt for a new debt, as by negotiating a different interest rate or term or by repaying the
existing loan with money acquired from a new loan. Restructuring, as applied to a debt, implies
not only a postponement of the maturity but also a modification of the essential terms of the debt
in order to make the account of the debtor current. Accordingly, respondents are barred from
claiming the contrary without transgressing the principle of estoppel and mutuality of contracts.
 Evidences of Credit

VITARICH CORPORATION vs. CHONA LOSIN

G.R. No. 181560 November 15, 2010

Facts: Chona Losin was in the fastfood and catering services business. Since 1993, Vitarich-
Davao had been her supplier of poultry meat. In 1995, her account was transferred to Vitarich-
General Santos City. In July to Nov. 1996, Losin‘s orders of meat products allegedly amounted
to P921K. Losin‘s poultry meat needs were serviced by Rodrigo Directo and Allan Rosa, both
salesmen and authorized collectors of Vitarich, and Arnold Baybay, a supervisor. Directo‘s
services were terminated by Vitarich without Losin‘s knowledge. Rosa and Baybay resigned.
None of them turned over pertinent invoices covering Losin‘s account. In Feb. 1997, demand
letters were sent to Losin covering her alleged unpaid account of P921K. She checked her
records and discovered that she had an overpayment to Vitarich of P500K. She informed Vitarich
that checks were issued and collected by Directo. It appears that Losin issued 3 checks
amounting to P288K which were dishonored.

Vitarich filed a complaint for sum of money against Losin, Directo, Rosa, and Baybay before the
RTC. The RTC ordered Losin to pay Vitarich. Losin appealed to the CA, which set aside the RTC
judgment.

Issue: Whether or not Losin is liable to Vitarich.

Ruling: Losin was clearly liable to Vitarich. Both Vitarich and Losin failed to make a proper
recording and documentation of their transactions making it difficult to reconcile the evidence
presented by the parties to establish their respective claims. As a general rule, one who pleads
payment has the burden of proving it. The burden rests on the debtor to prove payment, rather
than on the creditor to prove non-payment. In this case, the burden of proof is on Losin because
she alleges an affirmative defense of payment. Losin failed to present a single official receipt to
prove payment. A receipt is the best evidence of the fact of payment. All she presented were
copies of the list of checks allegedly issued to Vitarich through Directo, a statement of payments
made to Vitarich, and copies of the pertinent history of her checking account with RCBC. At
best, these may only serve as documentary records of her business dealings with Vitarich to keep
track of the payments made but are not enough to prove payment.

Art. 1249 of the Civil Code provides: The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been impaired.

In the present case, no cash payment was proved. It was neither confirmed that the checks issued
by Losin were actually encashed by Vitarich. The SC cannot consider that payment, much less
overpayment, made by Losin.

Thus, Losin is liable to pay Vitarich P222K. The RTC decision was reinstated subject to
modificatio
 METROPOLITAN BANK vs. RENATO D. CABILZO
G.R. No. 154469 December 6, 2006

Facts: Respondent Cabilzo was one of the Metrobank's clients who maintained a current
account. On November 12, 199, Cabilzo issued a Metrobank check payable to cash in the amount
of P1,000 and was paid to a certain Mr. Marquez. The check was presented to Westmont Bank or
payment and in turn indorsed to Metrobank for appropriate clearing. It was discovered that the
amount withdrawn wa P91,000, thus, the check was altered. Cabilzo re-credit the amount of
P91,000 to his account but Metrobank refused to comply despite demands. RTC ordered
Metrobank to pay the sum of P90,000 to Cabilzo. Court of Appeals affirmed the decision with
modification.

Issue: Whether or not Metrobank, as drawee bank, is liable for the alternations on the subject
check bearing the authentic signature of the drawer thereof.

Ruling: The degree of diligence in the exercise of his tasks and the performance of his duties
have been faithfully complied with by Cabilzo. It is obvious that Metrobank was remiss in the
duty and violated that fiduciary relationship with its clients as it appeared that there are material
alterations on the check that are visible to the naked eye but the bank failed to detect such.
Petition is denied. Court of Appeals decision is affirmed with modification that exemplary
damages in the amount of P50,000 be awarded
 Effect of Inflation

ALMEDA vs. BATHALA MARKETING INDUSTRIES

G.R. No. 150806 January 28, 2008

Facts: Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee,
represented by its president Ramon H. Garcia, renewed its Contract of Lease with Ponciano L.
Almeda (Ponciano), as lessor, husband of petitioner Eufemia and father of petitioner Romel
Almeda. Under the said contract, Ponciano agreed to lease a portion of the Almeda Compound,
located at 2208 Pasong Tamo Street, Makati City, consisting of 7,348.25 square meters, for a
monthly rental of P1,107,348.69, for a term of four (4) years from May 1, 1997 unless sooner
terminated as provided in the contract. Stipulated in the contract: In case an extraordinary
inflation or devaluation of Philippine Currency should supervene, the value of Philippine peso at
the time of the establishment of the obligation shall be the basis of payment.During the
effectivity of the contract, Ponciano died. Thereafter, respondent dealt with petitioners. On
January 26, 1998, respondent received another letter from petitioners informing the former that
its monthly rental should be increased by 73% pursuant to condition No. 7 of the contract and
Article 1250 of the Civil Code. Respondent opposed petitioners demand and insisted that there
was no extraordinary inflation to warrant the application of Article 1250 in light of the
pronouncement of this Court in various cases.

The RTC ruled in favor of respondent and against petitioners. Petitioners elevated the aforesaid
case to the Court of Appeals which affirmed with modification the RTC decision. Hence, this
petition.

Issue: Whether or not Article 1250 of the New Civil Code is applicable to the case at bar.

Ruling: No. The factual circumstances obtaining in the present case do not make out a case of
extraordinary inflation or devaluation as would justify the application of Article 1250 of the Civil
Code. The erosion of the value of the Philippine peso in the past three or four decades, starting in
the mid-sixties, is characteristic of most currencies. And while the Court may take judicial notice
of the decline in the purchasing power of the Philippine currency in that span of time, such
downward trend of the peso cannot be considered as the extraordinary phenomenon
contemplated by Article 1250 of the Civil Code. Furthermore, absent an official pronouncement
or declaration by competent authorities of the existence of extraordinary inflation during a given
period, the effects of extraordinary inflation are not to be applied.
 EQUITABLE PCI BANK vs. SANDOVAL-GUTIERREZ
G.R. No. 171545 December 19, 2007

Facts: On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or
reformation of documents and contracts against Equitable and its employees. They claimed that
they were induced by the bank to avail of its peso and dollar credit facilities by offering low
interests so they accepted and signed Equitable‘s proposal. They alleged that they were unaware
that the documents contained escalation clauses granting Equitable authority to increase interest
without their consent. These were rebutted by the bank. RTC ordered the use of the 1996 dollar
exchange rate in computing respondent‘s dollar-denominated loans. CA granted the Bank‘s
application for injunction but the properties were sold to public auction.

Issue: Whether or not there was an extraordinary deflation.

Ruling: Extraordinary inflation exists when there is an unusual decrease in the purchasing power
of currency and such decrease could not be reasonably foreseen or was beyond the contemplation
of the parties at the time of the obligation. Deflation is an inverse situation.

Despite the devaluation of the peso, BSP never declared a situation of extraordinary inflation.
Respondents should pay their dollar denominated loans at the exchange rate fixed by the BSP on
the date of maturity.

Decision of lower courts are reversed and set aside.

 Substantial Payment

Palanca v. Guides, 452 S 461

G.R. No. 146365 February 28, 2005

Facts: On August 23, 1983, Simplicio Palanca executed a Contract to Sell a parcel of land on
installment with a certain Josefa Jopson for P11, 250.00. Jopson paid the petitioner in the amount
of P1, 650 as her down payment, leaving a balance of P9, 600.00. Sometime in December 1983,
Jopson assigned and transferred all her rights and interests over the property in question in favor
of the respondent Ulyssis Guides. In the deed of transfer, respondent undertook to assume the
balance of Jopson‗s account and to pay the same in accordance with the terms and conditions of
the Contract to Sell. After reimbursing Jopson P1,650.00, respondent acquired possession of the
lot and paid petitioner the stipulated amortizations which were in turn acknowledged by
petitioner through receipts issued in the name of respondent. Believing that she had fully paid the
purchase price of the lot, respondent verified the status of the lot with the Register of Deeds, only
to find out that title thereto was not in the name of the petitioner as it was covered by Transfer
Certificate of Title No. 105742 issued on 26 September 1978 in the name of a certain Carissa T.
de Leon. Respondent went to petitioner‗s office to secure the title to the lot, but petitioner
informed her that she could not as she still had unpaid accounts. Thereafter, respondent, through
a lawyer, sent a letter to petitioner demanding compliance with his obligation and the release of
the title in her name. As petitioner did not heed her demands, respondent, joined by her husband,
filed a Complaint for specific performance with damages. Petitioner sought the dismissal of the
complaint on the ground of respondent‗s alleged failure to comply with the mandatory
requirement of Presidential Decree (P.D.) No. 1508. Respondent alleged that she paid petitioner
P14,880.00, which not only fully settled her obligation to him, but in fact overpaid it by
P3,620.00. In addition, she claimed that petitioner charged her devaluation charges and illegal
interest. At the pre-trial in 1989, both parties admitted that Jopson assigned her rights over the
property in favor of respondent and respondent paid petitioner the subsequent monthly
amortizations on installments. Petitioner likewise acknowledged the payments made by
respondent as stated in the statement of accounts initiated by its manager, Oscar Rivera. On
November 1996, the trial court rendered its decision ordering the petitioner to execute in favor of
the respondent a Deed of Sale. The petitioner appealed to the Court of Appeals; however, it
affirmed the decision of the lower court.

Issue: Whether or not the petitioner has a right to claim for unpaid charges as stipulated in the
contract from the private respondent.
Ruling: The Supreme Court held that primarily preventing petitioner from recovering the
amounts claimed from respondent is the effective waiver of these charges. Assuming that said
charges are due, petitioner waived the same when he accepted respondent‗s payments without
qualification, without any specific demand for the individual charges he now seeks to recover.
The same goes true for the alleged forfeiture of the down payment made by Jopson. From its
own Statements of Accounts and Payments Made, petitioner credited to respondent‗s account the
P1,650.00 down payment paid by Jopson at the commencement of the contract. There is no
indication that he informed respondent of the alleged forfeiture, much more demanded the
payment again of the amount previously paid by Jopson. Art. 1235 of the Civil Code which
provides that 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, is in point. Thus, when petitioner accepted respondent‗s installment payments
despite the alleged charges incurred by the latter, and without any showing that he protested the
irregularity of such payment, nor demanded the payment of the alleged charges, respondent‗s
liability, if any for said charges, is deemed fully satisfied. The petition is denied.
 Creditor's Right of Payment

Dela Cruz v Concepcion

GR No. 172825, October 11, 2012

FACTS:
On March 25, 1996, petitioners entered into a Contract to Sell with respondent
involving a house and lot in Antipolo City for a 2 million consideration. Respondent made the
following payments, to wit:
(1) 500,000 by way of downpayment;
(2) 500,000 on May 30, 1996;
(3) 500,000 paid on January 22, 1997; and
(4) 500,000 bounced check dated June 30, 1997 which was replaced.
Thus, Respondent was able to pay the 2 million total obligation.
Before respondent issued the 500,000 replacement check, she told petitioners that based
on the computation of her accountant as of July 6, 1997, her unpaid obligation which includes
interests and penalties was only 200,000. Petitioners agreed with respondent. Despite repeated
demands, petitioners failed to collect the amounts they claimed. Hence, the complaint for sum of
money with damages filed with the RTC of Antipolo Rizal. In her answer with Compulsory
counterclaim and during the presentation of evidence, respondent presented a receipt purportedly
indicating payment of the remaining balance of 200,000 to Losloso who allegedly received the
same on behalf of petitioners.

ISSUE:
Whether it was proper to dismiss the complaint based on the ground that the defendant fully
paid the claims of plaintiff

RULING:
Yes. When the issue is tried without the objection of the parties, it should be treated with all
respects as if it had been raised in the pleadings. On the other hand, when there is an
objection, the evidence may be admitted where its admission will not prejudice him.
Thus, while respondent judicially admitted in her answer that she only paid 2 million and that
she still owed petitioners 200,000, respondent claimed later and in fact, submitted an evidence to
show that she already paid the whole amount of her unpaid obligation. It is noteworthy what
when respondent presented evidence of payment, petitioners did not object thereto.
To be sure, petitioners were given ample opportunity to refute the fact of and present evidence to
prove payment.
 PCIB v. CA
481 S 127 G.R. No. 121989 January 31, 2006

Facts: PCIB and MBC were joint bidders in a foreclosure sale held of assorted mining
machinery and equipment previously mortgaged to them by Philippine Iron Mines. Atlas agreed
to purchase some of these properties and the sale was evidenced by a Deed of Sale with a down
payment of P12,000,000 and the balance of P18,000,000 payable in 6 monthly installments. In
compliance with the contract, Atlas issued Hong Kong and shanghai Bank check amounting to
P12,000,000. Atlas paid to NAMAWU the amount of P4,298,307.77 in compliance with the writ
of garnishment issued against Atlas to satisfy the judgment in favor of NAMAWU. Atlas alleged
that there was overpayment, hence the suit against PCIB to obtain reimbursement. PCIB
contended that Atlas still owed P908,398.75 because NAMAWU had been partially paid in the
amount of P601,260.00. RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the
decision.

Issue: Whether or not Atlas had complied with its obligation to PCIB.

Ruling: While the original amount sought to be garnished was P4,298,307,77, the partial
payment of P601,260 naturally reduced it to P3,697,047.77 Atlas overpaid NAMAWU, thus the
remedy if Atlas would be to proceed against NAAWU nut not against PCIB in relation to article
1236 of the Civil Code The petition is partly granted.CA decision is reversed and set aside and in
lieu thereof Atlas is ordered to pay PCIB the sum of P146,058.96, with the legal interest
commencing from the time of first demand on August 22, 1985
 Lagon v. Hooven Comalco
G.R. No. 135657 January 17, 2001

Facts: Jose V. Lagon is a businessman and owner of a commercial building in Tacurong, Sultan
Kudarat. Respondent HOOVEN on the other is a domestic corporation known to be the biggest
manufacturer and installer of aluminum materials in the country with branch office at E. Quirino
Avenue, Davao City. Sometime in April 1981 Lagon and HOOVEN entered into two (2)
contracts, both denominated Proposal, whereby for a total consideration of P104,870.00
HOOVEN agreed to sell and install various aluminum materials in Lagon‗s commercial building
in Tacurong, Sultan Kudarat. Upon execution of the contracts, Lagon paid HOOVEN P48,000.00
in advance. Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty
of breach of contract by failing to deliver and install some of the materials specified in the
proposals; that as a consequence he was compelled to procure the undelivered materials from
other sources; that as regards the materials duly delivered and installed by HOOVEN, they were
fully paid. He counterclaimed for actual, moral, exemplary, temperate and nominal damages, as
well as for attorney‗s fees and expenses of litigation.

Issue: Whether or not all the materials specified in the contracts had been delivered and installed
by respondent in petitioner‗s commercial building in Tacurong, Sultan Kudarat.

Ruling: Firstly, the quantity of materials and the amounts sated in the delivery receipts do not
tally with those in the invoices covering them, notwithstanding that, according to HOOVEN OIC
Alberto Villanueva, the invoices were based merely on the delivery receipts. Secondly, the total
value of the materials as reflected in all the invoices is P117,329.00 while under the delivery
receipts it is only P112,870.50, or a difference of P4,458.00 Even more strange is the fact that
HOOVEN instituted the present action for collection of sum of money against Lagon only on 24
February 1987, or more than five (5) years after the supposed completion of the project. Indeed,
it is contrary to common experience that a creditor would take its own sweet time in collecting
its credit, more so in this case when the amount involved is not miniscule but substantial. All the
delivery receipts did not appear to have been signed by petitioner or his duly authorized
representative acknowledging receipt of the materials listed therein. A closer examination of the
receipts clearly showed that the deliveries were made to a certain Jose Rubin, claimed to be
petitioner‗s driver, Armando Lagon, and a certain bookkeeper. Unfortunately for HOOVEN, the
identities of these persons were never been established, and there is no way of determining now
whether they were indeed authorized representatives of petitioner.
 BPI v. CA
G.R. No. 104612 May 10, 1994

Facts: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the
corporation, had an AND/OR joint account with Commercial Bank and Trust Co (CBTC), the
predecessor-in-interest of petitioner Bank of the Philippine Islands. Lim withdraw funds from
such account and used it to open a joint checking account (an AND account) with Mariano
Velasco. When Velasco died in 1977, said joint checking account had P662,522.87. By virtue of
an Indemnity Undertaking executed by Lim and as President and General Manager of Eastern
withdrew one half of this amount and deposited it to one of the accounts of Eastern with CBTC.
Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and
CBTC executed a Holdout Agreement providing that the loan was secured by the Holdout of the
C/A No. 2310-001-42 referring to the joint checking account of Velasco and Lim. Meanwhile, a
judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the account
of Velasco and Lim. Asserting that the Holdout Agreement provides for the security of the loan
obtained by Eastern and that it is the duty of CBTC to debit the account of respondents to set off
the amount of P73,000 covered by the promissory note, BPI filed the instant petition for
recovery. Private respondents Eastern and Lim, however, assert that the amount deposited in the
joint account of Velasco and Lim came from Eastern and therefore rightfully belong to Eastern
and/or Lim. Since the Holdout Agreement covers the loan of P73,000, then petitioner can only
hold that amount against the joint checking account and must return the rest.

Issues: Whether or not BPI can demand the payment of the loan despite the existence of the
Holdout Agreement.

Ruling: Yes. The Holdout Agreement conferred on CBTC the power, not the duty, to set off the
loan from the account subject of the Agreement. When BPI demanded payment of the loan from
Eastern, it exercised its right to collect payment based on the promissory note, and disregarded
its option under the Holdout Agreement. Therefore, its demand was in the correct order.

Regarding the second issue, BPI was the debtor and Eastern was the creditor with
respect to the joint checking account. Therefore, BPI was obliged to return the amount of the said
account only to the creditor. When it allowed the withdrawal of the balance of the account by the
heirs of Velasco, it made the payment to the wrong party. The law provides that payment made
by the debtor to the wrong party does not extinguish its obligation to the creditor who is without
fault or negligence. Therefore, BPI was still liable to the true creditor, Eastern.
 REPUBLIC OF THE PHILIPPINES vs. THI THU THUY T. DE GUZMAN. G.R. No.
175021 June 15, 2011

Facts: On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition
and Issue Voucher for the acquisition of various building materials amounting to Two Million
Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two Pesos and Sixty Centavos
(P2,288,562.60) for the construction of a four-storey condominium building with roof deck at
Camp Crame, Quezon City. On November 5, 1997, the respondent, through counsel, sent a letter
dated October 20, 1997 to the PNP, demanding the payment of P2,288,562.60 for the
construction materials MGM procured for the PNP under their December 1995 Contract. On
November 17, 1997, the PNP, through its Officer-in-Charge, replied to respondent‗s counsel,
informing her of the payment made to MGM via Land Bank of the Philippines (LBP) Check No.
0000530631, as evidenced by Receipt No. 001, issued by the respondent to the PNP on April 23,
1996. On November 26, 1997, respondent, through counsel, responded by reiterating her demand
and denying having ever received the LBP check, personally or through an authorized person.
She also claimed that Receipt No. 001, a copy of which was attached to the PNP‗s November
17, 1997 letter, could not support the PNP‗s claim of payment as the aforesaid receipt belonged
to Montaguz Builders, her other company, which was also doing business with the PNP, and not
to MGM, with which the contract was made.

Issue: Whether or not the petitioner was able to discharge its contractual obligation with the
respondent.

Ruling: No, the petitioner did not discharge its contractual obligations to the herein respondent.
Petitioner‗s admissions and declarations, made in various stages of the proceedings are express
admissions, which cannot be overcome by allegations of respondent‗s implied admissions.
Moreover, petitioner cannot controvert its own admissions and it is stopped from denying that it
had a contract with MGM, which MGM duly complied with. The Court of Appeals held that
while the PNP‗s own Warrant Register disclosed that the payment due to MGM was received by
Cruz, on behalf of Highland Enterprises, the PNP‗s contract was clearly with MGM, and not
with Highland Enterprises. Thus, in order to extinguish its obligation, the petitioner should have
directed its payment to MGM unless MGM authorized a third person to accept payment on its
behalf.
Wherefore, the petition was denied and the decision of the Court of Appeals was affirmed with
the modification.

PCIB v. Franco
G.R. No. 180069 March 5, 2014

Facts:
Respondent who was 51 years old then decided to save up for his retirement and to invest
his hard earned money. He chose to deposit his savings with defendant bank primarily because of
the latter's representation that by making such investment, he was actually providing for his
future since his investment would be commingled, pooled and automatically rolled-over for
better investment return and which will provide for his needs upon retirement, without need for
him to take any further action. Respondent secured from the bank several Trust Indenture
Certificates.
Sometime in 1995, plaintiff discovered that one of his children had leukemia and in the
ensuing hospitalization and treatment, plaintiff spent a lot of money; that because his funds were
already exhausted, plaintiff then turned to his Trust Indenture Certificates and started inquiring as
to how he could liquidate the trust. In the beginning, defendant bank constantly asked for time to
look for his records and promised to have an answer before July 15, 1998. On June 22 however,
plaintiff received a letter from defendants counsel denying plaintiffs request for payment by
stating that due to the conversion of all outstanding PCI Bank trust indenture accounts into
common trust certificates, all such PCI Bank trust indenture certificates have been rendered null
and void. Defendant also argues that the present action had already prescribed.
Plaintiff now prays for the payment of the amounts under the Trust Indenture Certificates, plus
interest, moral and exemplary damages and attorney's fees.

Issue: Whether or not plaintiff is entitled the relief he seeks.

Ruling:
In this case, respondents‘ possession of the original copies of the subject TICs strongly supports
his claim that petitioner Banks obligation to return the principal plus interest of the money
placement has not been extinguished. The TICs in the hands of respondent is a proof of
indebtedness and a prima facie evidence that they have not been paid. Petitioner Bank could have
easily presented documentary evidence to dispute the claim, but it did not. In its omission, it may
be reasonably deduced that no evidence to that effect really exist. Worse, the testimonies of
petitioner Banks own witnesses, reinforce, rather than belie, respondent's allegations of non-
payment.
 Audion Electric v. NLRC
G.R. No. 106648 June 17, 1999

Facts: From the position paper and affidavit corroborated by oral testimony, it appears that
complainant was employed by respondent Audion Electric Company on June 30, 1976 as
fabricator and continuously rendered service assigned in different offices or projects as helper
electrician, stockman and timekeeper. He has rendered thirteen (13) years of continuous, loyal
and dedicated service with a clean record. On August 3, complainant was surprised to receive a
letter informing him that he will be considered terminated after the turnover of materials,
including respondents‗ tools and equipment not later than August 15, 1989. Complainant claims
that he was dismissed without justifiable cause and due process and that his dismissal was done
in bad faith which renders the dismissal illegal. For this reason, he claims that he is entitled to
reinstatement with full back wages. He also claims that he is entitled to moral and exemplary
damages. He includes payment of his overtime pay, project allowance, minimum wage increase
adjustment, proportionate 13th month pay and attorney‗s fees.

Issues:
1. Whether or not the respondent NLRC committed grave abuse of discretion amounting to lack
or excess of jurisdiction when it ruled that private respondent was a regular employee and not a
project employee.
2. Whether or not petitioner was denied due process when all the money claims of private
respondent, i.e. overtime pay, project allowances, salary differential, proportionate 13th month
pay, moral and exemplary damages as well as attorney‗s fees, were granted.

Ruling: Respondent‗s assigning complainant to its various projects did not make complainant a
project worker. As found by the Labor Arbiter, it appears that complainant was employed by
respondent as fabricator and or projects as helper electrician, stockman and timekeeper. Simply
put, complainant was a regular non-project worker. Private respondent clearly specified in his
affidavit the specific dates in which he was not paid overtime pay, that is, from the period March
16, 1989 to April 3, 1989 amounting to P765.63, project allowance from April 16, 1989 to July
31, 1989 in the total amount of P255.00, wage adjustment for the period from August 1, 1989 to
August 14, 1989 in the amount of P256.50 and the proportionate 13th month pay for the period
covering January to May 1988, November-December 1988, and from January to August 1989.
This same affidavit was confirmed by private respondent in one of the scheduled hearings where
he moved that he be allowed to present his evidence ex-parte for failure of petitioner or any of
his representative to appear thereat. On the other hand, petitioner submitted its unverified
Comment to private respondent‗s complaint stating that he had already satisfied the unpaid
wages and 13th month pay claimed by private respondent, but this was not considered by the
Labor Arbiter for being unverified. Petitioner failed to rebut the claims of private respondent. It
failed to show proof by means of payroll or other evidence to disprove the claim of private
respondent. Petitioner was given the opportunity to cross-examine private respondent yet
petitioner forfeited such chance when it did not attend the hearing, and failed to rebut the claims
of private respondent. However, the award of moral and exemplary damages must be deleted for
being devoid of legal basis. Moral and exemplary damages are recoverable only where the
dismissal of an employee was attended by bad faith or fraud, or constituted an act oppressive to
labor, or was done in a manner contrary to morals, good customs or public policy. The person
claiming moral damages must prove the existence of bad faith by clear and convincing evidence
for the law always presumes good faith. It is not enough that one merely suffered sleepless
nights, mental anguish, serious anxiety as the result of the actuations of the other party.
Invariably, such action must be shown to have been willfully done in bad faith or with ill-motive,
and bad faith or ill motive under the law cannot be presumed but must be established with clear
and convincing evidence. Private respondent predicated his claim for such damages on his own
allegations of sleepless nights and mental anguish, without establishing bad faith, fraud or ill
motive as legal basis therefor. Private respondent not being entitled to award of moral damages,
an award of exemplary damages is likewise baseless. Where the award of moral and exemplary
damages is eliminated, so must the award for attorney‗s fees be deleted. Private respondent has
not shown that he is entitled thereto pursuant to Art. 2208 of the Civil Code.
 Payment by Third Person

Land Bank of the Philippines v. Ong

G.R. No. 190755 November 24, 2010

Facts: Spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the
amount of Php 16 million. The loan was secured by three (3) residential lots, five (5) cargo
trucks, and a warehouse. Under the loan agreement, Php 6 million of the loan would be short-
term and would mature on February 28, 1997, while the balance of Php 10 million would be
payable in seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an
acceleration clause wherein any default in payment of amortizations or other charges would
accelerate the maturity of the loan. Subsequently, however, the Spouses Sy found they could no
longer pay their loan. They sold three (3) of their mortgaged parcels of land for Php 150,000 to
Angelina Gloria Ong, Evangeline‘s mother, under a Deed of Sale with Assumption of Mortgage.
Evangeline‗s father, petitioner Alfredo Ong, later went to Land Bank to inform them about the
sale and assumption of mortgage. Land Bank Branch Head told Alfredo that there was nothing
wrong with agreement with the Spouses Sy and provided him requirements for the assumption of
mortgage. Alfredo later found out that his application for assumption of mortgage was not
approved by Land Bank. On December 12, 1997, Alfredo initiated an action for recovery of sum
of money with damages against Land Bank, as Alfredo‗s payment was not returned by Land
Bank. Alfredo said that Land Bank‗s foreclosure without informing him of the denial of his
assumption of the mortgage was done in bad faith and that he was made to believed that
P750,000 would cause Land Bank to approve his assumption to the mortgage.
He also claimed incurring expenses for attorney‗s fees of Php 150,000, filing fee of Php 15,000,
and Php 250,000 in moral damages.
This prompted Alfredo to file a case with RTC against Land Bank. On its decision to the case,
RTC held that the contract approving the assumption of mortgage was not perfected as a result of
the credit investigation conducted on Alfredo where he was disapproved. As such, it ruled that it
would be incorrect to consider Alfredo a third person with no interest in the fulfilment of the
obligation under Article1236 of the Civil Code. Although Land Bank was not bound by the Deed
between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Bank‗s
active preparations for Alfredo‗s assumption of mortgage essentially novated the agreement.

Issues:

1. Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not
apply and in finding that there is novation.
2. Whether or not the Court of Appeals misconstrued the evidence and the law when it affirmed
the trial court decision‗s ordering Land Bank to pay Ong the amount of Php750,000.00 with
interest at 12% annum.
Ruling: The Supreme Court affirmed with modification to the appealed decision that recourse
against Land Bank. Land Bank contends that Art.1236 of the Civil Code backs their claim that
Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. The court
agreed with Land Bank on the point mentioned as to the first part of paragraph 1 of Art. 1236.
However, Alfredo made a conditional payment so that the properties subject of the Deed of Sale
with Assumption of Mortgage which Land Bank required from him would be approved. Thus, he
made payment not as a debtor but as a prospective mortgagor. Furthermore, the contract between
Alfredo and Land Bank was not perfected nor consummated because of the adverse disapproval
of the proposed assumption.
The Supreme Court did not agree with the Court of Appeals that there was novation in the
contract between the parties because not all elements of novation were present. The court further
stresses that the instant case would not have been litigated had Land Bank been more
circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even
before a credit investigation was underway and also failed to informed him of the disapproval.
The court found that there was negligence to a certain degree on the part of Land Bank in
handling the transaction with Alfredo. A bank as a business entity should observe a higher
standard of diligence when dealing with the public which Land Bank neglect to observe in this
case. The petitioner‗s appeal was denied by the Supreme Court and the decision of the Court of
Appeals was affirmed with modification in that the amount of Php 750,000 will earn interest at
6% per annum and the total aggregate monetary awards will in turn earn 12% per annum rom the
finality of this Decision until fully paid.
 Where Payment Must Be
Made

Binalbagan v. CA
G.R. No. 100594 March 10, 1993

Facts: On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as
Judicial Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell
and a Deed of Sale of forty-two subdivision lots within the Phib-Khik Subdivision of the
Puentevella family, conveying and transferring said lots to petitioner Binalbagan Tech., Inc.
(hereinafter referred to as Binalbagan). In turn Binalbagan, through its president, petitioner
Hermilo J. Nava (hereinafter referred to as Nava), executed an Acknowledgment of Debt with
Mortgage Agreement, mortgaging said lots in favor of the estate of Puentevella. Upon the
transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the
lots and the building and improvements thereon. Binalbagan started operating a school on the
property from 1967 when the titles and possession of the lots were transferred to it. It appears
that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at
Himamaylan, Negros Occidental. In this pending case the intestate estate of the late Luis B.
Puentevella, thru Judicial Administratrix, Angelina L. Puentevella sold said aforementioned lots
to Raul Javellana with the condition that the vendee-promisee would not transfer his rights to
said lots without the express consent of Puentevella and that in case of the cancellation of the
contract by reason of the violation of any of the terms thereof, all payments therefor made and all
improvements introduced on the property shall pertain to the promissor and shall be considered
as rentals for the use and occupation thereof. Javellana having failed to pay the installments for a
period of five years, Civil Case No. 7435 was filed by defendant Puentevella against Raul
Javellana and the Southern Negros Colleges which was impleaded as a party defendant it being
in actual possession thereof, for the rescission of their contract to sell and the recovery of
possession of the lots and buildings with damages. Accordingly, after trial, judgment was
rendered in favor of Puentevella. Came December 29, 1965 when the plaintiffs in the instant case
on appeal filed their Third-Party Claim based on an alleged Deed of Sale executed in their favor
by spouses Jose and Lolita Lopez, thus Puentevella was constrained to assert physical possession
of the premises to counteract the fictitious and unenforceable claim of herein plaintiffs. Upon the
filing of the instant case for injunction and damages on January 3, 1966, an exparte writ of
preliminary injunction was issued by the Honorable Presiding Judge Carlos Abiera, which order,
however, was elevated to the Honorable Court of Appeals which issued a writ of preliminary
injunction ordering Judge Carlos Abiera or any other person or persons in his behalf to refrain
from further enforcing the injunction issued by him in this case and from further issuing any
other writs or prohibitions which would in any manner affect the enforcement of the judgment
rendered in Civil Case 7435, pending the finality of the decision of the Honorable Court of
Appeals in the latter case. Thus, defendant Puentevella was restored to the possession of the lots
and buildings subject of this case. However, plaintiffs filed a petition for review with the
Supreme Court which issued a restraining order against the sale of the properties claimed by the
spouses-plaintiffs. When the Supreme Court dissolved the aforesaid injunction issued by the
Court of Appeals, possession of the building and other property was taken from petitioner
Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan
transferred its school to another location. In the meantime, the defendants in Civil Case No. 293
with the Court of Appeals interposed an appeal. On October 30, 1978, the Court of Appeals
rendered judgment, reversing the appealed decision in Civil Case No. 293. On April 29, 1981,
judgment was entered in CA-G.R. No. 42211, and the record of the case was remanded to the
court of origin on December 22, 1981. Consequently, in 1982 the judgment in Civil Case No.
7435 was finally executed and enforced, and petitioner was restored to the possession of the
subdivision lots on May 31, 1982. It will be noted that petitioner was not in possession of the lots
from 1974 to May 31, 1982. After petitioner Binalbagan was again placed in possession of the
subdivision lots, private respondent Angelina Echaus demanded payment from petitioner
Binalbagan for the subdivision lots, enclosing in the letter of demand a statement of account as
of September 1982 showing a total amount due of P367,509.93, representing the price of the land
and accrued interest as of that date. As petitioner Binalbagan failed to effect payment, private
respondent Angelina P. Echaus filed on October 8, 1982 Civil Case No. 1354 of the Regional
Trial Court of the Sixth Judicial Region stationed in Himamaylan, Negros Occidental against
petitioners for recovery of title and damages. Private respondent Angelina P. Echaus filed an
amended complaint by including her mother, brothers, and sisters as co-plaintiffs, which was
admitted by the trial court on March 18, 1983.

Issue: Whether or not the petition is with merit.

Ruling: No. A party to a contract cannot demand performance of the other party's obligations
unless he is in a position to comply with his own obligations. Similarly, the right to rescind a
contract can be demanded only if a party thereto is ready, willing and able to comply with his
own obligations there under (Art. 1191, Civil Code). In a contract of sale, the vendor is bound to
transfer the ownership of and deliver, as well as warrant, the thing which is the object of the sale
(Art. 1495, Civil Code); he warrants that the buyer shall, from the time ownership is passed, have
and enjoy the legal and peaceful possession of the thing. As afore-stated, petitioner was evicted
from the subject subdivision lots in 1974 by virtue of a court order in Civil Case No. 293 and
reinstated to the possession thereof only in 1982. During the period, therefore, from 1974 to
1982, seller private respondent Angelina Echaus' warranty against eviction given to buyer
petitioner was breached though, admittedly, through no fault of her own. It follows that during
that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand
compliance of the prestation of petitioner to pay the price of said subdivision lots. In short, her
right to demand payment was suspended during that period, 1982. The prescriptive period within
which to institute an action upon a written contract is ten years (Art. 1144, Civil Code). The
cause of action of private respondent Echaus is based on the deed of sale afore-mentioned. The
deed of sale whereby private respondent Echaus transferred ownership of the subdivision lots
was executed on May 11, 1967. She filed Civil Case No. 1354 for recovery of title and damages
only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years
elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her action to
recover title. However, the period 1974 to 1982 should be deducted in computing the prescriptive
period for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus was
not in a legal position to initiate action against petitioner since as afore-stated, through no fault of
hers, her warranty against eviction was breached. In the case of it was held that a court order
deferring action on the execution of judgment suspended the running of the 5-year period for
execution of a judgment. Here the execution of the judgment in Civil Case No. 7435 was stopped
by the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil Case
No. 293 was dismissed that the writ of execution in Civil Case No. 7435 could be implemented
and petitioner Binalbagan restored to the possession of the subject lots. Deducting eight years
(1974 to 1982) from the period 1967 to 1982, only seven years elapsed. Consequently, Civil Case
No. 1354 was filed within the 10-year prescriptive period. Working against petitioner's position
too is the principle against unjust enrichment, which would certainly be the result if petitioner
were allowed to own the 42 lots without full payment thereof.
 When Payment Must Be Made

Lorenzo Shipping v. BJ Marthel

G.R. No. 145483 November 19, 2004

Facts: BJ Marthel supplied Lorenzo Shipping with spare parts for its marine engines. In 1989,
Lorenzo Shipping asked for a quotation for various machine parts. BJ Marthel's formal quotation
provided that delivery shall be within 2 months after receipt of firm order wherein 25% shall be
paid as down payment upon delivery with the balance payable in 5 bimonthly equal installments
not to exceed 90 days.
On Nov. 2, 1989, Lorenzo Shipping issued a purchase order for 1 set of cylinder liner. Instead of
paying the 25% down payment, Lorenzo Shipping issued 10 postdated checks that were
supposed to represent the full payment. Subsequently, it issued a second purchase order for
another cylinder liner on Jan. 15, 1990. Like the first purchase order, the second one did not state
the date of the delivery.
One of Lorenzo Shipping's checks was dishonored due to insufficiency of funds. BJ Marthel
returned the remaining 9 checks. On April 20, 1990, the 2 cylinder liners were delivered at
Lorenzo Shipping's warehouse.
BJ Marthel sent a demand letter for Lorenzo Shipping to pay. Instead of heeding the demand,
Lorenzo Shipping offered to pay only P150K since the cylinder liners were delivered late and to
pay the balance from the proceeds of its sale of the cylinder liners.
BJ Marthel filed an action for sum of money and damages before the RTC. Lorenzo Shipping
alleged that time was of the essence in the delivery and that the delivery was late. The RTC
dismissed the action and held BJ Marthel bound to the quotation particularly with respect to the
terms of payment and delivery. It also declared that BJ Marthel had agreed to the cancellation of
the contract when it returned the postdated checks.
BJ Marthel filed an appeal with the CA, which reversed and set aside the decision of the RTC.
The CA brushed aside Lorenzo Shipping's claim that time was of the essence in the contract of
sale. The CA also held that BJ Marthel could not have incurred delay as no demand was made.

Issues:
1. Whether or not BJ Marthel incurred delay in performing its obligation under the contract of
sale.
2. Whether or not the contract was validly rescinded by Lorenzo Shipping.

Ruling: In determining whether time is of the essence, the ultimate criterion is the actual or
apparent intention of the parties. Before time may be so regarded by a court, there must be a
sufficient manifestation either in the contract itself or the surrounding circumstances of that
intention.
While the quotation by BJ Marthel stated that the cylinder liners were to be delivered within 2
months from receipt of the firm order and that the 25% down payment was due upon the cylinder
liners' delivery, the purchase orders by Lorenzo Shipping omitted these items. The first purchase
order made no mention of the due dates of delivery and of the payment of 25% down payment.
The second purchase order did not indicate the date of delivery.
In Smith, Bell & Co., Ltd. v. Matti, "when the time of delivery is not fixed or is stated in general
and indefinite terms, time is not of the essence of the contract." In such cases, the delivery must
be made within a reasonable time.
In the subject contracts, the failure of Lorenzo Shipping to notify BJ Marthel of the date when
the cylinder liners were to be used was fatal to its claim that time was of the essence. The earliest
maturity date of the checks was Jan. 18, 1990. As delivery of the checks could produce the effect
of payment only when they have been cashed, BJ Marthel's obligation to deliver the first cylinder
liner could not have arisen as early as Jan. 2, 1990 since Lorenzo Shipping had yet to fully pay
the first cylinder liner. The delivery of the cylinder liners was made within a reasonable period of
time. There having been no failure on the part of BJ Marthel to perform its obligation, the power
to rescind the contract was unavailing to Lorenzo Shipping. By accepting the cylinder liners,
Lorenzo Shipping waived the claimed delay in the delivery. The decision of the CA was
affirmed.
 Dacion En Pago

Luzon Development Bank v. Enriquez

G.R. No. 168646 January 12, 2011

Facts: On July 3, 1995, De Leon (owner of Delta) and his spouse obtained a P4 million loan
from the BANK for the express purpose of developing Delta Homes. To secure the loan, the
spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of
their properties,9 including Lot 4. Subsequently, this REM was amended10 by increasing the
amount of the secured loan from P4 million to P8 million. Both the REM and the amendment
were annotated on TCT No. T-637183.11 Sometime in 1997, DELTA executed a Contract to Sell
with respondent Angeles Catherine Enriquez (Enriquez)14 over the house and lot in Lot 4 with
the condition that upon full payment of the total consideration the Owner shall execute a final
deed of sale in favor of the Vendee/s.
When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM,
agreed to a dation in payment or a dacion en pago. Enriquez filed a complaint against DELTA
and the BANK before Office of the HLURB19 alleging that DELTA violated the terms of its
License to Sell. The HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the
purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from
Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from
liens and encumbrances. DELTA appealed the arbiter's Decision to the HLURB Board of
Commissioners.
The Commission ordered [Enriquez] to pay [DELTA] the amount due from the time she
suspended payment up to filing of the complaint with 12% interest thereon per annum; thereafter
the provisions of the Contract to Sell shall apply until full payment is made. The OP adopted by
reference the findings of fact and conclusions of law of the HLURB Decisions, which it affirmed
in toto. The CA ruled against the validity of the dacion en pago executed in favor of the BANK
on the ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez
via the Contract to Sell.

Issue: Whether the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK.

Ruling: The violation of Section 18 renders the mortgage executed by DELTA void therefore the
8 million loans are unsecured. Since the Contract to sell did not transfer ownership of Lot 4 to
Enriquez, said ownership remained with DELTA. DELTA could then validly transfer such
ownership (as it did) to another person (the BANK). However, the transferee BANK is bound by
the Contract to Sell and has to respect Enriquez's
rights thereunder. BANK is also not entitled to payment of the equivalent value of the lot 4 from
DELTA when this court ruled in favor of ENRIQUEZ over lot 4. Like in all contracts, the
intention of the parties to the dation in payment is paramount and controlling. The contractual
intention determines whether the property subject of the dation will be considered as the full
equivalent of the debt and will therefore serve as full satisfaction for the debt. "The dation in
payment extinguishes the obligation to the extent of the value of the thing delivered, either as
agreed upon by the parties or as may be proved, unless the parties by agreement, express or
implied, or by their silence, consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished."
 Estanislao v. East-West Banking Corp
G.R. No. 178537 February 11, 2008

Facts: On July 24,1997, petitioner obtained a loan for the respondent in the amount of
P3,925,000 evidenced by a promissory note and secured by two deeds of chattel mortgage
covering two dump trucks and a bulldozer . Petitioner defaulted entire obligation became due
and demandable. A deed of assignment was drafted by the respondent on October 6, 2000 and
March 8, 2001 respectively. Petitioners completed the delivery of heavy equipment mentioned in
the deed of assignment to respondent which accepted the same without protest or objection.
Respondent manifested to admit an amended complaint for the seizure and delivery of two more
heavy equipment which are covered under the second deed of the chattel mortgage. RTC ruled
that the deed of assignment and the petitioner‘s delivery of the heavy equipment effectively
extinguished the petitioner‘s obligation and respondent as stopped. CA reversed the decision
ordering the petitioner the outstanding debt of P4,275,919.69 plus interests.

Issue: Whether or not the Deed of Assignment operated to extinguish petitioner‘s debt to the
respondent such that the replevin suit could no longer prosper.

Ruling: The deed of assignment was a perfected agreement which extinguished petitioner‘s total
outstanding obligation to the respondent. The nature of the assignment was a dacion en pago
whereby property is alienated to the creditor in the satisfaction of a debt in money. Since the
agreement was consummated by the delivery of the last unit of heavy equipment under the deed,
petitioners are deemed to have been released from all their obligations from the respondents.
 Aquintey v. Tibong
G.R. No. 166704 December 20, 2006

Facts: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum of
money and damages against respondents. Agrifina alleged that Felicidad secured loans from her
on several occasions at monthly interest rates of 6% to 7%. Despite demands, spouses Tibong
failed to pay their outstanding loans of P773,000,00 exclusive of interests. However, spouses
Tiong alleged that they had executed deeds of assignment in favor of Agrifina amounting to
P546,459 and that their debtors had executed promissory notes in favor of Agrifina. Spouses
insisted that by virtue of these documents, Agrifina became the new collector of their debts.
Agrifina was able to collect the total amount of P301,000 from Felicdad‘s debtors. She tried to
collect the balance of Felicidad and when the latter reneged on her promise, Agrifina filed a
complaint in the office of the barangay for the collection of P773,000.00. There was no
settlement. RTC favored Agrifina. Court of Appeals affirmed the decision with modification
ordering defendant to pay the balance of total indebtedness in the amount of P51,341,00 plus 6%
per month.

Issue: Whether or not the deeds of assignment in favor of petitioner has the effect of payment of
the original obligation that would partially extinguish the same.

Ruling: Substitution of the person of the debtor may be affected by delegacion. Meaning, the
debtor offers, the creditor accepts a third person who consents to the substitution and assumes the
obligation. It is necessary that the old debtor be released from the obligation and the third person
or new debtor takes his place in the relation. Without such release, there is no novation. Court of
Appeals correctly found that the respondent‘s obligation to pay the balance of their account with
petitioner was extinguished pro tanto by the deeds of credit. CA decision is affirmed with the
modification that the principal amount of the respondents is P33,841.
 Payment by Cession or Assignment

Lo v. CA
G.R. No. 128667 December 17, 1999

Facts: At the core of the present controversy are two parcels of land measuring a total of 2,147
square meters, with an office building constructed thereon. Petitioner acquired the subject parcels
of land in an auction sale on November 9, 1995 for P20,170,000 from the Land Bank of the
Philippines (Land Bank). Private respondent National Onion Growers Cooperative Marketing
Association, Inc., an agricultural cooperative, was the occupant of the disputed parcels of land
under a subsisting contract of lease with Land Bank. The lease was valid until December 31,
1995. Upon the expiration of the lease contract, petitioner demanded that private respondent
vacate the leased premises and surrender its possession to him. Private respondent refused on the
ground that it was, at the time, contesting petitioner‗s acquisition of the parcels of land in
question in an action for annulment of sale, redemption and damages. Petitioner filed an action
for ejectment before the MTC. He asked, inter alia, for the imposition of the contractually
stipulated penalty of P5,000 per day of delay in surrendering the possession of the property to
him. On September 3, 1996, the trial court decided the case in favor of petitioner. On appeal to
the RTC, the MTC decision was affirmed in toto. The CA rendered its assailed decision affirming
the decision of the trial court, with the modification that the penalty imposed upon private
respondent for the delay in turning over the leased property to petitioner was reduced from P
5,000 to P 1000 per day.

Issue: Whether or not the Court of Appeals erred in reducing the penalty awarded by the trial
court, the same having been stipulated by the parties.

Ruling: No. Generally, courts are not at liberty to ignore the freedom of the parties to agree on
such terms and conditions as they see fit as long as they are not contrary to law, morals, good
customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated
penalty in the contract if it is iniquitous or unconscionable, or if the principal obligation has been
partly or irregularly complied with. This power of the courts is explicitly sanctioned by Article
1229 of the Civil Code which provides: Article 1229. The judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. The question of whether a penalty is reasonable or iniquitous is
addressed to the sound discretion of the court and depends on several factors, including, but not
limited to, the following: the type, extent and purpose of the penalty, the nature of the obligation,
the mode of breach and its consequences, the supervening realities, the standing and relationship
of the parties. In this case, the stipulated penalty was reduced by the appellate court for being
unconscionable and iniquitous. Petition denied; CA decision affirmed. SLU SOL 1-C Page 42
 Application of Payments

ASJ Corp. v. Evangelista

G.R. No. 158086 February 14, 2008

Facts: Respondents are engaged in the large-scale business of buying broiler eggs, hatching and
selling them and egg by-products. For incubation and hatchings, respondents availed of the
hatching services of ASJ Corp. They agreed o service fees of 80 centavos per egg. Service fees
were paid upon release. Fro consecutive times the respondents failed to pay the fee until such
time that ASJ retained the chicks demanding full payment from the respondent. ASJ received
P15,000 for partial payment but the chicks were still not released. RTC ruling, which was
affirmed by the Court of Appeals holding that ASJ Corp and Antonio San Juan be solidarily
liable to the respondents.

Issue: Whether or not petitioner‗s retention of the chicks and by-products, on account of
respondent‗s failure to pay the corresponding fees unjustified.

Ruling: Respondents' offer to partially satisfy their accounts is not enough to extinguish their
obligation. Respondents cannot substitute or apply as their payment the value of the chicks and
by-products they expect to derive because it is necessary that all the debts be paid for the same
kind. The petition is partly granted. The Court of Appeals decision is modified.
 Paculdo v. Regalado
G.R. No. 123855 November 20, 2000

Facts: On December 27, 1990, petitioner Nereo Paculdo and respondent Bonifacio Regalado
entered into a contract of lease over a parcel of land with a wet market building, located at
Fairview Park, Quezon City. The contract was for twenty five (25) years, commencing on
January 1, 1991 and ending on December 27, 2015. For the first five (5) years of the contract
beginning December 27, 1990, Nereo would pay a monthly rental of P450,000, payable within
the first five (5) days of each month with a 2% penalty for every month of late payment. Aside
from the above lease, petitioner leased eleven (11) other property from the respondent, ten (10)
of which were located within the Fairview compound, while the eleventh was located along
Quirino Highway Quezon City. Petitioner also purchased from respondent eight (8) units of
heavy equipment and vehicles in the aggregate amount of Php 1, 020,000. On account of
petitioner‗s failure to pay P361, 895.55 in rental for the month of May, 1992, and the monthly
rental of P450, 000.00 for the months of June and July 1992, the respondent sent two demand
letters to petitioner demanding payment of the back rentals, and if no payment was made within
fifteen (15) days from the receipt of the letter, it would cause the cancellation of the lease
contract. Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land
subject of the lease contract, including the improvements which petitioner introduced into the
land amounting to P35, 000,000.00, to Monte de Piedad Savings Bank, as a security for a loan.
On August 12, 1992, and the subsequent dates thereafter, respondent refused to accept
petitioner‗s daily rental payments. Subsequently, petitioner filed an action for injunction and
damages seeking to enjoin respondents from disturbing his possession of the property subject of
the lease contract. On the same day, respondent also filed a complaint for ejectment against
petitioner. The lower court rendered a decision in favor of the respondent, which was affirmed in
toto by the Court of Appeals.

Issue: Whether or not the petitioner was truly in arears in the payment of rentals on the subject
property at the time of the filing of the complaint for ejectment.

Ruling: No, the petitioner was not in arrears in the payment of rentals on the subject property at
the time of the filing of the complaint for ejectment. As found by the lower court there was a
letter sent by respondent to herein petitioner, dated November 19, 1991, which states that
petitioner‗s security deposit for the Quirino lot, be applied as partial payment for his account
under the subject lot as well as to the real estate taxes on the Quirino lot. Petitioner interposed no
objection, as evidenced by his signature signifying his conformity thereto. Meanwhile, in an
earlier letter, dated July 15, 1991, respondent informed petitioner that the payment was to be
applied not only to petitioner‗s accounts under the subject land and the Quirino lot but also to
heavy equipment bought by the latter from respondent. Unlike in the November letter, the July
letter did not contain the signature of petitioner. Petitioner submits that his silence is not consent
but is in fact a rejection. As provided in Article 1252 of the Civil Code, the right to specify which
among his various obligations to the same creditor is to be satisfied first rest with the debtor. In
the case at bar, at the time petitioner made the payment, he made it clear to respondent that they
were to be applied to his rental obligations on the Fairview wet market property. Though he
entered into various contracts and obligations with respondent, all the payments made, about
P11,000,000.00 were to be applied to rental and security deposit on the Fairview wet market
property. However, respondent applied a big portion of the amount paid by petitioner to the
satisfaction of an obligation which was not yet due and demandable- the payment of the eight
heavy equipments. Under the law, if the debtor did not declare at the time he made the payment
to which of his debts with the creditor the payment is to be applied, the law provided the
guideline; i.e. no payment is to be applied to a debt which is not yet due and the payment has to
be applied first to the debt which is most onerous to the debtor. The lease over the Fairview wet
market is the most onerous to the petitioner in the case at bar. Consequently, the petition is
granted.
 CBC v. CA
G.R. No. 121158 December 5, 1996

Facts: China Banking Corporation (China Bank) extended several loans to Native West
International Trading Corporation (Native West) and to So Ching, Native West's president.
Native West in turn executed promissory notes in favor of China Bank. So Ching, with the
marital consent of his wife, Cristina So, additionally executed two mortgages over their
properties, viz., a real estate mortgage executed on July 27, 1989 covering a parcel of land
situated in Cubao, Quezon City, under TCT No. 277797, and another executed on August 10,
1989 covering a parcel of land located in Mandaluyong, under TCT No. 5363. The promissory
notes matured and despite due demands by China Bank neither private respondents Native West
nor So Ching paid. Pursuant to a provision embodied in the two mortgage contracts, China Bank
filed petitions for the extra-judicial foreclosure of the mortgaged properties before Notary Public
Atty. Renato E. Taguiam for TCT No. 277797, and Notary Public Atty. Reynaldo M. Cabusora
for TCT No. 5363, copies of which were given to the spouses So Ching and Cristina So. After
due notice and publication, the notaries public scheduled the foreclosure sale of the spouses' real
estate properties on April 13, 1993. Eight days before the foreclosure sale, however, private
respondents filed a complaint with the Regional Trial Court for accounting with damages and
with temporary restraining order against petitioners alleging several grounds, including Violation
of Article 1308 of the Civil Code. On April 7, 1993, the trial court issued a temporary restraining
order to enjoin the foreclosure sale. Petitioners moved for reconsideration, but it was denied in
an Order dated September 23, 1993. To annul the trial court's Orders of April 28, 1993 and
September 23, 1993, petitioners elevated the case through certiorari and prohibition before public
respondent Court of Appeals. In a decision dated January 17, 1995, respondent Court of Appeals
held that Administrative Circular No. 3 is the governing rule in extra-judicial foreclosure of
mortgage, which circular petitioners however failed to follow, and with respect to the publication
of the notice of the auction sale, the provisions of P.D. No. 1079 is the applicable statute, which
decree petitioners similarly failed to obey. Respondent Court of Appeals did not pass upon the
other issues and confined its additional lengthy discussion on the validity of the trial court's
issuance of the preliminary injunction, finding the same neither capricious nor whimsical
exercise of judgment that could amount to grave abuse of discretion. The Court of Appeals
accordingly dismissed the petition, as well as petitioners' subsequent motion for reconsideration.
Hence, the instant petition under Rule 45 of the Rules of Court reiterating the grounds raised
before respondent court.

Issue: Whether or not there was a correct application of payment in this case.

Ruling: An important task in contract interpretation is the ascertainment of the intention of the
contracting parties which is accomplished by looking at the words they used to project that
intention in their contract, i.e., all the words, not just a particular word or two, and words in
context, not words standing alone. Indeed, Article 1374 of the Civil Code, states the various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly." Applying the rule, we find that the parties intent
is to constitute the real estate properties as continuing securities liable for future obligations
beyond the amounts of P6.5 million and P3.5 million respectively stipulated in the July 27, 1989
and August 10, 1989 mortgage contracts. Thus, while the "whereas" clause initially provides that
"the mortgagee has granted, and may from time to time hereafter grant to the mortgagors credit
facilities not exceeding six million five hundred thousand pesos only (P6,500,000.00)" yet in the
same clause it provides that "the mortgagee had required the mortgagor(s) to give collateral
security for the payment of any and all obligations heretofore contracted/incurred and which may
thereafter be contracted/incurred by the mortgagor(s) and/or debtor(s), or any one of them, in
favor of the mortgagee" which qualifies the initial part and shows that the collaterals or real
estate properties serve as securities for future obligations. The first paragraph which ends with
the clause, "the idea being to make this deed a comprehensive and all-embracing security that it
is" supports this qualification. Similarly, the second paragraph provides that "the mortgagee may
take further advances and all sums whatsoever advanced by the mortgagee shall be secured by
this mortgagee." And although it was stated that "[t]he said credit shall extend to any account
which shall, within the said limit of P6,500,000.00 exclusive of interest", this part of the second
sentence is again qualified by its succeeding portion which provides that "this mortgage shall
stand as security for all indebtedness of the mortgagor(s) and/or debtor(s), or any one of them, at
any and all times outstanding." Again, under the third paragraph, it is provided that "the
mortgagee may from time to time grant the mortgagor(s)/debtor(s) credit facilities exceeding the
amount secured by this mortgage." The fourth paragraph, in addition, states that "all such
withdrawals, and payments, whether evidenced by promissory notes or otherwise, shall be
secured by this mortgage" which manifestly shows that the parties principally intended to
constitute the real estate properties as continuing securities for additional advancements which
the mortgagee may, upon application, extend. It is well settled that mortgages given to secure
future advancements or loans are valid and legal contracts, and that the amounts named as
consideration in said contracts do not limit the amount for which the mortgage may stand as
security if from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered. The allegations stated are a clear admission that they were unable
to settle to the fullest their obligation. Foreclosure is valid where the debtors, as in this case, are
in default in the payment of their obligation. The essence of a contract of mortgage indebtedness
is that a property has been identified or set apart from the mass of the property of the debtor-
mortgagor as security for the payment of money or the fulfillment of an obligation to answer the
amount of indebtedness, in case of default of payment. It is a settled rule that in a real estate
mortgage when the obligation is not paid when due, the mortgagee has the right to foreclose the
mortgage and to have the property seized and sold in view of applying the proceeds to the
payment of the obligation. In fact, aside from the mortgage contracts, the promissory notes
executed to evidence the loans also authorize the mortgagee to foreclose on the mortgages. Thus,
China Banking Corporation was authorized to sell at public or private sales
such securities or things of value for the purpose of applying their proceeds to such payments.
And while private respondents aver that they have already paid ten million pesos, an allegation
which has still to be settled before the trial court, the same cannot be utilized as a shield to enjoin
the foreclosure sale. A mortgage given to secure advancements, is a continuing security and is
not discharged by repayment of the amount named in the mortgage, until the full amount of the
advancements are paid.
 Mobil v. CA
G.R. No. 103052 May 23, 1997

Facts: The petition for review on certiorari in the case at bar seeks the reversal of the decision of
the Court of Appeals, affirming that 2 of the Regional Trial Court (RTC), Branch 101, of Quezon
City, which found herein petitioners Mobil Oil Philippines, Inc., and Caltex Philippines, Inc.,
jointly and severally liable to private respondent Continental Cement Corporation in the amount
of eight million pesos (P8,000,000.00) for actual damages, plus ten percent (10%) thereof by
way of attorney‗s fees, for having delivered water-contaminated bunker fuel oil to the serious
prejudice and damage of the cement firm.
Sometime in May 1982, petitioner Mobil Oil Philippines, Inc. (MOPI), a firm engaged in the
marketing of petroleum products to industrial users, entered into a supply agreement with private
respondent Continental Cement Corporation (CCC), a cement producer, under which the former
would supply the latter‗s industrial fuel oil (IFO) or bunker fuel oil (BFO) requirements. MOPI
extended to CCC an unsecured credit line of P2,000,000.00 against which CCC‗s purchases of
oil could initially be charged.
MOPI had a hauling contract with Century Freight Services (CFS) whereby CFS undertook the
delivery of Mobil products to designated consignees of MOPI. During the period starting from
12 July to 07 October 1982, MOPI made a total of sixty-seven deliveries of BFO, each delivery
consisting of 20,000 liters, to CCC‗s cement factory in Norzagaray, Bulacan. On 08 October
1982, CCC discovered that what should have been MOPI‗s 20,000 BFO delivery to CCC‗s
Norzagaray plant, through CFS‗s lorry truck, was, in fact, pure water. CCC at once informed
MOPI of this anomaly and of its intention to meanwhile hold in abeyance all payments due to
MOPI on its previous deliveries until such time as the parties would have ascertained that those
deliveries were not themselves adulterated. CCC suggested that MOPI‗s storage tank in the
Norzagaray plant be likewise investigated for possible contamination.
Alleging in the complaint it ultimately filed with the RTC that its factory equipment broke down
from 19 to 22 September 1982 due to the utilization of the water-contaminated BFO supplied by
MOPI; that on 23 September 1982, its plant operations had to be stopped completely; and that it
was able to resume operations only after essential repairs had been undertaken on 02 October
1982; CCC sought to recover consequential damages from MOPI. In answer, MOPI averred that
CCC had accepted each delivery of BFO in accordance with the procedure for testing and
acceptance of BFO deliveries; that it was only on 08 October 1982 that CCC brought to its
attention the alleged anomalous delivery of 20,000 liters of BFO under invoice No. 47587
through SLU SOL 1-C Page 429
Mariano Rivera‗s lorry truck; that when the delivery was being inspected by CCC‗s
representatives, the truck driver and helper fled; that Rivera acknowledged full liability for such
delivery; that Rivera promised to pay the amount of P42,730.00 for the 20,000 liters of BFO
delivered; and that MOPI agreed to the water draining activity solely for the purpose of
maintaining good business relations with CCC but not to admit any liability therefore. In its
compulsory counterclaim, MOPI claimed that CCC had an outstanding obligation to it, as of 30
November 1982, in the amount of P1,096,238.51, and that as a consequence of the ―frivolous
and malicious suit: which besmirched MOPI‗s reputation, it suffered moral damages of not less
than P10,000,000.00, exemplary damages of the same amount, and the incurrence of attorney‗s
fees.

Issues:
1. Whether or not Petitioner Mobil is stopped from claiming that no Mobil BFO remained
unused by Continental on 22 October 1982; and that the deliveries of BFO made by Mobil to
Continental before 8 October 1982 were not contaminated with water.
2. Whether or not Petitioners can be held liable for the contaminated BFO delivered on 8
October 1982 on the ground that Country Freight Service, as carrier-hauler, was an agent of
Mobil.

Ruling: The claim that the Court of Appeals conveniently made an inference that the subject
Continental storage tank contained Mobil BFO deliveries only because Mobil and Continental
agreed to jointly examine the same, and that the appellate court had so misapprehended the facts,
is unacceptable. The factual finding that deliveries previous to 08 October 1982 were adulterated
BFO was supported by the 22 October 1982 joint undertaking. This document, witnessed and
signed by representatives of both MOPUI and CCC, clearly showed that a detailed verification of
water contained on all BFO delivered by MOBIL OIL PHILS., INC., except those that have
already been used in cement operation by CCC,: was undertaken. Implicit from this statement
was that there still was at the time an availability of BFO in the storage tank designated by CCC
for past Mobil deliveries. The same could be said of the second water draining process, evidence
by the second joint undertaking. Although done without the participation of MOPI, the latter,
nonetheless, was notified of the counting thrice, the last of which had indicated that failure on
MOPI‗s part to send a representative would be tantamount to a waiver of its right to participate
therein.
The appellate court may not thus be faulted for holding that petitioners and barred from
questioning the results of water draining processes conducted on the MOPI tank in the CCC
plant site, in the same manner that MOPI may not belatedly question the testing procedure
theretofore adopted. MOPI cannot be allowed to turn its back to its own acts (or inactions) to the
prejudice of CCC, which, in good faith, relied upon MOPI‗s conduct.
CFS was the contractor of MOPI, not CCC, and the contracted price of the BFO that CCC paid
to MOPI included hauling charges. The presumption laid down under Article 1523 of the Civil
Code that delivery to the carrier should be deemed to be delivery to the buyer would have no
application where, such as in this case, the sale itself specifically called for delivery by the seller
to the buyer at the latter‗s place of business.
 Tender of Payment and Consignation

Sps. Bonrostro v. Sps. Luna

G.R. No. 172346 July 24, 2013

Facts: In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract to
Sell with Bliss Development Corporation (Bliss) involving a house and lot identified as Lot 19,
Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a year after, Constancia, this
time as the seller, entered into another Contract to Sell with petitioner Lourdes Bonrostro
(Lourdes) concerning the same property under the following terms and conditions:
1. The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the VENDOR in the
following manner: (a) P200,000.00 upon signing x x x the Contract To Sell, (b) P300,000.00
payable on or before April 30, 1993, (c) P330,000.00 payable on or before July 31, 1993, (d)
P417,000.00 payable to the New Capitol Estate, for 15 years at P6,867.12 a month,
2. x x x In the event the VENDEE fails to pay the second installment on time, the VENDEE will
pay starting May 1, 1993 a 2% interest on the P300,000.00 monthly. Likewise, in the event the
VENDEE fails to pay the amount of P630,000.00 on the stipulated time, this CONTRACT TO
SELL shall likewise be deemed cancelled and rescinded and x x x 5% of the total contract price
of P1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid monthly
amortization shall likewise be deducted from the initial down payment in favor of the VENDOR.
Immediately after the execution of the said second contract, the spouses Bonrostro took
possession of the property. However, except for the P200,000.00 down payment, Lourdes failed
to pay any of the stipulated subsequent amortization payments. On January 11, 1994, Constancia
and her husband, respondent Juan Luna (spouses Luna), filed before the RTC a Complaint for
Rescission of Contract and Damages against the spouses Bonrostro praying for the rescission of
the contract, delivery of possession of the subject property, payment by the latter of their unpaid
obligation, and awards of actual, moral and exemplary damages, litigation expenses and
attorney‘s fees.

Issue: Whether or not the CA correctly modified the RTC Decision with respect to interests.

Ruling: The petition lacks merit. The spouses Bonrostro‘s reliance on the RTC‘s factual finding
that Lourdes was willing and ready to pay on November 24, 1993 is misplaced. Under Article
2209 of the Civil Code, "if the obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest." There being no stipulation on interest in case of delay in the payment of
amortization, the CA thus correctly imposed interest at the legal rate which is now 12% per
annum. Wherefore, the petition for review on certiorari is denied.
 Benos v. Lawilao
G.R. No. 172259 December 5, 2006

Facts: On February 11, 1999, petitioner-spouses Benos and respondent Lawilao executed a Pacto
de Retro Sale where Benos sold their lot and the building erected thereon for P300,000, one-half
of which to be paid in cash to the Benos and the other half to be paid to the bank to pay off the
loans of the Benos which was secured by the same lot and building. Under the contract, Benos
could redeem the property within 18 months from the date of execution by returning the contract
price, otherwise, the sale would become irrevocable. After paying the P150,000, Lawilao took
possession of the property, restructured it twicw, eventually the loan become due and
demandable. On August 14, 2000, a son of Benos and Lawilao paid the bankl but the bank
refused. Lawilao filed for consignation against the bank and deposited the amount of
P159,000.00. RTC declared Lawilao of the ownership of the subject property, which was
affirmed by the Court of Appeals.

Issue: Whether or not the contract of Pacto de Retro Sale may be rescinded by the petitioner.

Ruling: In the instant case, records show that Lawilao filed the petition for consignation against
the bank in Civil Case without notifying the Benos. Hence, Lawilao failed to prove their offer to
pay the balance, even before the filing of the consignation case. Lawilao never notified the
Benos. Thus, as far as the Benos are concerned, there was no full and complete payment of the
contract price which gives them the right to rescind.
Petition is granted. Court of Appeals decision is reversed and set aside, that the Pacto de Retro
Sale is rescinded and petitioner are ordered to return the amount of P150,000 to respondents.
 People’s Industrial v. CA
G.R. No. 112733 October 24, 1997

Facts: Private respondent Mar-ick Investment Corporation is the exclusive and registered owner
of Mar-ick Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondent
entered into six agreements with petitioner People's Industrial and Commercial Corporation sell
to petitioner six subdivision lots. Five of the agreements, involving similarly stipulate that the
petitioner agreed to pay private respondent for each lot, the amount of P7,333.20 with a down
payment of P480.00. The balance of P6,853.20 shall be payable in 120 equal monthly
installments of P57.11 every 30th of the month, for a period of ten years. With respect to Lot No.
8, the parties agreed to the purchase price of P7,730.00 with a down payment of P506.00 and
equal monthly installments of P60.20. After ten years, however, petitioner still had not fully paid
for the six lots; it had paid only the down payment and eight installments, even after private
respondent had given petitioner a grace period of four months to pay the arrears. As of May 1,
1980, the total amount due to private respondent under the contract was P214,418.00. In his
letter of March 30, 1980 to Mr. Tomas Siatianum, who signed the agreements for petitioner,
private respondent's counsel protested petitioner's encroachment upon a portion of its
subdivision. It added that petitioner had failed to abide by its promise to remove the
encroachment, or to purchase the lots involved "at the current price or pay the rentals on the
basis of the total area occupied, all within a short period of time." It also demanded the removal
of the illegal constructions on the property that had prejudiced the subdivision and its neighbors.
After a series of negotiations between the parties, they agreed to enter into a new contract to sell
8 involving seven lots. The contract stipulates that the previous contracts involving the same lots
"have been cancelled due to the failure of the purchaser to pay the stipulated installments." It
states further that the new contract was entered into "to avoid litigation, considering that the
purchaser has already made use of the premises since 1981 to the present without paying the
stipulated installments." The parties agreed that the contract price would be P423,250.00 with a
down payment of P42,325.00 payable upon the signing of the contract and the balance of
P380,925.00 payable in forty-eight equal monthly amortization payments of P7,935.94. The new
contract bears the date of October 11, 1983 but neither of the parties signed it. Thereafter, Tomas
Siatianum issued the checks in the total amount of P37,642.72 to private respondent. Private
respondent received but did not encash those checks. Instead, filed in the trial court was a
complaint for accion publiciana de posesion against petitioner and Tomas Siatianum, as president
and majority stockholder of petitioner. The lower court rendered a decision finding that the
original agreements of the parties were validly cancelled in accordance with provision No. 9 of
each agreement. The parties did not enter into a new they did not sign the draft contract. Receipt
by private respondent of the five checks could not amount to perfection of the contract because
private respondent never
encashed and benefited from those checks, they represented the deposit under the new contract
because petitioner failed to prove that those were monthly installments that private respondent
refused to accept. Thus, the fact that the parties tried to negotiate a new Contract indicated that
they considered the first contract as "already cancelled." This decision was affirmed by the Court
of Appeals.

Issue: Whether or not there was a tender of payment and consignation in the case.

Ruling: The parties' failure to agree on a fundamental provision of the contract was aggravated
by petitioner's failure to deposit the installments agreed upon. Neither did it attempt to make a
consignation of the installments. As held in the Adelfa Properties case: "The mere sending of a
letter by the vendee expressing the intention to pay, without the accompanying payment, is not
considered a valid tender of payment. Besides, a mere tender of payment is not sufficient to
compel private respondents to deliver the property and execute the deed of absolute sale. It is
consignation which is essential in order to extinguish petitioner's obligation to pay the balance of
the purchase price. The rule is different in case of an option contract or in legal redemption or in
a sale with right to repurchase, wherein consignation is not necessary because these cases
involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the
discharge of an obligation, hence tender of payment would be sufficient to preserve the right or
privilege. This is because the provisions on consignation are not applicable when there is no
obligation to pay. A contract to sell, as in the case before us, involves the performance of an
obligation, not merely the exercise of a privilege or a right. Consequently, performance or
payment may be effected not by tender of payment alone but by both tender and consignation."
In the case, petitioner did not lift a finger towards the performance of the contract other than the
tender of down payment. There is no record that it even bothered to tender payment of the
installments or to amend the contract to reflect the true intention of the parties as regards the
number of lots to be sold. Indeed, by petitioner's inaction, private respondent may not be
judicially enjoined to validate a contract that the former appeared to have taken for granted. As in
the earlier agreements, petitioner ignored opportunities to resuscitate a contract to sell that were
rendered moribund and inoperative by its inaction. Petition denied. Decision affirmed.

Eternal Gardens v. CA
G.R. No. 124554 December 9, 1997

Facts: EGMPC and NPUM entered into a land development agreement. Under the agreement,
EGMPC was to develop a parcel of land owned by NPUM into a memorial park subdivided into
lots. The parties further agreed that EGMPC had the obligation to remit monthly to NPUM 40%
of its net gross collection from the development of a memorial park on property owned by
NPUM. It also provided for the designation of a bank to act as the depository/trustee for all funds
collected by EGMPC.
Later, 2 claimants of the parcel of land surfaced, Maysilo Estate and the heirs of Vicente Singson
Encarnacion. EGMPC filed an action for interpleader against Maysilo Estate and NPUM. The
Singson heirs in turn filed an action for quieting of title against EGMPC and NPUM.
From these 2 cases, several proceedings ensued. From the interpleader action, EGMPC assailed
the appellate court's resolution requiring Eternal Gardens to deposit whatever amounts are due
from it under the land development agreement with a reputable bank to be designated by the
respondent court.
The trial court dismissed the cases. The appellate court affirmed insofar as it dismissed the
claims of the intervenors. The titles of NPUM to the subject parcel of land were declared valid.
The trial court's decision in favor of the Singson heirs was reversed and set aside. The CA
proceeded with the disposition of the case and required the parties to appear at a scheduled
hearing to determine the remaining accrued rights and liabilities of the parties.
The accounting of the parties' obligations was referred to the court's accountant to whom the
documents were to be submitted. NPUM prepared and submitted a summary of sales and total
amounts due. However, EGMPC did not submit any document. Thus, the appellate court
declared that EGMPC has waived its right to present the records and documents necessarily for
accounting.
The court's accountant submitted her report to which the appellate court required the parties to
comment on. EGMPC took exception to the appellate court's having considered it to have waived
its right to present documents. Considering EGMPC's arguments, the court set a hearing where
NPUM would present its documents according to the Rules of Court and giving EGMPC the
opportunity to object thereto.

Issue: Whether or not EGMPC is liable for interest because there was still the unresolved issue
of ownership over the property subject of the land development agreement.

Ruling: The SC held that the argument is without merit.

EGMPC, under the agreement, had the obligation to remit monthly to NPUM 40% of its net
gross collection from the development of a memorial park on property owned by NPUM. It also
provided for the designation of a bank to act as the depository/trustee for all funds collected by
EGMPC. There was no obstacle, legal or otherwise, to the compliance by EGMPC of this
provision in the contract, even on the affectation that it did not know to whom payment was to be
made. Even disregarding the agreement, EGMPC cannot suspend payment on the pretext that it
did not know who among the subject property's claimants the rightful owner was. It had a
remedy under the New Civil Code to give in consignation the amounts due as these fell due.
Consignation produces the effect of payment. The rationale for consignation is to avoid the
performance of an obligation becoming more onerous to the debtor by reason of causes not
imputable to him. For its failure to consign the amounts due, EGMPC‗s obligation to NPUM
necessarily became more onerous as it became liable for interest on the amounts it failed to
remit. Thus, the CA correctly held EGMPC liable for interest at 12%. The withholding of the
amounts due under the agreement was tantamount to a forbearance of money

Rayos v. Reyes
G.R. No. 150913 February 20, 2003

Facts: Three parcels were formerly owned by the spouses Francisco and Asuncion Tazal who on
1 September 1957 sold them for P724.00 to respondents‗ predecessor-in-interest, one Mamerto
Reyes, with right to repurchase within two (2) years from date thereof by paying to the vendee
the purchase price and all expenses incident to their reconveyance. After the sale the vendee a
retro took physical possession of the properties and paid the taxes thereon. The otherwise
inconsequential sale became controversial when two (2) of the three (3) parcels were again sold
on 24 December 1958 by Francisco Tazal for P420.00 in favor of petitioners‗ predecessor-in-
interest Blas Rayos without first availing of his right to repurchase the properties.

Issue: Whether or not there was a valid consignation and tender of payment made in the instant
case.

Ruling: In order that consignation may be effective the debtor must show that (a) there was a
debt due; (b) the consignation of the obligation had been made because the creditor to whom a
valid tender of payment was made refused to accept it; (c) previous notice of the consignation
had been given to the person interested in the performance of the obligation; (d) the amount due
was placed at the disposal of the court; and, (e) after the consignation had been made the person
interested was notified thereof.
In the instant case, petitioners failed, first, to offer a valid and unconditional tender of payment;
second, to notify respondents of the intention to deposit the amount with the court; and third, to
show the acceptance by the creditor of the amount deposited as full settlement of the obligation,
or in the alternative, a declaration by the court of the validity of the consignation.
The failure of petitioners to comply with any of these requirements rendered the consignation
ineffective. Consignation and tender of payment must not be encumbered by conditions if they
are to produce the intended result of fulfilling the obligation. In the instant case, the tender of
payment of P724.00 was conditional and void as it was predicated upon the argument of
Francisco Tazal that he was paying a debt which he could do at any time allegedly because the 1
September 1957 transaction was a contract of equitable mortgage and not a deed of sale with
right to repurchase.

Kinds of Loss/Impossibility: Physical, Civil, or Legal

Occena v. CA
G.R. No. L-44349 October 29, 1976
Facts: On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for
modification of the terms and conditions of its subdivision contract with petitioners (landowners
of a 55,330 square meter parcel of land in Davao City). Under the subdivision contract,
respondent "guaranteed (petitioners as landowners) as the latter's fixed and sole share and
participation an amount equivalent to forty (40%) percent of all cash receipts from the sale of the
subdivision lots".
Respondent pray of the Rizal court of first instance that "after due trial, this Honorable Court
render judgment modifying the terms and conditions of the contract ... by fixing the proper
shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subjects subdivision".
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon
denial thereof and of reconsideration by the lower court elevated the matter on certiorari to
respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dismissed petition. Hence, the petition at bar.

Issue: Whether or not the worldwide increase in prices cited by respondent constitute a sufficient
cause of action for modification of the subdivision contract.

Ruling: No. 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. Private
respondent's complaint for modification of the contract manifestly has no basis in law and must
therefore be dismissed for failure to state a cause of action.

Ortigas v. Feati Bank

G.R. No. L-24670 December 14, 1979

Facts: Ortigas & Co., Limited Partnership engaged in real estate business developing and selling
lots to the public particularly Highway Hills subdivision along EDSA. On March 4, 1952 –
Augusto Padilla y Angeles and Natividad Angeles entered into separate agreements of sale on
installments over Lots 5 and 6 Block 31, Highway Hill. That on July 19, 1962 – Augusto and
Natividad transferred their rights and interests in favor of Emma Chavez. The Transfer contained
the following restrictions and stipulations: For residential purposes only, All buildings and
improvements (except fences) should use strong building material, have modern sanitary
installations connected to the public sewer or own septic tank and shall not be more than 2
meters from the boundary lines, Resolution 27 – Feb 4, 1960 – reclassified the western part of
EDSA (Shaw boulevard to Pasig River) as a commercial and industrial zone. Such restrictions
were annotated on the TCTs. On July 23, 1962 - Feati bank bought Lot 5 from Emma Chavez
while lot 6 was purchased by Republic Flour Mills. That on May 5, 1963 – Feati Bank began
laying foundation and construction of a building for banking purposes on lots 5 and 6. Ortigas &
Co. Demanded that they comply with the annotated restrictions. Feati Bank refused arguing that
it was following the zoning regulations. Ortigas & Co. filed a case in the lower courts which held
that Resolution No. 27 was a valid exercise of police power of the municipality hence the zoning
is binding and takes precedence over the annotations in the TCTs because ―private interest
should bow down to general interest and welfare.‖ On March 2, 1965 – motion for
reconsideration by Ortigas & Co. which was denied on March 26, 1965. That on April 2, 1965
Ortigas filed notice of appeal which was given due course on April 14, 1965 hence this case.

Issue: Whether or not Resolution No. 27 can nullify or supersede contractual obligations by
Feati Bank and Trust Co.

Ruling: Yes, it can nullify contractual obligations by Feati with Ortigas & Co. The validity of the
resolution was never assailed in the lower courts and can therefore not be raised for the first time
on appeal. The rule against flip flopping issues and arguments prevents deception in courts.
Ortigas & Co. also did not dispute the factual findings of the lower court on the validity of the
resolution. Assuming arguendo it was properly raised the resolution is still valid. RA 2264 (Local
Autonomy Act) Sec 3 empowers municipalities to adopt zoning and subdivision ordinances or
regulations for the municipality. The resolution is regulatory measure! RA 2264 Sec 12 à any fair
and reasonable doubt as to the existence of the power should be interpreted in favor of the local
government and it shall be presumed to exist à this gives more power to LGUs to promote
general welfare, economic conditions, social welfare and material progress in their locality. The
non-impairment clause of contracts is not absolute since it must be reconciled with the legitimate
exercise of police power.

So v. Food Fest Land, Inc

G.R. No. 183628 April 7, 2010
Facts: Food Fest Land Inc. (Food Fest) entered into a September 14, 1999 Contract of Lease1
with Daniel T. So (So) over a commercial space in San Antonio Village, Makati City for a period
of three years (1999-2002) on which Food Fest intended to operate a Kentucky Fried Chicken
carry out branch.
Before forging the lease contract, the parties entered into a preliminary agreement dated July 1,
1999, the pertinent portion of which states that the lease shall not become binding upon us unless
and until the government agencies concerned shall authorize, permit or license us to open and
maintain our business at the proposed Lease Premises.
While Food Fest was able to secure the necessary licenses and permits for the year 1999, it failed
to commence business operations. For the year 2000, Food Fest‗s application for renewal of
barangay business clearance was "held in abeyance until further study of [its] kitchen facilities."
As the barangay business clearance is a prerequisite to the processing of other permits, licenses
and authority by the city government, Food Fest was unable to operate. Fearing further business
losses, Food Fest, by its claim, communicated its intent to terminate the lease contract to So who,
however, did not accede and instead offered to help Food Fest secure authorization from the
barangay.
On April 26, 2001, So filed a complaint for ejectment and damages against Food Fest before the
Metropolitan Trial Court (MeTC) of Makati City.
The MeTC, by Decision of July 4, 2005,7 rendered judgment in favor of So.The Regional Trial
Court (RTC), by Decision of November 30, 2006,9 reversed the MeTC Decision.
Court of Appeals however, declared that Food Fest‗s obligation to pay rent was not extinguished
upon its failure to secure permits to operate.

Issue: Whether or not the Principle of rebus sic stantibus is applicable to the instant case.

Ruling: No. As for Food Fest‗s invocation of the principle of rebus sic stantibus as enunciated in
Article 1267 of the Civil Code to render the lease contract functus officio, and consequently
release it from responsibility to pay rentals, the Court is not persuaded.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of
contractual relations. The parties to the contract must be presumed to have assumed the risks of
unfavorable developments. It is, therefore, only in absolutely exceptional changes of
circumstances that equity demands assistance for the debtor.
Food Fest was able to secure the permits, licenses and authority to operate when the lease
contract was executed. Its failure to renew these permits, licenses and authority for the
succeeding year, does not, however, suffice to declare the lease functus officio, nor can it be
construed as an unforeseen event to warrant the application of Article 1267.
 Magat v. CA
G.R. No. 124221 August 4, 2000

Facts: Private respondent Santiago A. Guerrero (hereinafter referred to as "Guerrero") was

President and Chairman of "Guerrero Transport Services", a single proprietorship. Sometime in
1972, Guerrero Transport Services won a bid for the operation of a fleet of taxicabs within the
Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to "provide radio-controlled
taxi service within the U. S. Naval Base, Subic Bay, utilizing as demand requires... 160
operational taxis consisting of four wheel, four-door, four passenger, radio controlled, meter
controlled, sedans, not more than one year. On September 22, 1972, with the advent of martial
law, President Ferdinand E. Marcos issued Letter of Instruction No. 1. SEIZURE AND
CONTROL OF ALL PRIVATELY OWNED NEWSPAPERS, MAGAZINES, RADIO AND
TELEVISION FACILITIES AND ALL OTHER MEDIA OF COMMUNICATION.

Issue: Whether or not the contract between Victorino and Guerrero for the purchase of radio
transceivers was void.

Ruling: The contract was not void ab initio. Nowhere in the LOI and Admin. Circular is there an
express ban on the importation of transceivers. The LOI and Administrative Circular did not
render "radios and transceivers" illegal per se. The Administrative Circular merely ordered the
Radio Control Office to suspend the "acceptance and processing .... of applications... for permits
to possess, own, transfer, purchase and sell radio transmitters and transceivers..." Therefore,
possession and importation of the radio transmitters and transceivers was legal provided one had
the necessary license for it. Transceivers were not prohibited but merely regulated goods. The
LOI and Administrative Circular did not render the transceivers outside the commerce of man.
They were valid objects of the contract.

PNCC v. CA
G.R. No. 116896 May 5, 1997

Facts: On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a
Temporary Use Permit 2 for the proposed rock crushing project. The permit was to be valid for
two years unless sooner revoked by the Ministry. On 16 January 1986, private respondents wrote
petitioner requesting payment of the first annual rental in the amount of P240,000 which was due
and payable upon the execution of the contract. They also assured the latter that they had already
stopped considering the proposals of other aggregates plants to lease the property because of the
existing contract with petitioner. In its reply-letter, petitioner argued that under paragraph 1 of the
lease contract, payment of rental would commence on the date of the issuance of an industrial
clearance by the Ministry of Human Settlements, and not from the date of signing of the contract.
It then expressed its intention to terminate the contract, as it had decided to cancel or discontinue
with the rock crushing project "due to financial, as well as technical, difficulties." Private
respondents refused to accede to petitioner's request for the pretermination of the lease contract.
They insisted on the performance of petitioner's obligation and reiterated their demand for the
payment of the first annual rental.

Issue: Whether or not the provisions of Article 1266 and the principle of rebus sic stantibus is
applicable in the case at bar.

Ruling: Article 1266 of the Civil Code, which reads: "The debtor in obligations to do shall also
be released when the prestation becomes legally or physically impossible without the fault of the
obligor." Petitioner cannot, however, successfully take refuge in the said article, since it is
applicable only to obligations "to do," and not to obligations "to give." An obligation "to do"
includes all kinds of work or service; while an obligation "to give" is a prestation which consists
in the delivery of a movable or an immovable thing in order to create a real right, or for the use
of the recipient, or for its simple possession, or in order to return it to its owner. The obligation to
pay rentals or deliver the thing in a contract of lease falls within the prestation "to give"; hence, it
is not covered within the scope of Article 1266. At any rate, the unforeseen event and causes
mentioned by petitioner are not the legal or physical impossibilities contemplated in the said
article. Besides, petitioner failed to state specifically the circumstances brought about by "the
abrupt change in the political climate in the country" except the alleged prevailing uncertainties
in government policies on infrastructure projects. The principle of rebus sic stantibus neither fits
in with the facts of the case. Under this theory, the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist.

NATELCO v. CA
G.R. No. 107112 February 24, 1994

Facts: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local
as well as long distance service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of
operating an electric power service in the same city. On November 1, 1977, the parties entered
into a contract for the use by petitioners in the operation of its telephone service the electric light
posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install,
free of charge, ten (10) telephone connections for the use by private respondent. After the
contract had been enforced for over ten (10) years, private respondent filed with the Regional
Trial Court against petitioners for reformation of the contract with damages, on the ground that it
is too one-sided in favor of petitioners; that it is not in conformity with the guidelines of the
National Electrification Administration (NEA); that after eleven (11) years of petitioners' use of
the posts, the telephone cables strung by them thereon have become much heavier with the
increase in the volume of their subscribers; that a post now costs as much as P2,630.00; so that
justice and equity demand that the contract be reformed to abolish the inequities thereon. As
second cause of action, private respondent alleged that starting with the year 1981, petitioners
have used 319 posts outside Naga City, without any contract with it; that at the rate of P10.00 per
post, petitioners should pay private respondent for the use thereof the total amount of
P267,960.00 from 1981 up to the filing of its complaint; and that petitioners had refused to pay
private respondent said amount despite demands. And as third cause of action, private respondent
complained about the poor servicing by petitioners. The trial court ruled, as regards private
respondent‗s first cause of action, that the contract should be reformed by ordering petitioners to
pay private respondent compensation for the use of their posts in Naga City, while private
respondent should also be ordered to pay the monthly bills for the use of the telephones also in
Naga City. And taking into consideration the guidelines of the NEA on the rental of posts by
telephone companies and the increase in the costs of such posts, the trial court opined that a
monthly rental of P10.00 for each post of private respondent used by petitioners is reasonable,
which rental it should pay from the filing of the complaint in this case on January 2, 1989. And
in like manner, private respondent should pay petitioners from the same date its monthly bills for
the use and transfers of its telephones in Naga City at the same rate that the public are paying. On
private respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside Naga City.
Therefore, the trial court held that for reason of equity, the contract should be reformed by
including therein the provision that for the use of private respondent's posts outside Naga City,
petitioners should pay a monthly rental of P10.00 per post, the SLU SOL 1-C Page 448
payment to start on the date this case was filed, or on January 2, 1989, and private respondent
should also pay petitioners the monthly dues on its telephone connections located outside Naga
City beginning January, 1989. And with respect to private respondent's third cause of action, the
trial court found the claim not sufficiently proved. The Court of Appeals affirmed the decision of
the trial court, but based on different grounds to wit: (1) that Article 1267 of the New Civil Code
is applicable and (2) that the contract was subject to a potestative condition which rendered said
condition void.

Issue: Whether or not the principle of Rebus Sic Stantibus is applicable in the case at bar.

Ruling: No. Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, the term "service" should be understood as
referring to the "performance" of the obligation.
In the present case, the obligation of private respondent consists in allowing petitioners to use its
posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading
of this article reveals that it is not a requirement thereunder that the contract be for future service
with future unusual change. According to Senator Arturo M. Tolentino, Article 1267 states in our
law the doctrine of unforseen events. This is said to be based on the discredited theory of rebus
sic stantibus in public international law; under this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist the contract also ceases to
exist. Considering practical needs and the demands of equity and good faith, the disappearance
of the basis of a contract gives rise to a right to relief in favor of the party prejudiced. The
allegations in private respondent's complaint and the evidence it has presented sufficiently made
out a cause of action under Article 1267. The Court, therefore, release the parties from their
correlative obligations under the contract. However, the disposition of the present controversy
does not end here. The Court has to take into account the possible consequences of merely
releasing the parties therefrom: petitioners will remove the telephone wires/cables in the posts of
private respondent, resulting in disruption of their essential service to the public; while private
respondent, in consonance with the contract will return all the telephone units to petitioners,
causing prejudice to its business. The Court shall not allow such eventuality. Rather, the Court
requires, as ordered by the trial court: 1) petitioners to pay private respondent for the use of its
posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and
in other places where petitioners use private respondent's posts, the sum of ten (P10.00) pesos
per post, per month, beginning January, 1989; and 2)private respondent to pay petitioner the
monthly dues of all its telephones at the same rate being paid by the public beginning January,
1989. The peculiar circumstances of the present case, as distinguished further from the Occeña
case, necessitates exercise of a equity jurisdiction. By way of emphasis, the Court reiterates the
rationalization of respondent court that: "In affirming said ruling, we are not making a new
contract for the parties herein, but we find it necessary to do so in order not to disrupt the basic
and essential services being rendered by both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff." SLU SOL 1-C Page 449
 Condonation/Remission of the Debt

Reyna v. COA
G.R. No. 167219 February 8, 2011

Facts: The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing program
wherein loans were granted to various cooperatives. Pursuant thereto, Land Bank's Ipil,
Zamboanga del Sur Branch (Ipil Branch) went into a massive information campaign offering the
program to cooperatives. Cooperatives who wish to avail of a loan under the program must fill
up a Credit Facility Proposal (CFP) which will be reviewed by the Ipil Branch. The Ipil Branch
approved the applications of four cooperatives. One of the conditions stipulated in the CFP is
that prior to the release of the loan, a Memorandum of Agreement (MOA) between the supplier
of the cattle, Remad Livestock Corporation (REMAD), and the cooperative, shall have been
signed. As alleged by petitioners, the terms of the CFP allowed for pre-payments or advancement
of the payments prior to the delivery of the cattle by the supplier REMAD but such was not
stipulated in the contracts.
Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment for the
cattle. REMAD, however, failed to supply the cattle on the dates agreed upon. In post audit, the
Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB No. 95-005 dated
December 27, 1996 and Notices of Disallowance Nos. 96-014 to 96-019 in view of the non-
delivery of the cattle. Also made as the basis of the disallowance was the fact that advanced
payment was made in violation of bank policies and COA rules and regulations. Petitioners were
made liable for the amount.

Issue: Whether or not the writing off of a loan is considered as condonation.

Ruling: This Court rules that writing-off a loan does not equate to a condonation or release of a
debt by the creditor. As an accounting strategy, the use of write-off is a task that can help a
company maintain a more accurate inventory of the worth of its current assets. In general
banking practice, the write-off method is used when an account is determined to be uncollectible
and an uncollectible expense is recorded in the books of account. If in the future, the debt
appears to be collectible, as when the debtor becomes solvent, then the books will be adjusted to
reflect the amount to be collected as an asset. In turn, income will be credited by the same
amount of increase in the accounts receivable. Write-off is not one of the legal grounds for
extinguishing an obligation under the Civil Code. It is not a compromise of liability. Neither is it
a condonation, since in condonation gratuity on the part of the obligee and acceptance by the
obligor required. In making the write-off, only the creditor takes action by removing the
uncollectible account from its books even without the approval or participation of the debtor.
 Trans Pacific v. CA
G.R. No. 109172 August 19, 1994
Facts: Sometime in 1979, petitioner applied for was granted several financial accommodations
amounting to P1,300,000.00 by respondent Associated Bank. The loans were evidence and
secured by four (4) promissory notes, a real estate mortgage covering three parcels of land and a
chattel mortgage over petitioner‘s stock and inventories. Unable to settle its obligation in full,
petitioner requested for, and was granted by respondent bank, a restructuring of the remaining
indebtedness which the amounted to P1,057,500.00, as all the previous payments made were
applied to penalties and interests.
The mortgaged parcels of land were substituted by another mortgage covering two other parcels
of land and a chattel mortgage on petitioner‘s stock inventory. The released parcels of land were
then sold and the proceeds amounting to P1,386,614.20, according to petitioner, were turned
over to the bank and applied to Trans-Pacific‘s returned loan. Subsequently, respondent bank
returned the duplicate original copies of the three promissory notes to Trans-Pacific with the
word ―PAID‖ stamped thereon. Despite the return of the notes, or on December 12, 1985,
Associated Bank demanded from Trans-Pacific payment of the amount P492,100.00 representing
accrued interest on PB No. TL-9077-82. According to the bank, the promissory notes were
erroneously released.

Issue: Whether or not petitioner has indeed paid in full its obligation to respondent bank.

Ruling: Art.1271. The delivery of private document evidencing a credit, made voluntarily by the
creditor to the debtor, implies the renunciation of the action which the former had against the
latter.‖
The surrender and return to plaintiffs of the promissory notes evidencing the consolidated
obligation as restricted, procedures a legal presumption that Associated had thereby renounced
its actionable claim against plaintiffs (Art. 1271, NCC). The presumption is fortified by a
showing that said promissory notes all bear the stamp ―PAID‖ and has not been otherwise
overcome. Upon a clear perception that Associated‘s record keeping has been less than
exemplary. . . . a proffer of bank copies of the promissory notes without the ―PAID‖ stamps
thereon does not impress the Court as sufficient to overcome presumed remission of the
obligation vis-à-vis the return of said promissory notes. Indeed, applicable law is supportive of a
finding that in interest bearing obligations-as is the case here, payment of principal (sic) shall not
be deemed to have been made until interests have been covered (Art. 1253, NCC). Conversely,
competent showing that the principal has been paid, militates against postured entitlement to
unpaid interests. SLU SOL 1-C Page 453
 Presumption of Delivery

Dalupan v. Harden
G.R. No. L-3975 November 27, 1951

Facts: The case is an appeal taken from an order of the First Instance of Manila dated May 19,
1950, setting aside the writs of execution and garnishment issued to the sheriff of Manila
commanding him to levy on two (2) checks, one for P9,028.50, and another for P24,546.00,
payable to Fred M. Harden which were then in possession of the receiver appointed in case
involving the liquidation of the conjugal partnership of the spouses Fred M. Harden and
Esperanza P. de Harden. On August 26, 1948, plaintiff filed an action against the defendant for
the collection of P113,837.17, with interest thereon from the filing of the complaint, which
represents fifty (50) per cent of the reduction plaintiff was able to secure from the Collector of
Internal Revenue in the amount of unpaid taxes claimed to be due from the defendant. Defendant
acknowledged this claim and prayed that judgment be rendered accordingly. The receiver in the
liquidation of case No. R-59634 and the wife of the defendant, Esperanza P. de Harden, filed an
answer in intervention claiming that the amount sought by the plaintiff was exorbitant and
prayed that it be reduced to 10 per cent of the rebate. By reason of the acquiescence of the
defendant to the claim on one hand, and the opposition of the receiver and of the wife on the
other, an amicable settlement was concluded by the plaintiff and the intervenor whereby it was
agreed that the sum of P22,767.43 be paid to the plaintiff from the funds under the control of the
receiver "and the balance of P91,069.74 shall be charged exclusively against the defendant Fred
M. Harden from whatever share he may still have in the conjugal partnership between him and
Esperanza P. de Harden after the final liquidation and partition thereof, without pronouncement
as to costs and interests."The court rendered judgment in accordance with this stipulation.
Almost one year thereafter, plaintiff filed a motion for the issuance of a writ of execution to
satisfy the balance of P91, 069.74, which was favorably acted upon. At that time the receiver had
in his possession two (2) checks payable to Fred M. Harden amounting to P33,574.50,
representing part of the proceeds of the sale of two (2) lots belonging to the conjugal partnership
which was ordered by the court upon the joint petition of the spouses in order that they may have
funds with which to defray their living and other similar expenses. One-half of the proceeds was
given to Mrs. Harden. The sheriff attempted to garnish these two (2) checks acting upon the writ
of execution secured by the plaintiff, but the receivership court quashed the writ, stating however
in the order that it will be ―without prejudice to the right of Francisco Dalupan to attach the
money of the defendant Fred M. Harden, after the same has been delivered to the latter. When
said checks were delivered to the latter.

Issue: Whether or not the proffer made by the plaintiff to the defendant is binding.

Ruling: Yes, the proffer made by the plaintiff to the defendant to the effect that in the event you
lose your case with your wife, Mrs. Esperanza P. de Harden, and that after adjudication of the
conjugal property what is left with you will not be sufficient for your livelihood, I shall be
pleased to write off as bad debt the balance of your account in the sum of P42, 069.74. This
proffer was contained in a letter sent by the plaintiff to the defendant on March 23, 1949, which
was accepted expressly by Fred M. Harden. Harden regarded this proffer as a binding obligation
and acted accordingly, and for plaintiff to say now that proffer is but a mere gesture of generosity
or an act of Christian charity without any binding legal effect is unfair to say at least. This is an
added circumstance, which confirms the Court‗s view that the understanding between the
plaintiff and the defendant is really to defer payment of the balance of the claim until after the
final liquidation of the conjugal partnership. SLU SOL 1-C Page 455
 Lopez Vito v. Tambunting
G.R. No. 9806 January 19, 1916

Facts: These proceedings were brought to recover from the defendant the sum of P2,000, amount
of the fees, which, according to the complaint, are owing for professional medical services
rendered by the plaintiff to a daughter of the defendant from March 10 to July 15, 1913, which
fees the defendant refused to pay, notwithstanding the demands therefor made upon him by the
plaintiff. The defendant denied the allegations of the complaint, and furthermore alleged that the
obligation which the plaintiff endeavoured to compel him to fulfil was already extinguished.
The Court of First Instance of Manila, after hearing the evidence introduced by both parties,
rendered judgment on December 17, 1913, ordering the defendant to pay to the plaintiff the sum
of P700, without express finding as to costs. The defendant, after entering a motion for a new
trial, which was denied, appealed from said judgment and forwarded to this court the proper bill
of exceptions.

Issue: Whether or not the obligation alleged in the complaint has already been extinguished.

Ruling: No, the Supreme Court ruled that the obligation has not been extinguished. The receipt
signed by the plaintiff, for P700, the amount of his fees he endeavoured to collect from the
defendant after he had finished rendering the services in question was in the latter's possession,
and this fact was alleged by him as proof that he had already paid said fees to the plaintiff. The
court, after hearing the testimony, reached the conclusion that, notwithstanding that the
defendant was in possession of the receipt, the said P700 had not been paid to the plaintiff.
Number 8 of section 334 of the Code of Civil Procedure provides as a legal presumption "that an
obligation delivered up to the debtor has been paid." Article 1188 of the Civil Code also provides
that the voluntary surrender by a creditor to his debtor, of a private instrument proving a credit,
implies the renunciation of the right of action against the debtor; and article 1189 prescribes that
whenever the private instrument which evidences the debt is in the possession of the debtor, it
will be presumed that the creditor delivered it of his own free will, unless the contrary is proven.
But the legal presumption established by the foregoing provisions of law cannot stand if
sufficient proof is adduced against it. In the case at bar the trial court correctly held that there
was sufficient evidence to the contrary, in view of the preponderance thereof in favor of the
plaintiff and of the circumstances connected with the defendant's possession of said receipt.
Furthermore, in order that such a presumption may be taken into account, it is necessary, as
stated in the laws cited, that the evidence of the obligation be delivered up to the debtor and that
the delivery of the instrument proving the credit be made voluntarily by the creditor to the
debtor. In the present case, it cannot be said that these circumstances concurred, inasmuch as
when the plaintiff sent the receipt to the defendant for the purpose of collecting his fee, it was not
his intention that that document should remain in the possession of the defendant if the latter did
not forthwith pay the amount specified therein.
By reason of the foregoing, the Court affirmed the judgment appealed from, with the costs of this
instance against the appellant.
 Confusion or Merger of Rights

Estate of Mota v. Serra

G.R. No. L-34581, March 31, 1932

Facts:

Plaintiffs and defendant entered into a contract ofpartnership, for the construction and
exploitation of a railroad line from the "San Isidro"and "Palma" centrals to the place known as
"Nandong." The original capital stipulatedwas P150, 000. It was covenanted that the parties
should pay this amount in equal partsand the plaintiffs were entrusted with the administration of
the partnership. The agreedcapital of P150,000, however, did not prove sufficient, as the
expenses up to May 15,1920, had reached the amount of P226,092.92, presented by the
administrator andO.K.'d by the defendant. January 29, 1920, the defendant entered into a contract
of salewith Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby
hesold to the latter the estate and central known as "Palma" with its running business, aswell as
all the improvements, machineries and buildings, real and personal properties,rights, choices in
action and interests, including the sugar uplantation of the harvest yearof 1920 to 1921, covering
all the property of the vendor. This contract was executedbefore a notary public of Iloilo. Before
the delivery to the purchasers of the haciendathus sold, Eusebio R. de Luzuriaga renounced all
his rights under the contract ofJanuary 29, 1920, in favor of Messrs. Venancio Concepcion and
Phil. C. Whitaker. Thisgave rise to the fact that on July 17, 1920, Venancio Concepcion and Phil.
C. Whitakerand the herein defendant executed before Mr. Antonio Sanz, a notary public in and
forthe City of Manila, another deed of absolute sale of the said "Palma" Estate for theamount of
P1,695,961.90, of which the vendor received at the time of executing thedeed the amount of
P945,861.90, and the balance was payable by installments in theform and manner stipulated in
the contract. The purchasers guaranteed the unpaid balance of the purchase price by a first and
special mortgage in favor of the vendor upon the hacienda and the central with all the
improvements, buildings, machineries, and appurtenances then existing on the said hacienda.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the
plaintiffs the one-half of the railroad line pertaining to the latter, executing therefore the
document. The price of this sale was P237,722.15, excluding any amount which the defendant
might be owing to the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C.
Whitaker paid the sum of P47,544.43 only. In the Deed, the plaintiffs and Concepcion and
Whitaker agreed, among other things, that the partnership "Palma" and "San Isidro," formed by
the agreement of February 1, 1919, between Serra, LazaroMota, now deceased, and Juan J.
Vidaurrazaga for himself and in behalf of his brother, Felix and DionisioVidaurrazaga, should be
dissolved upon the execution of this contract, and that the said partnership agreement should be
totally cancelled and of no force and effect whatever.
Issue:

Whether or not there was a merger of rights of debtor and creditor under Article 1192 of
the Civil Code.

Held:

NO, there was no merger of Rights. Another defense urged by the defendant is the merger
of the rights of debtor and creditor, whereby under Article 1192 of the Civil Code, the obligation,
the fulfillment of which is demanded in the complaint, became extinguished. It is maintained in
appellee's brief that the debt of the defendant was transferred to Phil. C. Whitaker and Venancio
Concepcion by the document. These in turn acquired the credit of the plaintiffs by virtue of the
debt; thus, the rights of the debtor and creditor were merged in one person. The argument would
at first seem to be incontrovertible, but if we bear in mind that the rights and titles which the
plaintiffs sold to Phil. C. Whitaker and Venancio Concepcion refer only to one-half of the
railroad line in question, it will be seen that the credit which they had against the defendant for
the amount of one-half of the cost of construction of the said line was not included in the sale.
That the plaintiffs sold their rights and titles over one-half of the line. The purchasers, Phil. C.
Whitaker and Venancio Concepcion, to secure the payment of the price, executed a mortgage in
favor of the plaintiffs on the same rights and titles that they had bought and also upon what they
had purchased from Mr. Salvador Serra. In other words, Phil. C. Whitaker and Venancio
Concepcion mortgaged unto the plaintiffs what they had bought from the plaintiffs and also what
they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had
purchased something from Mr. Salvador Serra, the herein defendant, regarding the railroad line,
it was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows that
the rights and titles transferred by the plaintiffs to Phil. C. Whitaker and Venancio Concepcion
were only those they had over the other half of the railroad line. Therefore, as already stated,
since there was no novation of the contract between the plaintiffs and the defendant, as regards
the obligation of the latter to pay the former one-half of the cost of the construction of the said
railroad line, and since the plaintiffs did not include in the sale, the credit that they had against
the defendant, the allegation that the obligation of the defendant became extinguished by the
merger of the rights of creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and
Venancio Concepcion is wholly untenable.
 Yek Tong Lin v. Yusingco
G.R. No. L-43608 July 20, 1937

Facts:

PelagioYusingco, owner of the steamship Yusingco, executed a power of attorney in favor

of Yu Seguioc to administer, lease, mortgage, and sell his properties. Yu Seguioc mortgaged to
Yek Tong Lin Fire & Marine Insurance Co., Ltd. the steamship Yusingco.A year later, the
steamship Yusingco needed some repairs which were made by the Earnshaw Docks & Honolulu
Iron Works upon petition of A. YusingcoHermanos, co-owner of Pelagio. The repairs were made
upon the guaranty of Vicente Madrigal at P8K.When neither Hermanos nor Pelagio could pay,
Madrigal had to make payment. When Madrigal discovered that he was not to be reimbursed, he
brought an action against his Pelagio and Hermanos to compel them to reimburse him. The CFI
ordered them to pay Madrigal P3K.Upon failure of the Yusingcos to pay Madrigal, a writ of
execution was issued in order to sell the steamship Yusingco at public auction. The ship was
purchased by Yek Tong Lin having made the highest bid of P12K. The sheriff turned over P10K
to Madrigal.

Issue:

Whether or not there was merger of rights.

Ruling:

After the steamship Yusingco had been sold, the only right left to Yek Tong Lin was to
collect its mortgage credit from the purchaser. But it cannot take such steps because it was the
purchaser, and it was so with full knowledge that it had a mortgage credit on the vessel.
Obligations are extinguished by the merger of the rights of the creditor and debtor.The SC
ordered Madrigal to turn over to Yek Tong Lin the money paid to him by the sheriff from the
proceeds of the sale of the steamship Yusingco.
 Compensation: Requisites

EGV Realty v. CA
G.R. No. 120236 July 20, 1999

Facts:

Petitioner E.G.V. Realty Development Corporation is the owner/developer of a seven-storey

condominium building known as Cristina Condominium. Cristina Condominium Corporation holds
title to all common areas of Cristina Condominium and is in charge of managing, maintaining and
administering the condominium‗s common areas and providing for the building‗s
security.Respondent Unisphere International, Inc. (hereinafter referred to as Unisphere) is the
owner/occupant of Unit 301 of said condominium. On November 28, 1981, respondent Unisphere‗s
Unit 301 was allegedly robbed of various items valued at P6,165.00. The incident was reported to
petitioner CCC. On July 25, 1982, another robbery allegedly occurred at Unit 301 where the items
carted away were valued at P6,130.00, bringing the total value of items lost to P12,295.00. This
incident was likewise reported to petitioner CCC.On October 5, 1982, respondent Unisphere
demanded compensation and reimbursement from petitioner CCC for the losses incurred as a result
of the robbery. On January 28, 1987, petitioners E.G.V. Realty and
CCC jointly filed a petition with the Securities and Exchange Commission (SEC) for the
collection of the unpaid monthly dues in the amount of P13,142.67 against respondent
Unisphere.

Issue:

Whether or not set-off or compensation has taken place in the instant case.

Ruling:

Compensation or offset under the New Civil Code takes place only when two persons or
entities in their own rights, are creditors and debtors of each other. (Art. 1278). A distinction
must be made between a debt and a mere claim. A debt is an amount actually ascertained. It is a
claim which has been formally passed upon by the courts or quasi-judicial bodies to which it can
in law be submitted and has been declared to be a debt.A claim, on the other hand, is a debt in
embryo. It is mere evidence of a debt and must pass thru the process prescribed by law before it
develops into what is properly called a debt. Absent, however, any such categorical admission by
an obligor or finaladjudication, no compensation or off-set can take place. Unless admitted by a
debtor himself, the conclusion that he is in truth indebted to another cannot be definitely and
finally pronounced, no matter how convinced he may be from the examination of the pertinent
records of the validity of that conclusion the indebtedness must be onethat is admitted by the
alleged debtor or pronounced by final judgment of a competent court or in this case by the
Commission. There can be no doubt that Unisphere is indebted to the Corporation for its unpaid
monthly dues in the amount of P13, 142.67. This is admitted.
 Aerospace Chemical v. CA
G.R. No. 108129 September 23, 1999

Facts:

On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five
hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate
Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided that
the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the
shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the
purchases from private respondent's loadports. Per agreement, one hundred metric tons (100 MT)
of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining
four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On December 18,
1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric
acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the
SocieteGenerale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January
2, 1987, attested to these occurrences. Later, on a date not specified in the record, M/T Sultan
Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered
another vessel, M/T Don Victor, with a capacity of approximately 500 MT.6. On January 26 and
March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private
respondent, concerning additional orders of sulfuric acid to replace its sunken purchases.

Issue:

Whether or not expenses for the storage and preservation of the purchased fungible
goods, namely sulfuric acid, should be on seller's account pursuant to Article 1504 of the Civil
Code.

Ruling:

No. Petitioner tries to exempt itself from paying rental expenses and other damages by
arguing that expenses for the preservation of fungible goods must be assumed by the seller.
Rental expenses of storing sulfuric acid should be at private respondent's account until ownership
is transferred, according to petitioner. However, the general rule that before delivery, the risk of
loss is borne by the seller who is still the owner, is not applicable in this case because petitioner
had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly
states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods
are at the buyer's risk whether actual delivery has been made or not, except that: (2) Where actual
delivery has been delayed through the fault of either the buyer or seller the goods are at the risk
of the party at fault."The defendant [herein private respondent] was not remiss in reminding the
plaintiff that it would have to bear the said expenses for failure to lift the commodity for
anunreasonable length of time. But even assuming that the plaintiff did not consent to be so
bound, the provisions of Civil Code come in to make it liable for the damages sought by the
defendant.
 Apodaca v. NLRC
G.R. No. 80039 April 18, 1989

Facts:

Petitioner was employed in respondent corporation. Respondent Jose M. Mirasol

persuaded petitioner to subscribe to 1,500 shares of respondent corporation at P100.00 per share
or a total of P150,000.00. He made an initial payment of P37,500.00. Petitioner was appointed
President and General Manager of the respondent corporation. However, he resigned. Petitioner
instituted with the NLRC a complaint against private respondents for the payment of his unpaid
wages, his cost of living allowance, the balance of his gasoline and representation expenses and
his bonus compensation. Private respondents admitted that there is due to petitioner the amount
of P17,060.07 but this was applied to the unpaid balance of his subscription in the amount of
P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the
payment of the unpaid subscription and that, accordingly, the alleged obligation is not
enforceable. The labor arbiter ruled in favor of the petitioner. Then, NLRC held that a
stockholder who fails to pay his unpaid subscription on call becomes a debtor of the corporation
and that the set-off of said obligation against the wages and others due to petitioner is not
contrary to law, morals and public policy.

Issue:

Whether or not the corporation can validly offset the unpaid shared in lieu of the wages.

Ruling:

No. The unpaid subscriptions are not due and payable until a call is made by the
corporation for payment. Private respondents have not presented a resolution of the board of
directors of respondent corporation calling for the payment of the unpaid subscriptions. It does
not even appear that a notice of such call has been sent to petitioner by the respondent
corporation. No doubt such set-off was without lawful basis, if not premature. As there was no
notice or call for the payment of unpaid subscriptions, the same is not yet due and payable.
Lastly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the
stockholder and the corporation as in the matter of unpaid subscriptions. This controversy is
within the exclusive jurisdiction of the Securities and Exchange Commission.

Total vs. Partial

 Sps. Chung v. Ulanday Construction
G.R. No. 156038 October 11, 2010

Facts:

In 1985, the petitioners contracted with respondent Ulanday Construction, Inc. to

construct, within a 150-day period, the concrete structural shell of the former‗s two-storey
residential house in Urdaneta Village, Makati City at the contract price of P3,291,142.00.The
Contract provided that: (a) the respondent shall supply all the necessary materials and labor
indispensable for the completion of the project; (b) the petitioners shall pay down payment, with
the balance to be paid in progress payments based on actual work completed; (c) the
Construction Manager or Architect shall check the respondent‗s request for progress payment (d)
the petitioners shall pay the respondents within 7 days from receipt of the Construction
Manager‗s or Architect‗s certificate; (e) the respondent cannot change or alter the plans,
specifications, and works without the petitioners‗ prior written approval; (f) a penalty shall be
imposed for each day of delay in completion (g) the respondent shall correct at its expense,
defects appearing during the 12-month warranty period after the petitioners‗ issuance of final
acceptance of work.Subsequently, the parties agreed to exclude from the contract the roofing and
flushing work, reducing the contract price. The petitioners paid the downpayment with the
balance to be paid based on the progress billings. Actual construction started prior to the issuance
of the permit. The respondent notified the petitioners that the delay in the payment of progress
billings delays the accomplishment of the contract work and made similar follow-up letters.
Subsequently, the respondent demanded full payment for progress billings and change orders.
However, the petitioners denied liability, asserting that the respondent violated the contract
provisions by, among others, failing to finish the contract within the 150-day stipulated period,
failing to comply with the provisions on change orders, and overstating its billings.

Issue:

Whether or not the non-objection to the other change orders effected by the respondent
cannot give rise to estoppel in pais that would render the petitioners liable for the payment of all
change orders?

Ruling:

In contractual relations, the law allows the parties leeway and considers their agreement
as the law between them. Contract stipulations that are not contrary to law, morals, good
customs, public order or public policy shall be binding and should be complied with in good
faith. No party is permitted to change his mind or disavow and go back upon his own acts, or to
proceed contrary thereto, to the prejudice of the other party. In the present case, we find that both
parties failed to comply strictly with their contractual stipulations on the progress billings and
change orders that caused the delays in the completion of the project. Estoppel in pais, or
equitable estoppel, arises when one, by his acts, representations or admissions or by his silence
when he ought to speak out, intentionally or through culpable negligence, induces another to
believe certain facts to exist and the other rightfully relies and acts on such beliefs so that he will
be prejudiced if the former is permitted to deny the existence of such facts. The real office of the
equitable norm of estoppel is limited to supplying deficiency in the law, but it should not
supplant positive law.In this case, the requirement for the petitioners‗ written consent to any
change or alteration in the specifications, plans and works is explicit in Article 1724 of the Civil
Code and is deemed written in the contract betweenparties.The contract also expressly provides
that a mere act of tolerance does not constitute approval. Thus, the petitioners did not, by
accepting and paying for Change Orders, do away with the contractual term on change orders nor
with the application of Article 1724.
 Legal Compensation: Requisites

Mondragon v. Sola, Jr.

G.R. No. 174882 January 21, 2013

Facts:

Mondragon Personal Sales, Inc, a company engaged in the business of selling different
consumer products through a network of sales representatives, entered into a Contract of
Services with Victoriano Sola, Jr. (Sola) for three years. In the contract, the Sola shall provide
facilities for a service fee. In accordance therewith, goods were delivered by Sola to
Mondragon‗s bodega. Previously, Sola‗s wife incurred obligation with Mondragon arising from
her Franchise Distributorship Agreement with the latter. Sola wrote a letter to Mondragon's VP
Finance wherein he acknowledged and confirmed his wife's indebtedness in the amount of
P1,973,154.73, and, together with his wife, bound himself to pay on installment basis the said
debt. Consequently, the Mondragon withheld payment of the service fees and applied the partial
payments to the wife‗s debt. Sola eventually suspended the operation of his bodega where
Mondragon‗s products were stored and customers were being dealt with. Sola filed with the
Regional Trial Court (RTC) a complaint for accounting and rescission alleging that Mondragon
withheld portions of his service fees covering the months from October 1994 to January 1995
and his whole service fees for the succeeding months of February to April 1995, with a total
amount of P222,202.84. The trial court ruled in favor of Mondragon and said that none of the
grounds to rescind a contract existed and there was no showing that fraud was employed when it
entered into a contract with Sola. The Court of Appeals (CA) on the other hand granted the
appeal and ordered the Contract of Services be rescinded for the reason that Mondragon
breached the contract by withholding the service fees lawfully due Sola. It also ruled that the
latter did not assume his wife‗s obligation as he did not substitute himself in her shoes.

Issue:

Whether or not the Court of Appeals erred in granting the appeal and ordered the
Contract of Services to be rescinded for the reason that Mondragon breached the contract by
withholding the service fees lawfully due Sola.

Ruling:

Legal compensation: Compensation is a mode of extinguishing to the concurrent amount

the obligations of persons who in their own right and as principals are reciprocally debtors and
creditors of each other. Legal compensation takes place by operation of law when all the
requisites are present, as opposed to conventional compensation which takes place when the
parties agree to compensate their mutual obligations even in the absence of some requisites.
 Legal Compensation requires the concurrence of the following conditions:

(a) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other

(b) That both debts consist in a sum of money, or if the things due are consumable, they
be of thesame kind, and also of the same quality if the latter has been stated

(c) That the two debts be due

(d) That they be liquidated and demandable

(e) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
 Insular Investment v. Capital One
G.R. No. 183308 April 25, 2012

Facts:

Insular Investment and Trust Corporation (IITC) and Capital One Equities Corp. (COEC)
and Planters Development Bank (PDB) have been regularly engaged in trading, sale and
purchase of Philippine Treasury bills. On various dates, IITC had purchased from COEC. IITC
purchased from COEC treasury bills worth P 260, 683, 392.51 and was able to deliver only
121,050,000. On May 2, 1994, COEC purchased from IITC P 186,790,000 worth of treasury
bills.PDC issued confirmation on the sale in favor of IITC. On May 10, 1994, COEC demanded
a letter from IITC the physical delivery of the securities last May 2, 1994. Then, on its May 18,
1994 letter to PDB, IITC requested, on behalf of COEC, the delivery of IITC treasury bills,
which had been fully paid. On May 30, 1994, COEC protested the tenor of IITC‗s letter to PDB
and took exception to IITC‗s assertion that it merely acted as a facilitator with regard to the sale
of the treasury bills. IITC sent COEC a letter dated June 3, 1994, demanding that COEC deliver
to it (IITC) the P139,833,392.00 worth of treasury bills or return the full purchase price. In either
case, it also demanded that COEC (1) pay IITC the amount of P1,729,069.50 representing
business opportunity lost due to the non-delivery of the treasury bills, and (2) deliver treasury
bills worth P121,050,000 with the same maturity dates originally purchased by IITC. COEC sent
a letter-reply dated June 9, 1994 to IITC in which it acknowledged its obligation to deliver the
treasury bills worth P139,833,392.00 which it sold to IITC and formally demanded the delivery
of the treasury bills worthP186,774,739.49 which it purchased from IITC.COEC also demanded
the payment of lost profits in the amount ofP3,253,250.00. Considering that COEC and IITC
both have claims against each other for the delivery of treasury bills, COEC proposed that a legal
set-off be effected, which would result in IITC owing COEC the difference of P46,941,446.49.
In its June 13, 1994 letter to COEC, IITC rejected the suggestion for a legal setting-off of
obligations, alleging that it merely acted as a facilitator between PDB and COEC. Despite
repeated demands, however, PDB failed to deliver the balance of P136,790,000.00 worth of
treasury bills which IITC purchased from PDB allegedly for COEC. COEC was likewise unable
to deliver the remaining IITC T-Bills amounting to P119,633,392.00. Neither PDB nor COEC
returned the purchase price for the duly paid treasury bills. Thus COEC filed a complaint with
the RTC which found that COEC still has obligations to pay IITC P119,633,392.00 worth of
treasury bills. However, since IITC and COEC were both debtors and creditors of each other, the
RTC off-set their debts, resulting in a difference of P 17,056,608.00 in favor of COEC. As to
PDB‗s liability, it ruled that PDB had the obligation to pay P136,790,000.00 to IITC. Thus, the
trial court ordered (a) IITC to pay COEC P17,056,608.00 with interest at the rate of 6% from
June 10, 1994 until full payment and(b) PDB to pay IITC P136,790,000.00 with interest at the
rate of 6% from March 21, 1995 until full payment.

Issues:

Whether or not COEC can set-off its obligation to IITC as against the latter‗s obligation
to it.

Ruling:

Yes, the Supreme Court ruled that the set-off compensation is allowed. As against the
contention of IITC, COEC had proven that IITC is a principal on its sale of the treasury bills thus
holding them liable for paying such. Therefore, both IITC and COEC are principal creditors of
the other over debts which consist of consumable things or a sum of money, the RTC correctly
ruled that COEC may validly set-off its claims for undelivered treasury bills against that of
IITC‗s claims. The court ruled the applicable provisions of law are Articles 1278, 1279 and 1290
of the Civil Code of the Philippines. In Article 1278 states that compensation shall take place
when two persons, in their own right, are creditors and debtors of each other. Also, in Article
1290, states that when all the requisites mentioned in Article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation. The requisites of a valid
compensation are present in the cases of the debts between IITC and COEC.

As stated in Article 1279 of the Civil Code of the Philippines, such requisites are

(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; and

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. Therefore, both shall be allowed to set-off
their obligations with each other.
 Lao, et al. v. Special Plans, Inc
G.R. No. 164791 June 29, 2010

Facts:

Petitioners Selwyn F. Lao and Edgar Manansala, together with Benjamin Jim, entered
into a Contract of Lease with respondent Special Plans, Inc. (SPI) for the period January 16,
1993 to January 15, 1995 over SPI‗s building at No. 354 Quezon Avenue, Quezon City.
Petitioners intended to use the premises for their karaoke and restaurant business known as
"Saporro Restaurant". Upon expiration of the lease contract, it was renewed for a period of eight
months at a rental rate of P23,000.00 per month. On June 3, 1996, SPI sent a Demand Letter to
the petitioners asking for full payment of rentals in arrears. Receiving no payment, SPI filed on
July 23, 1996 a Complaint for sum of money with the Metropolitan Trial Court (MeTC) of
Quezon City, claiming that Jim and petitioners have accumulated unpaid rentals of P118,000.00
covering the period March 16, 1996 to August 16, 1996. Petitioners filed their Verified Answer
faulting SPI for making them believe that it owns the leased property. They likewise asserted that
SPI did not deliver the leased premises in a condition fit for petitioners‗ intended use. Thus,
petitioners claimed that they were constrained to incur expenses for necessary repairs as well as
expenses for the repair of structural defects, which SPI failed and refused to reimburse.

Issue:

Whether or not the cost of repairs incurred by petitioners should be compensated against
the unpaid rentals.

Ruling:

The petitioners attempted to prove that they spent for the repair of the roofing, ceiling and
flooring, as well as for waterproofing. However, they failed to appreciate that, as per their lease
contract, only structural repairs are for the account of the lessor, herein respondent SPI. In which
case, they overlooked the need to establish that aforesaid repairs are structural in nature, in the
context of their earlier agreement. It would have been an altogether different matter if the lessor
was informed of the said structural repairs and he implicitly or expressly consented and agreed to
take responsibility for the said expenses. Such want of evidence on this respect is fatal to this
appeal. Consequently, their claim remains unliquidated and, legal compensation is inapplicable.
 United Planters Sugar v. CA
G.R. No. 126890 March 9, 2010

Facts:

In 1974, petitioner, obtained "takeoff loans" from respondent PNB to finance the
construction of a sugar milling plant. The takeoff loans were secured by a real estate mortgage
over two parcels of land where the milling plant stood and chattel mortgagesover certain
machineries and equipment. From 1984 to 1987, petitioner contracted another set of loans, They
were likewise secured by pledge contracts whereby petitioner assigned to respondent PNB all its
sugar produce for the latter to sell and apply the proceeds to satisfy the indebtedness arising from
the loans. Later, respondent APT and petitioner agreed to an "uncontested" or "friendly
foreclosure" of the mortgaged assets, in exchange for petitioner‗s waiver of its right of
redemption. On July 28, 1987, respondent PNB and respondent APT filed a Petition for
Extrajudicial Foreclosure Sale with the Ex-Officio Regional Sheriff of Dumaguete City, seeking
to foreclose on the real estate and chattel mortgages which were executed to secure the takeoff
loans. On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its
"rights" titles and interests over UPSUMCO, among several other assets. The Deed of Transfer
acknowledged that said assignment was being undertaken "in compliance with Presidential
Proclamation No. 50." The Government subsequently transferred these "rights" titles and
interests" over UPSUMCO to respondent Asset and Privatization Trust (APT).

Issue:

Whether or not there was legal compensation.

Ruling:

The right of respondent PNB to set-off payments from UPSUMCO arose from
conventional compensation rather than legal compensation, even if all the requisites for legal
compensation were present between those two parties. The determinative factor is the mutual
agreement between PNB and UPSUMCO to set-off payments. Even without an express
agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of
payments, as the legal requisites for compensation under Article 1279 were present. As soon as
PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and
UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional
compensation, a relationship which does not require the presence of all the requisites under
Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights
under conventional compensation. The absence of the mutual creditor-debtor relation between
the new creditor APT and UPSUMCO cannot negate the conventional compensation.
Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding
obligations of UPSUMCO on the basis of conventional compensation before the condonation
took effect on 3 September 1987.
 Legal Compensation: When
Prohibited

PNB Management v. R & R Metal

G.R. No. 132245 January 2, 2002

Facts:

It appears that on November 19, 1993, respondent R&R Casting and Fabricating, Inc.
(R&R) obtained a judgment in its favor against Pantranco North Express, Inc. (PNEI). PNEI was
ordered to pay respondent P213, 050.00 plus interest as actual damages. P50, 000.00 as
exemplary damages, 25 percent of the total amount payable as attorneys‘ fees, and the costs of
suit. However, the writ of execution was returned unsatisfied since the sheriff did not find any
property of PNEI recorded at the Registries of Deeds of the different cities of Metro Manila.
Neither did the sheriff receive a reply to the notice of garnishment he sent to PNB-Escolta. On
March 27, 1995, respondent filed with the trial court motion for the issuance of
subpoenaeducestecumand ad testificandum requiring petitioner PNB Management and
Development Corp. (PNB MADECOR) to produce and testify on certain documents pertaining
to transactions between petitioner and PNEI from 1981 to 1995.

Issue:

Whether or not legal compensation occurred in the instant case.

Ruling:

Legal compensation could not have occurred because of the absence of one requisite in
this case: that both debts must be due and demandable. Petitioner‘s obligation to PNEI appears to
be payable on demand, following the above observation made by the CA and the assertion made
by the petitioner. Petitioner is obligated to pay the amount stated in the promissory note upon
receipt of a notice pay from PNEI. If petitioner fails to pay after such notice, the obligation will
earn an interest of 18 percent per annum. Since petitioner‘s obligation to PNEI is payable on
demand, and there being no demand made, it follows that the obligation is not yet due.
Therefore, this obligation may not be subject to compensation for lack of a requisite under law.
Without compensation having taken place, petitioner remains obligated to PNEI to the extent
stated in the promissory note. This obligation may undoubtedly be garnished in favor of
respondent to satisfy PNEI‘s judgment debt.

Silahis v. IAC
G. R. No. L-74027 December 7, 1989
Facts:

Gregorio de Leon doing business under the name and style of Mark Industrial Sales sold
and delivered to Silahis Marketing Corporation various items of merchandise covered by several
invoices in the aggregate amount of P 22,213.75 payable within thirty (30) days from date of the
covering invoices. Allegedly due to Silahis' failure to pay its account upon maturity despite
repeated demands, de Leon filed before the then Court of First Instance of Manila a complaint
for the collection of the said accounts including accrued interest thereon in the amount of P
661.03 and attorney's fees of P 5,000.00 plus costs of litigation.

Issue:

Whether or not respondent is liable to petitioner for commission which the former
consummated with Dole Philippines.

Ruling:

When all the requisites mentioned in Art. 1279 of the Civil Code are present,
compensation takes effect by operation of law, even without the consent or knowledge of the
creditors and debtors. Article 1279 requires, among others, that in order that legal compensation
shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation
is not proper where the claim of the person asserting the set-off against the other is not clear nor
liquidated; compensation cannot extend to unliquidated, disputed claim existing from breach of
contract. Undoubtedly, petitioner admits the validity of its outstanding accounts with private
respondent in the amount of P 22,213.75 as contained in its answer. But whether private
respondent is liable to pay the petitioner a 20% margin or commission on the subject sale to Dole
Philippines, Inc. is vigorously disputed. This circumstance prevents legal compensation from
taking place. The Court held that there is no evidence on record from which it can be inferred
that there was any agreement between the petitioner and private respondent prohibiting the latter
from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that the
debit memo was a contract binding between the parties considering that the same was not signed
by private respondent nor was there any mention therein of any commitment by the latter to pay
any commission to the former. Indeed, such document can be taken as self-serving with no
probative value absent a showing or at the very least an inference, that the party sought to be
bound assented to its contents or showed conformity thereto.
 Francia v. CA
G.R. No. L-67649 June 28, 1988

Facts:

EngracioFrancia is the registered owner of a residential lot 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 P4,116.00representing 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 by the City Treasurer of Pasay City in order to satisfy a tax delinquency of
P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during
the auction sale since he was in Iligan City. On March 3, 1979, Francia received a notice of
hearing and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by
the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both
annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.

Issue:

Whether or not Francia‗s tax delinquency has been extinguished by legal compensation.

Ruling:

There is no legal basis for the contention. By legal compensation, obligations of persons,
who in their own right are reciprocally debtors and creditors of each other, are extinguished. The
circumstances of the case do not satisfy the requirements provided by Article 1279 (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 the two debts be due.The court ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or greater than the tax
beingcollected. The collection of a tax cannot await the results of a lawsuit against the
government. In addition, a taxpayer cannot refuse to pay his tax when called upon by the
collector because he has a claim against the governmental body not included in the tax levy.The
tax was due to the city government while the expropriation was effected by the national
government. Moreover, the amount of P4,116.00 paid by the national government for the 125
square meter portion of his lot was deposited with the Philippine National Bank long before the
sale at public auction of his remaining property. It would have been an easy matter to withdraw
P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public
auction.Petitioner had one year within which to redeem his property although, he claimed that he
pocketed the notice of the auction sale without reading it. Petitioner, therefore, was notified
about the auction sale. It was negligence on his part when he ignored such notice. By his very
own admission that he received the notice, his now coming to court assailing the validity of the
auction sale loses its force. As a general rule, gross inadequacy of price is immaterial when the
law gives the owner the right to redeem as when a sale is made at public auction, upon the theory
that the lesser the price, the easier it is for the owner to effect redemption.
 Trinidad v. Acapulco
G.R. No. 147477 June 27, 2006

Facts:

On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking
the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She alleged:
Sometime in February 1991, a certain PrimitivoCañeterequested her to sell a Mercedes Benz for
P580,000.00. Cañete also said that if respondent herself will buy the car, Cañete was willing to
sell it for P500,000.00. Petitioner borrowed the car from respondent for two days but instead of
returning the car as promised, petitioner told respondent to buy the car from Cañete for
P500,000.00and that petitioner would pay respondent after petitioner returns from Davao.
Following petitioner‗s instructions, respondent requested Cañete to execute a deed of sale
covering the car in respondent‗s favor for P500,000.00 for which respondent issued three checks
in favor of Cañete. Respondent thereafter executed a deed of sale in favor of petitioner even
though petitioner did not pay her any consideration for the sale. When petitioner returned from
Davao, he refused to pay respondent the amount of P500,000.00 saying that said amount would
just be deducted from whatever outstanding obligation respondent had with petitioner. Due to
petitioner‗s failure to pay respondent, the checks that respondent issued in favor of Cañete
bounced, thus criminal charges were filed against her.

Issue:

Whether or not there is valid dacion en pago.

Ruling:

Compensation takes effect by operation of law even without the consent or knowledge of
the parties concerned when all the requisites mentioned in Article 1279 of the Civil Code. While
the proceedings in the RTC focused on ascertaining the presence of the elements of dacion en
pago, it was likewise proven that petitioner owed respondent the amount of P500,000.00 while
respondent owed petitioner P566,000.00; that both debts are due, liquidated and demandable,
and; that neither of the debts or obligations are subject of a controversy commenced by a third
person. By operation of law, the P500,000.00 which petitioner owed respondent is off-set against
the P566,000.00 owed by respondent to petitioner, leaving a balance of P66,000.00, which
respondent should pay with 12% interest per annum from date of judicial or extrajudicial deed.
Since there was no extrajudicial deed in this case, the interest shall be resolved from the date
petitioner filed its Supplemental Motion for Reconsideration invoking for the first time legal
compensation, that is, May 20, 1992. The court held that the P500,000.00 which Hermenegildo
M. Trinidad owed Estrella Acapulco is offset against the P566,000.00 which Acapulco owed
Trinidad. Acapulco is ordered to pay Trinidad the amount of P66,000.00 plus interest at 12% per
annum from May 20, 1992 until full payment.
 Novation

Heirs of Franco v. Sps. Gonzales

G.R. No. 159709 June 27, 2012

Facts:

On Nov. 7, 1985, Servando Franco and Leticia Medel obtained a loan from Veronica
Gonzales. Franco and Medel executed a promissory note to evidence the loan. On Nov. 19, 1985,
they obtained another loan. On maturity of the 2 promissory notes, they failed to pay. On June
11, 1986, they executed another loan secured by a REM over a property belonging to Leticia
Yaptinchay, who issued a SPA in favor of Medel. Like the previous loans, Franco and Medel
failed to pay on maturity. On July 23, 1986, Franco and Medel consolidated all unpaid loans
totaling P440K and sought another loan. On maturity, they failed to pay the indebtedness of
P500K plus interests and penalties.Sps. Gonzales filed with the RTC a complaint for collection
of the full amount of the loan including interests and other charges. The lower court ruled that,
although the Usury Law had been repealed, the interest charged by Sps. Gonzales was
unconscionable. Hence, it applied the provision of the Civil Code that the "legal rate of interest
for loan or forbearance of money, goods, or credit is 12% per annum." The CA reversed the
decision of the RTC.Upon finality of the decision, Sps. Gonzales moved for execution. Franco
opposed, claiming that their agreement, which was allegedly embodied in a receipt dated Feb. 5,
1992 whereby he made an initial payment of P400K and promised to pay the balance of P375K
on Feb. 29, 1992, superseded the July 23, 1986 promissory note.

Issue:

Whether or not there was a novation of the Aug. 23, 1986 promissory note when Veronica
Gonzales issued the Feb. 5, 1992 receipt.

Ruling:

Novation did not transpire because no irreconcilable incompatibility existed between the
promissory note and the receipt. The receipt did not create a new obligation incompatible with
the old one under the promissory note. Instead, Sps. Gonzales only recognized the original
obligation by stating in the receipt that the P400K was partial payment of the loan and by
referring to the promissory note subject of the case in imposing the interest. Advertence to the
interest stipulated in the promissory note indicated that the contract still subsisted, not replaced
and extinguished.Worth noting is that Franco's liability was joint and solidary with his co-
debtors. In a solidary obligation, the creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The choice to determineagainst whom the collection is
enforced belongs to the creditor until the obligation is fully satisfied. Thus, the obligation was
being enforced against Franco, who, in order to escape liability, should have presented evidence
to prove that his obligation had already been cancelled by the new obligation or that another
debtor had assumed his place. In case of change in the person of the debtor, the substitution must
be clear and express and made with the consent of the creditor. Yet, these circumstances did not
obtain, proving that Franco remained a solidary debtor against whom the entire or part of the
obligation might be enforced.Lastly, the extension of the maturity date did not constitute a
novation of the previous agreement.
 Objective Novation

Hernandez-Nievera v. Hernandez
G.R. No. 171165 February 14, 2011

Facts:

Project Movers Realty & Development Corporation (PMRDC), is a duly organized

domestic corporation engaged in real estate development. On November 13, 1997, PMRDC
entered into a Memorandum of Agreement whereby it was given the option to buy pieces of land
owned by petitioners Carolina Hernandez-Nievera, Margarita H. Malvar and Demetrio P.
Hernandez, Jr., under authority of a Special Power of Attorney to Sell or Mortgage. In the
aggregate, the realty measured 4,580,451 square meters and was segregated by agreement into
Area I and Area II. On March 23, 1998, it entered with LBP and Demetrio the latter purportedly
acting under authority of the same special power of attorney as in the MOA into a Deed of
Assignment and Conveyance. Although PMRDC delivered to petitioners certain checks
representing the money, the same however allegedly bounced. Hence, on January 8, 1999,
petitioners demanded the return of the corresponding TCTs.

Issue:

Whether or not the novation of MOA is valid.

Ruling:

Petitioners cause stems from the failure of PMRDC to restore to petitioners the
possession of the TCTs of the lands within Area II upon its failure to exercise the option to
purchase within the 12-month period stipulated in the MOA. Respondents maintain, that said
obligation, has altogether been expressly obliterated by the terms of the DAC whereby
petitioners, through Demetrio as attorney-in-fact, have agreed to novate the terms of the MOA by
extinguishing the core obligations of PMRDC on the payment of option money. But petitioners
stand against the validity of the DAC on the ground that the signature of Demetrio therein was
spurious. Respondents are quick to reason that a request is unnecessary because Demetrio has
been legally enabled by his special power to give such consent and accordingly execute the
DAC, effect a novation of the MOA, and extinguish the stipulated obligations of PMRDC
therein, or at least that he could assent to the implementation of the MOA provisions in the way
that transpired. Thus, it becomes clear that Demetrio‗s special power of attorney to sell is
sufficient to enable him to make a binding commitment under the DAC in behalf of Carolina and
Margarita. In particular, it does include the authority to extinguish PMRDC‗s obligation under
the MOA to deliver option money and agree to a more flexible term by agreeing instead to
receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of
the properties to the Asset Pool. Indeed, the terms of his specialpower of attorney allow much
leeway to accommodate not only the terms of the MOA but also those of the subsequent
agreement in the DAC which, in this case, necessarily and consequently has resulted in a
novation of PMRDC‗s integral obligations.
 St. James College v. Equitable PCI Bank
G.R. No. 179441 August 9, 2010

Facts:

Petitioners-spouses Jaime and Myrna Torres owned and operated St. James College of
Parañaque. In 1995, the Philippine Commercial and International Bank (PCIB) granted the
Torres spouses and/or St. James College a credit line facility of up to PhP 25,000,000. This
accommodation or any of its extension or renewal was secured by a real estate mortgage over a
parcel of land situated in Parañaque. As petitioners had defaulted in the payment of the loan,
their total unpaid loan obligation, as of September 2001, stood at PhP 18,300,000.In a bid to
settle its loan availment, petitioners first proposed to EPCIB that they be allowed to pay their
account in equal quarterly installments for five years. EPCIB informed petitioners that it is
denying their request for the reinstatement of their credit line, but proposed a restructuring
package with a soft payment scheme for the outstanding loan balance of PhP 18,300,000.
Petitioner Jaime Torres chose and agreed to the second option, by affixing his signature at the
bottom portion of EPCIB‗s letter.

Issue:

Whether or not there was a novation of the contract and whether the required grounds for
the issuance of preliminary injunction are present.

Ruling:

It has often been said that the minds that agree to contract can agree to novate. And the
agreement or consent to novate may well be inferred from the acts of a creditor, since volition
may as well be expressed by deeds as by words. In the instant case, however, the acts of EPCIB
before, simultaneously to, and after its acceptance of payments from petitioners argue against the
idea of its having acceded or acquiesced to petitioners request for a change of the terms of
payments of the secured loan. Thus, a novation through an alleged implied consent by EPCIB, as
proffered and argued by petitioners, cannot be given imprimatur by the Court. The Court held
that the petitioners have not shown a right in esse to be protected. Indeed, the Rules requires that
the applicant‗s right must be clear or unmistakable. An injunction will not issue to protect a right
not in esse and which may never arise, or to restrain an act which does not give rise to a cause of
action. An application for a preliminary injunction is a mere adjunct to the main action. In all
then, the preliminary evidence presented by petitioners and the allegations in their complaint did
not clearly make out any entitlement to the injunctive relief prayed for. Trial courts are reminded
to see to it that applications for preliminary injunction clearly allege facts and circumstances
showing the existence of the requisites. An application for injunctive relief is construed strictly
against the pleader
 Tomimbang v. Tomimbang
G.R. No. 165116 August 4, 2009

Facts:

Petitioner and respondent are siblings. Their parents donated to petitioner an eight- door
apartment, with the condition that during the parents‘ lifetime, they shall retain control over the
property and petitioner shall be the administrator thereof. Petitioner failed to obtain a loan from
PAG-IBIG Fund, hence, respondent offered to extend a credit line to petitioner on the following
conditions: (1) petitioner shall keep a record of all the advances; (2) petitioner shall start paying
the loan upon the completion of the renovation; (3) upon completion of the renovation, a loan
and mortgage agreement based on the amount of the advances made shall be executed by
petitioner and respondent; and (4) the loan agreement shall contain comfortable terms and
conditions which petitioner could have obtained from PAG-IBIG. However, respondent and
petitioner entered into a new agreement whereby petitioner was to start making monthly
payments on her loan. Upon respondent‘s demand, petitioner turned over to respondent all the
records of the cash advances for the renovations. Petitioner however discontinued the
renovations and her whereabouts could not be located. Respondent filed a complaint demanding
the former to pay the loan plus interest. The trial court and the Court of Appeals rendered
judgment in favor of the plaintiff.

Issue:

Whether or not petitioner‘s obligation is due and demandable. Whether or not there was a
novation of the original terms of the loan agreement.

Ruling:

The Court finds that the obligation was already due and demandable. The evidence on
record clearly shows that after renovation of seven out of the eight apartment units had been
completed, petitioner and respondent agreed that the former shall already start making monthly
payments on the loan even if renovation on the last unit was still pending. She agreed and
complied with respondent‘s demand for her to begin paying her loan, since she believed this was
in accordance with her commitment to pay whenever she was able. By her very own admission
and partial performance of her obligation, there can be no other conclusion that petitioner‘s
obligation is already due and demandable. Evidently, by virtue of the subsequent agreement, the
parties mutually dispensed with the condition that petitioner shall only begin paying after the
completion of all renovations. There was, in effect, a partial novation, of petitioner‘s obligation.
As can be gleaned from the foregoing, the aforementioned four essential elements and the
requirement that there be total incompatibility between the old and new obligation, apply only to
extinctive novation. In partial novation, only the terms and conditions of the obligation are
altered, thus, the main obligation is not changed and it remains in force. Her partial performance
of her obligation is unmistakable proof that indeed the originalagreement between her and
respondent had been novated by the deletion of the condition that payments shall be made only
after completion of renovations.
 Substitution of the Debtor: Expromision

Mindanao Savings v. Willkom

G.R. No. 178618 October 11, 2010

Facts:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
Mindanao Savings and Loan Association, Inc. (MSLAI), represented by its liquidator, Philippine
Deposit Insurance Corporation (PDIC), against respondents Edward R. Willkom (Willkom);
Gilda Go (Go); RemediosUy (Uy); MalayoBantuas (sheriff Bantuas), in his capacity as sheriff of
the Regional Trial Court (RTC), Branch 3 of Iligan City; and the Register of Deeds of Cagayan
de Oro City. MSLAI seeks the reversal and setting aside of the Court of Appeals (CA) Decision
dated March 21, 2007 and Resolution dated June 1, 2007 in CA-G.R. CV No. 58337.

Issue:

Whether or not the Court of Appeals, Cagayan de Oro committed grave and reversible
error when it refused to recognize the merger between FISLAI and DSLAI with DSLAI as the
surviving corporation.

Ruling:

The merger, however, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and creditors, there must be an express
provision of law authorizing them. Clearly, the merger shall only be effective upon the issuance
of a certificate of merger by the SEC, subject to its prior determination that the merger is not
inconsistent with the Corporation Code or existing laws. Where a party to the merger is a special
corporation governed by its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained.
 Aquintey v. Tibong
G.R. No. 166704 December 20, 2006

Facts:

On May 6, 1999, petitioner AgrifinaAquintey filed before the RTC of Baguio City, a
complaint for sum of money and damages against the respondents, spouses Felicidad and Rico
Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at
monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their
outstanding loan, amounting to P773,000.00 exclusive of interests. In their Answer with
Counterclaim, spouses Tibong admitted that they had secured loans from Agrifina. The proceeds
of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged
that they had executed deeds of assignment in favor of Agrifina, and that their debtors had
executed promissory notes in Agrifina‗s favor. According to the spouses Tibong, this resulted in
a novation of the original obligation to Agrifina. They insisted that by virtue of these documents,
Agrifina became the new collector of their debtors; and the obligation to pay the balance of their
loans had been extinguished.

Issue:

Whether or not there is valid novation in the instant case.

Ruling:

Novation which consists in substituting a new debtor in the place of the original one may
be made even without the knowledge or against the will of the latter but not without the consent
of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning,
the debtor offers, and the creditor, accepts a third person who consents to the substitution and
assumes the obligation. Thus, the consent of those three persons is necessary. In this kind of
novation, it is not enough to extend the juridical relation to a third person; it is necessary that the
old debtor be released from the obligation, and the third person or new debtor take his place in
the relation. Without such release, there is no novation; the third person who has assumed the
obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to
solidarity, the first and the new debtor are considered obligated jointly. In the case at bar, the
court found that respondents' obligation to pay the balance of their account with petitioner was
extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in
favor of petitioner. As gleaned from the deeds executed by respondent Felicidad relative to the
accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from
Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent
Felicidad, likewise, unequivocally declared that Cabang and Cirilo no longer had any obligation
to her.

Subrogation to the Rights of the Creditor: Legal vs. Conventional

 Asian Terminals v. Philam
G.R. No. 181163 July 24, 2013

Facts:

On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation 219
packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model,
without engine, tires and batteries, on board the vessel S/S Calayan Iris from Japan to Manila.
The shipment, which had a declared value of US$81,368 or P29,400,000, was insured with
Philam against all risks under the marine Policy no. 708-8006717-4. The carrying vessel arrived
at the port of manila on April 20, 1995, and when the shipment was unloaded by the staff of ATI,
it was found that the package marked as 03-245-42K/1 was in bad order. The Turn Over Survey
of bad order cargoes dated April 21, 1995 identified two packages, labeled 03-245-42K/1 and
03/237/7CK/2, as being dented and broken. Thereafter, the cargoes were stored for temporary
safekeeping inside CFS Warehouse in Pier No. 5. On May 11, 1995, the shipment was withdrawn
by R.F. Revilla Customs Brokerage, Inc., the authorized broker of Universal Motors, and
delivered to the latter‗s warehouse in Mandaluyong City. Upon the request of Universal Motors,
a bad order survey was conducted on the cargoes and it was found that one Frame Axle Sub
without LWR was deeply dented on the buffle plate while six Frame Assembly with Bush were
deformed and misaligned. Owing to the extent of the damage to said cargoes, Universal Motors
declared them a total loss. On August 4, 1995, Universal Motors filed a formal claim for
damages in the amount of P643,963.84 against Westwind, ATI and R.F. Revilla Customs
Brokerage, Inc. When Universal Motors‗ demands remained unheeded, it sought reparation from
and was compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors
issued a Subrogation Receipt dated November 15, 1995 in favor of Philam. On January 18, 1996,
Philam, as subrogee of Universal Motors, filed a Complaint for damages against Westwind, ATI
and R.F. Revilla Customs Brokerage, Inc. before the Regional Trial Court of Makati City. The
trial court rendered judgment in favour of Philam which ruling was affirmed by the Court of
Appeals modifying the amount to be paid by Westwind and ATI.

Issue:

Whether or not Philam may claim against Westwind and ATI as a subrogee.

Ruling:

The Court holds that petitioner Philam has adequately established the basis of its claim
against petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the
consignee, Universal Motors Corporation, pursuant to the Subrogation receipt executed by the
latter in favor of the former. The right of subrogation accruessimply upon payment by the
insurance company of the insurance claim. Petitioner Philam‗s action finds support in Article
2207 of the Civil Code which provides that if the plaintiff‗s property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. In
Malayan Insurance Co., Inc. vs. Alberto, the Court explained the effect of payment by the insurer
of the insurance claim in this wise: We have held that payment by the insurer to the insured
operates as an equitable assignment to the insurer of all the remedies that the insured may have
against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues
simply upon payment by the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and accomplish justice; and is the
mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity,
and good conscience, ought to pay.
 Loadmasters v. Glodel Brokerage
G.R. No. 179446 January 10, 2011

Facts:

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes
from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the
services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbia‗s
warehouses/plants in Bulacan and Valenzuela City. The goods were loaded on board twelve (12)
trucks owned by Loadmasters, driven by its employed drivers and accompanied by its employed
truck helpers. Six (6) truckloads of copper cathodes were to be delivered to Balagtas, Bulacan,
while the other six (6) truckloads were destined for LawangBato, Valenzuela City. The cargoes in
six truckloads for LawangBato were duly delivered in Columbia‗s warehouses there. Of the six
(6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the destination. One
(1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper
cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for insurance
indemnity in the amount of P1,903,335.39. After the requisite investigation and adjustment,
R&B Insurance paid Columbia the amount of P1,896,789.62 as insurance indemnity.

Issue:

Whether or not petitioner Loadmasters be held liable to Respondent Glodel in spite of the
fact that the latter respondent Glodel did not file a cross-claim against it (Loadmasters).

Ruling:

Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation
to a debt or claim, including its remedies or securities. Doubtless, R&B Insurance is subrogated
to the rights of the insured to the extent of the amount it paid the consignee under the marine
insurance, as provided under Article 2207 of the Civil Code, which reads: ART. 2207. If the
plaintiff‗s property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrong-doer or the person
who has violated the contract. If the amount paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury. As subrogee of the rights and interest of the consignee, R&B Insurance
has the right to seek reimbursement from either Loadmasters or Glodel or both for breach of
contract and/or tort.
 Metrobank v. Rural Bank of Gerona
G.R. No. 159097 July 5, 2013

Facts:

RBG is a rural banking corporation organized under Philippine laws and located in
Gerona, Tarlac. In the 1970s, the Central Bank and the RBG entered into an agreement providing
that RBG shall facilitate the loan applications of farmers-borrowers under the Central Bank-
International Bank for Reconstruction and Development‗s (IBRD‗s) 4th Rural Credit Project.
The agreement required RBG to open a separate bank account where the IBRD loan proceeds
shall be deposited. The RBG accordingly opened a special savings account with
Metrobank‗sTarlac Branch. As the depository bank of RBG, Metrobank was designated to
receive the credit advice released by the Central Bank representing the proceeds of the IBRD
loan of the farmers-borrowers; Metrobank, in turn, credited the proceeds to RBG‗s special
savings account for the latter‗s release to the farmers-borrowers. On September 27, 1978, the
Central Bank released a credit advice in Metrobank‗s favor and accordingly credited
Metrobank‗s demand deposit account in the amount of P178,652.00, for the account of RBG.
The amount, which was credited to RBG‗s special savings account represented the approved
loan application of farmer-borrower Dominador de Jesus. RBG withdrew the P178,652.00 from
its account. On the same date, the Central Bank approved the loan application of another
farmerborrower, BasilioPanopio, for P189,052.00, and credited the amount to Metrobank‗s
demand deposit account. Metrobank, in turn, credited RBG‗s special savings account.
Metrobank claims that the RBG also withdrew the entire credited amount from its account. On
October 3, 1978, the Central Bank approved PoncianoLagman‗s loan application for
P220,000.00. As with the two other IBRD loans, the amount was credited to Metrobank‗s
demand deposit account, which amount Metrobank later credited in favor of RBG‗s special
savings account. Of the P220,000.00, RBG only withdrew P75,375.00. On November 3, 1978,
more than a month after RBG had made the above withdrawals from its account with Metrobank,
the Central Bank issued debit advices, reversing all the approved IBRD loans. The Central Bank
implemented the reversal by debiting from Metrobank‗s demand deposit account the amount
corresponding to all three IBRD loans. Upon receipt of the November 3, 1978 debit advices,
Metrobank, in turn, debited the following amounts from RBG‗s special savings account:
P189,052.00,P115,000.00, and P8,000.41. Metrobank, however, claimed that these amounts were
insufficient to cover all the credit advices that were reversed by the Central Bank. It demanded
paymentfrom RBG which could make partial payments. As of October 17, 1979, Metrobank
claimed that RBG had an outstanding balance ofP334,220.00.

Issue: Whether or not Central Bank should be impleaded.

Ruling:
 Under this situation, impleading the Central Bank as a party is completely unnecessary.
We note that the CA erroneously believed that the Central Bank‗s presence is necessary in order
to shed light on the matter of reversals made by it concerning the loan applications of the end
users and to have a complete determination or settlement of the claim. In so far as Metrobank is
concerned, however, the Central Bank‗s presence and the reasons for its reversals of the IBRD
loans are immaterial after subrogation has taken place; Metrobank‗s interest is simply to collect
the amounts it paid the Central Bank. Whatever cause of action RBG may have against the
Central Bank for the unexplained reversals and any undue deductions is for RBG to ventilate as a
third-party claim; if it has not done so at this point, then the matter should be dealt with in a
separate case that should not in any way further delay the disposition of the present case that had
been pending before the courts since 1980.
 Swagman v. CA
G.R. No. 161135 April 8, 2005

Facts:

Swagman Hotel, Inc., through its representatives, obtained from Neal a loan which is
payable after 3 years and with interest per annum payable every 3 months. After a year,
Swagman suffered business reverses prompting it to renegotiate the terms of the loan with Neal.
It was agreed that Neal waives the payment of interests and that the principal loan shall be paid
every month instead of quarterly. After the renegotiation, the cash vouchers or receipts
acknowledged by the parties state that the payments therein represent ―Capital Investment‖ and
―Capital Repayment‖. Barely 2 years after however, Neal sent a letter informing the corporation
that he is terminating the loans and demanding that the total amount of the loan and unpaid
interests be paid. Subsequently, Neal filed a complaint for sum of money and damages.
Swagman answered that the complaint is dismissible for lack of cause of action since the loan is
not yet due and demandable and that there was novation in the contract. But the RTC held in
favor of Neal, rationating that although there was no cause of action at the filing of the
complaint, the debt has already matured during the days the hearings were held, thus making it
due as of date.

Issues: Whether or not a complaint that lacks a cause of action at the time it was filed be cured
by the accrual of a cause of action during the pendency of the case

Ruling:

No. Jurisprudence states that unless the plaintiff has a valid and subsisting cause of action
at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or
accrual of one while the action is pending, and a supplemental complaint or an amendment
setting up such after-accrued cause of action is not permissible. (Surigao Mines vs Harris, 1935)
2. Yes. Under Article 1253 of the Civil Code, it is presumed that if the debt produces interest,
payments were applied first to the interest before the principal. But in this case, the receipts
describing the payments as capital repayment show that obligation to pay the interest was no
longer subsisting. The receipts prove that the payments were for the principal loans and that Neal
waived the interests. There was therefore a novation of the terms of the loan. The resulting
novation in this case was of the modificatory type, not the extinctive type, since the obligation to
pay a sum of money remains in force.
 Azolla Farms v. CA
G.R. No. 138085 November 11, 2004

Facts:

Petitioner Francis R. Yuseco, Jr., is the Chairman, President and Chief Operating Officer
of petitioner Azolla Farms International Philippines. In 1982, Azolla Farms undertook to
participate in the National Azolla Production Program wherein it will purchase all the Azolla
produced by the Azolla beneficiaries in the amount not exceeding the peso value of all the inputs
provided to them. The project also involves the then Ministry of Agriculture, the Kilusang
Kabuhayan at Kaunlaran, and the Kiwanis. To finance its participation, petitioners applied for a
loan with Credit Manila, Inc., which the latter endorsed to its sister company, respondent Savings
Bank of Manila (Savings Bank). The Board of Directors of Azolla Farms, meanwhile, passed a
board resolution on August 31, 1982, authorizing Yuseco to borrow from Savings Bank in an
amount not exceeding P2,200,000.00. The loan having been approved, Yuseco executed a
promissory note on September 13, 1982, promising to pay Savings Bank the sum of
P1,400,000.00 on or before September 13, 1983. the Azolla Farms project collapsed. Blaming
Savings Bank, petitioners Yuseco and Azolla Farms filed on October 3, 1983 with the Regional
Trial Court of Manila (Branch 25), a complaint for damages. In essence, their complaint alleges
that Savings Bank unjustifiably refused to promptly release the remaining P300,000.00 which
impaired the timetable of the project and inevitably affected the viability of the project resulting
in its collapse, and resulted in their failure to pay off the loan.Thus, petitioners pray for
P1,000,000.00 as actual damages, among others.

Issue: Whether the trial court erred in admitting petitioners' amended complaint.

Ruling:

Sec. 5. Amendment to conform to or authorize presentation of evidence .— When issues

not raised by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment; but failure so to amend
does not affect the result of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the admission of such
evidence would prejudice him in maintaining his action or defense upon the merits.
 Bautista v. Pilar Development
G.R. No. 135046 August 17, 1999

Facts:

To partially obtain the purchase of a house and lot in Pilar Village, Las Piñas, Metro
Manila, spouses Bautista obtained a loan of P 100, 180.00 from Apex Mortgage & Loan
Corporation (Apex). Consequently, they executed a promissory note on December 22, 1978,
obligating themselves to pay the principal amount with interest rate of 12% and service charge of
3% for a period of 240 months, or twenty (20) years, from date, in monthly instalments of P 1,
378.83. Late payments were to be charged a penalty of 1 ½% of the amount due, and authorizing
Apex to ―increase the rate of interest and/or service charges‖ without notice to them in the event
that a law, PD or any Central Bank regulation should be enacted increasing the lawful rate of
interest and service charges on the loan. The spouses failed to pay several instalments; hence,
they executed a second promissory note in favor of Apex on September 20, 1982. the note
amounted to P 142, 326.43 at an interest rate of 21%/ annum with no provision for service charge
but with penalty charge of 1 ½% for late payments. Payment was to be made for a period of 196
months or 16.33 years in monthly instalments of P 2,576.68, inclusive of principal and tax and
authorizing Apex to ―increase the rate of interest and/or service charges‖ on the event that any
law or Central Bank regulation shall be passed increasing or decreasing the same. On November
1983, petitioners failed to pay instalments again. Apex assigned the second promissory note to
respondent Pilar Development Corporation without notice to the petitioners on June 6, 1984.
Consequently, as successor- in-interest of Apex, respondent instituted a case for collection
against the spouses for the amount of P 140, 515.11 representing the unpaid balance of the
principal debt from November 23, 1983 including the interest at the rate of 21% under the
second promissory note, and 25% and 36% per annum in accordance with a Central Bank
Circular. Petitioner spouses contended that the terms of the second promissory notes increasing
the interest rate to 21% and the escalation clause authorizing Apex to increase interest rates
pursuant to any law or Central Bank regulation are null and void in the absence of a de-
escalation clause in the same note.

Issue:

Whether or not the interest rate must be pegged at 12% under the first promissory note
and not at 21% as pegged in the second promissory note.

Ruling:

The Supreme Court held that the interest rate should be pegged at 21% as pegged in the
second promissory note since the first promissory note was cancelled by the express terms of the
second promissory note. The first note was novated. The elements of novation are clearly present
in the instant case that: first, the first promissory note was a valid and subsisting contract when
petitioner spouses and Apex executed a second promissory note. Second, the second promissory
note absorbed the unpaid principal and interest of P 142, 326.43 in the first note which amount
became the principal therein, payable at a higher rate interest of 21%/ annum. Thus, the terms of
the second promissory note provided for a higher principal, a higher interest rate, and a higher
monthly amortization, all to be paid within a shorter period of 16.33 years. These changes are
substantial and constitute the principal conditions of the obligations. Both parties voluntarily
accepted the terms of the second note; and they unequivocally stipulated to extinguish the first
one. Hence, there was animus novandi.
 Evadel Realty v. Soriano
G.R. No. 144291 April 20, 2001

Facts:

On April 12, 1996, the spouses Antero and Virginia Soriano entered into a Contract to
Sell with Evadel Realty over a parcel of land which is a part of a huge tract of land. The parcel of
land consists of 28,958 sq. m. In their contract, Evadel obliged itself to deliver the amount of P
28,958,000.00, which represents the first installment, during the signing of the agreement. The
second and last installment shall be delivered simultaneously with the delivery of the Torrens
Title by spouses Soriano. Upon payment of the first installment, Evadel introduced
improvements thereon and fenced off the property with concrete walls. Later the spouses
discovered that the area fenced off exceeded the areas subject of the contract to sell. The spouses
sent demand letters to petitioner Evadel to vacate the encroached area, however the latter
refused. A complaint for accion reinvindicatoria was then filed by spouses Soriano. In its answer,
Evadel admitted the encroachment but claimed that it was a builder in good faith since it relied
on the boundaries pointed out by representatives of respondent. It also argued that there was
novation of contract due to the encroachment made by the national road on the property subject
of the contract by 1,647 sq.m.

Issue:

Whether or not there was novation of contract.

Ruling:

The contract to sell between petitioner and respondent spouses, the genuineness and due
execution thereof was admitted by petitioner, clearly delineated the metes and bounds of the lot
subject thereof. Attached to the said contract was a graphic illustration of the lot purchased by
petitioner including a technical description thereof. Finally, petitioner‗s claim that there was a
novation of contract because there was a "second" agreement between the parties due to the
encroachment made by the national road on the property subject of the contract by 1,647 square
meters, is unavailing. Novation, one of the modes of extinguishing an obligation, requires the
concurrence of the following: (1) there is a valid previous obligation; (2) the parties concerned
agree to a new contract; (3) the old contract is extinguished; and (4) there is valid new contract.
Novation may be express or implied. In order that another that substitutes the same may
extinguish an obligation, it is imperative that it be so declared in unequivocal terms (express
novation) or that the old and the new obligations be on every point incompatible with each other
(implied novation). In the instant case, there was no express novation because the "second"
agreement was not even put in writing. Neither was there implied novation since it was not
shown that the two agreements were materially and substantially incompatible with each other.
The second agreement between the parties, as alleged by Evadel, was never put into writing so
that there can be no express novation. Moreover, there can be no implied novation because it was
not shown that the alleged second agreement is incompatible in every point with the first
agreement on the Contract to Sell. Furthermore, the spouses Soriano were not shown to have
agreed with the second contract on agreement so that the second requisite of novation, which is,
the agreement between the parties concerned to a new contract, is absent.
 Statute of Limitations/Prescriptive Periods

Rosario v. De Guzman
G.R. No. 191247 July 10, 2013

Facts:

In Aug. 1990, Sps. Pedro and Rosita de Guzman engaged the legal services of Atty.
Francisco Rosario, Jr. as defense counsel in the complaint filed against them by Loreta Chong for
annulment of contract and recovery of possession with damages involving a parcel of land. Atty.
Rosario's legal services commenced from the RTC and ended up in the SC. Sps. de Guzman won
the case at all levels. While the case was pending before the SC, Sps. de Guzman died in a
vehicular accident. Thereafter, they were substituted by their children, namely: Rosella, Lellani,
Arleen, and Philip Ryan. On Sept. 8, 2009, Atty. Francisco filed a motion to determine attorney‗s
fees before the RTC. He alleged that he had a verbal agreement with the deceased spouses that he
would get 25% of the market value of the subject land if the complaint filed against them by
Chong would be dismissed. Despite the fact that he had successfully represented them,
respondents refused his written demand for payment of the contracted attorney‗s fees. Atty.
Francisco insisted that he was entitled to 25% of the value of the subject land on the basis of
quantum meruit. The RTC denied Atty. Francisco's motion on the ground that it was filed out of
time. The RTC stated that, considering that the motion was filed too late, it had already lost
jurisdiction over the case because a final decision could not be amended or corrected except for
clerical errors or mistakes. There would be a variance of the judgment rendered if his claim for
attorney‗s fees would still be included.

Issue:

Whether or not the period of action to recover attorney‗s fees has prescribed.

Ruling:

There are 2 concepts of attorney‗s fees – ordinary and extraordinary. In its ordinary
sense, it is the reasonable compensation paid to a lawyer by his client for legal services rendered.
In its extraordinary concept, it is awarded by the court to the successful litigant to be paid by the
losing party as indemnity for damages. Although both concepts are similar in some respects, they
differ from each other. The attorney‗s fee which a court may award to a winning litigant is an
item of damages. It differs from that which a client pays his counsel for his professional services.
The award that the court may grant to a successful party by way of attorney‗s fee is an indemnity
for damages sustained by him in prosecuting or defending through counsel his cause in court. It
may be decreed in favor of the party, not his lawyer, in any of the instances authorized by law.
On the other hand, the attorney‗s fee which a client pays his counsel refers to the compensation
for his services. The losing party against whom damages by way of attorney‗s fees may be
assessed is not bound by, nor is his liability dependent upon, the fee arrangement of the
prevailing party with his lawyer. The amount stipulated in such fee arrangement may, however,
be taken into account by the court in fixing the amount of counsel fees as an element of damages.
The fact that the practice of law is not a business and the attorney plays a vital role in the
administration of justice underscores the need to secure him his honorarium lawfully earned as a
means to preserve the decorum and respectability of the legal profession. A lawyer is as much
entitled to judicial protection against injustice, imposition, or fraud on the part of his client as the
client against abuse on the part of his counsel. The duty of the court is not alone to see that a
lawyer acts in a proper and lawful manner. It is also its duty to see that a lawyer is paid his just
fees. With his capital consisting of his brains and with his skill acquired at tremendous cost not
only in money but in expenditure of time and energy, he is entitled to the protection of any
judicial tribunal against any attempt on the part of his client to escape payment of his just
compensation. It would be ironic if, after putting forth the best in him to secure justice for his
client, he himself would not get his due. The SC, however, was resistant in granting Atty.
Francisco's prayer for an award of 25% attorney's fees based on the value of the property subject
of litigation because he failed to clearly substantiate the details of his oral agreement with Sps.
de Guzman. A fair and reasonable amount of attorney's fees should be 15% of the market value
of the property.
 Vector Shipping v. American Home
G.R. No. 159213 July 3, 2013

Facts:

Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered
owner of the M/T Vector. Respondent is a domestic insurance corporation. On September 30,
1987, Caltex entered into a contract of Affreightment with Vector for the transport of Caltex‗s
petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent for
P7,455,421.08 under Marine Open Policy. In the evening of December 20, 1987, the M/T Vector
and the M/V Doña Paz, the latter a vessel owned and operated by Sulpicio Lines, Inc., collided
and led to the sinking of both vessels. The entire petroleum cargo of Caltex on board the M/T
Vector perished. Respondent indemnified Caltex for the loss of the petroleum cargo in the full
amount of P7,455,421.08 and filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc.
to recover the full amount of P7,455,421.08 it paid to Caltex. RTC dismissed the case on the
ground that the action is upon a quasi-delict and as such must be commenced within four 4 years
from the day they may be brought. The tort complained of in this case occurred on 20 December
1987.

Issue:

Whether or not the action by the respondent is already barred by prescription.

Ruling:

Respondent‗s action had not yet prescribed. The argument of Vector and Soriano would
have substance and merit had Civil Case No. 18735 and this case involved the same parties and
litigated the same rights and obligations. But the two actions were separate from and independent
of each other. Civil Case No. 18735 was instituted by Sulpicio Lines, Inc. to recover damages for
the loss of its M/V Doña Paz. In contrast, this action was brought by respondent to recover from
Vector and Soriano whatever it had paid to Caltex under its marine insurance policy on the basis
of its right of subrogation. With the clear variance between the two actions, the failure to set up
the cross-claim against them in Civil Case No. 18735 is no reason to bar this action.
 Villeza v. German Management
G.R. No. 182937 August 8, 2010

Facts:

This petition sprouted from an earlier Supreme Court ruling in German Management v.
Court of Appeals, G.R. Nos. 72616-76217, September 14, 1989, which has already become final
and executory. The decision, however, remains unenforced due to the prevailing party‗s own
inaction. On May 27, 1991, the petitioner filed a Motion for Issuance of Writ of Execution with
the MeTC. Three years later, as there was no further movement, the said court issued an order
dated January 9, 1995 denying petitioner‗s pending Motion for Issuance of Writ of Execution for
lack of interest. As the sheriff was implementing the writ, an Opposition with Motion to Quash
Writ of Execution was filed by German Management and Services, Inc. On June 3, 1999, an
order was handed down granting the motion to quash the writ of execution issued. On October 3,
2000, Villeza filed with the MeTC a Complaint for Revival of Judgment of the Decision of the
Supreme Court dated September 14, 1989. Respondent German Management moved to dismiss
the complaint. It alleged that it had been more than 10 years from the time the right of action
accrued, that is, from October 5, 1989, the date of the finality of the Court's decision to October
3, 2000, the date of the filing of the complaint for its revival. It further argued that, pursuant to
Section 6, Rule 39 of the Rules of Court in relation to Article 1144 of the Civil Code, the
complaint is now barred by the statute of limitations. On March 29, 2001, the MeTC granted the
motion to dismiss. Aggrieved, petitioner Villeza appealed the decision to the Regional Trial
Court (RTC) which affirmed in toto the MeTC order of dismissal in its April 24, 2004 Decision.
Petitioner Villeza elevated the case to the Court of Appeals (CA) arguing that the 10-year
prescriptive period was tolled by the suspension granted him by the MeTC of Antipolo pursuant
to his request to hold in abeyance the issuance of the writ of execution. The Ca affirmed in toto
the decision of the trial court.

Issue:

Whether or not petitioner's contention is meritorious.

Ruling:

An action for revival of judgment is governed by Article 1144 (3), Article 1152 of the
Civil Code and Section 6, Rule 39 of the Rules of Court. Thus, Art. 1144. The following actions
must be brought within ten years from the time the right of action accrues: (3)Upon a judgment
Article 1152 of the Civil Code states: Art. 1152. The period for prescription of actions to demand
the fulfillment of obligations declared by a judgment commences from the time the judgment
became final. The rules are clear. Once a judgment becomes final and executory, the prevailing
party can have it executed as a matter of right by mere motion within five years from the date of
entry of judgment. If the prevailing party fails to have the decision enforced by a motion after the
lapse of five years, the said judgment is reduced to a right of action which must be enforced by
the institution of a complaint in a regular court within ten years from the time the judgment
becomes final.
 Insurance of the Philippine Islands v. Sps. Gregorio
G.R. No. 174104 February 14, 2011

Facts:

Spouses Vidal Gregorio and Julita Gregorio obtained loans from the Insurance of the
Philippine Islands Corporation. By way of security for the said loan, respondents executed Real
Estate Mortgage. Respondents failed to pay their loans, as a result of which the mortgaged
properties were extrajudicially foreclosed. Petitioner filed a Complaint for damages against
respondents alleging that in 1995, when it was in the process of gathering documents for the
purpose of filing an application for the registration and confirmation of its title over the
foreclosed properties, it discovered that the said lots were already registered in the names of third
persons and transfer certificates of title (TCT) were issued to them. The RTC of Morong, Rizal,
ruled in favor of petitioner, while the CA rendered a Decision reversing and setting aside the
decision of the RTC and dismissing the complaint of petitioner. It ruled that petitioner's action for
damages is barred by prescription and laches.

Issue:

Whether or not petitioner's right of action prescribed four years after the subject
properties were registered with the Register of Deeds of Morong, Rizal and TCTs were
subsequently issued in the names of third persons.

Ruling:

The petition is meritorious. The Court finds no error in the ruling of the CA that
petitioner's cause of action accrued at the time it discovered the alleged fraud committed by
respondents. It is at this point that the four-year prescriptive period should be counted. However,
the Court does not agree with the CA in its ruling that the discovery of the fraud should be
reckoned from the time of registration of the titles covering the subject properties. The reckoning
period for prescription of petitioner's action should be from the time of actual discovery of the
fraud. Neither may the principle of laches apply in the present case. The essence of laches or
―stale demands‖ is the failure or neglect for an unreasonable and unexplained length of time to
do that which, by exercising due diligence, could or should have been done earlier, thus, giving
rise to a presumption that the party entitled to assert it either has abandoned or declined to assert
it. It is not concerned with mere lapse of time; the fact of delay, standing alone, being insufficient
to constitute laches. Petition is denied. The decision of CA is affirmed.
 Mariano v. Petron
G.R. No. 169438 January 21, 2010

Facts:

On 5 November 1968, Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure
Group), owners of a 2,064 square meter parcel of land in Tagaytay City (Property), leased the
Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doing business
in the country through its subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines). The
lease period is 90 years and the rent is payable monthly for the first 10 years, and annually for
the remaining period. The lease contract (Contract) contained an assignment veto clause barring
the parties from assigning the lease without prior consent of the other. Excluded from the
prohibition were certain corporations to whom ESSO Eastern may unilaterally assign its
leasehold right. On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine
National Oil Corporation (PNOC). Apparently, the Aure Group was not informed of the sale.
ESSO Philippines, whose corporate name was successively changed to Petrophil Corporation
then to Petron Corporation (Petron), took possession of the Property. On 18 November 1993,
petitioner Romeo D. Mariano (petitioner) bought the Property from the Aure Group and obtained
title to the Property issued in his name bearing an annotation of ESSO Easterns lease. On 17
December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner informed
Petron that Presidential Decree No. 471 (PD 471), dated 24 May 1974, reduced the Contracts
duration from 90 to 25 years, ending on 13 November 1993. Despite receiving the notice to
vacate on 21 December 1998, Petron remained on the Property.

Issue:

Whether or not the Contract subsists between petitioner and Petron.

Ruling:

Petitioner‗s waiver of Petron‗s contractual breach was compounded by his long inaction
to seek judicial redress. Petitioner filed his complaint nearly 22 years after PNOC acquired the
leasehold rights to the Property and almost six years after petitioner bought the Property from the
Aure Group. The more than two decades lapse puts this case well within the territory of the 10
year prescriptive bar to suits based upon a written contract under Article 1144 (1) of the Civil
Code.
 Sps. Bernales v. Heirs of Sambaan
G.R. No. 163271 January 15, 2010

Facts:

Spouses Julian and Guillerma Sambaan were the registered owner of a property located
in Bulua, Cagayan de oro City. The respondents and the petitioner Myrna Bernales are the
children of Julian and Guillerma. Myrna, who is the eldest of the siblings, is the present owner
and possessor of the property in question. Julian died in an ambush in 1975. Before he died, he
requested that the property in question be redeemed from Myrna and her husband Patricio
Bernales. Thus, in 1982 one of Julian‗s siblings offered to redeem the property but the
petitioners refused because they were allegedly using the property as tethering place for their
cattle. In January 1991, respondents received an information that the subject property was
already transferred to Myrna Bernales. The Deed of Absolute Sale dated December 7, 1970 bore
the forged signatures of their parents, Julian and Guillerma. On April 1993, the respondents,
together with their mother Guillerma, filed a complaint for Annulment of Deed of Absolute Sale
and cancellation of TCT No. T-14204 alleging that their parent‗s signatures were forged. The
trial court rendered a decision on August 2, 2001 cancelling the TCT and ordering another title to
be issued in the name of the late Julian Sambaan. Petitioners went to the CA and appealed the
decision. The CA affirmed the decision of the lower court. A motion for reconsideration of the
decision was, likewise, denied in 2004. Hence, this petition for certiorari.

Issue:

Whether or not the Deed of Absolute Sale is authentic as to prove the ownership of the
petitioners over the subject property.

Ruling:

It is a question of fact rather than of law. Well-settled is the rule that the Supreme Court
is not a trier of facts. Factual findings of the lower courts are entitled to great weight and respect
on appeal, and in fact accorded finality when supported by substantial evidence on the record.
Substantial evidence is more than a mere scintilla of evidence. It is that amount of relevant
evidence that a reasonable mind might accept as adequate to support a conclusion, even if other
minds, equally reasonable, might conceivably opine otherwise. But to erase any doubt on the
correctness of the assailed ruling, we have carefully perused the records and, nonetheless, arrived
at the same conclusion. We find that there is substantial evidence on record to support the Court
of Appeals and trial court‗s conclusion that the signatures of Julian and Guillerma in the Deed of
Absolute Sale were forged. Conclusions and findings of fact by the trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and cogent reasons because the
trial court is in a better position to examine real evidence, as well as to observe the demeanor
of the witnesses while testifying in the case. The fact that the CA adopted the findings of fact of
the trial court makes the same binding upon this court. Thus, we hold that with the presentation
of the forged deed, even if accompanied by the owner‗s duplicate certificate of title, the
registered owner did not thereby lose his title, and neither does the assignee in the forged deed
acquire any right or title to the said property.
 Interruption

B & I Realty v. Caspe

G.R. No. 146972 January 29, 2008

Facts:

Consorcia L. Venegas was the owner of a parcel of land located in Barrio Bagong-Ilog in
Pasig, Rizal and covered by TCT No. 247434. She delivered said title to, and executed a
simulated deed of sale in favor of, Datuin for purposes of obtaining a loan with the RCBC.
Datuin claimed that he had connections with the management of RCBC and offered his
assistance to Venegas in obtaining a loan from the bank. He issued a receipt to the Venegases,
acknowledging that the lot was to be used as a collateral for bank financing and that the deed of
sale was executed only as a device to obtain the loan. However, Datuin prepared a deed of
absolute sale and, through forgery, made it appear that the spouses Venegas executed the
document in his favor. Venegas learned of Datuin's fraudulent scheme when she sold the lot to
herein respondents for P160,000 in a deed of conditional sale. She, along with her husband,
instituted a complaint against Datuin in the then Court of First Instance CFI of Rizal, Branch 11,
docketed as Civil Case No. 188893, for recovery of property and nullification of TCT No.
377734, with damages. However, when the case was called for pre-trial, the Venegases' counsel
failed to appear and the complaint was eventually dismissed without prejudice.

Issue:

Whether or not filing of Civil Case No. 36852 by the Venegases had the effect of
interrupting the prescriptive period for the filing of the complaint for judicial foreclosure of
mortgage.

Ruling:

We agree with the CA's ruling that Civil Case No. 36852 did not have the effect of
interrupting the prescription of the action for foreclosure of mortgage as it was not an action for
foreclosure but one for annulment of title and nullification of the deed of mortgage and the deed
of sale. It was not at all the action contemplated in Article 1155 of the Civil Code which
explicitly provides that the prescription of an action is interrupted only when the action itself is
filed in court. Petitioner could have protected its right over the property by filing a cross-claim
for judicial foreclosure of mortgage against respondents in Civil Case No. 36852. The filing of a
cross-claim would have been proper there. All the issues pertaining to the mortgage validity of
the mortgage and the propriety of foreclosure would have been passed upon concurrently and not
on a piecemeal basis. This should be the case as the issue of foreclosure of the subject mortgage
was connected with, or dependent on, the subject of annulment of mortgage in Civil Case No.
36852. The actuations clearly manifested that petitioner knew its rights under the law but chose
to sleep on the same.
 Mesina v. Garcia
G.R. No. 168035 November 30, 2006

Facts:

Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, entered into a
Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan,
Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of Felicisima Mesina
which title was eventually cancelled and TCT No. T-78881 was issued in the name of herein
petitioners. The Contract to Sell provides that the cost of the lot is P70.00 per square meter for a
total amount of P16,450.00; payable within a period not to exceed 7 years at an interest rate of
12% per annum, in successive monthly installments of P260.85 per month, starting May 1977.
Thereafter, the succeeding monthly installments are to be paid within the first week of every
month, at the residence of the vendor at Quezon City, with all unpaid monthly installments
earning an interest of 1% per month. Instituting this case at bar, respondent asserts that despite
the full payment made on 7 February 1984 for the consideration of the subject lot, petitioners
refused to issue the necessary Deed of Sale to effect the transfer of the property to her.

Issue:

Whether or not respondent‗s cause of action had already prescribed.

Ruling:

Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when
an action has been filed in court; when there is a written extrajudicial demand made by the
creditors; and when there is any written acknowledgment of the debt by the debtor. The records
reveal that starting 19 April 1986 until 2 January 1997 respondent continuously demanded from
the petitioners the execution of the said Deed of Absolute Sale but the latter conjured many
reasons and excuses not to execute the same. Respondent even filed a Complaint before the
Housing and Land Use Regulatory Board way back in June, 1986, to enforce her rights and to
compel the mother of herein petitioners, who was still alive at that time, to execute the necessary
Deed of Absolute Sale for the transfer of title in her name. On 2 January 1997, respondent,
through her counsel, sent a final demand letter to the petitioners for the execution of the Deed of
Absolute Sale, but still to no avail. Consequently, because of utter frustration of the respondent,
she finally lodged a formal Complaint for Specific Performance with Damages before the trial
court on 20 January 1997. Hence, from the series of written extrajudicial demands made by
respondent to have the execution of the Deed of Absolute Sale in her favor, the prescriptive
period of 10 years has been interrupted. Therefore, it cannot be said that the cause of action of
the respondent has already been prescribed.

Heirs of Gaudiane v. CA
G.R. No. 119879 March 11, 2004

Facts:

The lot in controversy is Lot 4389 located at Dumaguete City and covered by Original
Certificate of Title No. 2986-A (OCT 2986-A) in the names of co-owners Felix and Juana
Gaudiane. Felix died in 1943 while his sister Juana died in 1939. Herein respondents are the
descendants of Felix while petitioners are the descendants of Juana. On November 4, 1927, Felix
executed a document entitled Escritura de CompraVenta (Escritura, for brevity) whereby he sold
to his sister Juana his one-half share in Lot No. 4156 covered by Transfer Certificate of Title No.
3317-A. Petitioners‗ predecessors-in-interest, Geronimo and Ines Iso (the Isos), believed that the
sale by Felix to their mother Juana in 1927 included not only Lot 4156 but also Lot 4389. In
1974, they filed a pleading in the trial court seeking to direct the Register of Deeds of
Dumaguete City to cancel OCT 2986-A covering Lot 4389 and to issue a new title in favor of the
Isos. This was later withdrawn after respondents‗ predecessors-in-interest, Procopio Gaudiane
and Segundo Gaudiane, opposed it on the ground that the Isos falsified their copy of the
Escritura by erasing Lot 4156 and intercalating in its place Lot 4389.

Issue:

Whether or not the court gravely erred in not giving due course to the claim of petitioners
and legal effect of prescription and laches adverted by defendants-appellants in their answer and
affirmative defenses proven during the hearing by documentary and testimonial evidence.

Ruling:

As a general rule, ownership over titled property cannot be lost through prescription.[12]
Petitioners, however, invoke our ruling in Tambot vs. Court of Appeals[13] which held that titled
property may be acquired through prescription by a person who possessed the same for 36 years
without any objection from the registered owner who was obviously guilty of laches. Petitioners‗
claim is already rendered moot by our ruling barring petitioners from raising the defense of
exclusive ownership due to res judicata. Even assuming arguendo that petitioners are not so
barred, their contention is erroneous. As explained earlier, only Lot No. 4156 was sold. It was
through this misrepresentation that appellees‗ predecessor-in-interest succeeded in withholding
possession of appellees‗ share in Lot No. 4389. Appellees cannot, by their own fraudulent act,
benefit therefrom by alleging prescription and laches.
 Laureano v. CA
G.R. No. 114776 February 2, 2000

Facts:

In 1978, the Singapore Airlines Limited (SAL) hired Menandro Laureano as a pilot. In
1982 however, SAL was hit by recession and so it had to lay off some employees. Laureano was
one of them. Laureano asked for reconsideration but it was not granted. Aggrieved, Laureano
filed a labor case for illegal dismissal against SAL. But in 1987, he withdrew the labor case and
instead filed a civil case for damages due to illegal termination of contract against SAL.
Laureano filed the case here in the Philippines. SAL moved for the dismissal of the case on the
ground of lack of jurisdiction. The motion was denied. On trial, SAL alleged that the termination
of Laureano is valid pursuant to Singaporean law. The trial court ruled in favor of Laureano. SAL
appealed the case raising the issue of lack of jurisdiction, nonapplicability of Philippine laws,
and estoppel, among others. The Court of Appeals reversed the trial court.

Issue:

Whether or not Singaporean Law is applicable to this case.

Ruling:

No. The specific Singaporean Law which holds valid the dismissal of Laureano is not
proved in court. As such, the trial court cannot make a determination if the termination is indeed
valid under Singaporean Law. Philippine courts do not take judicial notice of the laws of
Singapore. SAL has the burden of proof. SAL failed to prove such law hence Philippine law shall
apply. However, the case must be dismissed on the ground of estoppel. Under our laws, all
money claims arising from employer-employee relationships must be filed within three years
from the time the cause of action accrued. Laureano‘s cause of action accrued in 1982 when he
was terminated but he only filed the money claim in 1987 or more than three years from 1982.
Hence he is already barred by prescription.
 Banco Filipino v. CA
G.R. No. 155181 April 15, 2005

Facts:

Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the
Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00 as evidenced by the
Promissory Note executed by the spouses in favor of the said bank. To secure payment of said
loans, the spouses executed ―Real Estate Mortgages in favor of the appellants (Banco Filipino)
over their parcels of land. The appellee spouses failed to pay their monthly amortization to
appellant. On September 2, 1985 the appellee‗s filed a complaint for ―Annulment of the Loan
Contracts, Foreclosure Sale with Prohibitory and Injunction‖ which was granted by the RTC.
Petitioners appealed to the Court of Appeals, but the CA affirmed the decision of the RTC.

Issue:

Whether or not the CA erred when it held that the cause of action of the private
respondents accrued on October 30, 1978 and the filing of their complaint for annulment of their
contracts in 1085 was not yet barred by the prescription.

Ruling:

The court held that the petition is unmeritorious. Petitioner‗s claim that the action of the
private respondents have prescribed is bereft of merit. Under Article 1150 of the Civil Code, the
time for prescription of all kinds of action where there is no special provision which ordains
otherwise shall be counted from the day they may be brought. Thus the period of prescription of
any cause of action is reckoned only from the date of the cause of action accrued. The period
should not be made to retroact to the date of the execution of the contract, but from the date they
received the statement of account showing the increased rate of interest, for it was only from the
moment that they discovered the petitioner‗s unilateral increase thereof.
 Vda. De Delgado v. CA
G.R. No. 125728 August 28, 2001

Facts:

Carlos Delgado was the absolute owner of a parcel of land with an area of 692,549 square
meter situated in the Municipality of Catarman Samar. Carlos Delgado granted and conveyed by
way of donation with quitclaim all rights, title, interest claim and demand over a portion of land
with an area of 165,000 square meter in favor of the Commonwealth of the Philippines. The
acceptance was then made to President Quezon in his capacity as Commander-in-Chief. The
Deed of Donation was executed with a condition that the said land will be used for the formation
of the National Defense of the Philippines. The said parcel of land then covered by the Torrens
System of the Philippines and was registered in the name of Commonwealth of the Philippines
for a period of 40 years. The land was registered under TCT 0-2539-160 in favor of the
Commonwealth however without any annotation. Upon declaration of independence, the
Commonwealth was replaced by Republic of the Philippines which took over the subject land
and turned over to Civil Aeronautics Administration, later named Bureau of Air Transportation
Office. The said agency utilizes the said land a domestic airport. Jose Delgado filed a petition for
reconveyance for a violation of the condition. The RTC ruled in favor of the plaintiff Delgado.
But the CA reversed the said decision because of prescription. The petitioner filed only before 24
years of discovery which the law only requires 10 years of filing.

Issue:

Whether or not the petitioner‗s action for reconveyance is already barred by prescription.

Ruling:

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals
because the time of filing has been prescribed. Under Article 1144 of the Civil Code on
Prescription based on written contracts, the filing of action for reconveyance is within 10 years
from the time the condition in the Deed of Donation was violated. The petitioner herein filed
only 24 years in the first action and 43 years in the second filing of the 2nd action. The action for
reconveyance on the alleged excess of 33, 607 square meter mistakenly included in the title was
also prescribed Article 1456 of the Civil Code states, 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
benefits of the person from whom the property comes, if within 10 years such action for
reconveyance has not been executed.
 Maestrado v. CA
G.R. No. 133345 March 9, 2000

Facts:

These consolidated cases involve Lot No. 5872 and the rights of the contending parties
thereto. The lot has an area of 57.601 sq.m. and is registered in the name of the deceased spouses
Ramon and Rosario Chaves. The spouses died intestate in 1943 and 1944, respectively. They
were survived by six heirs. To settle the estate of said spouse, Angel Chaves, one of the heirs,
initiated intestate proceedings and was appointed administrator of said estates in the process. An
inventory of the estates was made and thereafter, the heirs agreed on a project partition. The
court approved the partition but a copy of said decision was missing. Nonetheless, the estate was
divided among the heirs. Subsequently, in 1956, the partition case effected and the respective
shares of the heirs were delivered to them. Significantly, Lot No.5872 was not included in a
number of documents. Parties offered different explanations as to the omission of said lot in the
documents. Petitioners maintain the existence of an oral partition agreement entered into by all
heirs after the death of their parents. To set things right, petitioners then prepared a quitclaim to
confirm the alleged oral agreement. Respondents dispute voluntariness of their consent to the
quitclaims. Six years after the execution of the quitclaims, respondents discovered that indeed
subject lot was still a common property in the name of the deceased spouses. Eventually, an
action for Quieting of Title was filed by petitioners on December 22, 1983. The trial court
considered Lot No. 5872 as still a common property and therefore must be divided into six parts,
there being six heirs. Petitioners appealed to the Court of Appeals which sustained the decision
of the trial court.

Issue:

Whether or not the action for quieting of title had already prescribed.

Ruling:

The Supreme Court ruled that an action for quieting of title is imprescriptible especially if
the plaintiff is in possession of the property being litigated. One who is in actual possession of a
land, claiming to be the owner thereof may wait until his possession is disturbed or his title is
attacked before making steps to vindicate his right because his undisturbed possession gives him
a continuing right to seek the aid of the courts to ascertain the nature of the adverse claim and its
effect on his title. Moreover, the Court held that laches is inapplicable in this case. This is
because, as mentioned earlier, petitioners' possession of the subject lot has rendered their right to
bring an action for quieting of title imprescriptible.

Estoppel: Definition and

Meaning
 F.A.T. Kee Computer v. Online Networks
G.R. No. 171238 February 2, 2011

Facts:

Petitioner F.A.T. Kee Computer Systems, Inc. (FAT KEE) is a domestic corporation
engaged in the business of selling computer equipment and conducting maintenance services for
the units it sold. ONLINE is also a domestic corporation principally engaged in the business of
selling computer units, parts and software. ONLINE sold computer printers to FAT KEE.
However, FAT KEE failed to pay its obligations to ONLINE without any valid reason. ONLINE
filed a Complaint for Sum of Money against FAT KEE. During the trial FAT KEE insisted that
the conversion rate they agreed upon was P34:US$1 and not P40 as insisted by ONLINE. The
RTC dismissed the complaint of ONLINE for the latter‗s failure to establish its claim. The
appellate court reversed and set aside the Decision of the RTC. The CA ruled that even granting
that FAT KEE was of the impression that P34:$1 was the applicable rate for its obligation,
ONLINE cannot be put in estoppel as this was immediately rectified by ONLINE.

Issue:

Whether or not ONLINE is estopped as to the conversion rate used.

Ruling:

The petition is partly meritorious. One who claims the benefit of an estoppel on the
ground that he has been misled by the representations of another must not have been misled
through his own want of reasonable care and circumspection. A lack of diligence by a party
claiming an estoppel is generally fatal. Thus, after participating in the meeting on January 15,
1998, submitting its own proposals and further negotiating for the lowering of the exchange rate,
FAT KEE cannot anymore insist that it was completely under the impression that the applicable
exchange rate was P34:US$1.
 Tanay Recreation v. Fausto
G.R. No. 140182 April 12, 2005

Facts:

Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a
3,090-square meter property owned by Catalina Matienzo Fausto, under a Contract of Lease. On
this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract
provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The
contract also provided that should Fausto decide to sell the property, petitioner shall have the
priority right to purchase the same. On June 17, 1991, petitioner wrote Fausto informing her of
its intention to renew the lease. However, it was Fausto‗s daughter, respondent Anunciacion F.
Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is
now the absolute owner of the property. It appears that Fausto had earlier sold the property to
Pacunayen and title has already been transferred in her name. Petitioner filed an Amended
Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction
In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the
deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the
lease. According to respondent, when they met to discuss the matter, petitioner did not demand
for the exercise of its option to purchase the property, and it even asked for grace period to
vacate the premises.

Issue:

Whether or not the contention in this case refers to petitioner‗s priority right to purchase,
also referred to as the right of first refusal.

Ruling:

Petitioner‗s right of first refusal is an integral and indivisible part of the contract of lease
and is inseparable from the whole contract. The consideration for the lease includes the
consideration for the right of first refusal and is built into the reciprocal obligations of the parties.
It was erroneous for the CA to rule that the right of first refusal does not apply when the property
is sold to Fausto‗s relative. When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon. As such, there can be, between the parties
and their successors in interest, no evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and agreement of the parties. Thus,
under the terms of petitioner‗s right of first refusal, Fausto has the legal duty to petitioner not to
sell the property to anybody, even her relatives, at any price until after she has made an offer to
sell to petitioner at a certain price and said offer was rejected by petitioner.
 Mendoza v. CA
G.R. No. 116710 June 25, 2001

Facts:

Respondent was granted by respondent Philippine National Bank (PNB) credit line and
Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations and for
those which may thereinafter be granted, petitioner mortgaged to respondent PNB some of his
properties. Petitioner later requested for loan restructuring and issued promissory notes, which he
failed to comply. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and
the mortgaged properties were sold at public auction to respondent PNB, as highest bidder.
Petitioner filed a case in the RTC contending that foreclosure is illegal invoking promissory
estoppel, and secured favorable judgment. The decision of RTC was reversed by the Court of
Appeals.

Issue:

Whether or not the foreclosure of petitioner‘s real estate and chattel mortgages were legal
and valid as opposed to promissory estoppel.

Ruling:

Yes. First, there was no promissory estoppel as the promise (of respondent bank) must be
plain and unambiguous and sufficiently specific. Second, there was no meeting of the minds
leading to another contract, hence loan was not restructured. Third, promissory notes petitioner
issued were valid. Fourth, stipulation in the mortgage, extending its scope and effect to after-
acquired property is valid and binding after the correct and valid process of extra-judicial
foreclosure. Finally, record showed that petitioner did not even attempt to tender any redemption
price during the one-year redemption period.
 Lim v. Queensland
G.R. No. 136031 January 4, 2002

Facts:

Private respondent Queensland Tokyo Commodities, Incorporated (Queensland, for

brevity) is a duly licensed broker engaged in the trading of commodities futures with full
membership and with a floor trading right at the Manila Futures Exchange, Inc. Sometime in
1992, Benjamin Shia, a market analyst and trader of Queensland, was introduced to petitioner
Jefferson Lim by Marissa Bontia, one of his employees. Marissa's father was a former employee
of Lim's father. Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S.
dollar against the Japanese yen, British pound, Deutsche Mark and Swiss Franc. Before
investing, Lim requested Shia for proof that the foreign exchange was really lucrative. They
conducted mock tradings without money involved. As the mock trading showed profitability,
Lim decided to invest with a marginal deposit of US$5,000 in manager's check. The marginal
deposit represented the advance capital for his future tradings. It was made to apply to any
authorized future transactions, and answered for any trading account against which the deposit
was made, for any loss of whatever nature, and for all obligations, which the investor would
incur with the broker. Because respondent Queensland dealt in pesos only, it had to convert
US$5,000 in manager's check to pesos, amounting to P125,000 since the exchange rate at that
time was P25 to US$1.00. To accommodate petitioners, request to trade right away, it advanced
the P125,000 from its own funds while waiting for the managers check to clear. Thereafter, a
deposit notice in the amount of P125,000 was issued to Queensland, marked as Exhibit E. This
was sent to Lim who received it as indicated by his signature marked as Exhibit E-1. Respondent
asked Shia to talk to petitioner for a settlement of his account but petitioner refused to talk with
Shia. Shia made follow-ups for more than a week beginning October 27, 1992. Because
petitioner disregarded this request, respondent was compelled to engage the services of a lawyer,
who sent a demand letter to petitioner. This letter went unheeded. Thus, respondent filed a
complaint against petitioner, docketed as Civil Case No. CEB-13737, for collection of a sum of
money.

Issue:

Whether or not the appellate court erred in holding that petitioner is estopped from
questioning the validity of the Customers Agreement that he signed.

Ruling:

The essential elements of estoppel are: (1) conduct of a party amounting to false
representation or concealment of material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or
at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts.
Here, it is uncontested that petitioner had in fact signed the Customers Agreement in the morning
of October 22, 1992, knowing full well the nature of the contract he was entering into. The
Customers Agreement was duly notarized and as a public document it is evidence of the fact,
which gave rise to its execution and of the date of the latter. Next, petitioner paid his investment
deposit to respondent in the form of a manager's check in the amount of US$5,000 as evidenced
by PCI Bank Managers Check No. 69007, dated October 22, 1992. All these are indicia that
petitioner treated the Customers Agreement as a valid and binding contract. Moreover, we agree
that, on petitioner‘s part, there was misrepresentation of facts. He replaced the managers check
with an unendorsed traveler's check, instead of cash, while assuring Shia that respondent
Queensland could sign the endorsee portion thereof. As it turned out, Citibank informed
respondent that only the original purchaser (i.e. the petitioner) could sign said check. When the
check was returned to petitioner for his signature, he refused to sign. Then, as petitioner himself
admitted in his Memorandum, he used the traveler's check for his travel expenses.
 Placewell v. Camote
G.R. No. 169973 June 26, 2006

Facts:

Petitioner Placewell International Services Corporation (PISC) deployed respondent

Ireneo B. Camote to work as building carpenter for SAAD Trading and Contracting Co. (SAAD)
at the Kingdom of Saudi Arabia (KSA) for a contract duration of two years, with a corresponding
salary of US$370.00 per month. At the job site, respondent was allegedly found incompetent by
his foreign employer; thus the latter decided to terminate his services. However, respondent
pleaded for his retention and consented to accept a lower salary of SR 800.00 per month. Thus,
SAAD retained respondent until his return to the Philippines two years after. On November 27,
2001, respondent filed a sworn Complaint for monetary claims against petitioner alleging that
when he arrived at the job site, he and his fellow Filipino workers were required to sign another
employment contract written in Arabic under the constraints of losing their jobs if they refused;
that for the entire duration of the new contract, he received only SR 590.00 per month; that he
was not given his overtime pay despite rendering nine hours of work everyday; that he and his
co-workers sought assistance from the Philippine Embassy but they did not succeed in pursuing
their cause of action because of difficulties in communication.

Issue:

Whether or not there is estoppel by laches.

Ruling:

R.A. No. 8042 explicitly prohibits the substitution or alteration to the prejudice of the
worker, of employment contracts already approved and verified by the Department of Labor and
Employment (DOLE) from the time of actual signing thereof by the parties up to and including
the period of the expiration of the same without the approval of the DOLE. The subsequently
executed side agreement of an overseas contract worker with her foreign employer which
reduced her salary below the amount approved by the POEA is void because it is against our
existing laws, morals and public policy. The said side agreement cannot supersede her standard
employment contract approved by the POEA. Petitioner‗s contention that respondent is guilty of
laches is without basis. Laches has been defined as the failure of or neglect for an unreasonable
and unexplained length of time to do that which by exercising due diligence, could or should
have been done earlier, or to assert a right within reasonable time, warranting a presumption that
the party entitled thereto has either abandoned it or declined to assert it. Thus, the doctrine of
laches presumes that the party guilty of negligence had the opportunity to do what should have
been done, but failed to do so. Conversely, if the said party did not have the occasion to assert the
right, then, he cannot be adjudged guilty of laches. Laches is not concerned with the mere lapse
of time; rather, the party must have been afforded an opportunity to pursue his claim in
order that the delay may sufficiently constitute laches. In the instant case, respondent filed his
claim within the three-year prescriptive period for the filing of money claims set forth in Article
291 of the Labor Code from the time the cause of action accrued. Thus, we find that the doctrine
of laches finds no application in this case.
 Heirs of Ragua v. CA
G.R. Nos. 88521-22 January 31, 2000

Facts:

These consolidated cases involve a prime lot consisting of 4,399,322 square meters,
known as the Diliman Estate, situated in Quezon City. On this 439 hectares of prime land now
stand the following: the Quezon City Hall, Philippine Science High School, Quezon Memorial
Circle, Visayas Avenue, Ninoy Aquino Parks and Wildlife, portions of UP Village and East
Triangle, the entire Project 6 and Vasha Village, Veterans Memorial Hospital and golf course,
Department of Agriculture, Department of Environment and Natural Resources, Sugar
Regulatory Administration, Philippine Tobacco Administration, Land Registration Authority,
Philcoa Building, Bureau of Telecommunications, Agricultural Training Institute building,
Pagasa Village, San Francisco School, Quezon City Hospital, portions of Project 7, Mindanao
Avenue subdivision, part of BagoBantay resettlement project, SM City North EDSA, part of
PhilAm Life Homes compound and four-fifths of North Triangle. This large estate was the
subject of a petition for judicial reconstitution originally filed by Eulalio Ragua in 1964, which
gave rise to protracted legal battles between the affected parties, lasting more than thirty-five
(35) years.

Issue:

Whether or not estoppel by laches exists on the part of petitioner.

Ruling:

Petitioners filed the petition for reconstitution of OCT 632 nineteen (19) years after the
title was allegedly lost or destroyed. We thus consider petitioners guilty of laches. Laches is
negligence or omission to assert a right within a reasonable time, warranting the presumption
that the party entitled to assert it either has abandoned or declined to assert it.
 Estoppel by Deed

Metrobank v. CA
G.R. No. 122899 June 8, 2000

Facts:

Mr. Chia offered the subject property for sale to private respondent G.T.P. Development
Corporation (hereafter, GTP), with assumption of the mortgage indebtedness in favor of
petitioner METROBANK secured by the subject property. Pending negotiations for the proposed
sale, Atty. Bernardo Atienza, acting in behalf of respondent GTP, went to METROBANK to
inquire on Mr. Chia's remaining balance on the real estate mortgage. METROBANK obliged
with a statement of account of Mr. Chia amounting to about P115,000.00 as of August ,1980. The
deed of sale and the memorandum of agreement between Mr. Chia and respondent GTP were
eventually executed and signed. Atty. Atienza went to METROBANK Quiapo Branch and paid
one hundred sixteen thousand four hundred sixteen pesos and seventy-one centavos
(P116,416.71) for which METROBANK issued an official receipt acknowledging payment. This
notwithstanding, petitioner METROBANK refused to release the real estate mortgage on the
subject property despite repeated requests from Atty. Atienza, thus prompting respondent GTP to
file an action for specific performance against petitioner METROBANK and Mr. Chia.

Issue:

Whether or not the CA erred in reversing the decision of the lower court.

Ruling:

The Court found no compelling reasons to disturb the assailed decision. All things
studiedly viewed in proper perspective, the Court are of the opinion, and so rule, that whatever
debts or loans mortgagor Chia contracted with Metrobank after September 4, 1980, without the
conformity of plaintiff-appellee, could not be adjudged as part of the mortgage debt the latter so
assumed. We are persuaded that the contrary ruling on this point in Our October 24, 1994
decision would be unfair and unjust to plaintiff-appellee because, before buying subject property
and assuming the mortgage debt thereon, the latter inquired from Metrobank about the exact
amount of the mortgage debt involved. Petitioner METROBANK is estopped from refusing the
discharge of the real estate mortgage on the claim that the subject property still secures "other
unliquidated past due loans."
 Sps. Manuel v. CA

Facts:

Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita, all surnamed
Bornales, were the original co-owners of the lot in question. On July 14, 1940, Salome sold part
of her 4/16 share to Soledad Daynolo. Thereafter, Soledad Daynolo immediately took possession
of the land described above and built a house thereon. A few years later, Soledad and her
husband, Simplicio Distajo, mortgaged the subject portion of the lot as security for a debt to Jose
Regalado, Sr. This transaction was evidenced by a Deed of Mortgage. On April 14, 1948, three of
the eight co-owners of Lot 162, specifically, Salome, Consorcia and Alfredo, sold 24,993 square
meters of said lot to Jose Regalado, Sr. On May 4, 1951, Simplicio Distajo, heir of Soledad
Daynolo who had since died, paid the mortgage debt and redeemed the mortgaged portion of Lot
162 from Jose Regalado, Sr. The latter, in turn, executed a Deed of Discharge of Mortgage in
favor of Soledad‗s heirs, namely: Simplicio Distajo, Rafael Distajo and Teresita Distajo-
Regalado. On same date, the said heirs sold the redeemed portion of Lot 162 for P1,500.00 to
herein petitioners, the spouses Manuel Del Campo and Salvacion Quiachon.

Issue:

Whether or not the sale of the subject portion constitutes a sale of a concrete or definite
portion of land owned in common does not absolutely deprive herein petitioners of any right or
title thereto.

Ruling:

There can be no doubt that the transaction entered into by Salome and Soledad could be
legally recognized in its entirety since the object of the sale did not even exceed the ideal shares
held by the former in the co-ownership. As a matter of fact, the deed of sale executed between
the parties expressly stipulated that the portion of Lot 162 sold to Soledad would be taken from
Salome‗s 4/16 undivided interest in said lot, which the latter could validly transfer in whole or in
part even without the consent of the other co-owners. Salome‗s right to sell part of her undivided
interest in the co-owned property is absolute in accordance with the well-settled doctrine that a
co-owner has full ownership of his pro-indiviso share and has the right to alienate, assign or
mortgage it, and substitute another person in its enjoyment.
 Estoppel in Pais by Representation/Positive

Cuenco v. Cuenco
G.R. No. 149844 October 13, 2004

Facts:

On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific
performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her
father, the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed
the ‗Cuenco and Cuenco Law Offices‘; that on or around August 4, 1931, the Cuenco and
Cuenco Law Offices served as lawyers in two (2) cases entitled ‗Valeriano Solon versus Zoilo
Solon‘ (Civil Case 9037) and ‗Valeriano Solon versus Apolonia Solon‘ (Civil Case 9040)
involving a dispute among relatives over ownership of lot 903 of the Banilad Estate which is
near the Cebu Provincial Capitol; that records of said cases indicate the name of the [petitioner]
alone as counsel of record, but in truth and in fact, the real lawyer behind the success of said
cases was the influential Don Mariano Jesus Cuenco; that after winning said cases, the awardees
of Lot 903 subdivided said lot into three (3) parts as follows: Lot 903-A: 5,000 [square meters]:
Mariano Cuenco‘s attorney‘s fees; Lot 903-B: 5,000 [square meters]: Miguel Cuenco‘s
attorney‘s fees; Lot 903-C: 54,000 [square meters]: Solon‘s retention. That at the time of
distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was actively practicing law in
Manila, and so he entrusted his share (Lot 903-A) to his brother law partner (the [petitioner]);
that on September 10, 1938, the [petitioner] was able to obtain in his own name a title for Lot
903-A (Transfer Certificate of Title [TCT] RT-6999 [T-21108]); that he was under the obligation
to hold the title in trust for his brother Mariano‘s children by first marriage; that sometime in
1947, the Cuenco family was anticipating Mariano‘s second marriage, and so on February 1,
1947, they partitioned Lot 903-A into six (6) sub-lots (Lots 903-A-1 to 903-A-6) to correspond to
the six (6) children of Mariano‘s first marriage (Teresita, Manuel, Lourdes, Carmen, Consuelo,
and Concepcion); that the [petitioner] did not object nor oppose the partition plan; that on June 4,
1947, the [petitioner] executed four (4) deeds of donation in favor of Mariano‘s four
(4) children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the partition plan (per notary
documents 183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary Public Candido
Vasquez); that on June 24, 1947, the [petitioner] executed the fifth deed of donation in favor of
Mariano‘s fifth child – Consuelo (per notary document 214, Book III, Series 1947 of Cebu City
Notary Public Candido Vasquez) (Exhibits ‗2‘ to ‗5‘); that said five (5) deeds of donation left
out Mariano‘s sixth child – Concepcion – who later became the [respondent] in this case; that in
1949, [respondent] occupied and fenced a portion of Lot 903-A-6 for taxation purposes (Exhibit
‗F‘, Exhibit ‗6‘); that she also paid the taxes thereon (Exhibit ‗G‘); that her father died on
February25, 1964 with a Last Will and Testament; that the pertinent portion of her father‘s Last
Will and Testament bequeaths the lot.
Issue:

Whether or not the Court of Appeals erred in not finding that even where implied trust is
admitted to exist the respondent‘s action for relief is barred by laches and prescription.

Ruling:

Petitioner claims that respondent‘s action is already barred by laches. The Court is not
persuaded. Laches is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to it has either abandoned or declined to assert it.
In the present case, respondent has persistently asserted her right to Lot 903-A-6 against
petitioner. Concepcion was in possession as owner of the property from 1949 to 1969. When
Miguel took steps to have it separately titled in his name, despite the fact that she had the
owner‘s duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she had
her adverse claim annotated on the title in 1967. When petitioner ousted her from her possession
of the lot by tearing down her wire fence in 1969, she commenced the present action on
September 19, 1970, to protect and assert her rights to the property. We find that she cannot be
held guilty of laches, as she did not sleep on her rights.
 Laurel v. Desierto
G.R. No. 145368 April 12, 2002

Facts:

Petitioner Salvador H. Laurel moves for a reconsideration of this Court‗s decision

declaring him, as Chair of the National Centennial Commission (NCC), a public officer.
Petitioner also prays that the case be referred to the Court En Banc.

Issue:

Whether or not Laurel is a public officer as Chair of the NCC.

Ruling:

Assuming, as petitioner proposes, that the designation of other members to the NCC runs
counter to the Constitution, it does not make petitioner, as NCC Chair, less a public officer. Such
serious constitutional repercussions do not reduce the force of the rationale behind this Court‗s
decision. Second, petitioner invokes estoppel. He claims that the official acts of the President, the
Senate President, the Speaker of the House of Representatives, and the Supreme Court, in
designating Cabinet members, Senators, Congressmen and Justices to the NCC, led him to
believe that the NCC is not a public office. The contention has no merit. In estoppel, the party
representing material facts must have the intention that the other party would act upon the
representation. It is preposterous to suppose that the President, the Senate President, the Speaker
and the Supreme Court, by the designation of such officials to the NCC, intended to mislead
petitioner just so he would accept the position of NCC Chair. Estoppel must be unequivocal and
intentional. Moreover, petitioner himself admits that the principle of estoppel does not operate
against the Government in the exercise of its sovereign powers. Third, as ground for the referral
of the case to the Court En Banc, petitioner submits that our decision in this case modified or
reversed doctrines rendered by this Court, which can only be done by the Court En Banc. It is
argued that by designating three of its then incumbent members to the NCC, the Court took the
position that the NCC was not a public office. The argument is a bit of a stretch. Section 4 (3),
Article VIII of the Constitution provides that no doctrine or principle of law laid down by the
court in a decision rendered en banc or in division may be modified or reversed except by the
court sitting en banc. In designating three of its incumbent members to the NCC, the Court did
not render a decision, in the context of said constitutional provision, which contemplates an
actual case. Much less did the Court, by such designation, articulate any doctrine or principle of
law. Invoking the same provision, petitioner asserts that the decision in this case reversed or
modified Macalino vs. Sandiganbayan, holding that the Assistant Manager of the Treasury
Division and the Head of the Loans Administration & Insurance Section of the Philippine
National Construction Corporation (PNCC) is not a public officer under Republic Act No. 3019.
This contention also has no merit. The rationale for the ruling in Macalinois that the PNCC has
no original charter as it was incorporated under the general law on corporations. However, as we
pointed out in our decision, a conclusion that EXPOCORP is a government-owned or controlled
corporation would not alter the outcome of this case because petitioner‗s position and functions
as Chief Executive Officer of EXPOCORP are by virtue of his being Chairman of the NCC. The
other issues raised by petitioner are mere reiterations of his earlier arguments. The Court,
however, remains unswayed thereby.
 Hanopol v. SM
G.R. No. 137774 October 4, 2002

Facts:

Shoemart, Inc. is a corporation duly organized and existing under the laws of the
Philippines engaged in the operation of department stores. On December 4, 1985, Shoemart,
through its Executive Vice-President, Senen T. Mendiola, and spouses Manuel R. Hanopol and
Beatriz T. Hanopol executed a Contract of Purchase on Credit. Under the terms of the contract,
Shoemart extended credit accommodations, in the amount of Three Hundred Thousand Pesos
(P300,000.00), for purchases on credit made by holders of SM Credit Card issued by spouses
Hanopol for one year, renewable yearly thereafter. Spouses Hanopol were given a five percent
(5%) discount on all purchases made by their cardholders, deductible from the semi-monthly
payments to be made to Shoemart by spouses Hanopol. For failure of spouses Hanopol to pay the
principal amount of One Hundred Twenty-Four Thousand Five Hundred Seventy-One Pesos and
Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart instituted extrajudicial
foreclosure proceedings against the mortgaged properties. Spouses Hanopol alleged that
Shoemart breached the contract when the latter failed to furnish the former with the requisite
documents by which the former‗s liability shall be determined, namely: charge invoices,
purchase booklets and purchase journal, as provided in their contract; that without the requisite
documents, spouses Hanopol had no way of knowing that, in fact, they had already paid, even
overpaid, whatever they owed to Shoemart; that despite said breach, Shoemart even had the
audacity to apply for extrajudicial foreclosure with the Sheriff.

Issue:

Whether or not Shoemart acted with manifest bad faith in pursuing with the foreclosure
and auction sale of the property of spouses Hanopol, and, accordingly, should be held liable for
damages.

Ruling:

All the three (3) elements for litis pendentia as a ground for dismissal of an action are
present, namely: (a) identity of parties, or at least such parties who represent the same interest in
both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the
same facts; and (c) the identity, with respect to the two (2) preceding particulars in the two (2)
cases, in such that any judgment that may be rendered in the pending case, regardless of which
party is successful, would amount to res judicata in the other. In the case at bench, the parties are
the same; the relief sought in the case before the Court of Appeals and the trial court are the
same, that is, to permanently enjoin the foreclosure of the real estate mortgage executed by
spouses Hanopol in favor of Shoemart; and, both are premised on the same facts. The judgment
of the Court of Appeals would constitute a bar to the suit before the trial court.
 Estoppel in Pais by Promise

Terminal Facilities v. PPA

G.R. No. 135639 February 27, 2002

Facts:

TEFASCO is a domestic corporation organized and existing under the laws of the
Philippines with principal place of business at Barrio Ilang, Davao City. It is engaged in the
business of providing port and terminal facilities as well as arrastre, stevedoring and other port-
related services at its own private port at Barrio Ilang. Sometime in 1975 TEFASCO submitted to
PPA a proposal for the construction of a specialized terminal complex with port facilities and a
provision for port services in Davao City. To ease the acute congestion in the government ports at
Sasa and Sta. Ana, Davao City, PPA welcomed the proposal and organized an inter-agency
committee to study the plan. The committee recommended approval. On April 21, 1976 the PPA
Board of Directors passed Resolution No. 7 accepting and approving TEFASCO's project
proposal. Long after TEFASCO broke round with massive infrastructure work, the PPA Board
curiously passed on October 1, 1976 Resolution No. 50 under which TEFASCO, without asking
for one, was compelled to submit an application for construction permit. Without the consent of
TEFASCO, the application imposed additional significant conditions. The series of PPA
impositions did not stop there. Two (2) years after the completion of the port facilities and the
commencement of TEFASCO's port operations, or on June 10, 1978, PPA again issued to
TEFASCO another permit, under which more onerous conditions were foisted on TEFASCO's
port operations.

In the purported permit appeared for the first time the contentious provisions for ten
percent (10%) government share out of arrastre and stevedoring gross income and one hundred
percent (100%) wharfage and berthing charges. On February 10, 1984 TEFASCO and PPA
executed a Memorandum of Agreement (MOA) providing among others for (a) acknowledgment
of TEFASCO's arrears in government share at P3,807,563.75 payable monthly, with default
penalized by automatic withdrawal of its commercial private port permit and permit to operate
cargo handling services; (b) reduction of government share from ten percent (10%) to six percent
(6%) on all cargo handling and related revenue (or arrastre and stevedoring gross income); (c)
opening of its pier facilities to all commercial and third-party cargoes and vessels for a period
coterminous with its foreshore lease contract with the National Government; and, (d) tenure of
five (5) years extendible by five (5) more years for TEFASCO's permit to operate cargo handling
in its private port facilities. In return PPA promised to issue the necessary permits for
TEFASCO's port activities. TEFASCO complied with the MOA and paid the accrued and current
government share. On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and Port
Officer in Davao City for refund of government share it had paid and for damages as a result of
alleged illegal exaction from its clients of one hundred percent (100%) berthing and
wharfage fees. The complaint also sought to nullify the February 10, 1984 MOA and all other
PPA issuances modifying the terms and conditions of the April 21, 1976 Resolution No. 7 above-
mentioned. PPA appealed the decision of the trial court to the Court of Appeals.

The appellate court in its original decision recognized the validity of the impositions and
reversed in toto the decision of the trial court. TEFASCO moved for reconsideration which the
Court of Appeals found partly meritorious. Thus the Court of Appeals in its Amended Decision
partially affirmed the RTC decision only in the sense that PPA was directed to pay TEFASCO
(1) the amounts of P15,810,032.07 representing fifty percent (50%) wharfage fees and
P3,961,964.06 representing thirty percent (30%) berthing fees which TEFASCO could have
earned as private port usage fee from 1977 to 1991. The Court of Appeals held that the one
hundred percent (100%) berthing and wharfage fees were unenforceable because they had not
been approved by the President under P.D. No. 857, and discriminatory since much lower rates
were charged in other private ports as shown by PPA issuances effective 1995 to 1997. Both PPA
and TEFASCO were unsatisfied with this disposition hence these petitions.

Issue:

Whether or not the collection by PPA of one hundred percent (100%) wharfage fees and
berthing charges; (c) the propriety of the award of fifty percent (50%) wharfage fees and thirty
percent (30%) berthing charges as actual damages in favor of TEFASCO for the period from
1977 to 1991 is valid.

Ruling:

The imposition by PPA of ten percent (10%), later reduced to six percent (6%),
government share out of arrastre and stevedoring gross income of TEFASCO is void. This
exaction was never mentioned in the contract, much less is it a binding prestation, between
TEFASCO and PPA. What was clearly stated in the terms and conditions appended to PPA
Resolution No. 7 was for TEFASCO to pay and/or secure from the proper authorities "all fees
and/or permits pertinent to the construction and operation of the proposed project." The
government share demanded and collected from the gross income of TEFASCO from its arrastre
and stevedoring activities in TEFASCO's wholly owned port is certainly not a fee or in any event
a proper condition in a regulatory permit. Rather it is an onerous "contractual stipulation" which
finds no root or basis or reference even in the contract aforementioned.
 Mendoza v. CA
G.R. No. 116710 June 25, 2001

Facts:

Danilo Mendoza is engaged in the domestic and international trading of raw materials
and chemicals. Sometime in 1978, he was granted by PNB a P500K-credit line and a P1M-letter
of credit/trust receipt line. As security, Mendoza mortgaged the following: 3 parcels of land with
improvements, his house and lot, and several pieces of machinery and equipment in his coco-
chemical plant. Mendoza made use of his LC/TR line to purchase raw materials from foreign
importers. He signed a total of 11 documents denominated as "Application and Agreement for
Commercial Letter of Credit" on various dates, which uniformly contained the clause "Interest
shall be at the rate of 9% per annum from the date(s) of the draft(s) to the date(s) of arrival of
payment therefor in New York. The Bank, however, reserves the right to raise the interest charges
at any time depending on whatever policy it may follow in the future."

Issue:

Whether or not PNB promised to be bound by the proposal of Mendoza for a 5- year
restructuring of his overdue loan.

Ruling:

Nowhere in the letters was there a categorical statement that PNB had approved
Mendoza's proposed 5-year restructuring plan. It is stretching the imagination to construe them
as evidence that his proposed 5-year restructuring plan has been approved by PNB, which is
admittedly a banking corporation. Only an absolute and unqualified acceptance of a definite offer
manifests the consent necessary to perfect a contract. It is clear that the doctrine of promissory
estoppel presupposes the existence of a promise on the part of one against whom estoppel is
claimed. The promise must be plain and unambiguous and sufficiently specific so that the
Judiciary can understand the obligation assumed and enforce the promise according to its terms.
For Mendoza to claim that PNB is estopped to deny the 5-year restructuring plan, he must first
prove that PNB had promised to approve the plan in exchange for the submission of the
proposal. As no such promise was proven, the doctrine does not apply to the instant case. A cause
of action for promissory estoppel does not lie where an alleged oral promise was conditional, so
that reliance upon it was not reasonable. It does not operate to create liability where it does not
otherwise exist. Besides, it could be gleaned from the record that Mendoza is an astute
businessman who took care to reduce in writing his business proposals to PNB. It is unthinkable
that the same person would commit the careless mistake of leaving his subject 2 promissory
notes in blank in the hands of other persons.
 Estoppel in Pais by Silence

Marques v. Far East Bank

G.R. No. 171419 January 10, 2011

Facts:

Far East Bank and Trust Co. (FEBTC) financed capital and operational requirements of
Maxilite Technologies, Inc. with Jose N. Marquesas the President. Far East Bank Insurance
Brokers, Inc. (FEBIBI), a local insurance brokerage corporation and Makati Insurance Company,
a local insurance company, are subsidiaries of FEBTC.On 17 June 1993, Maxilite and Marques
entered into a trust receipt transaction with FEBTC, for the shipment of various high-technology
equipment from the United States. Finding that Maxilite failed to pay the insurance premium
FEBIBI sent written reminders to FEBTC, to debit Maxilite‗s account. On 9 March 1995, a fire
gutted the Aboitiz Sea Transport Building, where Maxilite‗s office and warehouse were located.
As a result, Maxilite suffered losses amounting to at least P2.1 million, which Maxilite claimed
against the fire insurance policy with Makati Insurance Company. Makati Insurance Company
denied the fire loss claim on the ground of non-payment of premium. FEBTC and FEBIBI
disclaimed any responsibility for the denial of the claim.

Issue:

Whether or not FEBTC, FEBIBI and Makati Insurance Company are jointly and
severally liable to pay respondents the legal compensation.

Ruling:

Essentially, Maxilite and Marques invoke estoppel under Article 1431 of the Civil Code
in claiming against FEBTC, FEBIBI, and Makati Insurance Company the face value of the
insurance policy. In their complaint, Maxilite and Marques alleged they were led to believe and
they in fact believed that the settlement of Maxilite‗s trust receipt account included the payment
of the insurance premium. FEBTC failed to debit and instead disregarded the written reminder
from FEBIBI to debit Maxilite‗s account. FEBTC‗s conduct clearly constitutes negligence in
handling Maxilite‗s and Marques' accounts. As a consequence, FEBTC must be held liable for
damages pursuant to Article 2176 of the Civil Code. Indisputably, had the insurance premium
been paid, through the automatic debit arrangement with FEBTC, Maxilite‗s fire loss claim
would have been approved. Hence, Maxilite suffered damage to the extent of the face value of
the insurance policy or the sum of P2.1 million. Suffice it to state that FEBTC, FEBIBI, and
Makati Insurance Company are independent and separate juridical entities, even if FEBIBI and
Makati Insurance Company are subsidiaries of FEBTC. Maxilite and Marques failed to establish
the essential elements of legal compensation. Only Far East Bank and Trust Company, and not
Far East Bank Insurance Brokers, Inc. or Makati Insurance Company, is ordered to pay the face
value of the subject insurance policy and the monetary awards.
 Roblett Construction v. CA
G.R. No. 116682 January 2, 1997

Facts:

On 19 December 1985 RICC through its Assistant Vice President for Finance
Candelario S. Aller Jr. entered into an Agreement with CEC. As an off-setting arrangement
respondent received from petitioner construction materials worth P115,000.00.A day before the
execution of their Agreement, RICC paid CEC P10,000.00 in postdated checks which when
deposited were dishonored. As a consequence the latter debited the amount to petitioner's
account of P227,909.38 thus increasing its balance to P237,909.38. On 24 July 1986 Mariano R.
Manaligod Jr., General Manager of CEC, sent a letter of demand to petitioner through its Vice
President for Finance regarding the latter's overdue account of P237,909.38 and sought
settlement thereof on or before 31 July 1986. In reply, petitioner requested for thirty (30) days to
have enough time to look for funds to substantially settle its account. Traversing the allegations
of respondent, Candelario S. Aller Jr. declared that he signed the Agreement with the real
intention of having proof of payment. In fact Baltazar Banlot, Vice President for Finance of
petitioner, claimed that after deliberation and audit it appeared that petitioner overpaid
respondent by P12,000.00 on the basis of the latter's Equipment Daily Time Reports for 2 May to
14 June 1985 which reflected a total obligation of only P103,000.00. He claimed however that
the Agreement was not approved by the Board and that he did not authorize Aller Jr. to sign
thereon.

Issue:

Whether or not the contract between parties is valid and enforceable.

Ruling:

Quite obviously, having limited itself to that particular issue to the exclusion of any
other, petitioner can no longer be permitted to assail the finding of the trial court on the validity
of the Agreement. Taking into account the construction materials worth P115,000.00 received by
respondent from petitioner an overpayment of P12,000.00 more or less results. In the absence of
any showing that the trial court failed to appreciate facts and circumstances of weight and
substance that would have altered its conclusion, no compelling reason exists for this Court to
impinge upon matters more appropriately within its province. Estoppel in pais arises when one,
by his acts, representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to exist and
such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is
permitted to deny the existence of such facts. This doctrine obtains in the present case. A
statement of account for P376,350.18 covering the period above mentioned was received from
respondent by petitioner with nary a protest from the latter. Neither did petitioner controvert the
demand letter concerning the overdue account of P237,909.38; on the contrary, it asked for
ample time to source funds to substantially settle the account.
 Estoppel by Laches: Prescription vs. Laches Sime

Darby v. Goodyear
G.R. No. 182148 June 8, 2011

Facts:

Macgraphics owned several billboards across Metro Manila and other surrounding
municipalities, one of which was a 35 x 70 neon billboard located at the Magallanes Interchange
in Makati City. The Magallanes billboard was leased by Mac graphics to Sime Darby in April
1994 at a monthly rental of P120,000.00. The lease had a term of four years and was set to expire
on March 30, 1998. Upon signing of the contract, Sime Darby paid Mac graphics a total of P1.2
million representing the tenmonth deposit which the latter would apply to the last ten months of
the lease. Thereafter, Mac graphics configured the Magallanes billboard to feature Sime Darby's
name and logo. On April 22, 1996, Sime Darby executed a Memorandum of Agreement (MOA)
with Goodyear, whereby it agreed to sell its tire manufacturing plants and other assets to the
latter for a total of P1.5 billion. Just a day after, on April 23, 1996, Goodyear improved its offer
to buy the assets of Sime Darby from P1.5 billion to P1.65 billion. The increase of the purchase
price was made in consideration, among others, of the assignment by Sime Darby of the
receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan. On
May 9, 1996, Sime Darby and Goodyear executed a deed entitled "Deed of Assignment in
connection with Microwave Communication Facility and in connection with Billboard
Advertising in Makati City and Pulilan, Bulacan"(Deed of Assignment), through which Sime
Darby assigned, among others, its leasehold rights and deposits made to Mac graphics pursuant
to its lease contract over the Magallanes billboard. Sime Darby then notified Mac graphics of the
assignment of the Magallanes billboard in favor of Goodyear through a letter-notice dated May
3, 1996. After submitting a new design for the Magallanes billboard to feature its name and logo,
Goodyear requested that Mac graphics submit its proposed quotation for the production costs of
the new design. In a letter dated June 21, 1996, Macgraphics informed Goodyear that the
monthly rental of the Magallanes billboard is P250,000.00 and explained that the increase in
rental was in consideration of the provisions and technical aspects of the submitted design.

Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not
accept Mac graphics offer to integrate the cost of changing the design to the monthly rental.
Goodyear stated that it intended to honor the P120,000.00 monthly rental rate given by Mac
graphics to Sime Darby. It then requested that Mac graphics send its quotation for the simple
background repainting and re-lettering of the neon tubing for the Magallanes billboard.
Macgraphics then sent a letter to Sime Darby, dated July 11, 1996, informing the latter that it
could not give its consent to the assignment of lease to Goodyear. Mac graphics explained that
the transfer of Sime Darby's leasehold rights to Goodyear would necessitate drastic changes to
the design and the structure of the neon display of the Magallanes billboard and would entail the
commitment of manpower and resources that it did not foresee at the inception of the lease.
Attaching a copy of this letter to a correspondence dated July 15, 1996, Mac graphics advised
Goodyear that any advertising service it intended to get from them would have to wait until after
the expiration or valid pre-termination of the lease then existing with Sime Darby. On September
23, 1996, due to Mac graphics refusal to honor the Deed of Assignment, Goodyear sent Sime
Darby a letter, via facsimile, demanding partial rescission of the Deed of Assignment and the
refund of P1,239,000.00, the pro-rata value of Sime Darby's leasehold rights over the Magallanes
billboard. As Sime Darby refused to accede to Goodyear‘s‘ demand for partial rescission, the
latter commenced Civil Case No. 97-561 with the RTC.

In its complaint, Goodyear alleged that Sime Darby was unable to deliver the object
of the Deed of Assignment and was in breach of its warranty under Title VII, Section B,
paragraph 2 of the MOA, stating that "no consent of any third party with whom Sime Darby has
a contractual relationship is required in connection with the execution and delivery of the MOA,
or the consummation of the transactions contemplated therein." Including Macgraphics as an
alternative defendant, Goodyear argued that should the court find the partial rescission of the
Deed of Assignment not proper, it must be declared to have succeeded in the rights and interest
of Sime Darby in the contract of lease and Mac graphics be ordered to pay it the amount of
P1,239,000.00.

Issue:

Whether or not partial rescission of the Deed of Assignment is proper.

Ruling:

No. The petition of Sime Darby remains bereft of any merit. Article 1649 of the New
Civil Code provides: Art. 1649. The lessee cannot assign the lease without the consent of the
lessor, unless there is a stipulation to the contrary In an assignment of a lease, there is a novation
by the substitution of the person of one of the parties the lessee. The personality of the lessee,
who dissociates from the lease, disappears. Thereafter, a new juridical relation arises between the
two persons who remain the lessor and the assignee who is converted into the new lessee. The
objective of the law in prohibiting the assignment of the lease without the lessor‘s consent is to
protect the owner or lessor of the leased property. Broadly, a novation may either be extinctive or
modificatory. It is extinctive when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the creditor
(subjective or personal). Under this mode, novation would have dual functions one to extinguish
an existing obligation, the other to substitute a new one in its place.

This requires a conflux of four essential requisites: (1) a previous valid obligation; (2)
an agreement of all parties concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation. While there is no dispute that the first
requisite is present, the Court, after careful consideration of the facts and the evidence on record,
finds that the other requirements of a valid novation are lacking. A review of the lease contract
between Sime Darby and Mac graphics discloses no stipulation that Sime Darby could assign the
lease without the consent of Macgraphics. Moreover, contrary to the assertions of Sime Darby,
the records are bereft of any evidence that clearly shows that Mac graphics consented to the
assignment of the lease. As aptly found by the RTC and the CA, Mac graphics was never part of
the negotiations between Sime Darby and Goodyear. Neither did it give its conformity to the
assignment after the execution of the Deed of Assignment. The consent of the lessor to an
assignment of lease may indeed be given expressly or impliedly. It need not be given
simultaneously with that of the lessee and of the assignee. Neither is it required to be in any
specific or particular form. It must, however, be clearly given. In this case, it cannot be said that
Mac graphics gave its implied consent to the assignment of lease.

Petition denied.
 Far East Bank v. Borja
G.R. No. 179909 January 25, 2010

Facts:

Respondent Leonor C. Cayetano (Cayetano) executed a special power of attorney in

favor of her daughter Teresita C. Tabing (Tabing) authorizing her to contract a loan from
petitioner in an amount not more than three hundred thousand pesos (P300,000.00) and to
mortgage her two (2) lots located in Barangay Carolina, Naga City with Transfer Certificate of
Title Nos. 12304 and 11621. For the approval of the loan, Cayetano also executed an affidavit of
non-tenancy. Petitioner loaned Tabing one hundred thousand pesos (P100,000.00) secured by
two (2) promissory notes and a real estate mortgage over Cayetano‗s two (2) properties. The
mortgage document was signed by Tabing and her husband as mortgagors in their individual
capacities, without stating that Tabing was executing the mortgage contract for and in behalf of
the owner (Cayetano). Petitioner foreclosed the mortgage for failure of the respondents and the
spouses Tabing to pay the loan. A notice of public auction sale, to be conducted on September
18, 1991, was sent to respondents. The latter‗s lawyer responded with a letter to petitioner
requesting that the public auction be postponed. Respondents‗ letter went unheeded and the
public auction was held as scheduled wherein the subject properties were sold to petitioner for
one hundred sixty thousand pesos (P160,000.00). Subsequently, petitioner consolidated its title
and obtained new titles in its name after the redemption period lapsed without respondents taking
any action. More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter dated
September 10, 1996 to petitioner expressing the intent to repurchase the properties for two
hundred fifty thousand pesos (P250,000.00) with proposed terms of payment. Petitioner refused
the offer stating that the minimum asking price for the properties was five hundred thousand
pesos (P500,000.00) and it was not amenable to the proposed terms of payment. Petitioner
nevertheless gave respondents the chance to buy back the properties by joining a bidding to be
set in some future date. However, respondents filed on December 18, 1996 a complaint for
annulment of mortgage and extrajudicial foreclosure of the properties with damages in the RTC
of Naga City. Respondents sought nullification of the real estate mortgage and extrajudicial
foreclosure sale, as well as the cancellation of petitioner‗s title over the properties.

Issue:

Whether or not the principal is bound by the real estate mortgage executed by the
authorized agent in her own name without indicating the principal.
Ruling:

Notwithstanding the nullity of the real estate mortgage executed by Tabing and her
husband, we find that the equity principle of laches is applicable in the instant case. Laches is
negligence or omission to assert a right within a reasonable time, warranting a presumption that
the party entitled to assert it either has abandoned it or declined to assert it.

Its essential elements are:

(1) conduct on the part of the defendant, or of one under whom he claims, giving rise
to the situation complained of;

(2) delay in asserting complainant‗s right after he had knowledge of the defendant‗s
conduct and after he has an opportunity to sue;

(3) lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and

`(4) injury or prejudice to the defendant in the event relief is accorded to the
complainant.

There is no absolute rule on what constitutes laches. It is a creation of equity and

applied not really to penalize neglect or sleeping upon one‗s rights but rather to avoid
recognizing a right when to do so would result in a clearly inequitable situation.

The question of laches, we said, is addressed to the sound discretion of the court and
each case must be decided according to its particular circumstances. Verily, in a number of cases,
it had been held that laches, the essence of which is the neglect to assert a right over a long
period of time, may prevent recovery of a titled property.
 Kings Properties Corporation, Inc. v. Galido
G.R. No. 170023 November 27, 2009

Facts:

Kings Properties Corporation (petitioner) filed this Petition for Review on Certiorari
assailing the Court of Appeals‗ Decision dated 20 December 2004 in CA-G.R. CV No. 68828 as
well as the Resolution dated 10 October 2005 denying the Motion for Reconsideration. In the
assailed decision, the Court of Appeals reversed the Regional Trial Court‗s Decision dated 4 July
2000. This case involves an action for cancellation of certificates of title, registration of deed of
sale and issuance of certificates of title filed by Canuto A. Galido (respondent) before Branch 71
of the Regional Trial Court of Antipolo City (trial court).

Issue:

Whether or not the adverse claim of respondent over the Antipolo property should be
barred by laches.

Ruling:

The essence of laches is the failure or neglect, for an unreasonable and unexplained
length of time, to do that which, through due diligence, could have been done earlier, thus giving
rise to a presumption that the party entitled to assert it had either abandoned or declined to assert
it. Respondent discovered in 1991 that a new owner‗s copy of OCT No. 535 was issued to the
Eniceo heirs. Respondent filed a criminal case against the Eniceo heirs for false testimony. When
respondent learned that the Eniceo heirs were planning to sell the Antipolo property, respondent
caused the annotation of an adverse claim. On 16 January 1996, when respondent learned that
OCT No. 535 was cancelled and new TCTs were issued respondent filed a civil complaint with
the trial court against the Eniceo heirs and petitioner. Respondent‗s actions negate petitioner‗s
argument that respondent is guilty of laches.
 Metrobank v. Cabilzo
G.R. No. 154469 December 6, 2006

Facts:

On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to

CASH and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00).
The check was drawn against Cabilzo‗s Account with Metrobank Pasong Tamo Branch under
Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his
sales commission. Subsequently, the check was presented to Westmont Bank for payment.
Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the
entries thereon were examined, including the availability of funds and the authenticity of the
signature of the drawer, Metrobank cleared the check for encashment in accordance with the
Philippine Clearing House Corporation (PCHC) Rules. On 16 November 1994, Cabilzo‗s
representative was at Metrobank Pasong Tamo Branch to make some transaction when he was
asked by bank personnel if Cabilzo had issued a check in the amount of P91, 000.00 to which the
former replied in the negative. On the afternoon of the same date, Cabilzo himself called
Metrobank to reiterate that he did not issue a check in the amount of P91, 000.00 and requested
that the questioned check be returned to him for verification, to which Metrobank complied.
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he
issued on 12 November 1994 in the amount of P1, 000.00 was altered to P91, 000.00 and the
date 24 November 1994 was changed to 14 November 1994. Hence, Cabilzo demanded that
Metrobank re-credit the amount of P91, 000.00 to his account. Metrobank, however, refused
reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated
verbal demands followed but Metrobank still failed to re-credit the amount of P91, 000.00 to
Cabilzo‗s account On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand to
Metrobank for the payment of P90, 000.00, after deducting the original value of the check in the
amount of P1, 000.00. Such written demand notwithstanding, Metrobank still failed or refused to
comply with its obligation. Consequently, Cabilzo instituted a civil action for damages against
Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No.
95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in
addition to his claim for reimbursement, actual and moral damages plus costs of the suit be
awarded in his favor.

Issue:

Whether or not equitable estoppel can be appreciated in favor of petitioner.

Ruling:

The degree of diligence required of a reasonable man in the exercise of his tasks and
the performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary
enough that he filled with asterisks the spaces between and after the amounts, not only those
stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion,
but unfortunately, the check was still successfully altered, indorsed by the collecting bank, and
cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and
prejudice of Cabilzo. Metrobank cannot lightly impute that Cabilzo was negligent and is
therefore prevented from asserting his rights under the doctrine of equitable estoppel when the
facts on record are bare of evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each guiltless of any intentional or
moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by
omission or commission, was the cause of injury. Metrobank‗s reliance on this dictum is
misplaced. For one, Metrobank‗s representation that it is an innocent party is flimsy and
evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent
and this negligence was the proximate cause of the loss in the absence of even a scintilla proof to
buttress such claim.
 Mesina v. Garcia
G.R. No. 168035 November 30, 2006

Facts:

Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, or on 26
April 1977, to be exact entered into a Contract to Sell over a lot consisting of 235 square meters,
situated at Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-
31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT No. T-
78881 was issued in the name of herein petitioners. Atty. Honorio Valisno Garcia is the deceased
husband of [herein respondent Gloria C. Garcia] while the late Felicisima Mesina is the mother
of Danilo, Simeon, and Melanie, all surnamed Mesina. The Contract to sell provides that the cost
of the lot is P70.00 per square meter for a total amount of P16, 450.00; payable within a period
not to exceed seven (7) years at an interest rate of 12% per annum, in successive monthly
installments of P260.85 per month, starting May 1977. Thereafter, the succeeding monthly
installments are to be paid within the first week of every month, at the residence of the vendor at
Quezon City, with all unpaid monthly installments earning an interest of one percent (1%) per
month. The Contract also stipulated, among others, that: Should the spouses Garcia fail to pay
five (5) successive monthly installments, Felicisima Mesina shall have a right to rescind the
Contract to Sell. All paid installments to be recomputed as rental for usage of lot shall be at the
rate of P100.00 a month and that Felicisima Mesina shall have the further option to return the
downpayment plus whatever balance spouses Garcia paid, thereby rescinding the Contract to
Sell. Upon rescission of the Contract to sell, spouses Garcia agree to remove all the
improvements built on the lot within three (3) months from rescission of this contract, spouses
Garcia shouldering all expenses of said removal. Instituting this case at bar, respondent asserts
that despite the full payment made on February 7, 1984 for the consideration of the subject lot,
petitioners refused to issue the necessary Deed of Sale to effect the transfer of the property to her.

Issue:

Whether or not petitioners are in estoppel.

Ruling:

With respect to the issue on estoppel, this Court, upon reviewing the records of the
case at bar, finds no reason to overturn the findings of the appellate court that, indeed, petitioners
are estopped from avowing that they never had knowledge as to the acceptance of the delayed
payments made by the respondent, and that they never induced respondent to believe that she had
validly effected full payment. Evidence on record show that petitioners can no longer deny
having accepted the late payments made by the respondent because in a letter dated April 10,
1986 sent to petitioner Simeon Mesina by Engineer Danilo Angeles, who is the husband of
petitioners‗ authorized collection agent Angelina Angeles, he told petitioner Simeon Mesina that
the title and the Deed of Sale were both ready for their signature, and respondent was willing and
ready to pay for the excess area. Hence, if petitioners did not accept the late payments of the
respondent, and if they did not consider such as full payment of the purchase price on the subject
property as they claimed it to be, the title as well as the Deed of Sale could not have been
prepared for their signature. In the same way, respondent could not have sent a demand letter to
ask for the execution of those documents had they not been induced to believe that the late
payments were validly accepted and that the purchase price had already been paid in full. There
were statements, which were made under oath, which made it crystal clear that the late payments
were accepted by the petitioners, and that the payments corresponded to the purchase value of
the subject property; therefore, petitioners cannot deny the fact that the full payment of the
purchase value of the lot in question had in fact been made by the respondent.
 Pahamotang v. PNB
G.R. No. 156403 March 31, 2005

Facts:

On July 1, 1972, Melitona Pahamotang died. She was survived by her husband
Agustin Pahamotang, and their eight (8) children, namely: Ana, Genoveva, Isabelita, Corazon,
Susana, Concepcion and herein petitioners Josephine and Eleonor, all surnamed Pahamotang. On
September 15, 1972, Agustin filed with the then Court of First Instance of Davao City a petition
for issuance of letters administration over the estate of his deceased wife. The petition, docketed
as Special Case No. 1792, was raffled to Branch VI of said court, hereinafter referred to as the
intestate court. In his petition, Agustin identified petitioners Josephine and Eleonor as among the
heirs of his deceased spouse. It appears that Agustin was appointed petitioners' judicial guardian
in an earlier case - Special Civil Case No. 1785 – also of the CFI of Davao City, Branch VI. On
December 7, 1972, the intestate court issued an order granting Agustin‗s petition. The late
Agustin then executed several mortgages and later sale of the properties with the PNB and
Arguna respectively. The heirs later questioned the validity of the transactions prejudicial to
them. The trial court declared the real estate mortgage and the sale void but both were valid with
respect to the other parties. The decision was reversed by the Court of Appeals; to the appellate
court, petitioners committed a fatal error of mounting a collateral attack on the foregoing orders
instead of initiating a direct action to annul them.

Issue:

Whether or not the Court of Appeals erred in reversing the decision of the trial court.

Ruling:

In the present case, the appellate court erred in appreciating laches against petitioners.
The element of delay in questioning the subject orders of the intestate court is sorely lacking.
Petitioners were totally unaware of the plan of Agustin to mortgage and sell the estate properties.
There is no indication that mortgagor PNB and vendee Arguna had notified petitioners of the
contracts they had executed with Agustin. Although petitioners finally obtained knowledge of the
subject petitions filed by their father, and eventually challenged the July 18, 1973, October 19,
1974, February 25, 1980 and January 7, 1981 orders of the intestate court, it is not clear from the
challenged decision of the appellate court when they (petitioners) actually learned of the
existence of said orders of the intestate court. Absent any indication of the point in time when
petitioners acquired knowledge of those orders, their alleged delay in impugning the validity
thereof certainly cannot be established. And the Court of Appeals cannot simply impute laches
against them.
 Shopper's Paradise v. Roque
G.R. No. 148775 January 13, 2004

Facts:

Petitioner Shopper‘s Paradise Realty & Development Corporation, represented by its

president, Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque,
now deceased, over a parcel of land in the name of Roque. Petitioner issued to Dr. Roque a check
for P250,000.00 by way of ―reservation payment.‖ Simultaneously, petitioner and Dr. Roque
likewise entered into a memorandum of agreement for the construction, development and
operation of a commercial building complex on the property. Conformably with the agreement,
petitioner issued a check for another P250,000 ―downpayment‖ to Dr. Roque. The contract of
lease and the memorandum of agreement, both notarized, were never notarized because of the
untimely demise of Roque. Roque‘s death constrained petitioner to deal with respondent Efren P.
Roque, one of the surviving children of the late Dr. Roque, but the negotiations broke down due
to some disagreements. In a letter, respondent advised petitioner ―to desist from any attempt to
enforce the aforementioned contract of lease and memorandum of agreement‖. On 15 February
1995, respondent filed a case for annulment of the contract of lease and the memorandum of
agreement, with a prayer for the issuance of a preliminary injunction before the RTC alleging
that he had long been the absolute owner of the subject property by virtue of a deed of donation
inter vivos executed in his favor by his parents, Dr. Felipe Roque and Elisa Roque, and that the
late Dr. Felipe Roque had no authority to enter into the assailed agreements with petitioner. The
donation was made in a public instrument duly acknowledged by the donor-spouses before a
notary public and duly accepted on the same day by respondent before the notary public in the
same instrument of donation. The title to the property, however, remained in the name of Dr.
Felipe C. Roque, and it was only transferred to and in the name of respondent sixteen years later.
Respondent, while he resided in the United States of America, delegated to his father the mere
administration of the property. Respondent came to know of the assailed contracts with petitioner
only after retiring to the Philippines upon the death of his father. The trial court dismissed the
complaint of respondent. On appeal, the CA reversed the decision of the trial court and held to be
invalid the Contract of Lease and Memorandum of Agreement.

Issue:

Whether or not there was valid donation to respondent.

Ruling:

Yes. The existence, albeit unregistered, of the donation in favor of respondent is

undisputed. The trial court and the appellate court have not erred in holding that the non-
registration of a deed of donation does not affect its validity. As being itself a mode of acquiring
ownership, donation results in an effective transfer of title over the property from the donor to
the donee. In donations of immovable property, the law requires for its validity that it should be
contained in a public document, specifying therein the property donated and the value of the
charges which the donee must satisfy. The Civil Code provides, however, that ―titles of
ownership, or other rights over immovable property, which are not duly inscribed or annotated in
the Registry of Property (now Registry of Land Titles and Deeds) shall not prejudice third
persons.‖ It is enough, between the parties to a donation of an immovable property, that the
donation be made in a public document but, in order to bind third persons, the donation must be
registered in the registry of Property (Registry of Land Titles and Deeds).
 Meatmasters v. Lelis Integrated
G.R. No. 163022 February 28, 2005

Facts:

On November 11, 1993, petitioner Meatmasters International Corporation engaged

the services of respondent Lelis Integrated Development Corporation to undertake the
construction of a slaughterhouse and meat cutting and packing plant. The Construction
Agreement provided that the construction of petitioner‗s slaughterhouse should be completed by
March 10, 1994. Respondent failed to finish the construction of the said facility within the
stipulated period, hence, petitioner filed a complaint for rescission of contract and damages on
August 9, 1996 before the Regional Trial Court. On November 23, 1998, the trial court rendered
decision RESCINDING the Construction Agreement between plaintiff Meatmaster Int‗l. Corp.
and defendant Lelis Integrated Dev't. Corp. with both parties shouldering their own respective
damage. A copy of the decision was received by the respondent on December 9, 1998. A motion
for reconsideration was filed by respondent on December 22, 1998, but the same was denied. A
copy of the resolution denying the motion for reconsideration was received on March 25, 1999.
Respondent filed its notice of appeal on March 29, 1999. Initially, the trial court dismissed the
appeal for failure of the respondent to pay the requisite docket fees within the reglementary
period. Upon motion by the respondent however, the trial court reconsidered and gave due
course to the notice of appeal because respondent paid the docket fees. In a motion to dismiss
filed before the appellate court, the petitioner alleged that respondent‗s appeal suffers from
jurisdictional infirmity because of late payment of docket fees. CA set aside the decision of the
trial court and directed petitioner to pay respondent the amount of P1,863,081.53. Petitioner‗s
motion for reconsideration was denied Hence, the instant petition.

Issue:

Whether or not the Court of Appeals erred in entertaining the appeal of respondent
despite the finality of the trial court‗s decision.

Ruling:

It is well-established that the payment of docket fees within the prescribed period is
mandatory for the perfection of an appeal. This is so because a court acquires jurisdiction over
the subject matter of the action only upon the payment of the correct amount of docket fees
regardless of the actual date of filing of the case in court. The payment of the full amount of the
docket fee is a sine qua non requirement for the perfection of an appeal. The court acquires
jurisdiction over the case only upon the payment of the prescribed docket fees. In the case at bar,
the respondent seasonably filed the notice of appeal but it paid the docket fees one (1) month
after the lapse of the appeal period. As admitted by the respondent, the last day for filing the
notice of appeal was on March 29, 1999, but it paid the docket fees only on April 30, 1999
because of oversight. Obviously, at the time the said docket fees were paid, the decision appealed
from has long attained finality and no longer appealable. Respondent‗s contention that the
petitioner is now estopped from raising the issue of late payment of the docket fee because of his
failure to assail promptly the trial court‗s order approving the notice of appeal and accepting the
appeal fee, is untenable. Estoppel by laches arises from the negligence or omission to assert a
right within a reasonable time, warranting a presumption that the party entitled to assert it either
has abandoned or declined to assert it. In the case at bar, petitioner raised at the first instance the
non-payment of the docket fee in its motion for reconsideration before the trial court. Petitioner
reiterated its objection in the motion to dismiss before the appellate court and finally, in the
instant petition. Plainly, petitioner cannot be faulted for being remiss in asserting its rights
considering that it vigorously registered a persistent and consistent objection to the Court of
Appeals‗ assumption of jurisdiction at all stages of the proceedings.
 Larena v. Mapili
G.R. No. 146341 August 7, 2003

Facts:

Hipolito Mapili during his lifetime owned a parcel of unregistered land declared for
taxation purposes in his name. The property had descended by succession from Hipolito to his
only son Magno and on to the latter‗s own widow and children. These heirs, the herein
respondents, took possession of the property up to the outbreak of World War II when they
evacuated to the hinterlands. On the other hand, petitioner Aquilina Larena took possession of
the property in the1970‗s alleging that she had purchased it from her aunt (Filomena Larena) on
February 17, 1968. Filomena Larena in turn claimed to have bought it from Hipolito on October
28, 1949, as evidence by the Affidavit of Transfer of Real Property executed on the same date.
The Regional Trial Court, however, declared the said affidavit as spurious because Hipolito was
already dead when the alleged transfer was made to Filomena Larena. On appeal, the Court of
Appeals declared that respondents had never lost their right to the land in question as they were
the heirs to whom the property had descended upon the death of the original claimant and
possessor.

Issue:

Whether or not Filomena Larena acquired the subject property by means of sale,
prescription, and/or laches.

Ruling:

Filomena did not acquire said property by means of sale, prescription and/or laches.
First, the tax declarations are not a conclusive evidence of ownership, but a proof that the holder
has a claim of title over the property. It is good indicia of possession in the concept of owner. It
may strengthen Aquilina‗s bona fide claim of acquisition of ownership. However, petitioners
failed to present the evidence needed to tack the date of possession on the property in question.
Second, acquisitive prescription is a mode of acquiring ownership by a possessor through the
requisite lapse of time. Since the claims of purchase were unsubstantiated, petitioners‗acts of
possessory character have been merely tolerated by the owner. Hence, it did not constitute
possession. Moreover, there is lack of just title on the part of Aquilina and therefore, ordinary
acquisitive prescription of ten (10) years as provided under Article 1134 of the Civil Code cannot
be applied. Under Article 1137 of the Civil Code, the lapse of time required for extra-ordinary
acquisitive prescription is thirty (30) years, and records show that the lapse of time was only
twenty-seven (27) years—a period that was short of three (3) years, when the complaint was
filed. Finally, laches is a failure or neglect for an unreasonable and unexplained length of time to
do that which could or should have been done earlier through the exercise of due diligence. The
filing by respondents of the complaint in 1977 completely negates the decision that the latter
were negligent in asserting their claim.
 Santos v. Santos
G.R. No. 133895 October 2, 2001

Facts:

Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private

respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa SantosCarreon. The
spouses Jesus and Rosalia were the parents of the respondents and the husband of the petitioner.
The spouses owned a parcel of registered land with a fourdoor apartment administered by
Rosalia who rented them out. On January 19, 1959, the spouses executed a deed of sale of the
properties in favor of their children Salvador and Rosa. Rosa in turn sold her share to Salvador
on November 20, 1973, which resulted in the issuance of new TCT. Despite the transfer of the
property to Salvador, Rosalia continued to lease and receive rentals from the apartment units. On
January 9, 1985, Salvador died, followed by Rosalia who died the following month. Shortly
after, petitioner Zenaida, claiming to be Salvador‗s heir, demanded the rent from Antonio
Hombrebueno, a tenant of Rosalia. When the latter refused to pay, Zenaida filed an ejectment
suit against him with the Metropolitan Trial Court of Manila, which eventually decided in
Zenaida‗s favor. On January 5, 1989, private respondent instituted an action for reconveyance of
property with preliminary injunction against petitioner in the Regional Trial Court of Manila,
where they alleged that the two deeds of sale were simulated for lack of consideration. The
petitioner on the other hand denied the material allegations in the complaint and that she further
alleged that the respondents' right to reconveyance was already barred by prescription and laches
considering the fact that from the date of sale from Rosa to Salvador up to his death, more or less
twelve (12) years had lapsed, and from his death up to the filing of the case for reconveyance,
four (4) years has elapsed. In other words, it took respondents about sixteen (16) years to file the
case. Moreover, petitioner argues that an action to annul a contract for lack of consideration
prescribes in ten (10) years and even assuming that the cause of action has not prescribed,
respondents are guilty of laches for their inaction for a long period of time. The trial court
decided in favor of private respondents in as much as the deeds of sale were fictitious, the action
to assail the same does not prescribe. Upon appeal, the Court of Appeals affirmed the trial
court‗s decision. It held that the subject deeds of sale did not confer upon Salvador the
ownership over the subject property, because even after the sale, the original vendors remained in
dominion, control, and possession thereof.

Issue:

Whether or not the cause of action of the respondents had prescribed and/or barred by
laches.

Ruling:
 The cause of action by the respondents had not prescribed nor is it barred by laches. First,
the right to file an action for the reconveyance of the subject property to the estate of Rosalia has not
prescribed since deeds of sale were simulated and fictitious. The complaint amounts to a declaration
of nullity of a void contract, which is imprescriptible. Hence, respondents' cause of action has not
prescribed. Second, neither is their action barred by laches. The elements of laches are: 1) conduct on
the part of the defendant, or of one under whom he claims, giving rise to the situation of which the
complainant seeks a remedy; 2) delay in asserting the complainant‗s rights, the complainant having
knowledge or notice of the defendant‗s conduct as having been afforded an opportunity to institute a
suit; 3) lack of knowledge or notice on the part of the defendant that the complainant would assert the
right in which he bases his suit; and
4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the
suit is not held barred. These elements must all be proved positively. The lapse of four (4) years
is not an unreasonable delay sufficient to bar respondent‗s action. Moreover, the fourth (4th)
element is lacking in this case. The concept of laches is not concerned with the lapse of time but
only with the effect of unreasonable lapse. The alleged sixteen (16) years of respondents' inaction
has no adverse effect on the petitioner to make respondents guilty of laches.
 Villanueva-Mijares v. CA
G.R. No. 108921 April 12, 2000

Facts:

Felipe Villanueva left a 15,336-square-meter parcel of land in Kalibo to his 8

children: Simplicio, Benito, Leon, Nicolasa, Eustaqio, Camila, Fausta, and Pedro. In 1952, Pedro
declared under his name 1/6 portion of the property (1,905 sq. m.). He held the remaining
properties in trust for his co-heirs who demanded the subdivision of the property but to no avail.
After Leon‗s death in 1972, private respondents discovered that the shares of Simplicio,
Nicolasa, Fausta, and Maria Baltazar had been purchased by Leon through a deed of sale dated
Aug. 25, 1946 but registered only in 1971. In July 1970, Leon also sold and partitioned the
property in favor of petitioners, his children, who thereafter secured separate and independent
titles over their respective pro indiviso shares. Private respondents filed an action for partition
with annulment of documents and/or reconveyance and damages against petitioners. They
contended that Leon fraudulently obtained the sale in his favor through machinations and false
pretenses. The RTC declared that private respondents' action had been barred by res judicata and
that petitioners are the legal owners of the property in question in accordance with the individual
titles issued to them.

Issue:

Whether or not the action by the private respondents to recover the property in
question is barred by laches.

Ruling:

At the time of the signing of the deed of sale of Aug. 26, 1948, private respondents
Procerfina, Prosperedad, Ramon, and Rosa were minors. They could not be faulted for their
failure to file a case to recover their inheritance from their uncle Leon, since up to the age of
majority, they believed and considered Leon their co-heir administrator. It was only in 1975, not
in 1948, that they became aware of the actionable betrayal by their uncle. Upon learning of their
uncle‗s actions, they filed for recovery. Hence, the doctrine of stale demands cannot be applied
here. They did not sleep on their rights. Furthermore, when Felipe died, an implied trust was
created by operation of law between Felipe‗s children and Leon as far as the 1/6 share of Felipe.
Leon‗s fraudulent titling of Felipe's 1/6 share was a betrayal of that implied trust.
 Contracts: Autonomy

PABLO P. GARCIA vs.YOLANDA VALDEZ VILLAR

G.R. No. 158891 June 27, 2012

Facts: On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol mortgaged the subject
property to Yolanda Valdez Villar (Villar) as security for a loan in the amount of P2,200,000.00.
Galas, again mortgaged the same subject property to Pablo P. Garcia (Garcia) to secure her loan
of P1,800,000.00.

Garcia filed a Petition for Mandamus with Damages against Villar before the RTC. Garcia
subsequently amended his petition to a Complaint for Foreclosure of Real Estate Mortgage with
Damages. Garcia alleged that when Villar purchased the subject property, she acted in bad faith
and with malice as she knowingly and willfully disregarded the provisions on laws on judicial
and extrajudicial foreclosure of mortgaged property. Garcia further claimed that when Villar
purchased the subject property, Galas was relieved of her contractual obligation and the
characters of creditor and debtor were merged in the person of Villar.

Therefore, Garcia argued, he, as the second mortgagee, was subrogated to Villar‗s original status
as first mortgagee, which is the creditor with the right to foreclose. Garcia further asserted that he
had demanded payment from Villar, whose refusal compelled him to incur expenses in filing an
action in court.

Issue: Whether or not the sale of the subject property to Villar was valid.

Ruling: Villar‗s purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney provision above did not provide that the ownership over
the subject property would automatically pass to Villar upon Galas‗s failure to pay the loan on
time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to
sell or otherwise dispose of the subject property, and to apply the proceeds to the payment of the
loan.
 SPOUSES FERNANDO and ANGELINA EDRALIN vs.

PHILIPPINE VETERANS BANK

G.R. No. 168523 March 9, 2011

Facts: Veterans Bank granted petitioner spouses Fernando and Angelina executed a Real Estate
Mortgage in favor of the latter over a real property as a security of a loan in the amount of
P270,000.00. In due course, the foreclosure sale was held and sold the mortgaged property at
public auction. Veterans Bank emerged as the highest bidder at the said foreclosure sale and was
issued the corresponding Certificate of Sale.

Upon the Edralins‘ failure to redeem the property during the one-year period provided under Act
No. 3135, Veterans Bank acquired absolute ownership of the subject property. The Edralins
failed to vacate and surrender possession of the subject property to Veterans Bank. Thus Veterans
Bank filed an Ex-Parte Petition for the issuance of a Writ of possession before the Regional Trial
Court but was dismissed. Veterans Bank again filed an Ex-Parte Petition for Issuance of Writ of
Possession before the RTC. The Edralins moved to dismiss the petition on the ground that the
dismissal RTC‘s former decision constituted res judicata.

The trial court denied the motion to dismiss explaining that the ground of failure to present
evidence is not a determination of the merits of the case hence does not constitute res judicata on
the petition for issuance of a writ of possession. Nevertheless, the trial court found no merit in
the Veterans Bank‘s application and dismissed the same. Upon appeal, The appellate court ruled
in favor of Veterans Bank.

Issue: Whether or not the failure of petitioners to question the validity of the foreclosure
proceedings or the auction sale resulted in the ripening of the consolidation of ownership.

Ruling: No. Pactum commissorium is a stipulation empowering the creditor to appropriate the
thing given as guaranty for the fulfilment of the obligation in the event the obligor fails to live up
to his undertakings, without further formality, such as foreclosure proceedings, and a public sale.
The elements of pactum commissorium, which enable the mortgagee to acquire ownership of the
mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation, and (2) there
should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case
of non-payment of the principal obligation within the stipulated period.

The second element is missing to characterize the Deed of Sale as a form of pactum
commissorium. Veterans Bank did not, upon the petitioners‘ default, automatically acquire or
appropriate the mortgaged property for itself. On the contrary, the Veterans Bank resorted to
extrajudicial foreclosure and was issued a Certificate of Sale by the sheriff as proof of its
purchase of the subject property during the foreclosure sale. That Veterans Bank went through all
the stages of extrajudicial foreclosure indicates that there was no pactum commissorium.
 UNIVERSITY PHYSICIANS SERVICES vs.MARIAN CLINICS
G.R. No. 152303 September 1, 2010

Facts: Marian Clinics, Inc. and University Physicians‘ Services, Incorporated entered into a
Lease Agreement whereby the former leased to the latter the Marian General Hospital and four
schools for a period of ten years. The land, buildings, facilities, fixtures and equipment
appurtenant thereto, including the Soledad Building, were included in the lease, for which a
monthly rental of P70,000 was agreed upon. Later, UPSI filed a complaint for specific
performance against MCI and prayed for the delivery of the Certificates of Occupancy of the
buildings leased, for the correction of the defects in the electrical installations thereon, and
damages. UPSI sent a letter to MCI, informing it of the filing of the complaint and the
suspension of payment of the monthly rentals until the resolution of the case. On November 7,
1975, MCI sent a demand letter to UPSI for the payment of the rent. Thereafter, MCI and Dr.
Lourdes F. Mabanta filed a Complaint for Unlawful Detainer against UPSI which was later on
dismissed the on the finding that (1) UPSI‘s suspension of rental payments was justified; and (2)
there was no ground to cause the rescission of the lease and warrant the ejectment of UPSI.
During the pendency of these cases, MCI ceded to the Development Bank of the Philippines
some of the leased buildings, including certain facilities, furniture, fixtures and equipment found
therein, in full settlement of MCI‘s debt to DBP. The Deed of Cession of Properties in Payment
of Debt (Dacion en Pago) contained an annex which listed the properties ceded to DBP. Upon the
execution of the dacion en pago, UPSI paid P60,000 of the monthly rental to DBP as the new
owner of the properties subject of the dacion en pago. The RTC of Manila affirmed the City
Court Decision dismissing MCI‘s unlawful detainer case. The intermediate appellate court
rendered its Decision reversing the rulings of the lower courts. According to the CA, the absence
of the certificates of occupancy for two of the leased buildings, being a matter between the
owner of the building and the city government, did not impair the peaceful and adequate
enjoyment by UPSI of the premises and the alleged defective electrical installations on the
premises leased is no justification for the refusal to pay rentals, as, under Article 1663 of the
Civil Code, the lessee may have said installations properly reinstalled at the expense of the
lessor. Hence, the petition.

Issue: Whether or not the order for the replacement of the subject properties had been rendered
moot by dacion en pago, by a deed of conditional sale, and by payment in full satisfaction of the
judgment credit.

Ruling: Yes. On UPSI‘s argument that the order for the replacement of the subject properties had
been rendered moot by dacion en pago, by a deed of conditional sale, and by payment in full
satisfaction of the judgment credit in Civil Case No. 529778, we rule that the same may also be
and are best threshed out in hearings to be conducted by the execution court. Indeed, there is a
need for the execution court to (1) identify the mass of properties actually leased to UPSI; (2)
identify and exclude the properties transferred to DBP under the dacion en pago and to UPSI
under the conditional deed of sale; and (3) identify and exclude properties which UPSI already
returned, replaced or paid the value of in Civil Case No. 529778. UPSI can be made responsible
for only the remaining leased assets which have not been previously returned or replaced, if there
are any.
 FELICIDAD T. MARTIN v.DBS BANK PHILIPPINES

G.R. No. 174632 June 16, 2010

Facts: Martin‘s as lessors, entered into a lease contract with the DBS Bank Philippines, Inc.,
covering a commercial warehouse and lots that DBS was to use for office, warehouse, and
parking yard for repossessed vehicles. The lease was for five years, from March 1, 1997 to
March 1, 2002, at a monthly rent of P300,000.00 for the first year, P330,000.00 for the second
year, P363,000.00 for the third year, P399,300.00 for the fourth year, and P439,230.00 for the
final year, all net of withholding taxes. DBS paid a deposit of P1,200,000.00 and advance rentals
of P600,000.00. On May 25 and August 13, 1997 heavy rains flooded the leased property and
submerged into water the DBS offices there along with its 326 repossessed vehicles. As a result,
on February 11, 1998 DBS wrote the Martins demanding that they take appropriate steps to make
the leased premises suitable as a parking yard for its vehicles. DBS suggested the improvement
of the drainage system or the raising of the property‗s ground level. In response, the Martins
filled the property‗s grounds with soil and rocks. But DBS lamented that the property remained
unsuitable for its use since the Martins did not level the grounds. Worse, portions of the
perimeter fence collapsed because of the excessive amount of soil and rock that were
haphazardly dumped on it. In June 1998, DBS vacated the property but continued paying the
monthly rents. On September 11, 1998, however, it made a final demand on the Martins to
restore the leased premises to tenantable condition on or before September 30, 1998, otherwise,
it would rescind the lease contract. On September 24, 1998 the Martins contracted the services of
Altitude Systems & Technologies Co. for the reconstruction of the perimeter fence on the
property. On October 13, 1998 DBS demanded the rescission of the lease contract and the return
of its deposit. At that point, DBS had already paid the monthly rents from March 1997 to
September 1998. The Martins refused, however, to comply with DBS‗ demand. On July 7, 1999
DBS filed a complaint against the Martins for rescission of the contract of lease with damages
before the RTC claiming that the leased premises had become untenantable, DBS demanded
rescission of the lease contract as well as the return of its deposit of P1,200,000.00.The Makati
City RTC rendered a decision, dismissing the complaint against the Martins. The trial court
found that, although the floods submerged DBS‗ vehicles, the leased premises remained
tenantable and undamaged. Moreover, the Martins had begun the repairs that DBS requested but
were not given sufficient time to complete the same. It held that DBS unjustifiably abandoned
the leased premises and breached the lease contract. Thus, the trial court ordered its deposit of
P1,200,000.00 deducted from the unpaid rents due the Martins and ordered DBS to pay them the
remaining P15,198,360.00 in unpaid rents. On appeal to the Court of Appeals, the court rendered
judgment reversing and setting aside the RTC decision. The CA found that floods rendered the
leased premises untenantable and that the RTC should have ordered the rescission of the lease
contract especially since the contract provided for such remedy. The CA ordered the Martins to
apply the deposit of P1,200,000.00 to the rents due up to July 7, 1999 when DBS filed the
complaint and exercised its option to rescind the lease. The CA ordered the Martins to return the
remaining balance of the deposit to DBS. With the denial of their separate motions for
reconsideration DBS and the Martins filed their respective petitions for review before this Court
in G.R. 174632 and 174804. The Court eventually consolidated the two cases.
Issue: Whether or not the CA erred in holding that DBS is entitled to the rescission of the lease
contract only from July 7, 1999 when it filed its action for rescission, entitling the Martins to
collect rents until that time.
Ruling: Unless the terms of a contract are against the law, morals, good customs, and public
policy, such contract is law between the parties and its terms bind them. In Felsan Realty &
Development Corporation v. Commonwealth of Australia, the Court regarded as valid and
binding a provision in the lease contract that allowed the lessee to pre-terminate the same when
fire damaged the leased building, rendering it uninhabitable or unsuitable for living. Here,
paragraph VIII of the lease contract between DBS and the Martins permitted rescission by either
party should the leased property become untenantable because of natural causes. Thus In case of
damage to the leased premises or any portion thereof by reason of fault or negligence attributable
to the lessee, its agents, employees, customers, or guests, the lessee shall be responsible for
undertaking such repair or reconstruction. In case of damage due to fire, earthquake, lightning,
typhoon, flood, or other natural causes, without fault or negligence attributable to the lessee, its
agents, employees, customers or guests, the lessor shall be responsible for undertaking such
repair or reconstruction. In the latter case, if the leased premises become untenantable, either
party may demand for the rescission of this contract and in such case, the deposit referred to in
paragraph III shall be returned to the lessee immediately. The Martins claim that DBS cannot
invoke the above since they undertook the repair and reconstruction of the leased premises,
incurring P1.6 million in expenses. The Martins point out that the option to rescind was available
only if they failed to do the repair work and reconstruction. But, under their agreement, the
remedy of rescission would become unavailable to DBS only if the Martins, as lessors, made the
required repair and reconstruction after the damages by natural cause occurred, which meant
putting the premises after the floods in such condition as would enable DBS to resume its use of
the same for the purposes contemplated in the agreement, namely, as office, warehouse, and
parking space for DBS‗ repossessed vehicles. Here, it is undisputed that the floods of May 25
and August 13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods
rendered the place unsuitable for its intended uses. And, while the Martins did some repairs, they
did not restore the place to meet DBS‗ needs. The photographs16 taken of the place show that
the Martins filled the grounds with soil and rocks to raise the elevation but did not level and
compact the same so they could accommodate the repossessed vehicles. Moreover, the heaviness
of the filling materials caused portions of the perimeter walls to collapse or lean dangerously.
Indeed, the Office of the City Engineer advised DBS that unless those walls were immediately
demolished or rehabilitated, they would endanger passersby. Undeniably, the DBS suffered
considerable damages when flood waters deluged its offices and 326 repossessed vehicles.
Notably, DBS vacated the leased premises in June of 1998, without rescinding the lease
agreement, evidently to allow for unhindered repair of the grounds. In fact, DBS continued to
pay the monthly rents until September 1998, showing how DBS leaned back to enable the
Martins to finish the repair and rehabilitation of the place. 19 The Martins provided basis for
rescission by DBS when they failed to do so. Hence the Court denied the petition and affirmed
with modifications the April 26, 2006 decision of the Court of Appeals in that Martin‘s are
ORDERED to return the full deposit of P1,200,000.00 to DBS Bank Philippines, Inc. with
interest of 12% per annum to be computed from the finality of this decision until the amount is
fully paid.
 HEIRS OF ALFREDO ZABALA vs. HON. COURT OF APPEALS

Facts: On April 1, 2002, respondent Vicente T. Manuel filed a Complaint for ejectment with
damages against Alfredo Zabala before the Municipal Trial Court in Cities of Balanga, Bataan.
Respondent alleged that he was in actual and peaceful possession of a fishpond (Lot No. 1483)
located in Ibayo, Balanga City. On October 15, 2001, Zabala allegedly entered the fishpond
without authority, and dumped soil into the fishpond without an Environment Compliance
Certificate. Zabala continued such action until the time of the filing of the Complaint, killing the
crabs and the bangus that respondent was raising in the fishpond. Thus, respondent asked that
Zabala be restrained from touching and destroying the fishpond; that Zabala be ejected therefrom
permanently; and for actual and moral damages and attorney‗s fees. Zabala promptly moved for
the dismissal of the Complaint for non-compliance with the requirement under the Local
Government Code to bring the matter first to barangay conciliation before filing an action in
court. Respondent subsequently filed a Motion for Judgment on the ground of petitioner‗s failure
to file a responsive pleading or answer. In a decision datedMarch 30, 2004, the RTC reversed the
MTCC‗s May 27, 2003 Order and rendered judgment directing Zabala, his heirs or subalterns to
immediately vacate Lot No. 1483 and restore respondent to his peaceful possession thereof. The
RTC also directed Zabala to pay respondent actual damages, moral damages, and attorney‗s fees.
The RTC found that Zabala did not, in fact, file an answer to the Complaint. Zabala then filed a
Petition for Review before the Court of Appeal. The CA promulgated a Decision upholding the
RTC‗s reversal of the MTCC‗s Order. The CA held that, based on the allegations in the
Complaint, the requirement for prior conciliation proceedings under the Local Government Code
was inapplicable to the suit before the MTCC, the action being one for ejectment and damages,
with application for a writ of preliminary injunction, even without the use of those actual terms
in the Complaint. However, the CA granted Zabala‗s prayer for the deletion of the awards for
actual and moral damages, and for attorney‗s fees. Zabala filed a Motion for Reconsideration,
which the CA denied. Zabala‗s heirs filed this Verified Petition for Certiorari. They prayed for
the annulment of the CA‗s December 19, 2008 Decision and August 26, 2009 Resolution, and
for the reinstatement of the MTCC‗s May 27, 2003 Order. In the alternative, they prayed that the
Court remand the records to the MTCC, so that they could file their Answer, and that due
proceedings be undertaken before judgment. In a Resolutiondated November 18, 2009,
respondents were required to file their Comment on the Petition. Subsequently a Compromise
Agreement was entered into by the parties.

Issue: Whether or not the case must prosper and continue considering the present circumstances.

Ruling: No. The Court ruled that Under Article 2028 of the Civil Code, a compromise agreement
is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an
end to one already commenced. Compromise is a form of amicable settlement that is not only
allowed, but also encouraged in civil cases. Contracting parties may establish such stipulations,
clauses, terms, and conditions as they deem convenient, provided that these are not contrary to
law, morals, good customs, public order, or public policy. Thus, finding the above Compromise
Agreement to have been validly executed and not contrary to law, morals, good customs, public
order, or public policy, we approve the same. Thus the Compromise Agreement was and
judgment is hereby rendered in accordance therewith. By virtue of such approval, this case was
deemed terminated.
 DUNCAN v. GLAXO WELLCOME PHILIPPINES
G.R. No. 162994 September 17, 2004

Facts: Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome
Philippines, Inc. (Glaxo) as medical representative on October 24, 1995, after Tecson had
undergone training and orientation. Thereafter, Tecson signed a contract of employment which
stipulates, among others, that he agrees to study and abide by existing company rules; to disclose
to management any existing or future relationship by consanguinity or affinity with co-
employees or employees of competing drug companies and should management find that such
relationship poses a possible conflict of interest, to resign from the company. The Employee
Code of Conduct of Glaxo similarly provides that an employee is expected to inform
management of any existing or future relationship by consanguinity or affinity with co-
employees or employees of competing drug companies. If management perceives a conflict of
interest or a potential conflict between such relationship and the employee‗s employment with
the company, the management and the employee will explore the possibility of a ―transfer to
another department in a non-counterchecking position‖ or preparation for employment outside
the company after six months. Tecson was initially assigned to market Glaxo‗s products in the
Camarines-Sur, Camarines-Norte sales area. Subsequently, Tecson entered into a romantic
relationship with Bettsy, an employee of Astra Pharmaceuticals (Astra), a competitor of Glaxo.
Bettsy was Astra‗s Branch Coordinator in Albay. She supervised the district managers and
medical representatives of her company and prepared marketing strategies for Astra in that area.
Even before they got married, Tecson received several reminders from his District Manager
regarding the conflict of interest which his relationship with Bettsy might engender. Still, Tec son
married Bettsy in September 1998. Tecson was later reassigned at Butuan-Surigao-Agusan area
to prevent conflict of interest but he refused and argued that he was constructively dismissed.

Issue: Whether or not Glaxo‗s policy against its employees marrying employees from
competitor companies is valid.

Ruling: Yes. Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors, especially so that it
and Astra are rival companies in the highly competitive pharmaceutical industry. The prohibition
against personal or marital relationships with employees of competitor companies upon Glaxo‗s
employees is reasonable under the circumstances because relationships of that nature might
compromise the interests of the company. In laying down the assailed company policy, Glaxo
only aims to protect its interests against the possibility that a competitor company will gain
access to its secrets and procedures. That Glaxo possesses the right to protect its economic
interests cannot be denied. No less than the Constitution recognizes the right of enterprises to
adopt and enforce such a policy to protect its right to reasonable returns on investments and to
expansion and growth. Indeed, while our laws endeavor to give life to the constitutional policy
on social justice and the protection of labor, it does not mean that every labor dispute will be
decided in favor of the workers. The law also recognizes that management has rights which are
also entitled to respect and enforcement in the interest of fair play. In this case, there were
notices and advises given to the petitioner regarding his romantic relationship to his marriage
regarding the conflict of interest. Hence, the petition was denied.
 STAR PAPER vs. RONALDO D. SIMBOL

G.R. No. 164774 April 12, 2006

Facts: Petitioner was the employer of the respondents. Under the policy of Star Paper the
employees are: 1. New applicants will not be allowed to be hired if in case he/she has a relative,
up to the 3rd degree of relationship, already employed by the company. 2. In case of two of our
employees (singles, one male and another female) developed a friendly relationship during the
course of their employment and then decided to get married, one of them should resign to
preserve the policy stated above. Respondents Comia and Simbol both got married to their
fellow employees. Estrella on the other hand had a relationship with a co-employee resulting to
her pregnancy on the belief that such was separated. The respondents allege that they were
forced to resign as a result of the implementation of the said assailed company policy. The Labor
Arbiter and the NLRC ruled in favor of petitioner. The decision was appealed to the Court of
Appeals which reversed the decision.

Issue: Whether or not the prohibition to marry in the contract of employment is valid.

Ruling: No. It is significant to note that in the case at bar, respondents were hired after they were
found fit for the job, but were asked to resign when they married a co-employee. Petitioners
failed to show how the marriage of Simbol, then a Sheeting Machine Operator, to Alma Dayrit,
then an employee of the Repacking Section, could be detrimental to its business operations.
Neither did petitioners explain how this detriment will happen in the case of Wilfreda Comia,
then a Production Helper in the Selecting Department, who married Howard Comia, then a
helper in the cutter-machine. The policy is premised on the mere fear that employees married to
each other will be less efficient. If we uphold the questioned rule without valid justification, the
employer can create policies based on an unproven presumption of a perceived danger at the
expense of an employee‗s right to security of tenure. Petitioners contend that their policy will
apply only when one employee marries a co-employee, but they are free to marry persons other
than co-employees. The questioned policy may not facially violate Article 136 of the Labor Code
but it creates a disproportionate effect and under the disparate impact theory, the only way it
could pass judicial scrutiny is a showing that it is reasonable despite the discriminatory, albeit
disproportionate, effect. The failure of petitioners to prove a legitimate business concern in
imposing the questioned policy cannot prejudice the employee‗s right to be free from arbitrary
discrimination based upon stereotypes of married persons working together in one company.
Lastly, the absence of a statute expressly prohibiting marital discrimination in our jurisdiction
cannot benefit the petitioners. The protection given to labor in our jurisdiction is vast and
extensive that we cannot prudently draw inferences from the legislature‗s silence that married
persons are not protected under our Constitution and declare valid a policy based on a prejudice
or stereotype. Thus, for failure of petitioners to present undisputed proof of a reasonable business
necessity, we rule that the questioned policy is an invalid exercise of management prerogative.
Corollary, the issue as to whether respondents Simbol and Comia resigned voluntarily has
become moot and academic. In the case of Estrella, the petitioner failed to adduce proof to justify
her dismissal. Hence, the Court ruled that it was illegal.
 DAISY B. TIU v. Platinum Plans PHIL. INC
G.R. No. 163512 February 28, 2007

Facts: Respondent Platinum Plans, re-hired petitioner as Senior Assistant Vice President and
Territorial Operations Head in charge of its Hongkong and Asean operations. The parties
executed a contract of employment valid for five years Petitioner stopped reporting for work and
became the Vice-President for Sales of Professional Pension Plans, Inc., a corporation also
engaged in the same industry. Respondent then sued petitioner for damages alleging that
petitioner‘s employment with Professional Pension Plans, Inc. violated the non-involvement
clause in her contract of employment. In upholding the validity of the non-involvement clause,
the trial court ruled that a contract in restraint of trade is valid provided that there is a limitation
upon either time or place. On appeal, the Court of Appeals affirmed the trial court‘s ruling. It
reasoned that petitioner entered into the contract on her own will and volition. Thus, she bound
herself to fulfill not only what was expressly stipulated in the contract, but also all its
consequences that were not against good faith, usage, and law. The appellate court also ruled that
the stipulation prohibiting non-employment for two years was valid and enforceable considering
the nature of respondent‘s business. Petitioner moved for reconsideration but was denied. Hence,
the petition.

Issue: Whether or not the non-involvement clause under the contract is valid.

Ruling: Yes. A non-involvement clause is not necessarily void for being in restraint of trade as
long as there are reasonable limitations as to time, trade, and place. In this case, the non-
involvement clause has a time limit: two years from the time petitioner‘s employment with
respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in
any pre-need business akin to respondents. More significantly, since petitioner was the Senior
Assistant Vice-President and Territorial Operations Head in charge of respondent‘s Hongkong
and Asean operations, she had been privy to confidential and highly sensitive marketing
strategies of respondent‘s business. To allow her to engage in a rival business soon after she
leaves would make respondent‘s trade secrets vulnerable especially in a highly competitive
marketing environment. In sum, we find the non-involvement clause not contrary to public
welfare and not greater than is necessary to afford a fair and reasonable protection to respondent.
In any event, Article 1306 of the Civil Code provides that parties to a contract may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. Article 11591 of the same
Code also provides that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. Courts cannot stipulate for the
parties nor amend their agreement where the same does not contravene law, morals, good
customs, public order or public policy, for to do so would be to alter the real intent of the parties,
and would run contrary to the function of the courts to give force and effect thereto. Not being
contrary to public policy, the non-involvement clause, which petitioner and respondent freely
agreed upon, has the force of law between them, and thus, should be complied with in good faith.
 AVON COSMETICS v. LETICIA H. LUNA
G.R. No. 153674 December 20, 2006

Facts: Sometime in 1978, Avon Cosmetics, Inc. (Avon), acquired and took over the management
and operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said
successor company. Aside from her work as a supervisor, respondent Luna also acted as a make-
up artist of petitioner Avon‘s Theatrical Promotion‘s Group, for which she received a per diem
for each theatrical performance. Thereafter, petitioner Avon and respondent Luna entered into an
agreement, entitled Supervisor‘s Agreement and by virtue of the execution of the aforequoted
Supervisor‘s Agreement, respondent Luna became part of the independent sales force of
petitioner Avon. Sometime, respondent Luna became a Group Franchise Director of Sandre
Philippines, Inc. concurrently with being a Group Supervisor of petitioner Avon and began
selling and/or promoting Sandre products to other Avon employees and friends., A lawyer of the
firm opined that the Supervisor‘s Agreement was ―contrary to law and public policy‖ after she
rendered a legal opinion as to the consequence of the Supervisor‘s Agreement. Wanting to share
the legal opinion she obtained from her legal counsel, respondent Luna wrote a letter to her
colleagues and attached mimeographed copies of the opinion and then circulated them.

Thereafter, Petitioner Avon, through its President and General Manager, Jose Mari Franco,
notified respondent Luna of the termination or cancellation of her Supervisor‘s Agreement with
petitioner Avon. Aggrieved, respondent Luna filed a complaint for damages and the RTC
rendered judgment in favor of respondent Luna, which was assailed by the Court of appeals upon
appeal. Hence, the petition.

Issue: Whether or not the Supervisor‘s Agreement is valid and not against public policy.

Ruling: Yes. Plainly put, public policy is that principle of the law which holds that no subject or
citizen can lawfully do that which has a tendency to be injurious to the public or against the
public good. As applied to contracts, in the absence of express legislation or constitutional
prohibition, a court, in order to declare a contract void as against public policy, must find that the
contract as to the consideration or thing to be done, has a tendency to injure the public, is against
the public good, or contravenes some established interests of society, or is inconsistent with
sound policy and good morals, or tends clearly to undermine the security of individual rights,
whether of personal liability or of private property.

From another perspective, the main objection to exclusive dealing is its tendency to foreclose
existing competitors or new entrants from competition in the covered portion of the relevant
market during the term of the agreement. Only those arrangements whose probable effect is to
foreclose competition in a substantial share of the line of commerce affected can be considered
as void for being against public policy. The foreclosure effect, if any, depends on the market
share involved. The relevant market for this purpose includes the full range of selling
opportunities reasonably open to rivals, namely, all the product and geographic sales they may
readily compete for, using easily convertible plants and marketing organizations. Applying the
preceding principles to the case at bar, there is nothing invalid or contrary to public policy either
in the objectives sought to be attained by paragraph 5, the exclusivity clause, in prohibiting
respondent Luna, and all other Avon supervisors, from selling products other than those
manufactured by petitioner Avon.
 ALFONSO DEL CASTILLO vs. SHANNON RICHMOND

G.R. No. L-21127 February 9, 1924

Facts: Del Castillo and Richmond entered into a contract of services which was reduced into
writng and signed by the parties. Among the stipulations was, Alfonso del Castillo also agrees
not to open, nor own nor have any interest directly or indirectly in any other drugstore either in
his own name or in the name of another; nor have any connection with or be employed by any
other drugstore situated within a radius of our miles from the district of Legaspi, municipality
and Province of Albay, while the said Shannon Richmond or his heirs may own or have open a
drugstore, or have an interest in any other one within the limits of the districts of Legaspi, Albay,
and Daraga of the municipality of Albay, Province of Albay.

Issue: Whether or not the trial court erred in upholding such policy of the employer.

Ruling: The court ruled that considering the nature of the business in which the defendant is
engaged, in relation with the limitation placed upon the plaintiff both as to time and place, we are
of the opinion, and so decide, that such limitation is legal and reasonable and not contrary to
public policy. Of course in establishing whether the contract is a reasonable or unreasonable one,
the nature of the business must also be considered. What would be a reasonable restriction as to
time and place upon the manufacture of railway locomotive engines might be a very
unreasonable restriction when imposed upon the employment of a day laborer.
 ARWOOD INDUSTRIES, INC. vs.D.M. CONSUNJI, INC.

G.R. No. 142277 December 11, 2002

Facts: Petitioner and respondent, as owner and contractor, respectively, entered into a Civil,
Structural and Architectural Works Agreement dated February 6, 1989 for the construction of
petitioner's condominium The contract price for the condominium project aggregated
P20,800,000.00.

Despite the completion of the condominium project, the amount of P962,434.78 remained unpaid
by petitioner. Repeated demands by respondent for petitioner to pay went unheeded. Thus, on
August 13, 1993, respondent filed its complaint for the recovery of the balance of the contract
price and for damages against petitioner. After trial, the court resolved to grant the relief prayed
for by respondent.

Petitioner appealed to the Court of Appeals, particularly opposing the finding of the trial court
with regard to the imposition of the monetary interest of 2% per month on the adjudicated
amount. The Court of Appeals upheld the trial court despite. Respondent court found basis in
Article 6.03 of the Agreement concerning the imposition of the 2% interest, which reads:
"Payment shall be made by the owner to the contractor within fifteen (15) calendar days after
receipt of the construction manager's certificate. in the event owner delays the payments (i.e.
beyond the stipulated time) to the contractor of monthly progress billings, the contractor shall
have the option to either suspend the works on the project until such payments have been
remitted by the owner or continue the work but the owner shall be required to pay the interest at
a rate of two (2%) percent per month or the fraction thereof in days of the amount due for
payment by the owner. the same interest shall be added to the billing of the following month.

Issue: Whether or not the imposition of 2% monthly interest is proper.

Ruling: Petitioner's stance hardly deserves the Court's attention.

The Agreement or the contract between the parties is the formal expression of the parties' rights,
duties and obligations. It is the best evidence of the intention of the parties. Thus, "when the
terms of an agreement have been reduced to writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in interest, no evidence of
such terms other than the contents of the written agreement."

Since the Agreement stands as the law between the parties, this Court cannot ignore the existence
of such provision providing for a penalty for every month‗s delay. Facta legem facunt inter
partes. Neither can petitioner impugn the Agreement to which it willingly gave its consent. From
the moment petitioner gave its consent, it was bound not only to fulfil what was expressly
stipulated in the Agreement but also all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. Petitioner‗s attempt to mitigate its liability to
respondent should thus fail.
SPOUSES BENEDICT and MARICEL DY TECKLO vs.RURAL BANK OF PAMPLONA,
INC

G.R. No. 171201 June 18, 2010

Facts: Spouses Co obtained from Rural Bank of Pamplona, Inc. a P100,000.00 loan due in three
months which was secured by a real estate mortgage. One of the stipulations in the mortgage
contract was that the mortgaged property would also answer for the future loans of the
mortgagor. Pursuant to this provision, spouses Co obtained on 4 March 1994 a second loan from
respondent bank in the amount of P150,000.00 due in three months. Petitioners, spouses Tecklo,
meanwhile instituted an action for collection of sum of money against spouses Co. When the two
loans remained unpaid after becoming due and demandable, respondent bank instituted
extrajudicial foreclosure proceedings. Petitioners then exercised the right of redemption as
successors-in-interest of the judgment debtor. Stepping into the shoes of spouses Co, petitioners
tendered the amount of P155,769.50, based on the computation made by the Office of the
Provincial Sheriff. Respondent bank objected to the non-inclusion of the second loan.
Respondent bank then sought annulment of the redemption, injunction, and damages in the
Regional Trial Court and the latter held that the second loan, not having been annotated on the
TCT of the mortgaged property, could not bind third persons such as petitioners.

Issue: Whether or not the redemption amount includes the second loan in the amount of
P150,000.00.

Ruling: No. For its failure to include the second loan in its application for extrajudicial
foreclosure as well as in its bid at the public auction sale, respondent bank is deemed to have
waived its lien on the mortgaged property with respect to the second loan. Of course, respondent
bank may still collect the unpaid second loan, and the interest thereon, in an ordinary collection
suit before the right to collect prescribes. After the foreclosure of the mortgaged property, the
mortgage is extinguished and the purchaser at auction sale acquires the property free from such
mortgage. Any deficiency amount after foreclosure cannot constitute a continuing lien on the
foreclosed property, but must be collected by the mortgagee-creditor in an ordinary action for
collection. In this case, the second loan from the same mortgage deed is in the nature of a
deficiency amount after foreclosure. In order to effect redemption, the judgment debtor or his
successor-in-interest need only pay the purchaser at the public auction sale the redemption
amount composed of (1) the price which the purchaser at the public auction sale paid for the
property and (2) the amount of any assessment or taxes which the purchaser may have paid on
the property after the purchase, plus the applicable interest. Respondent bank‘s demand that the
second loan be added to the actual amount paid for the property at the public auction sale finds
no basis in law or jurisprudence.
 VIOLETA TUDTUD BANATE v. PHILIPPINE COUNTRYSIDE RURAL BANK
G.R. No. 163825 July 13, 2010

Facts: Sps. Rosendo Maglasang and Patrocinia Monilar obtained a P1.07M loan evidenced by a
promissory note. They executed a REM over a property owned by Sps. Mary Melgrid and
Bonifacio Cortel consisting of a lot including the house constructed thereon. Aside from the said
loan, Sps. Maglasang obtained 2 other loans, which were also evidenced and secured by
promissory notes and mortgages on their other properties.Before the subject loan became due,
Sps. Maglasang asked PCRB's permission to sell and release the subject properties since the 2
other loans were sufficiently secured by the other mortgages. The bank's manager verbally
agreed but required first the full payment of the subject loan. Both spouses then sold the
properties to Violeta Banate for P1.75M. The amount obtained was used to pay PCRB. However,
the owner's duplicate certificate of title given to Banate carried the mortgage lien in favor of
PCRB, prompting the petitioners to request a deed of release of mortgage. Since PCRB refused
the request, the petitioners instituted an action for specific performance before the RTC.PCRB
countered the petitioners' allegations by invoking the cross-collateral stipulation in the mortgage
deed, which states that the full payment of the 3 loans was necessary before any of the mortgages
could be released.The RTC considered the petitioners entitled to a deed of release of mortgage
pursuant to the verbal agreement between the petitioners and the bank manager since it was a
novation of the original mortgage contract. On appeal, the CA reversed the RTC decision on the
ground that the verbal agreement cannot amend the cross-collateral stipulation of the mortgage
contract. The CA did not consider as material the release of the owner's duplicate copy of the title
since it was done merely to allow the annotation of the sale. The petitioners then filed the present
appeal by certiorari.

Issue: Whether or not the purported agreement between the petitioners and the bank manager
novated the mortgage contract over the subject properties and is thus binding upon PCRB.

Ruling: The SC held that for an extinctive novation to occur, the following requisites should be
present: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new
contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.

The second requisite is lacking in this case. Novation presupposes not only the extinguishment or
modification of an existing obligation but, more importantly, the creation of a valid new
obligation. For the consequent creation of a new contractual obligation, consent of both parties is
required.

Even if it was assumed that the purported agreement has been sufficiently established, since it is
not binding on the bank for lack of authority of PCRB‘s branch manager, then the prayer for
restitution of the amount paid would have no legal basis. The bank manager's lack of authority
did not affect the validity of the payment made since the dispute was merely on the effect of the
payment on the security given. Banate cannot recover accrues since PCRB never dealt with her.
As to the borrowers-mortgagers, they merely paid what was owed.
 SPOUSES SILVESTRE v. RODRIGO V. RAMOS

G.R. No. 144712 July 4, 2002

Facts: Ramos alleged that on 3 June 1987, for and in consideration of P150,000, the Spouses
Pascual executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels
of land and the improvements thereon located in Bambang, Bulacan, Bulacan. The Pascuals did
not exercise their right to repurchase the property within the stipulated one-year period; hence,
Ramos prayed that the title or ownership over the subject parcels of land and improvements
thereon be consolidated in his favor.

In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale with Right to
Repurchase for a consideration of P150, 000 but averred that what the parties had actually agreed
upon and entered into was a real estate mortgage. They further alleged that there was no
agreement limiting the period within which to exercise the right to repurchase and that they had
even overpaid Ramos.

The trial court found that the transaction between the parties was actually a loan in the amount of
P150,000, the payment of which was secured by a mortgage of the property. It also found that the
Pascuals had made payments in the total sum of P344,000, and that with interest at 7% per
annum, they had overpaid the loan by P141,500. Accordingly, in its Decision of 15 March 1995
the trial court ruled in favor of the defendants.

Issue: Whether or not the contract entered into is a contract of loan.

Ruling: The court ruled that the Pascuals are actually raising as issue the validity of the
stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in
fact paid interest at, the rate of 7% per month. The Pascuals should accept not only the favorable
aspect of the court‗s declaration that the document is actually an equitable mortgage but also the
necessary consequence of such declaration, that is, that interest on the loan as stipulated by the
parties in that same document should be paid.

It is a basic principle in civil law that parties are bound by the stipulations in the contracts
voluntarily entered into by them. Parties are free to stipulate terms and conditions which they
deem convenient provided they are not contrary to law, morals, good customs, public order, or
public policy. The interest rate of 7% per month was voluntarily agreed upon by Ramos and the
Pascuals. There is nothing from the records and, in fact, there is no allegation showing that
petitioners were victims of fraud when they entered into the agreement with Ramos. Neither is
there a showing that in their contractual relations with Ramos, the Pascuals were at a
disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or
other handicap, which would entitle them to the vigilant protection of the courts as mandated by
Article 24 of the Civil Code.
 CHUA TEE DEE vs. COURT OF APPEALS

Facts: J.C. Agricom Development Corporation, Inc. (Agricom), is the owner of a rubber
plantation located at Davao City. Agricom planned to lease the plantation. Chua Tee Dee,
married to Amado Dee, is a businesswoman doing business under the name of Pioneer
Enterprises (Pioneer). Manuel G. Alba, the president of Agricom, had a business meeting in
Davao City with Amado Dee where they discussed the possibility of leasing the rubber plantation
to Chua Tee Dee/Pioneer.

A contract of lease was entered into by Agricom, represented by Alba, and Chua Tee Dee doing
business under the name and style Pioneer. Lillian Carriedo, a stockholder of Agricom, also
signed the contract. Thereafter, Alba informed the employees of the rubber plantation of the
impending termination of their employment due to the company‘s contract of lease with Chua
Tee Dee. The employees were told that they would be given separation pay. On June 3, 1985,
Amado Dee delivered the amount of Php 270,000.00 to the Spouses Alba as deposit for the lease.
In the meantime, Agricom sent letters to the said employees, confirming the termination of their
employment and informing of their separation pay. The severed employees filed a complaint for
illegal dismissal and unfair labor practice against Agricom, Amado Dee and Pioneer. The labor
arbiter rendered his decision holding that the termination of the complainants‘ employment was
illegal, but the complaint for unfair labor practice was dismissed for lack of merit. On May 24,
1990, the counsel of the Carriedo heirs, the stockholders-owners of Agricom, sent a telegraphic
note to Amado Dee demanding payment of long overdue rentals. Pioneer sent a letter to Agricom
complaining of facts and events which disrupted its operations in the plantation. Pioneer claimed
that it was dragged into labor disputes not of its own making and complained of being pestered
by some individuals who claimed portions of the plantation as their own property. Some of them
went to its office and even presented tax declarations to prove their claims. Agricom informed
Pioneer that, after due investigation, it concluded that the latter‘s complaints were unfounded. It
also demanded the payment of back rentals for June, July and August 1990.

As Pioneer was unable to pay its monthly rentals, Agricom filed, on September 4, 1990, a civil
action for sum of money, damages and attorney‘s fees against Chua Tee Dee. In her Answer,
Chua Tee Dee asserted that Agricom had no cause of action against her. She claimed that it was
Agricom which failed to comply with the terms and conditions of the contract of lease when it
failed to settle the labor dispute with its former employees, and that Agricom failed to maintain
her in the quiet and peaceful possession and enjoyment of the leased premises during the
effectivity of the lease contract. The RTC rendered judgment dismissing the complaint and
declaring the lease contract terminated for failure of Agricom to implement the terms thereof.
Agricom then filed a Motion for Reconsideration, which was granted by the RTC. Judgment was
rendered ordering Chua Tee Dee to pay to Agricom several amounts due as back rentals,
including the first 3 years of the lease. The CA affirmed the order of the lower court, with
modification as to the award of attorney‘s fees. Hence, this petition filed by Chua TeeDee.
Issue: Whether or not Agricom fail to maintain Chua Tee Dee in a quiet and peaceful enjoyment
of the leased premises

Ruling: The Supreme Court held that Agricom did not deprived Chua Tee Dee of the quiet and
peaceful enjoyment of the leased premises. As lessor, Agricom had the duty to maintain Chua
Tee Dee in the peaceful and adequate enjoyment of the leased premises. Such duty was made as
part of the contract of lease entered into by the parties. Even if it had not been so, the lessor is
still duty-bound under Art.1654of the Civil Code. The duty ―to maintain the lessee in the
peaceful and adequate enjoyment of the lease for the duration of the contract‖ mentioned in No. 3
of the article is merely a warranty that the lessee shall not be disturbed in his legal, and not
physical, possession. In the case at bar, Chua Tee Dee claims that several people presented tax
declarations to her and claimed some portions of the leased premises. However, no case was filed
by any of the said claimants against her or her lessor during the time she occupied the premises.

Patently, then, Chua Tee Dee had not been disturbed in her legal possession of the property in
derogation of Article 1654 of the New Civil Code. It was after the labor case has been resolved
that appellant started to fail to pay her rentals, strongly indicating that the labor case has not
dampened her peaceful and adequate possession of the leased premises. The NLRC case did not
deter the continuance of the possession and occupation of the leased premises. In sum, then, the
petitioner failed to prove that the private respondent breached any of the provisions of the
contract of lease.
 G.Q. GARMENTS vs.ANGEL MIRANDA

G.R. No. 161722 July 20, 2006

Facts: Angel Miranda is the registered owner of a 9,646 square meters parcel of land located at
Niog, Bacoor, Cavite. The property was a verbal contract leased with his son Angelito Miranda
who established the Executive Machineries and Equipment Corporation (EMECO). The lease
was on a month-to-month basis for a consideration of Php 8,000.00 per month. EMECO
constructed its factory on the property and paid the said rentals. However, when Angelito died,
EMECO failed to pay the rentals but still continued possessing the leased premises. On 1989, the
factory of EMECO was totally razed by fire. Angel demanded the payment of accrued rentals
amounting to Php 280,000.00 as of May 1991 and also informed that the oral contract of lease
would be terminated effective June 30, 1991. After sending another demand letter, EMECO
vacated the leased premised but the accrued rentals remained unpaid.

Sometime in November 1991, Florenda, Angelito‘s wife, arrived at the office of petitioner and
offered to sublease the property to Wilson Kho, the Officer-in Charge of GQ garments. After
visiting the property, Kho agreed to rent the area upon the condition that its true and registered
owner would personally sign the lease contract in his presence. However, Florenda failed to
present Angel for said purpose, Kho turned down her proposal. Later, Kho was able to locate
Angel and offered in behalf of petitioner, to lease the property, as to which Angel agreed.

On December of that year, Barlin, the executive president representing the corporation and Angel
executed a contract of lease. The lease was for a period of 15 years for a monthly rental of Php
30,000.00. Petitioner paid Php 90,000.00 representing two months deposit and advance rental for
one month. As lessee, it was authorized to introduce improvements, structures, and buildings on
the property as it may deem necessary and for the purpose for which it was leased.

Consequently, petitioner secured the necessary documents and permits. The construction of a
building and factory in the leased premises commenced. However, on January 27, 1992,
Florenda, together with several armed men who identified themselves as policemen, forcibly
evicted petitioner from the leased premises, claiming that she was the owner and that the place
was already covered by another existing contract of lease. During the encounter, Florenda and
her men took some equipment, machinery and other properties belonging to petitioner, thereby
causing loss and damage to said properties. In the meantime, Angel secured a copy of the alleged
contract of leased with EMECO. He filed a complaint for declaration of nullity of the contract
before the Regional Trial Court because his signature was forged praying for judgment to be
rendered in his favour.

Meanwhile, petitioner sought the help of PNP. General Flores, issued a Memorandum to
Superintendent Soberano, ordering the latter to prevent his men from interfering with the
pending civil case. As a result, petitioner regained possession over the leased premises. However,
Florenda and her group went back to the place and ousted the guards and other personnel
manning the corporation‘s office, and even removed their equipment, and ransacked anew their
raw materials, electric wire and other valuables inside.

On April 20, 1992, petitioner instituted an action for damages and recovery of possession of the
property before the RTC with Angel, EMECO and Florenda, as alternative defendants. Angel
was impleaded since he has the obligation to keep and maintain the plaintiff in peaceful
possession of the leased premises. On June 25, 1992, Angel and petitioner, as plaintiffs, filed a
separate complaint for ejectment against Florenda before the MTC. After due proceedings, the
court rendered judgment on July 2, 1993, ordering the eviction of Florenda and all those
claiming the property in her behalf. The decision was appealed to the RTC. However, for failure
to pay a supersedeas bond, the decision was executed and Florenda was evicted from the
property.

On November 26, 1993, the RTC rendered judgment dismissing the complaint against all the
alternative defendants without prejudice. It declared that plaintiff was entitled to damages, but it
had to dismiss the complaint because of the pendency of other civil cases. However, the RTC
resolved to deny the motion of petitioner prompting it to appeal to the Court of Appeals. Angel
Miranda also appealed the decision. Meantime, on September 22, 1994, the RTC rendered
judgment in favor of Angel and declared the contract of lease purportedly executed by him and
EMECO void. On October 29, 2002, the CA rendered judgment reversing the decision of the
RTC. Accordingly, the judgment appealed was reversed and set aside dismissing the complaint
with prejudice against Angel and ordering Florenda to pay damages and attorney‘s fees.

The appellate court absolved Angel of any liability due to the absence of evidence showing that
he had participated, directly or indirectly, in the looting of GQ Garment‘s properties and in
forcibly ejecting the latter from the premises in question. According to the CA anchored on
Article 1653 and 1654 of the New Civil Code, the evidence on record clearly showed that
Florenda disturbed only the physical possession of the leased premises, and not legal possession.
Thus, the complaint with respect to Angel Miranda should be dismissed with prejudice for lack
of cause of action. On cross-examination, Angel admitted that he received Php 360,000.00 from
petitioner. In addition, the plaintiff asserts that the actual damages sustained when its equipment
and machineries were destroyed are valued at Php 10,000,000.00. With all of this, petitioner filed
the instant petition for review on certiorari.

Issue: Whether or not the respondents are liable to petitioner for the amount of Php
10,000,000.00 by way of actual damages.

Ruling: The Supreme Court agreed with the ruling of the appellate court that petitioner‘s claim
for actual damages was not properly substantiated by evidence. The alleged loss of articles,
machinery and equipment in the total sum of Php 9,960,000.00 was not proven by clear and
convincing evidence. Other than the bare testimony of Mr. Wilson Kho and the witnesses he
presented, there was no poof as to the existence of these items prior to the taking over of
Florenda over the property in question. To be entitled to an award of actual damages, it is
necessary to prove the precise amount of the loss with a reasonable degree of certainty, premised
upon competent proof and on the best evidence obtainable by the injured party to justify such
award. The award of actual damages cannot be simply based on the mere allegation of a witness
without any tangible claim, such as receipts or other documentary proofs to support such claim.
Failing to satisfy the court that petitioner certainly suffered actual damages, its claim must now
fail.

No other proof was adduced to establish the value or price of the equipment, machineries and
valuables taken by respondent Florenda Miranda, as well as the damage to petitioner‘s building.
The bare claim of Kho that the petitioner sustained actual damages in the amount of Php
10,000,000.00 is utterly insufficient on which to anchor a judgment for actual damages in the
amount of Php 10,000,000.00; it is speculative and merely a surmise.

With Florenda Miranda‘s admission of trespassing, she is clearly liable for damages to the
equipment, machineries and building of petitioner. We agree with the ruling of the CA that
respondent Angel Miranda is not liable for damages caused to petitioner‘s property. In case of
noncompliance with the obligations stated in article 1654 of the NCC, the lessee may ask for the
rescission of the lease contract and indemnification for damages or only the latter, allowing the
contract to remain in force. It turned out that respondent Florenda Miranda attempted to
hoodwink petitioner and forged respondent Angel Miranda‘s signature on the contract of lease
she showed to petitioner. It appears that respondent Florenda Miranda tried to coerce the
petitioner into executing a contract of lease with EMECO over the property, only to be rebuffed
by the petitioner.

It bears stressing that respondent Angel Miranda was not content in adopting a mere passive
stance in the face of respondent Florenda Miranda‘s act of trespass. He and the petitioner filed a
case for forcible entry against Florenda Miranda; he also succeeded in having the RTC, declare
the contract of lease which respondent Florenda Miranda showed petitioner as null and void,
with the court‘s ruling that his signature on the contract was a forgery. The petition is denied.
 PEDRO T. BERCERO vs.CAPITOL DEVELOPMENT CORPORATION

G.R. No. 154765 March 29, 2007

Facts: On January 31, 1983, Capitol Development Corporation leased its commercial building
and lot located at 1194 EDSA, Quezon City to R.C. Nicolas Merchandising, Inc., (R.C. Nicolas)
for a 10-year period or until January 31, 1993 with the option for the latter to make additional
improvements in the property to suit its business and to sublease portions thereof to third parties.
R.C. Nicolas converted the space into a bowling and billiards center and subleased separate
portions thereof to Midland Commercial Corporation, Jerry Yu, Romeo Tolentino, Julio Acuin,
Nicanor Bas, and Pedro T. Bercero (petitioner). Petitioner‗s sublease contract with R.C. Nicolas
was for a three-year period or until August 16, 1988.

Meanwhile, for failure to pay rent, respondent filed an ejectment case against R.C. Nicolas
before the Metropolitan Trial Court. Respondent also impleaded the sub-lessees of R.C. Nicolas
as parties-defendants. During the pendency of Civil Case, several sub-lessees including
petitioner, entered into a compromise settlement with respondent. In the compromise settlement,
the sub-lessees recognized respondent as the lawful and absolute owner of the property and that
the contract between respondent and R.C. Nicolas had been lawfully terminated because of the
latter‗s non-payment of rent; and that the sub-lessees voluntarily surrendered possession of the
premises to respondent; that the sub-lessees directly executed lease contracts with respondent
considering the termination of leasehold rights of R.C. Nicolas.

Petitioner entered into a lease contract with respondent for a three-year period, from August 16,
1988 to August 31, 1991.On October 21, 1988, respondent and petitioner, as well as several other
sub-lessees of R.C. Nicolas, filed a Joint Manifestation and Motion, manifesting to the MeTC
that they entered into a compromise settlement and moved that the names of the sub-lessees as
parties-defendants be dropped and excluded.

On November 14, 1988, R.C. Nicolas filed a complaint for ejectment and collection of unpaid
rentals against petitioner before the Metropolitan Trial Court, Branch 39, Quezon City (MeTC-
Branch 39), docketed as Civil Case No. 0668. On April 18, 1989, MeTC-Branch 39 rendered a
Decision in favor of R.C. Nicolas and ordered the eviction of petitioner from the leased premises.
Dissatisfied, petitioner filed an appeal before the Regional Trial Court, Branch 78, Quezon City
(RTC-Branch 78). R.C. Nicolas filed a Motion for Execution Pending Appeal which was
opposed by petitioner. In an Order dated October 4, 1990, RTC-Branch 78 directed the issuance
of a writ of execution pending appeal since petitioner failed to file a supersedeas bond and
periodically deposit the rentals due during the pendency of the appeal. Accordingly, on October
22, 1990 a writ of execution was issued. Sometime in November 1990, petitioner was evicted
from the leased premises.

Petitioner assailed the Order dated October 4, 1990 in a petition for certiorari with the CA,
docketed as CA-G.R. SP No. 23275, but the petition was denied due course and dismissed by the
CA in a Decision dated December 28, 1990. In September 3, 1991, respondent filed a
Manifestation in Civil Case No. 52933 urging MeTC-Branch 41 to order R.C. Nicolas to desist
from harassing respondent and petitioner, and to confirm respondent‗s right of possession to the
premises in the light of the ejectment case filed by R.C. Nicolas against petitioner.

Two months later, or on November 13, 1991, MeTC-Branch 41 rendered a Decision in Civil
Case No. 52933 in favor of respondent and ordered R.C. Nicolas to pay its unpaid rentals from
September 1986 until October 1988. Meanwhile, since his eviction in November 1990, petitioner
made repeated demands on respondent for the restoration of his possession of the commercial
space leased to him to no avail. Thus, on March 24, 1992, petitioner filed a complaint for sum of
money with attachment and mandatory injunction with damages against the respondent before
the RTC-Branch 88, docketed as Civil Case No. Q-92-11732. On May 27, 1996, RTC-Branch 88
rendered its Decision in favor of petitioner. The CA rendered its Decision setting aside the
Decision of RTC.

Issue: Whether or not the CA is correct.

Ruling: Under Article 1654 (3) of the New Civil Code, to wit: Art. 1654. The lessor is obliged:
(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire
duration of the contract. It is the duty of the lessor to place the lessee in the legal possession of
the premises and to maintain the peaceful possession thereof during the entire term of the lease.
To fully appreciate the importance of this provision, the comment of Manresa on said article is
worth mentioning:

The lessor must see that the enjoyment is not interrupted or disturbed, either by others‗ acts or
by his own. By his own acts, because, being the person principally obligated by the contract, he
would openly violate it if, in going back on his agreement, he should attempt to render
ineffective in practice the right in the thing he had granted to thelessee; and by others‗ acts,
because he must guarantee the right he created, for he is obligated to give warranty in the manner
we have set forth in our commentary on article 1553, and, in this sense, it is incumbent upon him
to protect the lessee in the latter‗s peaceful enjoyment.

The obligation of the lessor arises only when acts, termed as legal trespass (perturbacion de
derecho), disturb, dispute, object to, or place difficulties in the way of the lessee‗s peaceful
enjoyment of the premises that in some manner or other cast doubt upon the right of the lessor by
virtue of which the lessor himself executed the lease, in which case the lessor is obligated to
answer for said act of trespass. The lessee has the right to be respected in his possession and
should he be disturbed therein, he shall be restored to said possession by the means established
by the law or by the Rules of Court. Possession is not protection against a right but against the
exercise of a right by one‗s own authority.

Petitioner claims that respondent as lessor was obliged to restore his possession following his
eviction from the premises. The Court disagrees.Void are all contracts in which the cause or
object does not exist at the time of the transaction. In the present case, the lease contract between
petitioner and respondent is void for having an inexistent cause - respondent did not have the
right to lease the property to petitioner considering that its lease contract with R.C. Nicolas was
still valid and subsisting, albeit pending litigation. Having granted to R.C. Nicolas the right to
use and enjoy its property from 1983 to 1993, respondent could not grant that same right to
petitioner in 1988. When petitioner entered into a lease contract with respondent, the latter was
still obliged to maintain R.C. Nicolas‗s peaceful and adequate possession and enjoyment of its
lease for the 10-year duration of the contract.

Respondent‗s unilateral rescission of its lease contract with R.C. Nicolas, without waiting for the
final outcome of the ejectment case it filed against the latter, is unlawful. A lease is a reciprocal
contract and its continuance, effectivity or fulfillment cannot be made to depend exclusively
upon the free and uncontrolled choice of just one party to a lease contract. Thus, the lease
contract entered into between petitioner and respondent, during the pendency of the lease
contract with R.C. Nicolas, is void.

There is no merit to petitioner‗s claim of good faith in dealing with respondent. Good faith is
ordinarily used to describe that state of mind denoting "honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to
abstain from taking any unconscientious advantage of another, even through technicalities of law,
together with absence of all information, notice, or benefit or belief of facts which render the
transaction unconscientious." Being privy to the pendency of the ejectment case involving the
leasehold rights of R.C. Nicolas since he was impleaded as a party-defendant in said ejectment
case, petitioner cannot feign innocence of the existence thereof. Petitioner was fully aware that
R.C. Nicolas had a lease contract with respondent which was subject of a pending litigation.

It is well-settled that parties to a void agreement cannot expect the aid of the law; the courts
leave them as they are, because they are deemed in pari delicto or "in equal fault".
 Obligatory Force

MAXIMA HEMEDES v.COURT OF APPEALS

G.R. No. 108472 October 8, 1999

Facts: The instant controversy involves a question of ownership over an unregistered parcel of
land. It was originally owned by the late Jose Hemedes, father of Maxima Hemedes and Enrique
D. Hemedes. On March 22, 1947 Jose Hemedes executed a document entitled Donation Inter
Vivos With Resolutory Conditions whereby he conveyed ownership over the subject land,
together with all its improvements, in favor of his third wife, Justa Kausapin. Maxima Hemedes,
through her counsel, filed an application for registration and confirmation of title over the subject
unregistered land. Subsequently, an Original Certificate of Title (OCT) was issued in the name of
Maxima Hemedes married to Raul Rodriguez by the Registry of Deeds of Laguna on June 8,
1962, with the annotation that Justa Kausapin shall have the usufructuary rights over the parcel
of land herein described during her lifetime or widowhood. On February 28, 1979, Enrique D.
Hemedes sold the property to Dominium Realty and Construction Corporation (Dominium). On
April 10, 1981, Justa Kausapin executed an affidavit affirming the conveyance of the subject
property in favor of Enrique D. Hemedes as embodied in the Kasunduan dated May 27, 1971,
and at the same time denying the conveyance made to Maxima Hemedes. On August 27, 1981,
Dominium and Enrique D. Hemedes filed a complaint for the annulment of the TCT issued in
favor of R & b Insurance and/or the reconveyance to Dominium of the subject property.
Specifically, the complaint alleged that Dominium was the absolute owner of the subject
property by virtue of the February 28, 1979 deed of sale executed by Enrique D. Hemedes, who
in turn obtained ownership of the land from Justa Kausapin, as evidenced by the Kasunduan
dated May 27, 1971. The Plaintiffs asserted that Justa Kausapin never transferred the land to
Maxima Hemedes and that Enrique D. Hemedes had no knowledge of the registration
proceedings initiated by Maxima Hemedes. The trial court rendered judgment in favor of
plaintiffs Dominium and Enrique D. Hemedes. Both R & B Insurance and Maxima Hemedes
appealed from the trial court‗s decision. The Court of Appeals affirmed the assailed decision in
toto. Hence, this petition.

Issue: Which of the two conveyances by Justa Kausapin, the first in favor of Maxima Hemedes
and the second in favor of Enrique D. Hemedes, effectively transferred ownership over the
subject land.

Ruling: Public respondent‗s finding that the Deed of Conveyance of Unregistered Real Property
By Reversion executed by Justa Kausapin in favor of Maxima Hemedes is spurious and not
supported by the factual findings in this case. It is grounded upon the mere denial of the same by
Justa Kausapin. A party to a contract cannot just evade compliance with his contractual
obligations by the simple expedient of denying the execution of such contract. If, after a perfect
and binding contract has been executed between the parties, it occurs to one of them to allege
some defect therein as a reason for annulling it, the alleged defect must be conclusively proven,
since the validity and fulfillment of contracts cannot be left to the will of one of the contracting
parties.
In upholding the deed of conveyance in favor of Maxima Hemedes, the Court must
concomitantly rule that Enrique D. Hemedes and his transferee, Dominium, did not acquire any
rights over the subject property.
Justa Kausapin sought to transfer to her stepson exactly what she had earlier transferred to
Maxima Hemedes – the ownership of the subject property pursuant to the first condition
stipulated in the deed of donation executed by her husband. Thus, the donation in favor of
Enrique D. Hemedes is null and void for the purported object thereof did not exist at the time of
the transfer, having already been transferred to his sister. Similarly, the sale of the subject
property by Enrique D. Hemedes to Dominium is also a nullity for the latter cannot acquire more
rights than its predecessor-in-interest and is definitely not an innocent purchaser for value since
Enrique D. Hemedes did not present any certificate of title upon which it relied. The Court
upheld petitioner R & B Insurance‗s assertion of ownership over the property in dispute, as
evidenced by TCT No. 41985, subject to the usufructuary rights of Justa Kausapin, which
encumbrance has been properly annotated upon the said certificate of title.
 Right of First Refusal

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES vs. GOLDEN HORIZON

REALTY CORPORATION
G.R. No. 183612 March 15, 2010

Facts: National Development Company (NDC) had in its disposal a 10 hectare property,
commonly called as NDC Compound. September 7, 1977: NDC entered into a Contract of Lease
with Golden Horizon Realty Corporation (GHRC) over a portion of the NDC Compound for a
period of ten years, renewable for another ten years with mutual consent of the parties. May 4,
1978: a second Contract of Lease was executed between NDC and GHRC. In addition, GHRC as
lessee was granted the ―option to purchase the area leased, the price to be negotiated and
determined at the time the option to purchase is exercised.‖ Sometime after September 1988,
GHRC discovered that NDC had decided to secretly dispose the property to a third party. In the
meantime, then President Aquino issued Memorandum Order No. 214, ordering the transfer of
the whole NDC Compound to the National Government, which in turn would convey the said
property in favor of PUP at acquisition cost. The order of conveyance of the 10.31-hectare
property would automatically result in the cancellation of NDC‘s total obligation in favor of the
National Government in the amount of P57,193,201.64. PUP demanded that GHRC vacate the
premises, insisting that the latter‘s lease contract had already expired. Its demand letter unheeded
by GHRC, PUP filed an ejectment case. GHRC argued that Memorandum Order No. 214 is a
nullity. RTC rendered its decision upholding the right of first refusal granted to GHRC under its
lease contract with NDC and ordering PUP to reconvey the said portion of the property in favor
of GHRC. CA affirmed the RTC ruling.

Issue: Whether or not the right of refusal is applicable.

Ruling: An option is a contract by which the owner of the property agrees with another person
that the latter shall have the right to buy the former‘s property at a fixed price within a certain
time, or under, or in compliance with certain terms and conditions; or which gives to the owner
of the property the right to sell or demand a sale. It binds the party, who has given the option, not
to enter into the principal contract with any other person during the period designated, and,
within that period, to enter into such contract with the one to whom the option was granted, if the
latter should decide to use the option.

Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property,
but of the first priority to buy the property in the event the owner sells the same. As distinguished
from an option contract, in a right of first refusal, while the object might be made determinate,
the exercise of the right of first refusal would be dependent not only on the owner‘s eventual
intention to enter into a binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up.

As the option to purchase clause in the second lease contract has no definite period within which
the leased premises will be offered for sale to respondent lessee and the price is made subject to
negotiation and determined only at the time the option to buy is exercised, it is obviously a mere
right of refusal, usually inserted in lease contracts to give the lessee the first crack to buy the
property in case the lessor decides to sell the same.
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee
not to sell the leased property to anyone at any price until after the lessor has made an offer to
sell the property to the lessee and the lessee has failed to accept it. Only after the lessee has failed
to exercise his right of first priority could the lessor sell the property to other buyers under the
same terms and conditions offered to the lessee, or under terms and conditions more favorable to
the lessor.
 AGRIPINO VILLEGAS v. COURT OF APPEALS

G.R. No. 111495 August 18, 2006

Facts: Before September 6, 1973, Lot B-3-A, with an area of 4 hectares was registered under
TCT No. 68641 in the names of Ciriaco D. Andres and Henson Caigas. This land was also
declared for real estate taxation under Tax Declaration No. C2-4442. On September 6, 1973,
Andres and Caigas, with the consent of their respective spouses, Anita Barrientos and
Consolacion Tobias, sold the land to Fortune Tobacco Corporation for P60,000.00.
Simultaneously, they executed a joint affidavit declaring that they had no tenants on said lot. On
the same date, the sale was registered in the Office of the Register of Deeds of Isabela. TCT No.
68641 was cancelled and TCT No. T-68737 was issued in Fortune‘s name. On August 6, 1976,
Andres and Caigas executed a Deed of Reconveyance of the same lot in favor of Filomena
Domingo, the mother of Joselito Villegas, defendant in the case before the trial court. Although
no title was mentioned in this deed, Domingo succeeded in registering this document in the
Office of the Register of Deeds on August 6, 1976, causing the latter to issue TCT No. T-91864
in her name. It appears in this title that the same was a transfer from TCT No. T-68641. On April
13, 1981, Domingo declared the lot for real estate taxation under Tax Declaration No. 10-5633.

On December 4, 1976, the Office of the Register of Deeds of Isabela was burned together with
all titles in the office. On December 17, 1976, the original of TCT No. T-91864 was
administratively reconstituted by the Register of Deeds. On June 2, 1979, a Deed of Absolute
Sale of a portion of 20,000 square meters of Lot B-3-A was executed by Filomena Domingo in
favor of Villegas for a consideration of P1,000.00. This document was registered on June 3, 1981
and as a result TCT No. T-131807 was issued by the Register of Deeds toVillegas. On the same
date, the technical description of Lot B-3-A-2 was registered and TCT No. T-131808 was issued
in the name of Domingo. On January 22, 1993, this document was registered and TCT No.
154962 was issued to the defendant, Joselito Villegas.

On April 10, 1991, the trial court upon a petition filed by Fortune ordered the reconstitution of
the original of TCT No. T-68737. After trial on the merits, the trial court rendered its assailed
decision in favor of Fortune Tobacco, declaring it to be entitled to the property. Petitioners thus
appealed this decision to the Court of Appeals, which affirmed the trial court‘s decision.

Issue: Whether or not the Court of Appeals was correct in affirming the trial court‘s decision.

Ruling: Even if Fortune had validly acquired the subject property, it would still be barred from
asserting title because of laches. The failure or neglect, for an unreasonable length of time to do
that which by exercising due diligence could or should have been done earlier constitutes laches.
It is negligence or omission to assert a right within a reasonable time, warranting a presumption
that the part entitled to assert it has either abandoned it or declined to assert it. While it is by
express provision of law that no title to registered land in derogation of that of the registered
owner shall be acquired by prescription or adverse possession, it is likewise an enshrined rule
that even a registered owner may be barred from recovering possession of property by virtue of
laches.
 EQUATORIAL REALTY DEVELOPMENT vs.

MAYFAIR THEATER, INC

G.R. No. 106063 November 21, 1996

Facts: Carmelo owned a parcel of land, together with two 2-storey buildings constructed
thereon. On June 1, 1967 Carmelo entered into a contract of lease with

Mayfair for the latter‗s lease of a portion of Carmelo‗s property. Two years later, on

March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of
another portion of Carmelo‗s property. Both contracts of lease provide identically worded
paragraph 8, which reads: That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however,
that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Mr.
Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone
conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal
told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six to
Seven Million Pesos. Under your company‗s two lease contracts with our client, it is uniformly
provided: That if the LESSOR should desire to sell the leased premises the LESSEE shall be
given 30 days exclusive option to purchase the same. In the event, however, that the leased
premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it
here binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions hereof. Carmelo did not reply
to this letter. On September 18, 1974, Mayfair sent another letter to Carmelo purporting to
express interest in acquiring not only the leased premises but ‗the entire building and other
improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the
authenticity of the second letter. Four years later, on July 30, 1978, Carmelo sold its entire C.M.
Recto Avenue land and building, which included the leased premises housing the ‗Maxim‗ and
‗Miramar‗ theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of
P11,300,000.00. In September 1978, Mayfair instituted the action a quo for specific performance
and annulment of the sale of the leased premises to Equatorial. It dismissed the complaint with
costs against the plaintiff. The Court of Appeals reversed the decision of the trial court.

Issue: Whether or not the decision of the Court of Appeals was correct.

Ruling: The Court agrees with the Court of Appeals that the aforecited contractual stipulation
provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option
contract. It is a contract of a right of first refusal. As early as 1916, in the case of Beaumont vs.
Prieto, unequivocal was our characterization of an option contract as one necessarily involving
the choice granted to another for a distinct and separate consideration as to whether or not to
purchase a determinate thing at a predetermined fixed price. Further, what Carmelo and Mayfair
agreed to, by executing the two lease contracts, was that Mayfair will have the right of first
refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention to sell the said property
in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both
parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair‗s right of first refusal, Carmelo violated such right when without affording
its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer
and a possible corresponding acceptance within the ―30-day exclusive option‖ time granted
Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold,
without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. Since
Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
rescissible. We agree with respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the
said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and,
therefore, rescission lies. Hence, the petition was denied.
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

v. COURT OF APPEALS
G.R. No. 143513 November 14, 2001

Facts: In the early sixties, petitioner National Development Corporation (NDC), had in its
disposal a ten-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was
popularly known as the NDC compound and covered by Transfer Certificates of Title Nos.
92885, 110301 and 145470. Private respondent Firestone Ceramics Inc. manifested its desire to
lease a portion of the property for its ceramic manufacturing business. NDC and FIRESTONE
entered into a contract of lease denominated as Contract No. C-30-65 covering a portion of the
property measured at 2.90118 hectares for use as a manufacturing plant for a term of ten years,
renewable for another ten years under the same terms and conditions. In consequence of the
agreement, FIRESTONE constructed on the leased premises several warehouses and other
improvements needed for the fabrication of ceramic products. Three and a half years later,
FIRESTONE entered into a second contract of lease with NDC over the latter's four-unit pre-
fabricated reparation steel warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the
warehouse to Manila for eventual assembly within the NDC compound. The second contract,
denominated as Contract No. C-26-68, was for similar use as a ceramic manufacturing plant and
was agreed expressly to be "co-extensive with the lease of LESSEE with LESSOR on the 2.60
hectare-lot. The parties signed a similar contract concerning a six-unit pre-fabricated steel
warehouse which, as agreed upon by the parties, would expire on 2 December 1978. Prior to the
expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for an extension
of their lease agreement. Consequently, the Board of Directors of NDC adopted the Resolution
extending the term of the lease, subject to several conditions among which was that in the event
NDC "with the approval of higher authorities, decide to dispose and sell these properties
including the lot, priority should be given to the LESSEE". In pursuance of the resolution, the
parties entered into a new agreement for a ten-year lease of the property, renewable for another
ten years, expressly granting FIRESTONE the first option to purchase the leased premises in the
event that it decided "to dispose and sell these properties including the lot.
The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE,
cognizant of the impending expiration of their lease agreement with NDC, informed the latter
through several letters and telephone calls that it was renewing its lease over the property. While
its letter of 17 March 1988 was answered by Antonio A. Henson, General Manager of NDC, who
promised immediate action on the matter, the rest of its communications remained
unacknowledged. FIRESTONE's predicament worsened when rumors of NDC's supposed plans
to dispose of the subject property in favor of petitioner Polytechnic University of the Philippines
came to its knowledge. Forthwith, FIRESTONE served notice on NDC conveying its desire to
purchase the property in the exercise of its contractual right of first refusal. Apprehensive that its
interest in the property would be disregarded, FIRESTONE instituted an action for specific
performance to compel NDC to sell the leased property in its favor. Following the denial of its
petition, FIRESTONE amended its complaint to include PUP and Executive Secretary
CatalinoMacaraeg, Jr., as party-defendants, and sought the annulment of Memorandum Order
No. 214.

After trial, judgment was rendered declaring the contracts of lease executed between
FIRESTONE and NDC covering the 2.60-hectare property and the warehouses constructed
thereon valid and existing until 2 June 1999. The Court of Appeals affirmed the decision of the
trial court ordering the sale of the property in favor of FIRESTONE.

Issue: Whether or not the Court of Appeals decided a question of substance in a way definitely
not in accord with law or jurisprudence.

Ruling: The courts a quo did not hypothesize, much less conjure, the sale of the disputed
property by NDC in favor of petitioner PUP. Aside from the fact that the intention of NDC and
PUP to enter into a contract of sale was clearly expressed in the Memorandum Order No. 214, a
close perusal of the circumstances of this case strengthens the theory that the conveyance of the
property from NDC to PUP was one of absolute sale, for a valuable consideration, and not a
mere paper transfer as argued by petitioners.

A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates
himself to transfer the ownership of and to deliver a determinate thing to the other or others who
shall pay therefore a sum certain in money or its equivalent. It is therefore a general requisite for
the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there
should be a concurrence of the promise of the vendor to sell a determinate thing and the promise
of the vendee to receive and pay for the property so delivered and transferred. The Civil Code
provision is, in effect, a "catch-all" provision which effectively brings within its grasp a whole
gamut of transfers whereby ownership of a thing is ceded for a consideration.

Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the
questioned transaction. Petitioners NDC and PUP have their respective charters and therefore
each possesses a separate and distinct individual personality.

Hence, the petition was denied.

 SPS. REYNALDO K. LITONJUA vs.L & R CORPORATION
G.R. No. 130722 December 9, 1999

Facts: Spouses Litonjua obtained from L&R Corporation loans in the aggregate sum of
P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining
P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted by
the spouses upon their two parcels of land and the improvements thereon. The mortgage was
duly registered with the Register of Deeds. Spouses Litonjua sold to Philippine White House
Auto Supply, Inc. (PWHAS) the parcels of land they had previously mortgaged to L & R
Corporation for the sum of P430,000.00. Meanwhile, with the spouses Litonjua having defaulted
in the payment of their loans, L & R Corporation initiated extrajudicial foreclosure proceedings.
The mortgaged properties were sold at public auction to L & R Corporation as the only bidder
for the amount of P221,624.58. The Deputy Sheriff informed L & R Corporation of the payment
by PWHAS of the full redemption price and advised it that it can claim the payment upon
surrender of its owner‗s duplicate certificates of title. The spouses Litonjua presented for
registration the Certificate of Redemption issued in their favor to the Register of Deeds of
Quezon City.

The Certificate also informed L & R Corporation of the fact of redemption and directed the
latter to surrender the owner‗s duplicate certificates of title within five days. On April 22, 1981,
L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register of Deeds, stating:
(1) that the sale of the mortgaged properties to PWHAS was without its consent, in contravention
of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2) that it was not the spouses
Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties, when under
Articles 1236 and 1237 of the New Civil Code, the latter had no legal personality or capacity to
redeem the same. On the other hand, the spouses Litonjua asked the Register of Deeds to
annotate their Certificate of Redemption as an adverse claim on the titles of the subject
properties on account of the refusal of L & RCorporation to surrender the owner‗s duplicate
copies of the titles to the subject properties. With the refusal of the Register of Deeds to annotate
their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L
& RCorporation for the surrender of the owner‗s duplicate of Transfer Certificates of Title No.
197232 and 197233 before the then CFI. While the said case was pending, L & R Corporation
executed an Affidavit of Consolidation of Ownership. The Register of Deeds cancelled Transfer
Certificates of Title No. 197232 and 197233 and in lieu thereof, issued Transfer Certificates of
Title No. 280054 and 28055 in favor of L & R Corporation, free of any lien or encumbrance. A
complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction
was filed by the spouses Litonjua and PWHAS against herein respondents before the then CFI.

Issue: Whether or not the Court of Appeals erred in its decision.

Ruling: In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to
L & R Corporation over the subject properties since the Deed of Real Estate Mortgage
containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is
presumed to have been notified thereof by registration, which equates to notice to the whole
world. Thus, the Decision appealed from was affirmed with modifications.
 Mutualit
y

VICENTE JOSEFA v. ZHANDONG TRADING CORPORATION

G.R. No. 150903 December 8, 2003

Facts: Zhandong Trading Corporation delivered to Vicente Josefa, who was introduced to it as a
client by Antonio Tan, 313 crates of boards valued at P4.6M payable within 60 days from
delivery. Instead of paying, Josefa remitted his payments to Tan, who in turn delivered various
checks to Zhandong, who accepted them upon Tan's assurance that the checks came from Josefa.

When a number of the checks bounced, Tan issued his own checks and those of his mother's, but
Tan later stopped payments. Zhandong demanded payment from Tan and Josefa but was ignored.
Hence, it filed the instant complaint.

In his answer, Josefa averred that he had already paid all his obligations to Zhandong through
Tan. Furthermore, he claimed he is not privy to the agreements between Tan and Zhandong.
Hence, in case his payments were not remitted to Zhandong, it was not his fault and that
Zhandong should bear the consequences.

Issue: Whether or not Josefa is liable for payment of the boards to Zhandong when he did not
negotiate the transaction with it but rather through Tan as intermediary.

Ruling: The transaction was negotiated between Tan and Josefa, who only received the goods
delivered by Zhandong. Josefa was not privy to the arrangement between Tan and Zhandong.
Josefa has fully paid for the goods to Tan with whom he had arranged the transaction.

Contracts take effect only between the parties, their successors in interest, heirs, and assigns.
When there is no privity of contract, there is likewise no obligation or liability. Thus, no cause of
action arises. Josefa, being not privy to the transaction between Tan and Zhandong, should not be
made liable for the failure of Tan to deliver the payment to Zhandong.

Therefore, Zhandong should recover the payment from Tan.

 Equality/Contracts of Adhesion

ANICETO SALUDO, JR. v. SECURITY BANK COMMISSION,

G.R. No. 184041 October 13, 2010

Facts: On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC in the
amount of P10,000,000.00. Said loan was covered by a Credit Agreement and a Continuing
Suretyship with petitioner as surety, both documents dated 1 August 1996, to secure full payment
and performance of the obligations arising from the credit accommodation. On 16 June 2000,
SBC filed against Booklight and herein petitioner an action for collection of sum of money with
the RTC. Booklight initially filed a motion to dismiss, which was later on denied for lack of
merit. In his Answer, Booklight asserted that the amount demanded by SBC was not based on the
omnibus credit line facility of 30 May 1996, but rather on the amendment of the credit facilities
on 15 October 1996 increasing the loan line from P8,000,000.00 to P10,000,000.00. Booklight
denied executing the promissory notes. It also claimed that it was not in default as in fact, it paid
the sum of P1,599,126.11 on 30 September 1999 as a prelude to restructuring its loan for which
it earnestly negotiated for a mutually acceptable agreement until 5 July 2000, without knowing
that SBC had already filed the collection case. On 7 March 2005, Booklight was declared in
default. Consequently, SBC presented its evidence ex-parte. The case against petitioner, however,
proceeded and the latter was able to present evidence on his behalf. After trial, the RTC ruled
that petitioner is jointly and solidarily liable with Booklight under the Continuing Suretyship
Agreement.

Issue: Whether or not petitioner should be held solidarily liable for the second credit facility
extended to Booklight.

Ruling: Yes. There is no doubt that Booklight was extended two (2) credit facilities, each with a
one-year term, by SBC. Booklight availed of these two (2) credit lines. While Booklight was able
to comply with its obligation under the first credit line, it defaulted in the payment of the loan
obligation amounting to P9,652,725.00 under the second credit line. There is likewise no dispute
that the first credit line facility, with a term from 30 June 1996 to 30 June 1997, was covered by a
Continuing Suretyship with petitioner acting as the surety. The dispute is on the coverage by the
Continuing Suretyship of the loan contracted under the second credit facility. The two loan
facilities availed by Booklight under the credit agreement are the Omnibus Line amounting to
P10,000,000.00 granted to Booklight in 1996 and the other one is the Loan Line of the same
amount in 1997. Petitioner however seeks to muddle the issue by insisting that these two
availments were two separate principal contracts, conveniently ignoring the fact that it is the
credit agreement which constitutes the principal contract signed by Booklight in order to avail of
SBC‗s credit facilities. The two credit facilities are but loans made available to Booklight
pursuant to the credit agreement.
 EQUITABLE PCI BANK, INC v. ANTONIO A. BELLONES

A.M. No. P-05-1973 March 18, 2005

Facts: On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or
reformation of documents and contracts against Equitable and its employees. They claimed that
they were induced by the bank to avail of its peso and dollar credit facilities by offering low
interests so they accepted and signed Equitable‘s proposal.

They alleged that they were unaware that the documents contained escalation clauses granting
equitable authority to increase interest without their consent. These were rebutted by the bank.
RTC ordered the use of the 1996 dollar exchange rate in computing respondent‘s dollar-
denominated loans. CA granted the Bank‘s application for injunction but the properties were sold
to public auction.

Issue: Whether or not there was an extraordinary deflation.

Ruling: Extraordinary inflation exists when there is an unusual decrease in the purchasing power
of currency and such decrease could not be reasonably foreseen or was beyond the contemplation
of the parties at the time of the obligation. Deflation is an inverse situation.

Despite the devaluation of the peso, BSP never declared a situation of extraordinary inflation.
Respondents should pay their dollar denominated loans at the exchange rate fixed by the BSP on
the date of maturity.

Decision of lower courts are reversed and set aside.

 TERESITA DIO vs. ST. FERDINAND MEMORIAL PARK, INC.

G.R. No. 169578 November 30, 2006

Facts: On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a memorial lot
from the St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The 36-square-meter
memorial lot is particularly described as Block 2, Section F, Lot 15. The purchase was evidenced
by a Pre-Need Purchase Agreement dated December 11, 1973 and denominated as Contract No.
384. She obliged herself to abide by all such rules and regulations governing the SFMPI dated
May 25, 1972.

SFMPI issued a Deed of Sale and Certificate of Perpetual Care dated April 1, 1974 denominated
as Contract No. 284. The ownership of Dio over the property was made subject to the rules and
regulations of SFMPI, as well as the government, including all amendments, additions and
modifications that may later be adopted.

Meanwhile, the mortal remains of Dios husband and father were interred in the lot at her own
expense, without the knowledge and intervention of SFMPI. She engaged the services of a
private contractor for the fabrication of niches and improvements on her lot. In August 1974, the
remains of Dios daughter were likewise interred in the niche constructed on the lot, again
without the knowledge and intervention of SFMPI.

In 1986, Dio decided to build a mausoleum on the lot. In September that year, she caused the
preparation of a design-plan for the construction of a mausoleum and the bidding out of the
project.

In the early part of October 1986, Dio informed SFMPI, through its president and controlling
stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum on her lot and
sought the approval thereof. Dio even showed to Tantoco the plans and project specifications
accomplished by her private contractor at an estimated cost of P60,000.00. The plans and
specifications were approved, but Tantoco insisted that the mausoleum be built by it or its agents
at a minimum cost of P100,000.00 as provided in Rule 69 of the Rules and Regulations the
SFMPI issued on May 25, 1972. The total amount excluded certain specific designs in the
approved plan which if included would cost Dio much more. In a letter dated October 13, 1986,
Dio, through counsel, demanded that she be allowed to construct the mausoleum within 10 days,
otherwise, she would be impelled to file the necessary action/s against SFMPI and Tantoco.

On October 17, 1986, SFMPI wrote Dio informing her that under Rule 69 of SFMPI Rules and
Regulations, she was prohibited from engaging an outside contractor for the construction of
buildings, improvements and memorials. A lot owner was only allowed to submit a preferred
design as long as it is in accordance with park standards.

On December 23, 1986, Dio filed a Complaint for Injunction with Damages against SFMPI and
Tantoco before the RTC of Lucena City. She averred that she was not aware of Rule 69 of the
SFMPI Rules and Regulations; the amount of P100,000.00 as construction cost of the
mausoleum was unconscionable and oppressive. She prayed that, after trial, judgment be
rendered in her favor, granting a final injunction perpetually restraining defendants from
enforcing the invalid Rule 69 of SFMPIs Rules for Memorial Work in the Mausoleum of the
Park or from refusing or preventing the construction of any improvement upon her property in
the park. The court issued a cease and desist order against defendants.

Issue: Whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and Regulations for
memorial works in the mausoleum areas of the park when the Pre-Need Purchase Agreement and
the Deed of Sale was executed.

Ruling: The validity or enforceability of the impugned contracts will have to be determined by
the peculiar circumstances obtaining in each case and the situation of the parties concerned.
Indeed, Article 24 of the New Civil Code provides that [in] all contractual, property or other
relations, when one of the parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age, or other handicap, the courts must be vigilant
for his protection. In this case, however, there is no reason for the Court to apply the rule on
stringent treatment towards contracts of adhesion. To reiterate, not only is petitioner educated,
she is likewise a well-known and experienced businesswoman; thus, she cannot claim to be the
weaker or disadvantaged party in the subject contracts so as to call for a strict interpretation
against respondents. Moreover, she executed the Pre-Need Purchase Agreement and Deed of Sale
without any complaint or protest. She assailed Rule 69 of the Rules and Regulations of
respondent SFMPI only when respondents rejected her request to cause the construction of the
mausol
 PILIPINO TELEPHONE CORPORATION vs. DELFINO TECSON

Facts: On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone subscriptions
with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the
telecommunications business, which applications were each approved and covered, respectively,
by six mobiline service agreements. On 05 April 2001, respondent filed with the Regional Trial
Court a complaint against petitioner for a Sum of Money and Damages. Petitioner moved for the
dismissal of the complaint on the ground of improper venue, citing a common provision in the
mobiline service agreements to the effect that - Venue of all suits arising from this Agreement or
any other suit directly or indirectly arising from the relationship between PILTEL and subscriber
shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any
other venues. The Regional Trial Court of Iligan City, Lanaodel

Norte, denied petitioner‗s motion to dismiss and required it to file an answer within 15 days
from receipt thereof.

Petitioner filed a petition for certiorari before the Court of Appeals. The Court of Appeals saw no
merit in the petition and affirmed the assailed orders of the trial court.

Issue: Whether or not the Court of Appeals erred in affirming the orders of the trial court.

Ruling: The contract herein involved is a contract of adhesion. But such an agreement is not per
se inefficacious. The rule instead is that, should there be ambiguities in a contract of adhesion,
such ambiguities are to be construed against the party that prepared it. If, however, the
stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the
literal meaning of its stipulations must be held controlling. A contract of adhesion is just as
binding as ordinary contracts. It is true that this Court has, on occasion, struck down such
contracts as being assailable when the weaker party is left with no choice by the dominant
bargaining party and is thus completely deprived of an opportunity to bargain effectively.
Nevertheless, contracts of adhesion are not prohibited even as the courts remain careful in
scrutinizing the factual circumstances underlying each case to determine the respective claims of
contending parties on their efficacy. In the case at bar, respondent secured 6 subscription
contracts for cellular phones on various dates. It would be difficult to assume that, during each of
those times, respondent had no sufficient opportunity to read and go over the terms and
conditions embodied in the agreements. Respondent continued, in fact, to acquire in the pursuit
of his business subsequent subscriptions and remained a subscriber of petitioner for quite
sometime.

Hence, the petition was granted by the Court and the decision of the Court of Appeals is reversed
and set aside. The Civil Case pending before the Regional Trial Court of Iligan City, Branch 4,
was dismissed without prejudice to the filing of an appropriate complaint by respondent against
petitioner with the court of proper venue.
 PHILIPPINE AIRLINES vs. COURT OF APPEALS

G.R. No. 119706 March 14, 1996

Facts: On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines,
one (1) unit microwave oven under PAL Air Waybill No. 0-79-1013008-3, with a gross weight of
33 kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon arrival, however, of said
article in Manila, Philippines, plaintiff discovered that its front glass door was broken and the
damage rendered it unserviceable. Demands both oral and written were made by plaintiff against
the defendant for the reimbursement of the value of the damaged microwave oven, and
transportation charges paid by plaintiff to defendant company. But these demands fell on deaf
ears. This is because, according to petitioner, was filed out of time under paragraph 12, a (1) of
the Air Waybill which provides: "(a) the person entitled to delivery must make a complaint to the
carrier in writing in case: (1) of visible damage to the goods, immediately after discovery of the
damage and at the latest within 14 days from the receipt of the goods. On September 25, 1990,
Gilda C. Mejia filed an action for damages against the petitioner in the lower court. The latter
rendered a decision rendering PAL liable to pay, actual, moral and exemplary damages as well as
attorney‗s fees. On appeal, the Court of Appeals similarly ruled in favor of private respondent by
affirming in full the trial court's judgment, with costs against petitioner.

Issue: Whether or not the respondent court erred in affirming the conclusions of the trial court
that since the air waybill is a contract of adhesion, its provisions should be strictly construed
against herein petitioner.

Ruling: The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc. vs. Vda.
De Songco, et al. in finding that the provisions of the air waybill should be strictly construed
against petitioner. More particularly, the court below stated its findings thus: In this case, it is
seriously doubted whether plaintiff had read the printed conditions at the back of the Air Waybill,
or even if she had, if she was given a chance to negotiate on the conditions for loading her
microwave oven. Instead she was advised by defendant's employee at San Francisco, U.S.A., that
there is no need to declare the value of her oven since it is not brand new. Further, plaintiff
testified that she immediately submitted a formal claim for P30,000.00 with defendant. But their
claim was referred from one employee to another then told to come back the next day, and the
next day, until she was referred to a certain Atty. Paco. When they got tired and frustrated of
coming without a settlement of their claim in sight, they consulted a lawyer who demanded from
defendant on August 13, 1990. Respondent appellate court approved said findings of the trial
court in this manner: We cannot agree with defendant-appellant's above contention. Under our
jurisprudence, the Air Waybill is a contract of adhesion considering that all the provisions thereof
are prepared and drafted only by the carrier. The only participation left of the other party is to
affix his signature thereto. In the earlier case of Angeles v. Calasanz, the Supreme Court ruled
that the terms of a contract of adhesion must be interpreted against the party who drafted the
same.
 SPOUSES LUIS M. ERMITAÑO v. COURT OF APPEALS

G.R. No. 127246 April 21, 1999

Facts: Petitioner Ermitaño applied for a credit card from private respondent BPI Express Card
Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension card holder. The
spouses were given credit limit of P10, 000.00. They often exceeded this credit limit without
protest from BCC. On August 9, 1989, Manuelita‘s bag was snatched from her as she was
shopping at the greenbelt mall in Makati, Metro Manila. Among the items inside the bag was her
BECC credit card. That same night she informed, by telephone, BECC of the loss. The call was
received by BECC offices through a certain Gina Banzon. This was followed by a letter dated
August 30, 1989.She also surrendered Luis‗ credit card and requested for replacement cards. In
her letter, Manuelita stated that she shall not be responsible for any and all charges incurred
[through the use of the lost card] after August 29, 1989. However, when Luis received his
monthly billing statement from BECC dated September 20,1989, the charges included amounts
for purchases were made, one amounting to P2,350.05 and the other, P607.50. Manuelita
received a billing statement dated October 20,1989 which required her to immediately pay the
total amount of P3,197.70 covering the same (unauthorized) purchases. Manuelita wrote again
BECC disclaiming responsibility for those charges, which were made after she had served BECC
with notice of loss of her card. However, BECC, in a letter dated July 13, 1990, pointed to Luis
the following stipulation in their contract: In his reply dated July 18, 1990, Luis stressed that the
contract BECC was referring to was a contract of adhesion and warned that if BECC insisted on
charging him and his wife for the unauthorized purchases, they will sue BECC continued to bill
the spouses for said purchases. The trial court only opined that the only purpose for the
suspension of the spouses‘ credit privileges was to compel them to pay for the unauthorized
purchases. The trial court ruled that the latter portion of the condition in the parties‘ contract,
which states the liability for purchases made after a card is lost or stolen shall be for the account
of the cardholder until after notice of the lost or theft has been given to BECC and after the latter
has informed its member establishments, is void for being contrary to public policy and for being
dependent upon the sole will of the debtor.
Issue: Whether or not the Court of Appeals gravely erred in relying on the case of Serra v. Court
of Appeals because unlike that case, petitioners have no chance at all to contest the stipulations
appearing in the credit card application that was drafted entirely by private respondent, thus, a
clear contract of adhesion.

Ruling: At the outset, we note that the contract between the parties in this case is indeed a
contract of adhesion, so-called because its terms are prepared by only one party while the other
party merely affixes his signature signifying his adhesion thereto. Such contracts are not void in
themselves. They are as binding as ordinary contracts. Parties who enter in to such contracts are
free to reject the stipulations entirely. In this case, the cardholder, Manuelita, has complied with
what was required of her under the contract with BECC, She immediately notified BECC of loss
of her card on the same day it was lost and, the following day, she sent a written notice of the
loss to BECC. Clearly, what happened in this case was that BECC failed to notify promptly the
establishment in which the unauthorized purchases were made with the use of Manuelita‗s lost
card. Thus, Manuelita was being liable for those purchases, even if there is no showing that
Manuelita herself had signed for said purchases, and after notice by her concerning her card‗s
loss was already given to BECC.
Non-binding as to Third Parties; Exceptions
 UNIWIDE SALES v. TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT
CORPORATION

G.R. No. 126619 December 20, 2006

Facts: PROJECT 1. The first agreement was a written Construction Contract entered into by
Titan and Uniwide sometime in May 1991 whereby Titan undertook to construct Uniwide‗s
Warehouse Club and Administration Building in Libis, Quezon City for a fee of

P120,936,591.50, payable in monthly progress billings to be certified to by Uniwide‗s

representative. The parties stipulated that the building shall be completed not later than 30
November 1991. As found by the CIAC, the building was eventually finished on 15 February
1992 and turned over to Uniwide. PROJECT 2.Sometime in July 1992, Titan and Uniwide
entered into the second agreement whereby the former agreed to construct an additional floor and
to renovate the latter‗s warehouse located at the EDSA Central Market Area in Mandaluyong
City. There was no written contract executed between the parties for this project. Construction
was allegedly to be on the basis of drawings and specifications provided by Uniwide‗s structural
engineers. The parties proceeded on the basis of a cost estimate of P21,301,075.77 inclusive of
Titan‗s 20% mark-up. Titan conceded in its complaint to having received P15,000,000.00 of this
amount. This project was completed in the latter part of October 1992 and turned over to
Uniwide. PROJECT 3.The parties executed the third agreement in May 1992. In a written
Construction Contract, Titan undertook to construct the Uniwide Sales Department Store
Building in Kalookan City for the price of P118,000,000.00 payable in progress billings to be
certified to by Uniwide‗s representative. It was stipulated that the project shall be completed not
later than 28 February 1993. The project was completed and turned over to Uniwide in June
1993. Uniwide asserted in its petition that: (a) it overpaid Titan for unauthorized additional
works in Project 1 and Project 3; (b) it is not liable to pay the Value-Added Tax for Project 1; (c)
it is entitled to liquidated damages for the delay incurred in constructing Project 1 and Project 3;
and (d) it should not have been found liable for deficiencies in the defectively constructed
Project 2.

Issue: Whether or not the decision rendered is correct.

Ruling: On Project 1 – Libis: Uniwide is absolved of any liability for the claims made by [Titan]
on this Project. Project 2 – Edsa Central: Uniwide is absolved of any liability for VAT payment
on this project, the same being for the account of Titan. On the other hand, Titan is absolved of
any liability on the counterclaim for defective construction of this project. Uniwide is held liable
for the unpaid balance in the amount of P6,301,075.77 which is ordered to be paid to the Titan
with 12% interest per annum commencing from 19 December 1992 until the date of payment.On
Project 3 – Kalookan: Uniwide is held liable for the unpaid balance in the amount of
P5,158,364.63 which is ordered to be paid to Titan with 12% interest per annum commencing
from 08 September 1993 until the date of payment. Uniwide is held liable to pay in full the VAT
on this project, in such amount as may be computed by the Bureau of Internal Revenue to be
paid directly thereto. The BIR is hereby notified that Uniwide Sales Realty and Resources
Corporation has assumed responsibility and is held liable for VAT payment on this project. This
accordingly exempts Claimant Titan-Ikeda Construction and Development Corporation from this
obligation.
 HEIRS OF AUGUSTO L. SALAS, JR v. LAPERAL REALTY CORPORATION,
ROCKWAY REAL ESTATE CORPORATION

G.R. No. 135362 December 13, 1999

Facts: Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas.
He entered into an Owner-Contractor Agreement with Respondent Laperal Realty Corporation to
render and provide complete (horizontal) construction services on his land. Said agreement
contains an arbitration clause, to wit:

―ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER‘S representative shall be referred to
the committee represented by:

1. One representative of the OWNER;

2. One representative of the CONTRACTOR;
3. One representative acceptable to both OWNER and CONTRACTOR.‖

Salas, Jr. then executed a Special Power of Attorney in favor of Respondent Laperal Realty to
exercise general control, supervision and management of the sale of his land, for cash or on
installment basis. By virtue thereof, Respondent Laperal Realty subdivided said land and sold
portions thereof to Respondents Rockway Real Estate Corporation and South Ridge Village, Inc.
in 1990; to Respondent spouses Abrajano and Lava and Oscar Dacillo in 1991; and to
Respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan in 1996
(Respondent Lot Buyers hereinafter).

Back in 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He,
however, never returned on that unfaithful morning. Seven years later or in 1996, his wife,
Teresita Diaz-Salas filed with the RTC of Makati City a verified Petition for the Declaration of
Presumptive Death, which Petition was granted.
In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City a Complaint for
Declaration of Nullity of Sale, Reconveyance, Cancellation of Contract, Accounting and
Damages against Respondents.

Respondent Laperal Realty filed a Motion to Dismiss on the ground that Petitioners failed to
submit their grievance to arbitration as required under Article VI of the Owner-Contractor
Agreement. Respondent spouses Abrajano and Lava and RespondentDacillo filed a Joint Answer
with Counterclaim and Crossclaim praying for dismissal of Petitioners‘ Complaint for the same
reason.

The RTC then issued the herein assailed Order dismissing Petitioners‘ Complaint for non-
compliance with the foregoing arbitration clause. Hence, the present Petition for Review on
Certiorari under Rule 45.

Issue: Whether or not the arbitration clause under Article VI of the Owner-Contractor Agreement
is binding upon the Respondent Lot Buyers.

Ruling: No. Respondent Lot Buyers are neither parties to the Agreement nor the latter‘s assigns
or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was
never vested in Respondent Lot Buyers.

Respondent Laperal Realty, on the other hand, as a contracting party to the Agreement, has the
right to compel Petitioners to first arbitrate before seeking judicial relief. However, to split the
proceedings into arbitration for Respondent Laperal Realty and trial for the Respondent Lot
Buyers, or to hold trial in abeyance pending arbitration between Petitioners and Respondent
Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and
unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears
the complaint against all herein

Respondents and adjudicates Petitioners‘ rights as against theirs in a single and complete
proceeding.

Petition is granted. The assailed Order of RTC of Lipa City is nullified and set aside.
 BIENVENIDO R. MEDRANO vs.COURT OF APPEALS

G.R. No. 150678 February 18, 2005

Facts: Bienvenido Medrano was the Vice-Chairman of Ibaan Rural Bank. He asked Flor (a
cousin), to look for a buyer of a foreclosed asset of the bank (17-hectare mango plantation with
720 trees priced at P2.2M). Dominador Lee, a Makati businessman was a client of respondent
Pacita Borbon, a licensed real estate broker. Borbon relayed to her business associates and
friends that she had a ready buyer for a mango orchard. Flor then advised her that her cousin-in-
law owned a mango plantation which was up for sale. She told Flor to confer with Medrano and
to give them a written authority to negotiate the sale of the property. Medrano issued the Letter
of Authority to Borbon and Antonio to negotiate with any prospective buyer for the sale of the
mango plantation. He promised Borbon to pay a commission of 5% of the total purchase price to
be agreed upon by the buyer and seller. Lee held an ocular inspection. Lee informed Antonio that
he already purchased the property and had made a down payment ofP1M. The remaining balance
of P1.2M was to be paid upon the approval of the incorporation papers of the corporation he was
organizing by the SEC. According to Antonio, Lee asked her if they had already received their
commission. She answered "no," and Lee expressed surprise over this. Since the sale of the
property was consummated, the respondents asked from the petitioners their commission, or 5%
of the purchase price. The petitioners refused to pay and offered a measly sum of P5,000 each.
Hence, the present action.

Issue: Whether or not the plaintiffs are entitled to any commission for the sale of the subject
property.

Ruling: Yes. The respondents are indeed the procuring cause of the sale. If not for the
respondents, Lee would not have known about the mango plantation being sold by the
petitioners. The sale was consummated. The bank had profited from such transaction. It would
certainly be iniquitous if the respondents would not be rewarded their commission pursuant to
the letter of authority.

―Procuring cause‖ - the proximate cause. The term "procuring cause," in describing a broker‘s
activity, refers to a cause originating a series of events which, without break in their continuity,
result in accomplishment of prime objective of the employment of the broker – producing a
purchaser ready, willing and able to buy real estate on the owner‘s terms. The evidence on record
shows that the respondents were instrumental in the sale of the property to Lee. Without their
intervention, no sale could have been consummated. They were the ones who set the sale of the
subject land in motion. While the letter-authority issued in favor of the respondents was non-
exclusive, no evidence was adduced to show that there were other persons, aside from the
respondents, who informed Lee about the property for sale. When there is a close, proximate and
causal connection between the broker‘s efforts and the principal‘s sale of his property, the broker
is entitled to a commission. In the absence of fraud, irregularity or illegality in its execution, such
letter-authority serves as a contract, and is considered as the law between the parties. The clear
intention is to reward the respondents for procuring a buyer for the property
 MANUEL B. TAN vs.EDUARDO R. GULLAS
G.R. No. 143978 December 3, 2002

Facts: Spouses Eduardo R. Gullas and Norma S. Gullas, were the registered owners of a parcel
of land measuring 104,114 sq. m., with Transfer Certificate of Title No. 31465. On June 29,
1992, they executed a special power of attorney authorizing petitioners Manuel B. Tan, a
licensed real estate broker, and his associates Gregg M. Tecson and Alexander Saldaña, to
negotiate for the sale of the land at P550.00 per square meter, at a commission of 3% of the gross
price. The power of attorney was non-exclusive and effective for one month from June 29, 1992.
On the same date, petitioner Tan contacted Engineer Ledesma, construction manager of the
Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious organization interested
in acquiring a property. On 1, 1992, petitioner Tan visited the property with Engineer Ledesma.
Thereafter, the two men accompanied Sisters Michaela Kim and Azucena Gaviola, representing
the Sisters of Mary, who had seen and inspected the land, found the same suitable for their
purpose and expressed their desire to buy it. However, they requested that the selling price be
reduced to P530.00 per square meter instead of P550.00 per square meter. Private respondent
Eduardo Gullas referred the prospective buyers to his wife. In their answer, private respondents
countered that, contrary to petitioners' claim, they were not the efficient procuring cause in
bringing about the consummation of the sale because another broker, Roberto Pacana, introduced
the property to the Sisters of Mary ahead of the petitioners. Private respondents maintained that
when petitioners introduced the buyers to private respondent Eduardo Gullas, the former were
already decided in buying the property through Pacana, who had been paid his commission.
Private respondent Eduardo Gullas admitted that petitioners were in his office on July 3, 1992,
but only to ask for the reimbursement of their cellular phone expenses. After trial, the lower court
rendered judgment in favor of petitioners. Eduardo and Norma Gullas were ordered to pay
jointly and severally plaintiffs Manuel Tan, Gregg Tecson and Alexander

Saldaña the sum of P624,684.00 as broker‗s fee with legal interest at the rate of 6% per annum
from the date of filing of the complaint; and the sum of P50,000.00 as attorney‗s fees and costs
of litigation. The Court of Appeals reversed and set aside the lower court‗s decision and
rendered another judgment dismissing the complaint.

Issue: Whether or not the Court of Appeals erred in dismissing the complaint.
Ruling: It is readily apparent that private respondents are trying to evade payment of the
commission which rightfully belongs to petitioners as brokers with respect to the sale. There was
no dispute as to the role that petitioners played in the transaction. At the very least, petitioners set
the sale in motion. They were not able to participate in its consummation only because they were
prevented from doing so by the acts of the private respondents. In the case of Alfred Hahn v.
Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft (BMW) the SC ruled that,
An agent receives a commission upon the successful conclusion of a sale. On the other hand, a
broker earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made. Clearly, therefore, petitioners, as brokers, should be entitled to the commission
whether or not the sale of the property subject matter of the contract was concluded through their
efforts.
 Enforceability

JESUS M. GOZUN vs. JOSE TEOFILO T. MERCADO

G.R. No. 167812 December 19, 2006

Facts: In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga.
Upon respondent‗s request, petitioner, owner of JMG Publishing House, a printing shop,
submitted to respondent draft samples and price quotation of campaign materials.

By petitioner‗s claim, respondent‗s wife had told him that respondent already approved his price
quotation and that he could start printing the campaign materials, hence, he did print campaign
materials. Given the urgency and limited time to do the job order, petitioner availed of the
services and facilities of Metro Angeles Printing and of St. Joseph Printing Press, owned by his
daughter Jennifer Gozun and mother Epifania Macalino Gozun, respectively.

Petitioner delivered the campaign materials to respondent‗s headquarters. On March 31, 1995,
respondent‗s sister-in-law, Lilian Soriano obtained from petitioner cash advance of P253,000
allegedly for the allowances of poll watchers who were attending a seminar and for other related
expenses. Lilian acknowledged on petitioner‗s 1995 diary receipt of the amount.

Petitioner later sent respondent a Statement of Account in the total amount of P2,177,906
itemized as follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing;
P446,900 for St. Joseph Printing Press; and P253,000, the cash advance obtained by Lilian.
Respondent‗s wife partially paid P1,000,000 to petitioner who issued a receipt therefor. Despite
repeated demands and respondent‗s promise to pay, respondent failed to settle the balance of his
account to petitioner.

Petitioner thus filed with the RTC a complaint against respondent to collect the remaining
amount of P1,177,906 plus inflationary adjustment and attorney‗s fees. The trial court rendered
judgment in favor of the petitioner. The CA however, reversed the trial court‗s decision and
dismissed the complaint for lack of cause of action.
Issue: Whether or not the Court of Appeals erred in reversing the trial court's decision.

Ruling: Petitioner is the real party in interest in this case. The trial court‗s findings on the
matter were affirmed by the appellate court. It erred, however, in not declaring petitioner as a
real party in interest insofar as recovery of the cost of campaign materials made by petitioner‗s
mother and sister are concerned, upon the wrong notion that they should have been, but were
not, impleaded as plaintiffs.
 Privity : Exceptions

STA. LUCIA REALTY & DEVELOPMENT, INC vs.

SPOUSES FRANCISCO

G.R. No. 177113 October 2, 2009

Facts: Respondent-spouses Francisco Segismundo and Emilia Buenaventura, represented by

Ricardo Segismundo, filed before the Housing and Land Use Regulatory Board (HLRUB) a
Complaint against petitioner Sta. Lucia Realty & Development, Inc. for Specific Performance,
Damages and Attorney‘s Fees. Respondents alleged that they bought a lot known as Lot 3, Block
4, Phase II at Greenwood Executive Village, Cainta, Rizal from Loida Gonzales Alfonso; that the
said lot is part of a subdivision project owned and being developed by petitioner; that in the
course of the construction of their house, respondents discovered that their lot had been
subdivided and occupied by Marilou Panlaque and Ma. Veronica Banez; and that like
respondents, the two occupants were also issued a construction permit by petitioner. Respondents
thus demanded from petitioner the rightful possession of their lot; but to no avail. In its Answer,
petitioner averred that respondents had no cause of action against it because it has no transaction
record regarding Lot 3, Block 4, Phase II; that the said lot actually belonged to ACL
Development Corporation, its joint-venture partner; that it was RCD Realty Corporation which
caused the subdivision of the lot and constructed separate residential buildings thereon; that RCD
Realty Corporation‘s lot was actually Lot 3,Block 4, Phase II-A; and that respondents, in bad
faith and in a retaliatory manner, erected their own house on Lot 4 which belonged to a different
owner. Petitioner suggested that to remedy the situation, respondents, RCD Realty Corporation,
and the real owner of Lot 4, should agree to a three-way exchange of their respective properties
as it has been verified that the areas of their lots are the same. On September 1, 1997, petitioner
filed a third-party complaint against ACL Development Corporation and RCD Realty
Corporation. Petitioner prayed that in the event that it be adjudged liable for any of the claims of
respondents, ACL Development Corporation and RCD Realty Corporation should be held jointly
and severally liable for said claims or an amount equivalent thereto. ACL Development
Corporation alleged that petitioner was responsible for the issuance of all construction permits on
the subdivision project; hence, it was the one that caused the confusion among all parties. On the
other hand, RCD Realty Corporation alleged that it was a builder in good faith. On June 16,
1998, the HLURB‘s Arbiter for the National Capital Region Field Office issued a Decision
directing respondent Sta. Lucia Realty and Development Corporation, Inc. to cause to be vacated
complainant‘s lot denominated as Lot No. 3, Block No. 4, Phase II,Greenwood Executive
Village, Cainta, Rizal; and In the alternative, the aforesaid respondent is ordered to reimburse the
complainant the current market value of the subdivision lot which shall in no case be less than
P4,500.00 per square meter, the prevailing price in the area. On June 24, 1999, the HLURB
Board of Commissioners affirmed the Decision of the HLURB Arbiter with modification that the
market value of the subject lot, stated in paragraph 2 of the dispositive portion, be reduced from
P4,500.00 to P3,200.00 per square meter, plus 12% interest per annum from the time of the filing
of the complaint. On July 18, 2003, the Office of the President issued a Decision affirming the
June 24, 1999 Decision of the HLURB Board of Commissioners.

Subsequently, it issued a Resolution dated November 28, 2003 denying petitioner‘s Motion for
Reconsideration. On December 21, 2006, the Court of Appeals affirmed the Decision of the
Office of the President.
The appellate court found that it was petitioner who caused the confusion in the identity of the
lots by its issuance of a construction permit to RCD Realty Corporation; that petitioner was
remiss and negligent in complying with its obligations towards its buyers, their heirs, assignees,
and/or successors-in-interest when it failed to deliver the property described in respondents‘ title.

Issue: Whether or not the CA erred in affirming that the petitioner is liable in a complaint for
specific performance.

Ruling: The Supreme Court held that the petition was without merit. Article 1311 of the New
Civil Code states that, contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. In this case, the rights and obligations
between petitioner and Alfonso are transmissible. There was no mention of a contractual
stipulation or provision of law that makes the rights and obligations under the original sales
contract for Lot 3, Block 4, Phase II intransmissible. Hence, Alfonso can transfer her ownership
over the said lot to respondents and petitioner is bound to honor its corresponding obligations to
the transferee or new lot owner in its subdivision project. Having transferred all rights and
obligations over Lot 3, Block 4, Phase II to respondents, Alfonso could no longer be considered
as an indispensable party. Contrary to petitioner‘s claim, Alfonso no longer has an interest on the
subject matter or the present controversy, having already sold her rights and interests on Lot 3,
Block 4, Phase II to herein respondents. We agree with the appellate court‘s finding that
petitioner was remiss and negligent in the performance of its obligations towards its buyers, their
heirs, assignees, and/or successors-in-interest; and that it was petitioner‘s negligence which
caused the confusion on the identity of the lot, which likewise resulted to the erroneous
construction done by RCD Realty Corporation. Petitioner cannot pass the blame to RCD Realty
Corporation because it is undisputed that it issued a construction permit for Lot 3, Block 4, Phase
II – the property of respondents. For its gross negligence which resulted to the erroneous
construction on Lot 3, Block 4, Phase II and caused respondents undue damage and prejudice,
petitioner is rightfully adjudged by the HLURB Arbiter liable for P100,000.00 moral damages,
P50,0000.00 exemplary damages, and P50,000.00 attorney‘s fees. We agree with the ruling of
the HLURB Arbiter that it will be more equitable and practicable to rescind the obligation of
petitioner to deliver possession of Lot 3, Block 4, Phase II to respondents; and in exchange, pay
the value of the lot by way of reimbursement in accordance with the price modification stated by
the HLURB Board of Commissioners. Moreover, this ruling comes within the purview of
respondents‘ final prayer for other reliefs, just or equitable under the premises and they are
evidently in accord with such outcome as they did not appeal the case or insist on claiming back
their lot. However, we find that the applicable interest rate for the amount to be reimbursed to
respondents is 6% per annum, reckoned from the time of the filing of the complaint, because the
case at bar involves a breach of obligation and not a loan or forbearance of money.
 JOSEPH CHAN v. BONIFACIO S. MACEDA, JR.,

G.R. No. 142591 April 30, 2003

Facts: Bonifacio Maceda, Jr. obtained a P7.3M loan from the Development Bank of the
Philippines for the construction of his hotel project. Thereafter, Maceda entered into a building
construction contract with Moreman Builders Co., Inc. Maceda purchased various construction
materials and equipment. Moreman, in turn, deposited them in the warehouse of Wilson and Lily
Chan. The deposit was free of charge. Unfortunately, Moreman failed to finish the construction
of the hotel at the stipulated time. Hence, Maceda filed with the CFI an action for rescission and
damages against Moreman.The CFI rescinded the contract between Moreman and Maceda. It
awarded Maceda P445K as damages, P20K representing the increase in construction materials,
and P35K as attorney‗s fees. Moreman interposed an appeal, which the CA dismissed. It
elevated the case to the SC via a petition for review on certiorari. The SC denied the petition.

Meanwhile, during the pendency of the case, Maceda ordered Wilson and Lily Chan to return to
him the construction materials and equipment. However, they told him that Moreman had
withdrawn those construction materials. Hence, Maceda filed with the RTC an action for
damages with an application for a writ of preliminary attachment against the Chans.

Issue: Whether or not Maceda has the right to demand the release of the said materials and
equipment or claim for damages.

Ruling: Under Art. 1311 of the Civil Code, contracts are binding upon the parties and their
assigns and heirs who execute them. When there is no privity of contract, there is likewise no
obligation or liability to speak about and, thus, no cause of action arises.

Specifically, in an action against the depositary, the burden is on the plaintiff to prove the
bailment or deposit and the performance of conditions precedent to the right of action. A
depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the
person who may have been designated in the contract.

In the present case, the record is bereft of any contract of deposit, oral or written, between the
Chans and Maceda. If at all, it was only between the Chans and Moreman. Granting arguendo
that there was indeed a contract of deposit between the Chans and Moreman, it is still incumbent
upon Maceda to prove its existence and that it was executed in his favor. However, Maceda
miserably failed to do so. The only pieces of evidence he presented to prove the contract of
deposit were the delivery receipts. Significantly, they are unsigned and not duly received or
authenticated by Moreman, the Chans, Maceda himself, or any of their authorized
representatives. Hence, those delivery receipts have no probative value at all. Moreover, Maceda
failed to prove that there were construction materials and equipment in the Chans' warehouse at
the time he made a demand for their return.

The SC held that the Chans have no corresponding obligation or liability to Maceda with respect
to those construction materials.
 Stipulations Pour
Autrui

TIMOTEO BALUYOT v.COURT OF APPEALS

G.R. No. 122947 July 22, 1999

Facts: Petitioners are residents of Barangay Cruz-na-Ligas. Diliman, Quezon City. The Cruz-na-
Ligas Homesite Association, Inc. is a non-stock corporation of which petitioners and other
residents of Barangay Cruz-na-Ligas are members. Petitioners filed a complaint for specific
performance and damages against private respondent University of the Philippines before the
RTC of Quezon City.

After several negotiations with the residents, the area was increased to 15.8 hectares, however,
defendant UP backed out from the arrangement to donate directly to the plaintiff Association for
the benefit of the qualified residents and high-handedly resumed to negotiate the donation thru
the defendant Quezon City Government under the terms disadvantageous or contrary to the
rights of the bona fide residents of the Barrio. Defendant UP took exception to the aforesaid
Order lifting the Order of Injunction and insisted on the dismissal of the case; that plaintiff
manifested its willingness to the dismissal of the case, provided, that the area to be donated thru
the defendant Quezon City government be subdivided into lots to be given to the qualified
residents together with the certificate of titles, without cost.

UP failed to deliver the certificate of title covering the property to be donated thus the defendant
Quezon City Government was not able to register the ownership so that the defendant Quezon
City Government can legally and fully comply with their obligations under the said deed of
donation.

Issue: Whether or not defendant UP could execute another deed of donation in favor of third
person.

Ruling: The Court found all the elements of a cause of action contained in the amended
complaint of petitioners. While, admittedly, petitioners were not parties to the deed of donation,
they anchor their right to seek its enforcement upon their allegation that they are intended
beneficiaries of the donation to the Quezon City government.

Art. 1311 of the Civil Code provides: If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient.
The contracting parties must have clearly and deliberately conferred a favor upon a third person.

Under this provision of the Civil Code, the following requisites must be present in order to have
a stipulation pour autrui:(1) there must be a stipulation in favor of a third person; (2) the
stipulation must be a part, not the whole of the contract;(3) the contracting parties must have
clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or
interest; (4) the third person must have communicated his acceptance to the obligor before its
revocation; and (5) neither of the contracting parties bears the legal representation or
authorization of the third party.
 Contracts Creating Real Rights

SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO vs.

SPOUSES RENATO CUYCO and FILIPINA CUYCO

G.R. No. 168736 April 19, 2006

Facts: Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of
P1,500,000.00 from respondents, spouses Renato and Filipina Cuyco, payable within one year at
18% interest per annum, and secured by a Real Estate Mortgage over a parcel of land with
improvements thereon situated in Cubao, Quezon City covered by TCT No. RT-43723 (188321).

Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount
of P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00
on July 1, 1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992;
and (5) P250,000.00 on January 13, 1993.

Petitioners made payments amounting to P291,700.00, but failed to settle their outstanding loan
obligations. Thus, on September 10, 1997, respondents filed a complaint for foreclosure of
mortgage with the RTC of Quezon City. They alleged that petitioners‘ loans were secured by the
real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14,
inclusive of the 18% interest compounded monthly; and that petitioners‘ refusal to settle the
same entitles the respondents to foreclose the real estate mortgage. On January 27, 1999, the
RTC rendered judgment in favor of the respondents. Petitioners appealed to the CA. On
November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar
as the amount of the loan obligations secured by the real estate mortgage.

Hence, the instant petition for review.

Issue: Whether or not petitioners must pay respondents legal interest of 12% per annum on the
stipulated interest of 18% per annum, computed from the filing of the complaint until full paid.
Ruling: While a contract is the law between the parties, it is also settled that an existing law
enters into and forms part of a valid contract without the need for the parties expressly making
reference to it.

In the case at bar, the evidence shows that petitioners obtained several loans from the respondent,
some of which was held by the CA were secured by real estate mortgage and earned an interest
of 18% per annum. Applying the rules in the computation of interest, the principal amount of
loans subject of the real estate mortgage must earn the stipulated interest of 18% per annum,
which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the
date of the filing of the complaint on September 10, 1997 until finality of the Court‘s Decision.
Such interest is not due to stipulation but due to the mandate of the law as embodied in Article
2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of
12% per annum until satisfied.

As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract.
However, the amounts named as consideration in a contract of mortgage do not limit the amount
for which the mortgage may stand as security if from the four corners of the instrument the intent
to secure future and other indebtedness can be gathered.
This stipulation is valid and binding between the parties and is known in American Jurisprudence
as the "blanket mortgage clause," also known as a "dragnet clause." A "dragnet clause" operates
as a convenience and accommodation to the borrowers as it makes available additional funds
without their having to execute additional security documents, thereby saving time, travel, loan
closing costs, costs of extra legal services, recording fees, etc.

In order to constitute a legal mortgage, it must be executed in a public document, besides being
recorded.

What the parties could have done in order to bind the realty for the additional loans was to
execute a new real estate mortgage or to amend the old mortgage conformably with the form
prescribed by the law. Failing to do so, the realty cannot be bound by such additional loans,
which may be recovered by the respondents in an ordinary action for collection of sums of
money.
 Tortious Interference

ALLAN C. GO

vs.

MORTIMER F. CORDERO

Facts: Sometime in 1996, Mortimer F. Cordero, Vice-President of Pamana Marketing

Corporation (Pamana), ventured into the business of marketing inter-island passenger vessels.
After contacting various overseas fast ferry manufacturers from all over the world, he came to
meet Tony Robinson, an Australian national based in Brisbane, Australia, who is the Managing
Director of Aluminium Fast Ferries Australia (AFFA).

Between June and August 1997, Robinson signed documents appointing Cordero as the
exclusive distributor of AFFA catamaran and other fast ferry vessels in the Philippines. As such
exclusive distributor, Cordero offered for sale to prospective buyers the 25-meter Aluminium
Passenger catamaran known as the SEACAT 25.

After negotiations with Felipe Landicho and Vincent Tecson, lawyers of Allan C. Go who is the
owner/operator of ACG Express Liner of Cebu City, a single proprietorship, Cordero was able to
close a deal for the purchase of two (2) SEACAT 25 as evidenced by the Memorandum of
Agreement dated August 7, 1997. Accordingly, the parties executed Shipbuilding Contract No.
7825 for one (1) high-speed catamaran (SEACAT 25) for the price of US$1,465,512.00. Per
agreement between Robinson and Cordero, the latter shall receive commissions totaling
US$328,742.00, or 22.43% of the purchase price, from the sale of each vessel.

Cordero made two (2) trips to the AFFA Shipyard in Brisbane, Australia, and on one (1) occasion
even accompanied Go and his family and Landicho, to monitor the progress of the building of
the vessel. He shouldered all the expenses for airfare, food, hotel accommodations, transportation
and entertainment during these trips. He also spent for long distance telephone calls to
communicate regularly with Robinson, Go, Tecson and Landicho.
However, Cordero later discovered that Go was dealing directly with Robinson when he was
informed by Dennis Padua of Wartsila Philippines that Go was canvassing for a second
catamaran engine from their company which provided the ship engine for the first SEACAT 25.
Cordero immediately flew to Brisbane to clarify matters with Robinson, only to find out that Go
and Landicho were already there in Brisbane negotiating for the sale of the second SEACAT 25.
Despite repeated follow-up calls, no explanation was given by Robinson, Go, Landicho and
Tecson who even made Cordero believe there would be no further sale between AFFA and ACG
Express Liner.

In a handwritten letter dated June 24, 1998, Cordero informed Go that such act of dealing
directly with Robinson violated his exclusive distributorship and demanded that they respect the
same, without prejudice to legal action against him and Robinson should they fail to heed the
same.

On August 21, 1998, Cordero instituted Civil Case No. 98-35332 seeking to hold Robinson, Go,
Tecson and Landicho liable jointly and solidarily for conniving and conspiring together in
violating his exclusive distributorship in bad faith and wanton disregard of his rights, thus
depriving him of his due commissions (balance of unpaid commission from the sale of the first
vessel in the amount of US$31,522.01 and unpaid commission for the sale of the second vessel
in the amount of US$328,742.00) and causing him actual, moral and exemplary damages,
including P800,000.00 representing expenses for airplane travel to Australia, telecommunications
bills and entertainment, on account of AFFAs untimely cancellation of the exclusive
distributorship agreement. Cordero also prayed for the award of moral and exemplary damages,
as well as attorney‘s fees and litigation expenses.

Issue: Whether or not the respondents may be held liable for damages to Cordero for his unpaid
commissions and termination of his exclusive distributorship appointment by the principal,
AFFA.

Ruling: Article 1314 of the Civil Code provides: Any third person who induces another to
violate his contract shall be liable for damages to the other contracting party.The elements of tort
interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of
the existence of a contract; and (3) interference of the third person is without legal justification.

The presence of the first and second elements is not disputed. Through the letters issued by
Robinson attesting that Cordero is the exclusive distributor of AFFA in the Philippines,
respondents were clearly aware of the contract between Cordero and AFFA represented by
Robinson. In fact, evidence on record showed that respondents initially dealt with and
recognized Cordero as such exclusive dealer of AFFA high-speed catamaran vessels in the
Philippines. In that capacity as exclusive distributor, petitioner Go entered into the Memorandum
of Agreement and Shipbuilding Contract No. 7825 with Cordero in behalf of AFFA.

The act of Go, Landicho and Tecson in inducing Robinson and AFFA to enter into another
contract directly with ACG Express Liner to obtain a lower price for the second vessel resulted
in AFFAs breach of its contractual obligation to pay in full the commission due to Cordero and
unceremonious termination of Cordero's appointment as exclusive distributor. The attendant
circumstances, however, demonstrated that respondents transgressed the bounds of permissible
financial interest to benefit themselves at the expense of Cordero. Respondents furtively went
directly to Robinson after Cordero had worked hard to close the deal for them to purchase from
AFFA two(2) SEACAT 25, closely monitored the progress of building the first vessel sold,
attended to their concerns and spent no measly sum for the trip to Australia with Go, Landicho
and Go's family members. But what is appalling is the fact that even as Go, Landicho and
Tecson secretly negotiated with Robinson for the purchase of a second vessel, Landicho and
Tecson continued to demand and receive from Cordero their commission or cut from Cordero's
earned commission from the sale of the first SEACAT 25.

Thus, the trial and appellate courts correctly ruled that the actuations of Go, Robinson, Tecson
and Landicho were without legal justification and intended solely to prejudice Cordero.

The existence of malice, ill will or bad faith is a factual matter. As a rule, findings of fact of the
trial court, when affirmed by the appellate court, are conclusive on this Court. We see no
compelling reason to reverse the findings of the RTC and the CA that respondents acted in bad
faith and in utter disregard of the rights of Cordero under the exclusive distributorship
agreement.
The failure of Robinson, Go, Tecson and Landico to act with fairness, honesty and good faith in
securing better terms for the purchase of high-speed catamarans from AFFA, to the prejudice of
Cordero as the duly appointed exclusive distributor, is further proscribed by Article 19 of the
Civil Code that every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.

Petitioner Go's argument that he, Landicho and Tecson cannot be held liable solidarily with
Robinson for actual, moral and exemplary damages, as well as attorneys fees awarded to Cordero
since no law or contract provided for solidary obligation in these cases, is equally bereft of merit.
Conformably with Article 2194 of the Civil Code, the responsibility of two or more persons who
are liable for the quasi-delict is solidary.

The rule is that the defendant found guilty of interference with contractual relations cannot be
held liable for more than the amount for which the party who was inducted to break the contract
can be held liable. Respondents Go, Landicho and Tecson were therefore correctly held liable
for the balance of petitioner Cordero's commission from the sale of the first SEACAT 25, in the
amount of US$31,522.09 or its peso equivalent, which AFFA/Robinson did not pay in violation
of the exclusive distributorship agreement, with interest at the rate of 6% per annum from June
24, 1998 until the same is fully paid.

Respondents having acted in bad faith, moral damages may be recovered under Article 2219 of
the Civil Code. On the other hand, the requirements of an award of exemplary damages are: (1)
they may be imposed by way of example in addition to compensatory damages, and only after
the claimants right to them has been established; (2) that they cannot be recovered as a matter of
right, their determination depending upon the amount of compensatory damages that may be
awarded to the claimant; and (3) the act must be accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner. The award of exemplary damages is thus in order.
However, we find the sums awarded by the trial court as moral and exemplary damages as
reduced by the CA, still excessive under the circumstances.

We believe that the amounts of P300,000.00 and P200,000.00 as moral and exemplary damages,
respectively, would be sufficient and reasonable. Because exemplary damages are awarded,
attorney's fees may also be awarded in consonance with Article 2208. We affirm the appellate
court's award of attorneys fees in the amount of P50,000.00.
 SO PING BUN vs. COURT OF APPEALS

G.R. No. 120554 September 21, 1999

Facts: In 1963, Tek Hua Trading Co., through its managing partner, So Pek Giok, entered into
lease agreements with lessor Dee C. Chuan and Sons Inc (DCCSI). Subjects of four (4) lease
contracts were premises located at Nos. 930, 930- Int., 924-B and 924-C, Soler Street, Binondo,
Manila. Tek Hua used the areas to store its textiles. The contracts each had a one year term. They
provided that should the lessee continue to occupy the premises after the term, the lease shall be
on a month to month basis. When the contracts expired, the parties did not renew the contracts,
but Tek Hua continued to occupy the premises in 1976 Tek Hua Trading Corp. was dissolved.
Later, the original members of Tek Hua Trading Co., including Manuel C.Tiong, formed Tek Hua
Enterprising Corp., herein respondent corporation. So Pek Giok, managing partner of Tek Hua
Trading, died in 1986. So Pek Giok‗s grandson, petitioner So Ping Bun, occupied the warehouse
for his own textile business, Trendsetter Marketing. On August 1, 1989, lessor DCCSI sent letters
addressed to Tek Hua enterprises, informing the latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later on reduced to 20% effective January 1, 1990,
upon other lessees' demand. Again on December 1, 1990, the lessor implemented a 30% rent
increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that
failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the
lessee‗s part, and agreement to the termination of the lese. Private respondents did not answer
any of these letters. Still, the lease contracts were not rescinded. On March 1, 1991, private
respondent Tiong sent a letter to petitioner asking Mr. So Ping Bun to vacate the premise because
he used a warehouse. Petitioner refused to vacate. On March 4, 1992, petitioner requested formal
contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the
death of his grandfather, So Pek Giok, he had been occupying the premises for his textile
business and religiously paid rent. DCCSI acceded to petitioner‗s request. The lease contracts in
favor of Trendsetter were executed.

Issue: Whether the appellate court erred in affirming the trial court‗s decision finding So
Ping Bun guilty of tortuous interference of contact.

Ruling: In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease
the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took
interest in the property of respondent corporation and benefited from it, nothing on record
imputes deliberate wrongful motives or malice on him. A duty which the law of torts is
concerned with is respect for the property of others, and cause of action ex delicto may be
predicated upon an unlawful interference by one person of the enjoyment by the other of his
private property. This may pertain to a situation where a third person induces a party to renege on
or violate his undertaking under a contract.

In the case before us, petitioner‗s Trendsetter Marketing asked DCCSI to execute lease contracts
in its favor, and as a result petitioner deprived respondent corporation of the latter‗s property
right. Clearly, and as correctly viewed by the appellate court, the three elements of tort
interference above mentioned are present in the instant case.

Authorities debate on whether interference may be justified where the defendant acts for the sole
purpose of furthering his own financial or economic interest. One view is that, as a general rule,
justification for interfering with the business relations of another exist where the actor‗s motive
is to benefit himself. Such justification does not exist where his sole motive is to cause harm to
the other. Added to this, some authorities believe that it is not necessary that the interferer‗s
interest outweigh that of the party whose rights are invaded, and that an individual acts under an
economic interest that is substantial, not merely de minimis for he acts in self-protection.
Moreover, justification for protecting ones financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that of others. It is sufficient if the
impetus of his conduct lies in a proper business interest rather than in wrongful motives. As early
as Gilchrist vs. Cuddy we held that where there was no malice in the interference of a contract,
and the impulse behind one‗s conduct lies in a proper business interest rather than in wrongful
motives, a party cannot be a malicious interferer. Where the alleged interferer is financially
interested and such interest motivates his conduct it cannot be said that he is an officious or
malicious intermeddler.
 Stages in the Execution of a Contract

INTERNATIONAL FREEPORT TRADERS vs.

DANZAS INTERCONTINENTAL

G.R. No. 181833 January 26, 2011

Facts: International Freeport Traders, Inc. (IFTI) ordered a shipment of Toblerone chocolates
and assorted confectioneries from Jacobs Suchard Tobler Ltd. of Switzerland through its
Philippine agent, Colombo Merchants Phils., Inc., under the delivery term "F.O.B. ExWorks." To
ship the goods, Jacobs dealt with Danmar Lines of Switzerland which issued to Jacobs
negotiable house bills of lading signed by its agent, Danzas Intercontinental, Inc.

The bills of lading stated that the terms were "F.O.B." and "freight payable at destination," with
Jacobs as the shipper, China Banking Corporation as the consignee, and IFTI as the party to be
notified of the shipment. The shipment was to be delivered at the Clark Special Economic Zone
with Manila as the port of discharge. The goods were also covered by Letters of Credit MK-
97/0467 and MK-97/0468 under a "freight collect" arrangement. Since Danmar did not have its
own vessel, it contracted Orient Overseas Container Line (OOCL) to ship the goods from
Switzerland. OOCL issued a non-negotiable master bill of lading, stating that the freight was
prepaid with Danmar as the shipper and Danzas as the consignee and party to be notified. The
shipment was to be delivered at Angeles City in Pampanga. Danmar paid OOCL an arbitrary fee
of US$425.00 to process the release of the goods from the port and ship the same to Clark in
Angeles City. The fee was to cover brokerage, trucking, wharfage, arrastre, and processing
expenses.

The goods were loaded on board the OOCL vessel on April 20, 1997 and arrived at the port of
Manila on May 14, 1997. Upon learning from Danmar that the goods had been shipped, Danzas
immediately informed IFTI of its arrival. IFTI prepared the import permit needed for the clearing
and release of the goods from the Bureau of Customs and advised Danzas on May 20, 1997 to
pick up the document. Danzas got the import permit on May 26, 1997. At the same time, it asked
IFTI to surrender the original bills of lading to secure the release of the goods, and submit a bank
guarantee inasmuch as the shipment was consigned to China Banking Corporation to assure
Danzas that it will be compensated for freight and other charges. But IFTI did not provide
Danzas a bank guarantee, claiming that letters of credit already covered the shipment. IFTI
insisted that Danzas should already endorse the import permit and bills of lading to OOCL since
the latter had been paid an arbitrary fee. But Danzas did not do this. Because IFTI did not
provide Danzas with the original bills of lading and the bank guarantee, the latter withheld the
processing of the release of the goods. Danzas reiterated to IFTI that it could secure the release
of the goods only if IFTI submitted a bank guarantee.Ultimately, IFTI yielded to the request and
applied for a bank guarantee which was approved on May 23, 1997. It claimed to have advised
Danzas on even date of its availability for pick up but Danzas secured it only on June 6, 1997.

On January 2, 2002, [3] the MeTC rendered a decision in favor of Danzas and ordered IFTI to
pay (1) P181,809.45 plus legal interest to be computed from March 26, 1998 until fully paid; (2)
P25,000.00 as attorney's fees; and (3) the costs of suit. On appeal, however, the Regional Trial
Court (RTC) of Parañaque City, Branch 274, dismissed the complaint. Danzas elevated the case
to the Court of Appeals (CA) which reversed the RTC decision. The CA ruled that IFTI's fax
letters dated June 10, 1997 showed the parties engaged in negotiation stage. When IFTI heeded
Danzas' request for a bank guarantee, its action brought about a perfected contract of lease of
service. The bank guarantee, procured by IFTI, contained all the requisites of a perfected
contract. The cause of the contract was the release of the goods from the port and its delivery at
Clark; the consideration was the compensation for the release and delivery of the goods to IFTI.

Issues:
1. Whether or not a contract of lease of service exists between IFTI and Danzas.

2. Whether or not IFTI is liable to Danzas for the costs of the delay in the release of the goods
from the port.

Ruling: The facts show the existence of several contracts: one between IFTI and Jacobs, another
between Jacobs and Danmar, and still another between Danmar and OOCL. IFTI bought
chocolates and confectioneries from Jacobs; Jacobs got Danmar to deliver the goods to its
destination; Danmar got OOCL to carry the goods for it by ship to Manila.

For this purpose, Danmar paid OOCL an arbitrary fee to process the release of the goods from
the port of Manila and deliver the same to Clark. In all these transactions, Danzas acted as an
agent of Danmar who signed the house bills of lading in favor of Jacobs. What is clear to the
Court is that, by acceding to all the documentary requirements that Danzas imposed on it, IFTI
voluntarily accepted its services. The bank guarantee IFTI gave Danzas assured the latter that it
would eventually be paid all freight and other charges arising from the release and delivery of the
goods to it. Every contract has the elements of consent of the contracting parties; object certain
which is the subject matter of the contract; and cause of the obligation which is established. A
contract is perfected by mere consent, which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. There is no dispute
that under arbitrary shipments, imported goods are allowed to stay, free of charge, in the port for
three working days, and in the storage for five to six calendar days. Beyond this period, storage
fees, electric charges, and the demurrage are due.

Since the goods arrived at the Port of Manila on May 14, 1997, they could remain there until
May 20, 1997 free of charge. The fact that IFTI had the import permit ready by May 20, 1997
was immaterial since it had not yet given the bank guarantee required of it. The Court is not
convinced that IFTI had the bank guarantee ready as early as May 23, 1997 for, if that were the
case, surely it did not make sense for it not to hand over such document to Danzas when the
latter claimed the import permit on May 26, 1997. Since the delay in the processing of the
release of the goods was due to IFTI's fault, the CA rightly adjudged it liable for electric charges,
demurrage, and storage fees of P122,191.75 from May 20, 1997 to June 13, 1999. Hence the
Court denied the petition and affirmed the decision of CA
 ROCKLAND CONSTRUCTION COMPANY, INC. vs.

MID-PASIG LAND DEVELOPMENT CORPORATION

G.R. No. 164587 February 04, 2008

Facts: Rockland Construction Company, Inc. in a letter dated March 1, 2000, offered to lease
from Mid-Pasig Land Development Corporation the latter‗s 3.1-hectare property in Pasig City.
This property is covered by Transfer Certificate of Title Nos. 469702 and 337158 under the
control of the Presidential Commission on Good Government. Upon instruction of Mid-Pasig to
address the offer to the PCGG, Rockland wrote the PCGG on April 15, 2000. The letter,
addressed to PCGG Chairman Magdangal Elma, included Rockland's proposed terms and
conditions for the lease. This letter was also received by Mid-Pasig on April 18, 2000, but Mid-
Pasig made no response. Again, in another letter dated June 8, 2000 addressed to the Chairman
of Mid-Pasig, Mr. Ronaldo Salonga, Rockland sent a Metropolitan Bank and Trust Company
Check No. 2930050168 for P1 million as a sign of its good faith and readiness to enter into the
lease agreement under the certain terms and conditions stipulated in the letter. Mid-Pasig
received this letter on July 28, 2000. In a subsequent follow-up letter dated February 2, 2001,
Rockland then said that it presumed that Mid-Pasig had accepted its offer because the P1 million
check it issued had been credited to Mid-Pasig‗s account on December 5, 2000. Mid-Pasig,
however, denied it accepted Rockland‗s offer and claimed that no check was attached to the said
letter. It also vehemently denied receiving the P1 million check, much less depositing it in its
account. In its letter dated February 6, 2001, Mid-Pasig replied to Rockland that it was only upon
receipt of the latter‗s February 2 letter that the former came to know where the check came from
and what it was for. Nevertheless, it categorically informed Rockland that it could not entertain
the latter‗s lease application. Mid-Pasig reiterated its refusal of Rockland‗s offer in a letter dated
February 13, 2001. Rockland then filed an action for specific performance. Rockland sought to
compel Mid-Pasig to execute in Rockland‗s favor, a contract of lease over a 3.1-hectare portion
of Mid-Pasig‗s property in Pasig City.

Issues:
1. Whether or not there a perfected contract of lease.
2. Whether or not estoppel in pais had set in.
Ruling:

1. A close review of the events in this case, in the light of the parties‗ evidence, shows that there
was no perfected contract of lease between the parties. Mid-Pasig was not aware that Rockland
deposited the P1 million check in its account. It only learned of Rockland‗s check when it
received Rockland‗s February 2, 2001 letter. Mid-Pasig, upon investigation, also learned that the
check was deposited at the Philippine National Bank San Juan Branch, instead of PNB Ortigas
Branch where Mid-Pasig maintains its account. Immediately, Mid-Pasig wrote Rockland on
February 6, 2001 rejecting the offer, and proposed that Rockland apply the P1 million to its other
existing lease instead. These circumstances clearly show that there was no concurrence of
Rockland‗s offer and Mid-Pasig‗s acceptance.

2. Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the grounds of
public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against
his own act, representations, or commitments to the injury of one to whom they were directed
and who reasonably relied thereon. Since estoppel is based on equity and justice, it is essential
that before a person can be barred from asserting a fact contrary to his act or conduct, it must be
shown that such act or conduct has been intended and would unjustly cause harm to those who
are misled if the principle were not applied against him.
 Consummation/Termination

METROPOLITAN MANILA DEVELOPMENTAUTHORITY,

vs.

JANCOM ENVIRONMENTAL CORPORATION

G.R. No. 147465 January 30, 2002

Facts: After bidding for a waste management project with the MMDA, Jancom won a contract
for the MMDA‘s San Mateo waste management project. A BOT contract for the waste to energy
project was signed on Dec 19, 1997, between Jancom and the Philippine Government,
represented by the Presidential Task Force on Solid Waste Management through DENR
Secretary Victor Ramos, CORD-NCR chair Dionisio dela Serna, and MMDA chair Prospero
Oreta.The contract, however, was never signed by President Ramos as it was too close to the end
of his term. He endorsed it to President Estrada, but Estrada refused to sign it, for two reasons:
the passage of RA 8749, or the Clean Air Act of 1999 and the clamor of San Mateo residents for
the closure of the dumpsite.

When the MMDA published another call for proposals for solid waste management projects for
Metro Manila, Jancom filed a petition with the Pasig RTC asking the court to declare as void the
resolution of the Greater Metropolitan Manila Solid Waste Management Committee disregarding
the BOT contract with Jancom, and the call for bids for a new waste management contract.

On May 29, 2000, the lower court decided in favor of Jancom. Instead of appealing, the MMDA
filed with the Court of Appeals a petition for certiorari and a TRO. When the CA dismissed the
petition, the MMDA went to the Supreme Court, arguing that the contract with Jancom was not
binding because it was not signed by the President, the conditions precedent to the contract were
not complied with, and there was no valid notice of award.

The Supreme Court ruled that MMDA should have filed a motion for appeal instead of for
certiorari, because a certiorari would only apply in cases where there was grave abuse of
jurisdiction, something which the petition did not allege. Correction may be obtained only by an
appeal from the final decision. Since the decision was not appeal, the Court said it has become
final and ―gone beyond the reach of any court to modify in any substantive aspect.‖

Though saying it was unnecessary to discuss the substantive issues, the court took it up just the
same, ―if only to put the petitioner‘s mind to rest.‖The contract with Jancom is valid: citing
Article 1305, 1315 and 1319 of the Civil Code. In asserting that there was no valid and binding
contract, MMDA can only allege that there was no valid notice of award; the contract does not
bear the signature of the President; the conditions precedent specified in the contract were not
complied with.But the Court said that the lack of notice was the government‘s fault; though
thePresident did not sign, his alter-ego did; and anyway his signature was only necessary for the
effectivity of the contract, not its perfection; and that the two-month period within which Jancom
should comply with the conditions had not yet started to run because the contract had not yet
taken effect, precisely because of the absence of the President‘s signature.

Issue: Whether or not a valid contract is existing between herein petitioner and respondent.

Ruling: Under Article 1305 of the Civil Code, a contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render
some service. A contract undergoes three distinct stages: preparation or negotiation, its
perfection, and finally, its consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of agreement of
the parties. The perfection or birth of the contract takes place when the parties agree upon the
essential elements of the contract. The last stage is the consummation of the contract wherein the
parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof. Article 1315 of the Civil Code, provides that a contract is perfected by
mere consent. Consent, on the other hand, is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. In the case at bar,
the signing and execution of the contract by the parties clearly show that, as between the parties,
there was a concurrence of offer and acceptance with respect to the material details of the
contract, thereby giving rise to the perfection of the contract. The execution and signing of the
contract is not disputed by the parties. As the Court of Appeals aptly held:
Contrary to petitioners‗ insistence that there was no perfected contract, the meeting of the offer
and acceptance upon the thing and the cause, which are to constitute the contract (Arts. 1315 and
1319, New Civil Code), is borne out by the records.

Admittedly, when petitioners accepted private respondents‗ bid proposal (offer), there was, in
effect, a meeting of the minds upon the object (waste management project) and the cause (BOT
scheme). Hence, the perfection of the contract. In City of Cebu vs. Heirs of Candido Rubi, the
Supreme Court held that the effect of an unqualified acceptance of the offer or proposal of the
bidder is to perfect a contract, upon notice of the award to the bidder. In fact, in asserting that
there is no valid and binding contract between the parties, MMDA can only allege that there was
no valid notice of award; that the contract does not bear the signature of the President of the
Philippines; and that the conditions precedent specified in the contract were not complied with.

In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA points
to the Implementing Rules and Regulations of Republic Act No. 6957, otherwise known as the
BOT Law, which require that is prior to the notice of award, an Investment Coordinating
Committee clearance must first be obtained; and ii) the notice of award indicate the time within
which the awardee shall submit the prescribed performance security, proof of commitment of
equity contributions and indications of financing resources.

Admittedly, the notice of award has not complied with these requirements. However, the defect
was cured by the subsequent execution of the contract entered into and signed by authorized
representatives of the parties; hence, it may not be gainsaid that there is a perfected contract
existing between the parties giving to them certain rights and obligations (conditions precedents)
in accordance with the terms and conditions thereof. We borrow the words of the Court of
Appeals:

Petitioners belabor the point that there was no valid notice of award as to constitute acceptance
of private respondent‗s offer. They maintain that former MMDA Chairman Oreta‗s letter to
JANCOM EC dated February 27, 1997 cannot be considered as a valid notice of award as it does
not comply with the rules implementing Rep. Act No. 6957, as amended. The argument is
untenable.
 Essential Requisites of Contracts: Offer and Acceptance

KOREAN AIR CO., LTD. and SUK KYOO KIM v. ADELINA A.S. YUSON

G.R. No. 170369 June 16, 2010

Facts: In July 1975, Korean Air Co., Ltd. (Korean Air) hired Yuson as reservations agent.
Korean Air had an International Passenger Manual (IPM), which contained, among others, travel
benefit to its employees. Yuson availed of the travel benefit under the CBA during her stay in the
company. In order to cut costs, Korean Air offered its employees an early retirement program
(ERP). Suk informed Yuson that she was excluded from the ERP because she was retiring on 8
January 2002. Yuson claimed that Korean Air was bound by the perfected contract and accused
the company of harassment and discrimination. Yuson filed with the arbitration branch of the
NLRC a complaint against Korean Air and Suk for payment of benefit under the ERP, moral
damages, exemplary damages, and attorney‘s fees.

Issue: Whether or not the offer is certain.

Ruling: No. Offer is a unilateral proposition made by one party to another for the celebration of
a contract. For an offer to be certain, a contract must come into existence by the mere acceptance
of the offeree without any further act on the offeror‘s part. The offer must be definite, complete
and intentional. In the present case, the offer is not certain: (1) the 21 August 2001 memorandum
clearly states that, MNLSM Management, on its discretion, is hereby offering the said early
retirement program to its staff; (2) applications for the ERP were forwarded to the head office for
approval, and further acts on the offerors part were necessary before the contract could come into
existence; and (3) the 21 August 2001 memorandum clearly states Korean Air‘s intention, which
was, to prevent further losses. Korean Air could not have intended to ministerially approve all
applications for the ERP.
 ROCKLAND CONSTRUCTION COMPANY INC vs.

MID-PASIG LAND DEVELOPMENT CORPORATION

G.R. No. 164587 February 04, 2008

Facts: Rockland Construction Company, Inc. in a letter dated March 1, 2000, offered to lease
from Mid-Pasig Land Development Corporation the latter‗s 3.1-hectare property in Pasig City.
This property is covered by Transfer Certificate of Title Nos. 469702 and 337158 under the
control of the Presidential Commission on Good Government. Upon instruction of Mid-Pasig to
address the offer to the PCGG, Rockland wrote the PCGG on April 15, 2000. The letter,
addressed to PCGG Chairman Magdangal Elma, included

Rockland‗ proposed terms and conditions for the lease. This letter was also received by

Mid-Pasig on April 18, 2000, but Mid-Pasig made no response. Again, in another letter dated
June 8, 2000 addressed to the Chairman of Mid-Pasig, Mr. Ronaldo Salonga, Rockland sent a
Metropolitan Bank and Trust Company Check No. 2930050168 for P1 million as a sign of its
good faith and readiness to enter into the lease agreement under the certain terms and conditions
stipulated in the letter. Mid-Pasig received this letter on July 28, 2000. In a subsequent follow-up
letter dated February 2, 2001, Rockland then said that it presumed that Mid-Pasig had accepted
its offer because the P1 million check it issued had been credited to Mid-Pasig‗s account on
December 5, 2000. Mid-

Pasig, however, denied it accepted Rockland‗s offer and claimed that no check was attached to
the said letter. It also vehemently denied receiving the P1 million check, much less depositing it
in its account. In its letter dated February 6, 2001, Mid-Pasig replied to Rockland that it was only
upon receipt of the latter‗s February 2 letter that the former came to know where the check came
from and what it was for. Nevertheless, it categorically informed Rockland that it could not
entertain the latter‗s lease application. Mid-Pasig reiterated its refusal of Rockland‗s offer in a
letter dated February 13, 2001.
Rockland then filed an action for specific performance. Rockland sought to compel MidPasig to
execute in Rockland‗s favor, a contract of lease over a 3.1-hectare portion of MidPasig‗s
property in Pasig City.

Issues:
1. Was there a perfected contract of lease?
2. Had estoppel in pais set in?

Ruling:

1. A close review of the events in this case, in the light of the parties' evidence, shows that there
was no perfected contract of lease between the parties. Mid-Pasig was not aware that Rockland
deposited the P1 million check in its account. It only learned of Rockland‗s check when it
received Rockland‗s February 2, 2001 letter. Mid-Pasig, upon investigation, also learned that the
check was deposited at the Philippine National Bank San Juan Branch, instead of PNB Ortigas
Branch where Mid-Pasig maintains its account. Immediately, Mid-Pasig wrote Rockland on
February 6, 2001 rejecting the offer, and proposed that Rockland apply the P1 million to its other
existing lease instead. These circumstances clearly show that there was no concurrence of
Rockland‗s offer and Mid-Pasig‗s acceptance.

2. Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the grounds of
public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against
his own act, representations, or commitments to the injury of one to whom they were directed
and who reasonably relied thereon. Since estoppel is based on equity and justice, it is essential
that before a person can be barred from asserting a fact contrary to his act or conduct, it must be
shown that such act or conduct has been intended and would unjustly cause harm to those who
are misled if the principle were not applied against him.
 MANILA METAL CONTAINER CORPORATION

vs.

PHILIPPINE NATIONAL BANK

G.R. No. 166862 December 20, 2006

Facts: Petitioner was the owner of 8,015 square meters of parcel of land located in Mandaluyong
City, Metro Manila. To secure a P900,000.00 loan it had obtained from respondent Philippine
National Bank, petitioner executed a real estate mortgage over the lot. Respondent PNB later
granted petitioner a new credit accommodation. On August 5, 1982, respondent PNB filed a
petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property
sold at public auction. After due notice and publication, the property was sold at public action
where respondent PNB was declared the winning bidder. Petitioner sent a letter to PNB,
requesting it to be granted an extension of time to redeem/repurchase the property. Some PNB
personnel informed that as a matter of policy, the bank does not accept partial redemption. Since
petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 and
issued a new title in favor of PNB.

Meanwhile, the Special Asset Management Department (SAMD) had prepared a statement of
account of petitioner‗s obligation. It also recommended the management of

PNB to allow petitioner to repurchase the property for P1,574,560.oo. PNB rejected the offer and
recommendation of SAMD. It instead suggested to petitioner to purchase the property for
P2,660,000.00, in its minimum market value. Petitioner declared that it had already agreed to
SAMD‗s offer to purchase for P1,574,560.47 and deposited a P725,000.00.

Issue: Whether or not petitioner and respondent PNB had entered into a perfected contract for
petitioner to repurchase the property for respondent.

Ruling: The SC affirmed the ruling of the appellate court that there was no perfected contact of
sale between the parties.
A contract is meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service. Under 1818 of the Civil Code, there is no
contract unless the following requisites concur:

1. Consent of the contracting parties;

2. Objection certain which is the subject matter of the contract;
3. Cause of the obligation which is established.

Contract is perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and causes which are to constitute the contract. Once perfected, the
bind between other contracting parties and the obligations arising therefrom have the form of law
between the parties and should be complied in good faith. The absence of any essential element
will negate the existence of a perfected contract of sale.

The court ruled in Boston Bank of the Philippines v. Manalo: A definite agreement as to the price
is an essential element of a binding agreement to sell personal or real property because it
seriously affects the rights and obligations of the parties. Price is an essential element in the
formation of a binding and enforceable contract of sale. The fixing of the price can never be left
to the decision of one of the contracting parties. But a price fixed by one of the contracting
parties, if accepted by the other, gives rise to a perfected sale. In the case at bar, the parties to the
contract is between Manila Metal Container Corporation and Philippine National Bank and not
to Special Asset Management Department. Since the price offered by PNB was not accepted,
there is no contract. Hence, it cannot serve as a binding juridical relation between the parties.
 RIDO MONTECILLO vs.IGNACIA REYNES
G.R. No. 138018 July 26, 2002

Facts: Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984 a complaint for
Declaration of Nullity and Quieting of Title against petitioner Rico Montecillo. Reynes asserted
that she is the owner of a lot situated in Mabolo, Cebu City. In 1981 Reynes sold 185 square
meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they
bought. Reynes alleged further that on March 1, 1984, she signed a Deed of Sale of the Mabolo
Lot in favor of Montecillo. Reynes, being illiterate signed by affixing her thumb- mark on the
document. Montecillo promised to pay the agreed Php47,000.00 purchase price within one
month from the signing of the Deed of Sale. Reynes further alleged that Montecillo failed to pay
the purchase price after the lapse of the one-month period, prompting Reynes to demand from
Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale,
Reynes executed a document unilaterally revoking the sale and gave a copy of the document to
Montecillo. Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the
Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of
a 185 square meter portion of the lot. Reynes and the Abucay Spouses alleged that on June 18,
1984 they received information that the Register of Deeds of Cebu City issued Certificate of
Title No. 90805 in the name of Montecillo for the Mabolo Lot. Reynes and the Abucay Spouses
argued that ―for lack for consideration there was no meeting of the minds between Reynes and
Montecillo. Thus, the trial court should declare null and void ab initio Monticello‘s Deed of sale,
and order the cancellation of certificates of title No. 90805 in the name of Montecillo. In his
Answer, Montecillo a bank executive with a BS Commerce degree, claimed he was a buyer in
good faith and had actually paid the Php47,000.00 consideration stated on his Deed of Sale.
Montecillo however admitted he still owned Reynes a balance of Php10,000.00. He also alleged
that he paid Php50,000.00 for the release of the chattel mortgage which he argued constituted a
lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the
capital gains tax on the sale of the Mabolo Lot. In their reply, Reynes and the Abucay Spouses
contended that Montecillo did not have authority to discharge the chattel mortgage especially
after Reynes revoked Montecillo‘s Deed of Sale and gave the mortgagee a copy of the document
of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the
chattel mortgage through machination. They further asserted that Montecillo took advantage of
the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the
title to the Mabolo Lot in his name. During pre-trial Montecillo claimed that the consideration
for the sale of the Mabolo Lot was the amount he paid to Cebu Iced and Cold Storage
Corporation for the mortgage debt of Bienvenido Jayag. Montecillo argued that the release of the
mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. Reynes,
however stated that she had nothing to do with Jayag‘s mortgage debt except that the house
mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the
payment by Montecillo to release the mortgage on Jayag‘s house is a matter between Montecillo
andJayag. The mortgage on the house being a chattel mortgage could not be interpreted in any
way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had
long prescribed since the Php47,000.00 mortgage debt was due for payment on January 30,1967.

Issue: Whether or not there was a valid consent in the case at bar to have a valid contract.

Ruling: One of the three essential requisites of a valid contract is consent of the parties on the
object and cause of the contract. In a contract of sale, the parties must agree not only on the
price, but also on the manner of payment of the price. An agreement on the price but a
disagreement on the manner of its payment will not result in consent, thus preventing the
existence of a valid contract for a lack of consent. This lack of consent is separate and distinct for
lack of consideration where the contract states that the price has been paid when in fact it has
never been paid. Reynes expected Montecillo to pay him directly the P47, 000.00 purchase price
within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought
that his agreement with Reynes required him to pay the P47, 000.00-purchase price to Cebu Ice
Storage to settle
Jayag‘s mortgage debt. Montecillo also acknowledged a balance of P10, 000.00 in favor of
Reynes although this amount is not stated in Montecillo‘s Deed of Sale. Thus, there was no
consent or meeting of the minds, between Reynes and Montecillo on the manner of payment.
This prevented the existence of a valid contract because of lack of consent. In summary,
Montecillo‘s Deed of Sale is null and void ab initio not only for lack of consideration, but also
for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as
there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo.
 JASMIN SOLER vs.COURT OF APPEALS

Facts: Jasmin Soler is a professional interior designer. Her friend asked her to talk to Nida
Lopez, manager of COMBANK Ermita Branch, for they were planning to renovate the branch
offices. Soler was hesitant to accept the job because of her many commitments and also because
Lopez was asking that the designs be submitted by Dec. 1986, which was such a short notice.

Lopez insisted, however, because she really wanted Soler to do the design. Soler acceded to the
request. Lopez assured her that she would be compensated for her services. Soler even told
Lopez that her professional fee was P10K to which Lopez acceded.

During the Nov. 1986 meeting, there were discussions as to what was to be renovated. Lopez
again assured Soler that the bank would pay her fees. After a few days, Soler requested for the
blueprint of the building so that the proper design, plans, and specifications could be given to
Lopez in time for the board meeting in Dec. 1986.

Soler asked her draftsman to go to the jobsite to make the proper measurements using the
blueprint. She also did her research on the designs and individual drawings of what the bank
wanted. She hired an engineer to make the electrical layout and architects to do the drafting.
Soler paid their professional fees. She also contacted the suppliers of the wallpaper and the sash
makers for their quotation.

Came Dec. 1986, the layout and the design were submitted to Lopez. She even told soler that she
liked the designs. Subsequently, Soler repeatedly demanded payment for her services, which
Lopez just ignored.

In Feb. 1987, by chance, Soler and Lopez saw each other at a concert. Soler inquired about the
payment for her services. Lopez curtly replied that she was not entitled to it because her designs
did not conform to the bank's policy of having a standard design, and that there was no
agreement between her and the bank.

Soler, through her lawyers, demanded payment for her professional fees, which Lopez ignored.
The lawyers wrote Lopez once again demanding the return of the blueprint copies Soler
submitted, which Lopez refused to return.
Soler then filed a complaint against COMBANK and Lopez for collection of professional fees
and damages. The trial court rendered judgment in favor of Soler. On appeal, the CA reversed the
decision. Hence, this petition.

Issue: Whether or not there was a contract between Soler and COMBANK in the absence of the
element of consent.

Ruling: A contract is a meeting of the minds between two persons whereby one binds himself to
give something or to render some service to another for consideration.

In the present case, there was a perfected oral contract. When Lopez and Soler met and discussed
the details of the work, the first stage of the contract commenced. When they agreed to the
payment of P10K as professional fees of Soler and that she should give the designs before the
Dec. 1986 board meeting, the second stage of the contract proceeded. When finally, Soler gave
the designs to Lopez, the contract was consummated.

Soler believed that once she submitted the designs, she would be paid her professional fees.
Lopez assured her that she would be paid. It is a familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to act within the scope of an apparent authority, it
holds him out to the public as possessing the power to do those acts. Thus, the corporation will,
as against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agent's authority.

Also, Soler may be paid on the basis of quantum meruit. The designs Soler submitted to Lopez
were not returned. Lopez used such designs for presentation to the board of the bank. Thus, the
designs were in fact useful to Lopez for she did not appear to the board without any designs at
the time of the deadline set by the board.

The CA‘s decision reversed and set aside.

 YOLANDA PALATTAO vs. COURT OF APPEALS

Facts: Petitioner Yolanda Palattao interred into a lease contract whereby she leased to private
respondent a house and registered in the name of petitioner. The duration of the lease contract
was for three years, commencing from January 1, 1991, to December 31, 1993, renewable at the
option of the parties. The agreed monthly rental was P7,500.00 for the first year; P 8,000.00 for
the second year: and P8,500.l00 for the third year. The contract gave respondent lessee the first
option to purchase the leased property. During the last year of the contract, the parties began
negotiations for the sale of the leased premises to private respondent. In a letter dated April 2,
1993, petitioner offered to sell to private respondents 413.28 square meters of the leased lot at P
7,800.00 per square meter, or for the total amount of P3,223,548.00. private respondents replied
on April 15, 1993 wherein he informed petitioner that he shall definitely exercise his option to
buy the leased property.

Petitioner stressed that failure to pay the down payment on the stipulated period will enable
petitioner to freely sell her property to others. Petitioner likewise notified private respondent, that
she is no longer renewing the lease agreement upon its expiration on December 31, 1993. Private
respondent did not accept the terms proposed by petitioner. Neither were there any documents of
sale nor payment by private respondent of the required down payment. Private respondent wrote
a letter to petitioner on November 29, 1993 manifesting his intention to exercise his option to
renew their lease contract for another three years, starting January 1, 1994 to December 31,
1996. This was rejected by petitioner, reiterating that she was no longer renewing the lease.
Petitioner demanded that private respondent vacate the premises, but the latter refused.

Issue: Whether or not there was a valid consent.

Ruling: There was no valid consent in the case at bar.

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting
of the minds. Once there is concurrence between the offer and the acceptance upon the subject
matter, consideration, and terns of payment, a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the terms
of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from
the proposal. Letters reveal that private respondent did not give his consent to buy only 413.28
square meters of the leased lot, as he desired to purchase the whole 490 square-meter- leased
premises which, however, was not what was exactly proposed in petitioner‗s offer. Clearly,
therefore, private respondent‗s acceptance of petitioner‗s offer was not absolute, and will
consequently not generate consent that would perfect a contract.
 ABS-CBN BROADCASTING CORPORATION vs.COURT OF APPEALS

G.R. No. 128690 January 21, 1999

Facts: In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-
Concio, requested Viva Production, Inc. to allow ABS-CBN to air at least 14 films produced by
Viva. Pursuant to this request, a meeting was held between Viva‘s representative (Vicente Del
Rosario) and ABS-CBN‘s Eugenio Lopez (General Manager) and Santos-Concio was held on
April 2, 1992. During the meeting Del Rosario proposed a film package which will allow ABS-
CBN to air 104 Viva films for P60 million. Later, Santos-Concio, in a letter to Del Rosario,
proposed a counterproposal of 53 films (including the 14 films initially requested) for P35
million. Del Rosario presented the counter offer to Viva‘s Board of Directors but the Board
rejected the counter offer. Several negotiations were subsequently made but on April 29, 1992,
Viva made an agreement with Republic Broadcasting Corporation (referred to as RBS – or GMA
7) which gave exclusive rights to RBS to air 104 Viva films including the 14 films initially
requested by ABS-CBN.

ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is
already a perfected contract between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez
testified that Del Rosario agreed to the counterproposal and he (Lopez) even put the agreement
in a napkin which was signed and given to Del Rosario. ABS-CBN also filed an injunction
against RBS to enjoin the latter from airing the films. The injunction was granted. RBS now filed
a countersuit with a prayer for moral damages as it claimed that its reputation was debased when
they failed to air the shows that they promised to their viewers. RBS relied on the ruling in
People vs Manero and Mambulao Lumber vs PNB which states that a corporation may recover
moral damages if it ―has a good reputation that is debased, resulting in social humiliation‖. The
trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court.

Issue: Whether or not there exists a perfected contract between ABS-CBN and VIVA.

Ruling: No. There is no proof that a contract was perfected in the said meeting. Lopez‘
testimony about the contract being written in a napkin is not corroborated because the napkin
was never produced in court. Further, there is no meeting of the minds because
Del Rosario‘s offer was of 104 films for P60 million was not accepted. And that the alleged
counter-offer made by Lopez on the same day was not also accepted because there‘s no proof of
such. The counter offer can only be deemed to have been made days after the April 2 meeting
when Santos-Concio sent a letter to Del Rosario containing the counter-offer. Regardless, there
was no showing that Del Rosario accepted. But even if he did accept, such acceptance will not
bloom into a perfected contract because Del Rosario has no authority to do so.

As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the
Board of Directors. But this power may be delegated to a corporate committee, a corporate
officer or corporate manager. Such a delegation must be clear and specific. In the case at bar,
there was no such delegation to Del Rosario. The fact that he has to present the counteroffer to
the Board of Directors of Viva is proof that the contract must be accepted first by the Viva‘s
Board. Hence, even if Del Rosario accepted the counter-offer, it did not result to a contract
because it will not bind Viva sans authorization.
 Offer: Requisites

LOURDES ONG LIMSON vs. COURT OF APPEALS

G.R. No. 135929 April 20, 2001

Facts: Petitioner Lourdes Ong Limson, in her 14 May 1979 complaint filed before the trial court,
alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera,
through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land consisting of
48,260 square meters, more or less, situated in Barrio San Dionisio, Paraaque, Metro Manila;
that respondent spouses informed her that they were the owners of the subject property; that on
31 July 1978 she agreed to buy the property at the price of P34.00 per square meter and gave the
sum of P20,000.00 to respondent spouses as "earnest money;" that respondent spouses signed a
receipt therefor and gave her a 10-day option period to purchase the property; that respondent
Lorenzo de Vera then informed her that the subject property was mortgaged to Emilio Ramos and
Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of the purchase
price to enable him and his wife to settle their obligation with the Ramoses.

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August
1978 at the Office of the Registry of Deeds of Makati, Metro Manila, to consummate the
transaction but due to the failure of respondent Asuncion Santos-de Vera and the Ramoses to
appear, no transaction was formalized. In a second meeting scheduled on 11 August 1978 she
claimed that she was willing and ready to pay the balance of the purchase price but the
transaction again did not materialize as respondent spouses failed to pay the back taxes of subject
property. Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera
three (3) checks in the total amount of P36,170.00 for the settlement of the back taxes of the
property and for the payment of the quitclaims of the three (3) tenants of subject land. The
amount was purportedly considered part of the purchase price and respondent Lorenzo de Vera
signed the receipts therefor.

Issue: Whether or not the requisites of offer were all met.

Ruling: An option, as used in the law of sales, is a continuing offer or contract by which the
owner stipulates with another that the latter shall have the right to buy the property at a fixed
price within a time certain, or under, or in compliance with, certain terms and conditions, or
which gives to the owner of the property the right to sell or demand a sale. It is also sometimes
called an "unaccepted offer." An option is not of itself a purchase, but merely secures the
privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a
contract by which the owner of property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not sell his land; he does not then
agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or
option of the other party.

Its distinguishing characteristic is that it imposes no binding obligation on the person holding the
option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a
contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the
subject matter, but is merely a contract by which the owner of the property gives the optionee the
.
right or privilege of accepting the offer and buying the property on certain terms

On the other hand, a contract, like a contract to sell, involves the meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render
some service. Contracts, in general, are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute.

In the interpretation of contracts, the ascertainment of the intention of the contracting parties is to
be discharged by looking to the words they used to project that intention in their contract, all the
words, not just a particular word or two, and words in context, not words standing alone. The
above Receipt readily shows that respondent spouses and petitioner only entered into a contract
of option; a contract by which respondent spouses agreed with petitioner that the latter shall have
the right to buy the formers property at a fixed price of P34.00 per square meter within ten (10)
days from 31 July 1978. Respondent spouses did not sell their property; they did not also agree
to sell it; but they sold something, i.e., the privilege to buy at the election or option of petitioner.
The agreement imposed no binding obligation on petitioner, aside from the consideration for the
offer.
There was no contract to sell between petitioner and respondent spouses to speak of. Verily, the
telegram could not operate to stop them from claiming that there was such contract between
them and petitioner. Neither could it mean that respondent spouses extended the option period.
The telegram only showed that respondent spouses were willing to give petitioner a chance to
buy subject property even if it was no longer exclusive.

In the instant case, the Court recognizes the rights of all the parties and finds no violation or
invasion of the rights of respondents by petitioner. Petitioner, in filing her complaint, only seeks
relief, in good faith, for what she believes she was entitled to and should not be made to suffer
therefor. Neither should exemplary damages be awarded to respondents as they are imposed only
by way of example or correction for the public good and only in addition to the moral, temperate,
liquidated or compensatory damages. No such kinds of damages were awarded by the Court of
Appeals, only nominal, which was not justified in this case.
 Acceptance: Requisites; distinguished from Counter-
Offer

IN RE ADMINISTRATION OF THE ESTATE OF PASCUAL VILLANUEVA.

MAURICIA G. DE VILLANUEVA
.

G.R. No. L-18403 September 30, 1961

Facts: For the administration of the estate of her deceased husband, Pascual Villanueva, the
widow Mauricia G. Villanueva, on December 19, 1949, petitioned the Court of First Instance of
Agusan, for letters of Administration. The petition was set for hearing and Notice thereof was
published on February 25, March 4, and 11, 1950, in the Manila Daily Bulletin. At the hearing,
other heirs while agreeing to the placing of estate under administration, opposed the appointment
the widow. The name of Atty. Teodulo R. Ricaforte, suggested and all the parties agreed. After
the taking the required oath, Atty. Ricaforte entered upon the performance of his duties. Under
date of November 9, 1950 the Clerk of the Agusan CFI, issued a Notice to Creditors.The
appellant PNB, on November 14, 1958, more than four (4) Years after the opposition of the claim
presented by the administrator, filed a pleading captioned "Petition for an Extension of time
within which to File the Claim of Philippine National Bank", alleging, among others, that Sec. 2,
Rule 87 of the Rules, allows the filing of claims even if the period stated in the notice to creditors
elapsed, upon cause shown and on such terms as equitable; that its failure to present the claiming
with the period stated in the notice, was its lack of knowledge of administration proceedings, for
while said maintains a branch office in Agusan, the employees did not come to know of the
proceedings, the notice has been published in the Morning Times, a newspaper very limited
circulation.

Issue: Whether or not the action in question is already barred.

Ruling: The claim was filed outside of the period provided for in the Order of the lower court,
within which to present claims against the estate. The period fixed in the notice lapsed on
November 16, 1951 and the claim was filed on July 20, 1953 or about 1 year and 8 months late.
This notwithstanding, appellant contends that it did not know of such administration
proceedings, not even its employees in the Branch Office in Butuan City, Agusan. It is to be
noted that the petition for Letters of Administration and the Notice to Creditors were duly
published in the Manila Daily Bulletin and in the Morning Times, respectively, which was a full
compliance with the requirements of the Rules. Moreover, the supposed lack of knowledge of the
proceedings on the part of appellant and its employees had been belied by uncontested and
eloquent evidence, consisting of a deposit of an amount of money by the administrator of the
estate in said Bank (Agusan Agency). The deposit was made on December 1, 1951, inspite of
which the appellant Bank only filed its claim on July 20, 1953. It is quite true that the Courts can
extend the period within which to present claims against the estate, even after the period limited
has elapsed; but such extension should be granted under special circumstances. The lower did not
find any justifiable reason to give the extension and for one thing, there was no period to extend,
the same had elapsed.
 Vices of Capacity

CORAZON CATALAN

vs.

G.R. No. 159567 July 31, 2007

Facts: On October 20, 1948, FELICIANO CATALAN Feliciano was discharged from active
military service. The Board of Medical Officers of the Department of Veteran Affairs found that
he was unfit to render military service due to his schizophrenic reaction, catatonic type, which
incapacitates him because of flattening of mood and affect, preoccupation with worries,
withdrawal, and sparse and pointless speech. On September 28, 1949, Feliciano married Corazon
Cerezo. On June 16, 1951, a document was executed, titled Absolute Deed of Donation, wherein
Feliciano allegedly donated to his sister MERCEDES CATALAN one-half of the real property.
OnDecember 11, 1953, People‗s Bank and Trust Company filed a Special Proceedings before
the Court of First Instance to declare Feliciano incompetent. On December 22, 1953, the trial
court issued its Order for Adjudication of Incompetency for Appointing Guardian for the Estate
and Fixing Allowance of Feliciano. The following day, the trial court appointed People‗s Bank
and Trust Company as Feliciano‗s guardian. OnNovember 22, 1978, Feliciano and Corazon
Cerezo donated Lots 1 and 3 of their property, registered under Original Certificate of Title
(OCT) No. 18920, to their son Eulogio Catalan. Mercedes sold the property in issue in favor of
her children Delia and Jesus Basa. The Deed of Absolute Sale was registered with the Register of
Deeds and a Tax Declaration was issued in the name of respondents.Feliciano and Corazon
Cerezo donated Lot 2 of the aforementioned property registered under OCT No. 18920 to their
children Alex Catalan, Librada Catalan and Zenaida Catalan. On February 14, 1983, Feliciano
and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same OCT No. 18920 to Eulogio
and Florida Catalan. BPI, acting as Feliciano‗s guardian, filed a case for Declaration of Nullity
of Documents, Recovery of Possession and Ownership, as well as damages against the herein
respondents. BPI alleged that the Deed of Absolute Donation to Mercedes was void ab initio, as
Feliciano never donated the property to Mercedes. In addition, BPI averred that even if Feliciano
had truly intended to give the property to her, the donation would still be void, as he was not of
sound mind and was therefore incapable of giving valid consent. Thus, it claimed that if the Deed
of Absolute Donation was void ab initio, the subsequent Deed of Absolute Sale to Delia and
Jesus Basa should likewise be nullified, for Mercedes Catalan had no right to sell the property to
anyone. BPI raised doubts about the authenticity of the deed of sale, saying that its registration
long after the death of Mercedes Catalan indicated fraud. Thus, BPI sought remuneration for
incurred damages and litigation expenses. On August 14, 1997, Feliciano passed away.
The original complaint was amended to substitute his heirs in lieu of BPI as complainants in
Civil Case No. 17666.The trial court found that the evidence presented by the complainants was
insufficient to overcome the presumption that Feliciano was sane and competent at the time he
executed the deed of donation in favor of Mercedes Catalan.
Thus, the court declared, the presumption of sanity or competency not having been duly
impugned, the presumption of due execution of the donation in question must be upheld. The
Court of Appeals upheld the trial court‗s decision.

Issue: Whether or not said decision of the lower courts is correct.

Ruling: Petitioners questioned Feliciano‗s capacity at the time he donated the property, yet did
not see fit to question his mental competence when he entered into a contract of marriage with
Corazon Cerezo or when he executed deeds of donation of his other properties in their favor. The
presumption that Feliciano remained competent to execute contracts, despite his illness, is
bolstered by the existence of these other contracts. Competency and freedom from undue
influence, shown to have existed in the other acts done or contracts executed, are presumed to
continue until the contrary is shown.

Needless to state, since the donation was valid, Mercedes had the right to sell the property to
whomever she chose. Not a shred of evidence has been presented to prove the claim that
Mercedes' sale of the property to her children was tainted with fraud or falsehood. It is of little
bearing that the Deed of Sale was registered only after the death of Mercedes. What is material is
that the sale of the property to Delia and Jesus Basa was legal and binding at the time of its
execution. Thus, the property in question belongs to Delia and Jesus Basa. The petitioners raised
the issue of prescription and laches for the first time on appeal before this Court. It is sufficient
for this Court to note that even if the present appeal had prospered, the Deed of Donation was
still a voidable, not a void, contract. As such, it remained binding as it was not annulled in a
proper action in court within four years.
 EUGENIO DOMINGO vs.COURT OF APPEALS

G.R. No. 127540 October 17, 2001

Facts: Paulina Rigonan owned three parcels of land including the house and warehouse on one
parcel. She allegedly sold them to private respondents, the spouses Felipe and Concepcion
Rigonan, who claim to be her relatives. In 1966, petitioners who claim to be her closest surviving
relatives, allegedly took possession of the properties by means of stealth, force and intimidation,
and refused to vacate the same. According to defendants, the alleged deed of absolute sale was
void for being spurious as well as lacking consideration. They said that Paulina Rigonan did not
sell her properties to anyone. As her nearest surviving kin within the fifth degree of
consanguinity, they inherited the three lots and the permanent improvements thereon when
Paulina died. They said they had been in possession of the contested properties for more than 10
years.

Issues:

1. Whether or not the consideration in Deed of Sale can be used to impugn the validity of the
Contract of Sale.

2. Whether or not the alleged Deed of Sale executed by Paulina Rigonan in favor of the private
respondents is valid.

Ruling:

1. Consideration is the why of a contract, the essential reason which moves the contracting
parties to enter into the contract. The Court had seen no apparent and compelling reason for her
to sell the subject 9 parcels of land with a house and warehouse at a meager price of P850 only.
On record, there is unrebutted testimony that Paulina as landowner was financially well off. She
loaned money to several people. Undisputably, the P850.00 consideration for the nine (9) parcels
of land including the house and bodega is grossly and shockingly inadequate, and the sale is null
and void ab initio.
The Court ruled in the negative. Private respondents presented only a carbon copy of this deed.
When the Register of Deeds was subpoenaed to produce the deed, no original typewritten deed
but only a carbon copy was presented to the trial court. None of the witnesses directly testified to
prove positively and convincingly Paulina‗s execution of the original deed of sale. The carbon
copy did not bear her signature, but only her alleged thumbprint. Juan Franco testified during the
direct examination that he was an instrumental witness to the deed. However, when cross-
examined and shown a copy of the subject deed, he retracted and said that said deed of sale was
not the document he signed as witness.
 HEIRS OF WILLIAM SEVILLA vs.LEOPOLDO SEVILLA
G.R. No. 150179 April 30, 2003

Facts: The undisputed facts reveal that on December 10, 1973, Filomena Almirol de Sevilla died
intestate leaving 8 children, namely: William, Peter, Leopoldo, Felipe, Rosa, Maria, Luzvilla, and
Jimmy, all surnamed Sevilla. William, Jimmy and Maria are now deceased and are survived by
their respective spouses and children. Filomena Almirol de Sevilla left several properties. During
the lifetime of Felisa and Honorata Almirol, they lived in the house of Filomena Almirol de
Sevilla, together with their nephew, respondent Leopoldo Sevilla and his family. Leopoldo
attended to the needs of his mother, Filomena, and his two aunts, Honorata and Felisa. Felisa
died on July 6, 1988. Previous thereto, on November 25, 1985, she executed a last will and
testament devising her 1/2 share in Lot No. 653 to the spouses Leopoldo Sevilla and Belen
Leyson On August 8, 1986, Felisa executed another document denominated as Donation Inter
Vivos ceding to Leopoldo Sevilla her 1/2 undivided share in Lot No. 653, which was accepted by
Leopoldo in the same document. On September 3, 1986, Felisa Almirol and Peter Sevilla, in his
own behalf and in behalf of the heirs of Filomena Almirol de Sevilla, executed a Deed of Extra-
judicial Partition, identifying and adjudicating the 1/3 share of Honorata Almirol to the heirs of
Filomena Almirol de Sevilla and to Felisa Almirol. Thereafter, respondents Leopoldo, Peter and
Luzvilla Sevilla obtained the cancellation of Transfer Certificate of Title No. (T-6671)-1448,
over Lot No. 653, and the issuance of the corresponding titles to Felisa Almirol and the heirs of
Filomena Almirol de Sevilla. However, the requested titles for Lot Nos. 653-A and 653-B, were
left unsigned by the Register of Deeds of Dipolog City, pending submission by Peter Sevilla of a
Special Power of Attorney authorizing him to represent the other heirs of Filomena Almirol de
Sevilla On June 21, 1990, Felipe Sevilla, Rosa Sevilla, and the heirs of William, Jimmy and
Maria, all surnamed Sevilla, filed the instant case against respondents Leopoldo Sevilla, Peter
Sevilla and Luzvilla Sevilla, for annulment of the Deed of Donation and the Deed of
Extrajudicial Partition, Accounting, Damages, with prayer for Receivership and for Partition of
the properties of the late Filomena Almirol de Sevilla.[14] They alleged that the Deed of
Donation is tainted with fraud because Felisa Almirol, who was then 81 years of age, was
seriously ill and of unsound mind at the time of the execution thereof; and that the Deed of
Extra-judicial Partition is void because it was executed without their knowledge and consent.
Issue: Whether or not Felisa Almirol Sevilla had the legal capacity and was of sound mind when
the deed of donation was executed.

Ruling: There is fraud when, through the insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would
not have agreed to. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in financial distress. Clearly, therefore,
the courts below did not err in sustaining the validity of the deed of donation.

In the case at bar, at the time Felisa executed the deed of extra-judicial partition dividing the
share of her deceased sister Honarata between her and the heirs of Filomena Almirol de Sevilla,
she was no longer the owner of the 1/2 undivided portion of Lot No. 653, having previously
donated the same to respondent Leopoldo Sevilla who accepted the donation in the same deed. A
donation inter vivos, as in the instant case, is immediately operative and final. As a mode of
acquiring ownership, it results in an effective transfer of title over the property from the donor to
the donee and the donation is perfected from the moment the donor knows of the acceptance by
the donee. And once a donation is accepted, the donee becomes the absolute owner of the
property donated. Evidently, Felisa did not possess the capacity to give consent to or execute the
deed of partition inasmuch as she was neither the owner nor the authorized representative of
respondent Leopoldo to whom she previously transmitted ownership of her undivided share in
Lot No. 653. Considering that she had no legal capacity to give consent to the deed of partition,
it follows that there is no consent given to the execution of the deed, and therefore, there is no
contract to speak of. As such, the deed of partition is void ab initio, hence, not susceptible of
ratification. Nevertheless, the nullity of the deed of extra-judicial partition will not affect the
validity of the donation inter vivos ceding to respondent Leopoldo Sevilla the 1/2 undivided
share of Felisa Almirol in Lot No. 653. Said lot should therefore be divided as follows: 1/2 shall
go to respondent Leopoldo Sevilla by virtue of the deed of donation, while the other half shall be
divided equally among the heirs of Filomena Almirol de Sevilla including Leopoldo Sevilla,
following the rules on intestate succession.
 MARIO J. MENDEZONA vs.JULIO H. OZAMIZ

G.R. No. 143370 February 6, 2002

Facts: A suit was instituted on September 25, 1991 by the petitioner spouses Mario J.
Mendezona and Teresita M. Mendezona as initial plaintiff and in the amended complaint filed on
October 7, 1991, herein co-petitioner spouses Luis J. Mendezona joined as co-plaintiff. In their
compliant, the petitioners as plaintiff therein alleged that petitioner spouses Mario J. Mendezona
and Teresita M. Mendezona petitioner spouses Luis J. Mendezona and Maricar Mendezona own
a parcel of land each in Lahug, Cebu city with similar areas 3462, 3466 and 3468 square meters
covered and described in TCT Nos 116834, 116835 and 116836. The petitioners ultimately
traced their titles of ownership over their respective properties from a deed of Absolute Sale
executed in their favor by Carmen Ozamiz and in consideration of P 1,040,000. It appears than
on January 15, 1991, the respondents instituted the petition for guardianship with RTC
Oroquieta, City alleging that Carmen Ozamiz had become disoriented and could not recognize
most of her friends and could no longer take care of her properties by reason pf weak mind and
absentmindedness. As guardians Roberto J. Montalvan and Julio H. Ozamiz filed on August 6,
1991 with the guardianship court their Inventories and Accounts including the 10,369 square
meters Lahug property. Said Lahug property covered by deed of Absolute Sale dated April 28,
1989 executed by Carmen Ozamiz in favor of petitioners. In their Answer, respondents opposed
the claim of ownership of the Lahug property and alleged that the titles issued to the petitioners
are defective and illegal and the ownership of said properties was acquired in bad faith and
without value inasmuch as the consideration for the sale is grossly inadequate and
unconscionable. Respondents further alleged that on April 28, 1989 Carmen Ozamiz was already
ailing and not in full possession of her mental faculties; and that her properties having been
placed in administration, she was in effect incapacitated to contract with petitioners. On
September 23, 1992, the Trial court rendered decision in favor of petitioners. On appeal the
Court of Appeal reversed its decision and ruled that the Absolute Sale dated April 28, 1989 was a
simulated contract since the petitioners failed to prove that the consideration was actually paid.

Issue: Whether or not the court erred in ruling that the Deed of Absolute Sale dated April 28,
1989 was a simulated contract.
Ruling: The Supreme Court ruled that the contact was not simulated. Contrary to the erroneous
conclusions of the appellate court, a simulated contract cannot be inferred from the mere non
production of checks. It was not the burden of the petitioner to prove so. It is significant that the
deed of Absolute Sale dated April 28, 1989 is a notarized document duly acknowledged before a
notary public. As such, it is in favor of presumption of regularity and it carries the evidentiary
weight conferred upon it with respect to its due execution. Moreover, A person is not
incapacitated to contact merely because of advanced years or by reason of physical infirmities.
Only when such age or infirmity impair her mental faculties to such extent as to prevent her from
properly, intelligently, and fairly protecting her property rights is considered incapacitated.
 Mistake/Error

MARIANO T. LIM vs. COURT OF APPEALS

G.R. No. L-55201 February 3, 1994

Facts: The case involves the partition of the properties of the deceased spouse Tan Quico and
Josefa Oraa. Both died intestate. They left some ninety-six hectares of land. The late spouses
were survived by four (4) children: Cresencia, Lorenzo, Hermogenes and Elias. Elias died
without issue. Cresencia died also. She was survived by her husband, Lim Chay Sing, 4 and
children, Mariano, Jaime, Jose Jovita, Anacoreta, Antonietta, Ruben, Benjamin and Rogelio. The
late Cresencia and Lorenzo had contrasting educational background. Cresencia only reached the
second grade of elementary school. She could not read or write in English. On the other hand,
Lorenzo is a lawyer and a CPA. Petitioners, heirs of Cresencia, alleged that since the demise of
the spouses Tan Quico and Josefa Oraa, respondent Lorenzo had administered the subject
properties. They claimed that before her death, Cresencia had demanded their partition from
Lorenzo. After Cresencia's death, they likewise clamored for their partition. Their efforts proved
fruitless. They failed Civil Case. Respondent Lorenzo and Hermogenes adamant stance against
partition is based on various contentions. Principally, they urge: (1) that the properties had
already been partitioned, albeit, orally; and (2) during her lifetime, the late Cresencia had sold
and conveyed all her interests in said properties to respondent Lorenzo. They cited as evidence
the "Deed of

Confirmation of Extra Judicial Settlement of the Estate of Tan Quico and Josefa Oraa‖ and a
receipt of payment.

Issue: Whether or not the Deed of Confirmation of Extra Judicial Settlement of the estate of Tan
Quico and Josefa Oraa is valid.

Ruling: The Supreme Court held that the respondent court, reversing the trial court, held that the
evidence failed to establish that the late Crescencia as a result of fraud, mistake or undue
influence signed it. We hold this ruling erroneous. In calibrating the credibility of the witnesses
on this issue, we take our mandate from Article 1332 of the Civil Code which provides: "When
one of the parties is unable to read, or if the contract is in language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former." this substantive law came into being due to the finding
of the Code Commission that there is still a fairly large number of illiterates in this country, and
documents are usually drawn up in English or Spanish. It is also in accord with our state policy
of promoting social justice. It also supplements Article 24 of the Civil Code, which calls on court
to be vigilant in the protection of the rights of those who are disadvantaged in life. In the petition
at bench, the questioned Deed is written in English, a language not understood by the late
Crescencia, an illiterate. The respondent Lorenzo, a lawyer and CPA, prepared it. For reasons
difficult to divine, respondent Lorenzo did not cause the notarization of the deed.
 Undue Influence

CORAZON RUIZ vs. COURT OF APPEALS

G.R. No. 146942 April 22, 2003

Facts: Petitioner Corazon Ruiz is engaged in the business of buying and selling jewelry. She
obtained loans from private respondent Consuelo Torres on different occasions and in different
amounts. Prior to their maturity, the loans were consolidated under 1 promissory note dated
March 22, 1995. The consolidated loan of P750, 000.00 was secured by a real estate mortgage on
a lot in Quezon City, covered by Transfer of Certificate of Title No. RT-96686, and registered in
the name of petitioner. The mortgage was signed by petitioner for herself and as attorney-in-fact
of her husband Rogelio. It was executed on 20 March 1995, or 2 days before the execution of the
subject promissory note. Thereafter, petitioner obtained 3 more loans from private respondent,
under the following promissory notes: 1) promissory note dated 21 April 1995, in the amount of
P100,000.00; 2) promissory note dated 23 May !995 in the amount of P100,000.00, and 3)
promissory note dated 21 December 1995, in the amount of P100,000.00.These combined loans
of P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private
respondent. From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest
on the P750,000.00 loan, amounting to P270,000. After March 1996, petitioner was unable to
make interest payments as she had difficulties collecting from her clients in her jewelry business.
Because ofpetitioner‗s failure to pay the principal loan of P750,000.00, as well as the interest
payment for April 1996, private respondent demanded payment not only of the P750,000.00 loan
but also of the P300,000.00 loan. When petitioner failed to pay, private respondent sought the
extrajudicial foreclosure of the aforementioned real estate mortgage.

Issue: Whether or not there is undue influence in the signing of the promissory note, which
determines if foreclosure proceedings could proceed.

Ruling: The promissory note in question did not contain any fine print provision which could
have escaped the attention of the petitioner. Petitioner had all the time to go over and study the
stipulations embodied in the promissory note. Aside from the March 22, 1995 promissory note
for P750,000.00, three other promissory notes of different dates and amounts were executed by
petitioner in favor of private respondent. These promissory notes contain similar terms and
conditions, with a little variance in the terms of interests and surcharges. The fact that petitioner
and private respondent had entered into not only one but several loan transactions shows that
petitioner was not in any way compelled to accept the terms allegedly imposed by private
respondent. Moreover, petitioner, in her complaint dated October 7, 1996 filed with the trial
court, never claimed that she was forced to sign the subject note. Therefore, the foreclosure
proceedings may now proceed.
 Fraud: Kinds

EPIFANIA DELA CRUZ, substituted by LAUREANA V. ALBERTO vs. SPS. EDUARDO

C. SISON and EUFEMIA S. SISON

G.R. No. 163770 February 17, 2005

Facts: Initially, the complainant in this case was Epifania S. Dela Cruz (Epifania), but she died
on November 1, 1996, while the case was pending in the Court of Appeals. Upon her demise, she
was substituted by her niece, Laureana V. Alberto.

Epifania claimed that sometime in 1992, she discovered that her rice land in Salomague Sur,
Bugallon, Pangasinan, has been transferred and registered in the name of her nephew, Eduardo
C. Sison, without her knowledge and consent, purportedly on the strength of a Deed of Sale she
executed on November 24, 1989.

Epifania thus filed a complaint before the Regional Trial Court of Lingayen, Pangasinan, to
declare the deed of sale null and void. She alleged that Eduardo tricked her into signing the Deed
of Sale, by inserting the deed among the documents she signed pertaining to the transfer of her
residential land, house and camarin, in favor of Demetrio, her foster child and the brother of
Eduardo.

Respondents, spouses Eduardo and Eufemia Sison (Spouses Sison), denied that they employed
fraud or trickery in the execution of the Deed of Sale. They claimed that they purchased the
property from Epifania for P20,000.00. They averred that Epifania could not have been deceived
into signing the Deed of Absolute Sale because it was duly notarized before Notary Public
Maximo V. Cuesta, Jr.; and they have complied with all requisites for its registration, as
evidenced by the Investigation Report by the Department of Agrarian Reform (DAR), Affidavit
of Seller/Transferor, Affidavit of Buyer/Transferee, Certification issued by the Provincial
Agrarian Reform Officer (PARO), Letter for the Secretary of Agrarian Reform, Certificate
Authorizing Payment of Capital Gains Tax, and the payment of the registration fees. Some of
these documents even bore the signature of Epifania, proof that she agreed to the transfer of the
property.
Issues:
1. Whether the deed of absolute sale is valid.
2. Whether fraud attended the execution of a contract.

Ruling: On the issue of whether fraud attended the execution of a contract is factual in nature.
Normally, this Court is bound by the appellate court‗s findings, unless they are contrary to those
of the trial court, in which case we may wade into the factual dispute to settle it with finality.
After a careful perusal of the records, we sustain the Court of Appeals' ruling that the Deed of
Absolute Sale dated November 24, 1989 is valid. There being no evidence adduced to support
her bare allegations, thus, Epifania failed to satisfactorily establish her inability to read and
understand the English language. Although Epifania was 79 years old at the time of the execution
of the assailed contract, her age did not impair her mental faculties as to prevent her from
properly and intelligently protecting her rights.
Even at 83 years, she exhibited mental astuteness when she testified in court. It is, therefore,
inconceivable for her to sign the assailed documents without ascertaining their contents,
especially if, as she alleges, she did not direct Eduardo to prepare the same.

A comparison of the deed of sale in favor of Demetrio and the deed of sale in favor Eduardo,
draws out the conclusion that there was no trickery employed. One can readily see that the first
deed of sale is in all significant respects different from the second deed of sale. A casual perusal,
even by someone as old as Epifania, would enable one to easily spot the differences. Epifania
could not have failed to miss them.

In fact, Epifania never questioned the deed of sale in favor of Demetrio, accepting it as a valid
and binding document. It is only with respect to the deed of sale in favor of Eduardo that she
denies knowledge of affixing her signature. Unfortunately, for both parties, the notary public,
Atty. Maximo V. Cuesta, Jr. before whom they appeared, died prior to the filing of the case.
RURAL BANK OF STA. MARIA, PANGASINAN vs.THE HONORABLE COURT OF
APPEALS, ROSARIO R. RAYANDAYAN, CARMEN R. ARCEO

G.R. No. 110672 September 14, 1999

Facts: A parcel of land is registered in the name of Manuel Behis, married to Cristina Behis.
Said land originally was part of a bigger tract of land owned by Behis, father of Manuel Behis.
And upon the latter's death, his children, namely: Saro Behis, Marcelo Behis, Manuel Behis,
Lucia Behis, Clara Behis and Arana Behis, in an extrajudicial settlement with Simultaneous Sale
of Inheritance, agreed to sell the land to Manuel Behis, married to Cristina Behis but which
subsequently was explained as only an arrangement adopted by them to facilitate transactions
over the land in a Confirmation of Rights of Co-Ownership over real Property, showing that the
Behis brothers and sisters, including Manuel Behis, are still co-owners thereof. Manuel Behis
mortgaged said land in favor of the Bank in a Real Estate Mortgage as security for loans
obtained, covered by six promissory notes and trust receipts under the Supervised Credit
Program and annotated at the back of the title. The mortgage, the promissory notes and trust
receipts bear the signatures of both Manuel Behis and Cristina Behis. Unfortunately, thereafter,
Manuel Behis was delinquent in paying his debts. Manuel Behis sold the land to the plaintiffs in
a Deed of Absolute Sale with Assumption of Mortgage which bears the signature of his wife
Cristina Behis. Manuel Behis took it upon himself to secure the signature of his wife and came
back with it. On the same date, plaintiffs and Manuel Behis simultaneously executed another
Agreement whereby plaintiffs are indebted to Manuel Behis for the sum of P2,400,000.00
payable in installments with P10,000.00 paid upon signing and in case of default in the
installments, Manuel Behis shall have legal recourse to the portions of the land equivalent to the
unpaid balance of the amounts in installments. Plaintiffs did not present to the Register of Deeds
said two contracts and ask that the title in the name of Manuel Behis be cancelled and a new one
issued in their name which normally a buyer does. Neither did plaintiffs annotate at the back of
the title the aforesaid two contracts. Nor did they immediately go to the Bank and present said
two contracts. Thus, the title to the land remained in the name of Manuel Behis. The plaintiffs
were unable to complete their full payment to Manuel Behis of the sale of the land as it is
nowhere near P2,400,000.00. Meantime, the loan in the name of Manuel Behis with the Bank
secured by the Real Estate Mortgage on the land continued to accumulate being delinquent.

Issue: Whether or not the Memorandum is voidable on the ground of fraud.

Ruling: The Supreme Court held that the kind of fraud that will vitiate a contract refers to those
insidious words or machinations resorted to by one of the contracting parties to induce the other
to enter into a contract which without them he would not have agreed to. Simply stated, the fraud
must be the determining cause of the contract, or must have caused the consent to be given. It is
believed that the non-disclosure to the bank of the purchase price of the sale of the land between
private respondents and Manuel Behis cannot be the "fraud" contemplated by Article 1338 of the
Civil Code.

From the sole reason submitted by the petitioner bank that it was kept in the dark as to the
financial capacity of private respondents, we cannot see how the omission or concealment of the
real purchase price could have induced the bank into giving its consent to the agreement; or that
the bank would not have otherwise given its consent had it known of the real purchase price.
Secondly, pursuant to Article 1339 of the Civil Code, silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose certain facts, or unless according to
good faith and the usages of commerce the communication should be made. Verily, private
respondents Rayandayan and Arceño had no duty, and therefore did not act in bad faith, in failing
to disclose the real consideration of the sale between them and Manuel Behis.
 Object or Subject Matter

DOMINGO CARABEO
vs.
SPOUSES NORBERTO and SUSAN DINGCO

G.R. No. 190823, April 04, 2011

FACTS:
On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as
"Kasunduan sa Bilihan ng Karapatan sa Lupa" with Spouses Norberto and Susan Dingco
(respondents) whereby petitioner agreed to sell his rights over a 648 square meter parcel of
unregistered land situated in Purok III, Tugatog, Orani, Bataan to respondents for P38,000.
Respondents tendered their initial payment of P10,000 upon signing of the contract, the
remaining balance to be paid on September 1990. When they were about to hand in the balance,
Carabeo requested them to keep it first as he was yet to settle an ongoing squabble over the land.
Nevertheless, Sps. Dingco gave small sums of money which totaled P9100. Despite the alleged
problem over the land, they insisted on Carabeo's acceptance of the remaining balance of
P18,900 but he remained firm in his refusal. In 1994, when Sps. Dingco learned that the alleged
problem had been settled and that Carabeo had caused its registration in his name, they offered to
pay the balance but he declined. Sps. Dingco filed a complaint for specific performance before
the RTC. Carabeo countered that the sale was void for lack of object certain, the kasunduan not
having specified the metes and bounds of the land. After the case was submitted for decision,
Carabeo passed away. The RTC ruled in favor of Sps. Dingco. Carabeo's counsel filed a notice of
appeal. The CA affirmed the trial court. The present petition was filed by Antonio, Carabeo's son.

ISSUE:
Whether or not the element of an object certain is present in the subject contract.

HELD:
 That the kasunduan did not specify the technical boundaries of the property did not
render the sale a nullity. The requirement that a sale must have for its object a determinate thing
is satisfied as long as, at the time the contract is entered into, the object of the sale is capable of
being made determinate without the necessity of a new or further agreement between the parties.
The question as to whether an action survives or not after the petitioner dies depends on the
nature of the action and the damage sued for. In the present case, Sps. Dingco are pursuing a
property right arising from the kasunduan, whereas Carabeo is invoking nullity of the kasunduan
to protect his proprietary interest. Since the action involves property rights, it survives.
In another vein, the death of a client immediately divests the counsel of authority. Thus,
in filing a notice of appeal, Carabeo's counsel of record had no personality to act on behalf of the
already deceased client who had not been substituted as a party after his death.
 Licit

FRANCISCO I. CHAVEZ

vs.

PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT

CORPORATION
G.R. No. 133250, 9 July 2002

FACTS:
The Senate Blue Ribbon Committee and Committee on Accountability of Public Officers
conducted public hearings to determine the actual market value of the public lands along Roxas
Boulevard under controversy. The investigation found out that the sale of such was lands grossly
undervalued based on official documents submitted by the proper government agencies during
the investigations. It was found out that the Public Estates Authority, under the Joint Venture
Agreement, sold it to Amari Coastal Bay Development Corporation 157.84 hectares of reclaimed
public lands totaling to P 1.89 B or P 1,200 per square meter. However during the investigation
process, the BIR pitted the value at P 7,800 per square meter, while the Municipal Assessor of
Parañaque at P 6,000 per square meter and by the Commission on Audit (COA) at P21,333 per
square meter. Based on the official appraisal of the COA, the actual loss on the part of the
government is a gargantuan value of P 31.78 B. However, PEA justified the purchase price based
from the various appraisals of private real estate corporations, amounting from P 500 – 1,000 per
square meter. Further, it was also found out that there were various offers from different private
entities to buy the reclaimed public land at a rate higher than the offer of Amari, but still, PEA
finalized the JVA with Amari. During the process of investigation, Amari did not hide the fact
that they agreed to pay huge commissions and bonuses to various persons for professional efforts
and services in successfully negotiating and securing for Amari the JVA. The amount
constituting the commissions and bonuses totaled to a huge P 1.76 B; an indicia of great bribery.

ISSUE:
Whether or not the sale of public lands between PEA and Amari is constitutional.

HELD:
 The Court found that the sale is unconstitutional, because what was sold or alienated are
lands of the public domain. Taking the fact the sold parcel of land is submerged land is
inalienable. As unequivocally stated in Article XII, Section 2 of the Constitution, all lands of the
public domain, waters, minerals, coals, petroleum, forces which are potential energies, fisheries,
forests or timber, wildlife, flora and fauna, and other natural resources, with the exception of
agricultural lands, are inalienable. Submerged lands fall within the scope of such provision. Ergo,
the submerged lands, being inalienable and outside the commerce of man, could not be the
subject of the commercial transactions specified in the Amended JVA. Hence, the contract
between Amari and the PEA is void.
 Cause/Consideration

DOMINGO CARABEO
vs.
SPOUSES NORBERTO and SUSAN DINGCO
G.R. No. 190823, APRIL 4, 2011

FACTS:
On July 10, 1990, Domingo Carabeo entered into a contract denominated as
―KasunduansaBilihan ng KarapatansaLupa‖ with Spouses Norberto and Susan Dingco whereby
petitioner agreed to sell his rights over a 648 square meter parcel of unregistered land situated in
Purok III, Tugatog, Orani, Bataan to respondents for P38,000. Upon the signing of the contract,
the respondents paid an initial amount of P10,000 and the remaining balance would be paid on
September 1990. However, when the respondents were about to pay the balance, the petitioner
refused to accept the amount due to an on-going dispute over the land. Nevertheless, the
respondents occasionally gave the petitioner small sums of money which totaled P9,100. These
amounts were allegedly given due to the request of the petitioner. Despite the respondents
insistence of paying the remaining balance of P19,800, the petitioner remained firm in his
refusal. He reasoned that he would register the land first. However, when the dispute was finally
settled and the registration of the land was made, the petitioner still declined to accept the
payment. Thus, forcing the respondents to file a complaint before the KatarunganPambarangay.
Nevertheless, the parties were not able to reach a settlement. Hence, the filing of a complaint for
specific performance before the RTC. In the petitioner‗s answer in the complaint, he alleged that
the sale was void for lack of object certain. The kasunduannot having specified the metes and
bounds of the land. In addition to that, he alleged that assuming that the validity of the
kasunduan is upheld, the respondent failed to comply with their reciprocal obligation in paying
the balance of the P28,000 on September 1900. Thus, forcing him to accept the installment
payments. After the case was submitted for decision, the petitioner passed away. However, the
records do not show that petitioner‗s counsel informed the lower court of his death and that
proper substitution was effected. The RTC ruled in favor of the respondents ordering them to sell
their rights over the land and to pay the costs of suit. The CA affirmed the decision of the lower
court.

ISSUES:
 Whether or not the elements of a valid contract are present in this case?

HELD:
The elements of a valid contract are present in this case. Even though the kasunduan did
not specify the technical boundaries of the property, it does not render the sale a nullity. The
requirement that a sale must have for its object a determinate thing is satisfied as long as, at the
time the contract is entered into, the object of the sale is capable of being made determinate
without the necessity of a new or further agreement between the parties. Thus, in the present
case, the respondents are pursuing a property right arising from the kasunduan, whereas
petitioner is invoking nullity of the kasunduan to protect his proprietary interest. Since the action
involves property rights, it survives. Assuming arguendo, however, that the kasunduan is deemed
void, there is a corollary obligation of petitioner to return the money paid by respondents.
 PIO SIAN MELLIZA,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS,.
G.R. No. L-24732 APRIL 30, 1968

FACTS:
Juliana Melliza during her lifetime owned three parcels of residential land in Iloilo City.
On 1932, she donated to the then Municipality of Iloilo a certain lot to serve as site for the
municipal hall. The donation was however revoked by the parties for the reason that area was
found inadequate to meet the requirements of the development plan. Subsequently the said lot
was divided into several divisions. Sometime in 1938, Juliana Melliza sold her remaining interest
on the said lot to Remedios San Villanueva. Remedios in turn transferred the rights to said
portion of land to Pio Sian Melliza. The transfer Certificate of title in Melliza‗s name bears on
annotation stating that a portion of said lot belongs to the Municipality of Iloilo. Later the City of
Iloilo, which succeeds to the Municipality of Iloilo, donated the city hall sit to the University of
the Philippines, Iloilo Branch. On 1952, the University of the Philippines enclosed the site
donated with a wire fence. Pio Sian Melliza then filed action in the Court of First Instance of
Iloilo against Iloilo City and the University of the Philippines for recovery of the parcel of land
or of its value specifically LOT 1214-B. Petitioner contends that LOT 1214-B was not included
in those lots which were sold by Juliana Melliza to the then municipality of Iloilo and to say he
would render the Deed of Sale invalid because the law requires as an essential element of sale,
determinate object.

ISSUE:
Whether or not IF Lot 1214 – B is included in the Deed of Sale, it would render the
contract invalid because the object would allegedly not be determinate as required by law.

HELD:
NO. The requirement of the law specifically Article 1460 of the Civil Code, that the sale
must have for its object a determinate thing, is fulfilled as long as, at the time the contract is
entered into, the object of the sale is capable of being determinate without the necessity of a new
or further agreement between the parties. The specific mention of some of the lots plus the
statement that the lots object of the sale are the ones needed for city hall site sufficient provides a
basis, as of the time, of the execution of the contract, for rendering determinate said lots without
the need of a new further agreement of the parties.
 Cause or Consideration

MANUEL CATINDIG,

v.

AURORA IRENE VDA. DE MENESES,

G.R. No. 165851, FEBRUARY 2, 2011

FACTS:
Respondent Aurora Irene C. Vda. deMeneses is the surviving spouse of the registered
owner of the Masusuwi Fishpond. In her capacity as administratrix of her husband's estate, filed
a Complaint for Recovery of Possession, Sum of Money and Damages against petitioners
Manuel Catindig and SilvinoRoxas, Sr. before the RTC of Malolos, Bulacan, to recover
possession over the Masusuwi Fishpond. Respondent alleged that in September 1975, petitioner
Catindig, the first cousin of her husband, deprived her of the possession over the Masusuwi
Fishpond, through fraud, undue influence and intimidation. Since then, petitioner Catindig
unlawfully leased the property to petitioner Roxas. Catindig maintained that he bought the
Masusuwi Fishpond from respondent and her children in January 1978, as evidenced by a Deed
of Absolute Sale. Catindig further argued that even assuming that respondent was indeed
divested of her possession of the Masusuwi Fishpond by fraud, her cause of action had already
prescribed considering the lapse of about 20 years Petitioner Roxas, on the other hand, asserted
in his own Answer that respondent has no cause of action against him, because Catindig is the
lawful owner of the Masusuwi Fishpond, to whom he had paid his rentals The RTC ruled in
favor of respondent. It found that the Deed of Absolute Sale executed between respondent and
petitioner Catindig was simulated and fictitious, and therefore, did not convey title over the
Masusuwi Fishpond to petitioner Catindig..

ISSUES:
Whether or not the Deed of Sale was genuine or simulated?

HELD:
Factual findings of the trial court, affirmed by the CA, are final and conclusive and may
not be reviewed on appeal. Since it was well established that the Deed of Sale is simulated and,
therefore void, petitioners‗ claim that respondent's cause of action is one for annulment of
contract, which already prescribed, is unavailing, because only voidable contracts may be
annulled. Against the registered owners and the holder of an unregistered deed of sale, it is the
former who has a better right to possess. The certificate of title serves as evidence of an
indefeasible and incontrovertible title to the property in favor of the person whose name appears
therein. In this case, even if the Deed of Sale is valid, it would still not help petitioner. The
subject property is covered by TCT No. T-1749, registered in the name of respondent's husband.
Meanwhile, the Deed of Sale is not only unregistered, it is undated and unnotarized.
 ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA, ,
vs.
EDUARDO J. FUENTEBELLA, et. al., .
G.R. No. 176841 JUNE 29, 2010

FACTS:
Antonita Orduña purchased a residential lot from Gabriel Sr.payable in installments but
no deed of sale was executed. Theinstallments were paid to Gabriel Sr. and later to Gabriel Jr.
afterthe death of the former. Improvements were thereafterintroduced by petitioner and the latter
even paid its real propertytax since 1979. Unknown to Orduña, the property has beensubject to
further alienations until the same was ceded torespondent, Fuentebilla, Jr. Orduña, after being
demanded byFuentebilla to vacate the disputed land, then filed a Complaint forAnnulment of
Sale, Title, Reconveyance with Damages with aprayer to acquire ownership over the subject lot
upon payment of their remaining balance. The Regional Trial Court dismissed thepetition
because the verbal sale between Gabriel Sr. and Orduñawas unenforceable under the Statute of
Frauds. This was lateraffirmed by the Court of Appeals.

ISSUE:
Whether or not the sale of the subject lot by Gabriel Sr. toAntonita is unenforceable under
the Statute of Frauds?

HELD:
No. It is a well-settled rule that the Statute of Frauds as expressed in Article 1403, par.
(2), of the Civil Code is applicable only to purely executory contracts and not to contracts which
have already been executed either totally or partially. Here, the verbal contract of sale has been
partially executed through the partial payments made by Orduña duly received by both Gabriel
Jr. and his father. The purpose of the Statute of Fraud is prevention fraud and perjury in the
enforcement of obligations depending for their evidence on the unassisted memory of witnesses,
by requiring some contracts and transactions to be evidenced by a writing signed by the party to
be charged. Since there is already ratification of the verbal contract through the acceptance of
benefits through the partial payments, it is thus withdrawn from the purview of the Statute of
Frauds.
 CARMELA BROBIO MANGAHAS, ,
vs.
EUFROCINA A. BROBIO,.
G.R. No. 183852 October 20, 2010

FACTS:
Pacifico died and left 3 parcels of land. He was survived by his wife, Eufrocina, 4 legit
and 3 illegit children. Carmela is one of the illegitimate children. The heirs executed a Deed of
Extrajudicial Settlement of Estate with Waiver. In the Deed, Carmela and the other children, in
consideration of their love and affection for Eufrocina and the sum of P150k waived their shares
over the land in favor of Eufrocina. According to Carmela, Eufrocina promised to give her an
additional amount for her share in her father‗s estate. After the signing of the Deed, Carmela
demanded from Eufrocina the promised additional amount, but Eufrocina refused to pay. Later,
Eufrocina needed an original copy of the Deed for submission to the BIR. She didn‗t have a
copy anymore so she asked Carmela to countersign a copy of the Deed. Carmela refused,
demanding that Eufrocina first give her the additional amount that she promised. Carmela asked
for P1M, but Eufrocina begged her to lower the amount. Carmela agreed to lower it to P600k.
Because Eufrocina did not have the money at that time, Eufrocina executed a promissory note.
Upon maturity of the PN, Eufrocina failed and refused to pay despite several demands so
Carmela filed a complaint with the RTC. Eufrocina alleged that she was practically held
"hostage" by the demand of Carmela because at that time, Eufrocina was so much pressured to
submit the documents to the BIR. She (Eufrocina) also claimed that the circumstances in the
execution of the promissory note were obviously attended by involuntariness and the same was
issued without consideration at all or for illegal consideration. The RTC ruled in favor of
Carmela. The CA reversed the RTC decision because there was a complete absence of
consideration in the execution of the promissory note, which made it inexistent and without any
legal force and effect. The court noted that "financial assistance" was not the real reason why
Eufrocina executed the promissory note, but only to secure Carmela‗s signature. The CA held
that the waiver of Carmela‗s share in the properties may not be considered as the consideration
of the promissory note, considering that Carmela signed the Deed way back in 2002 and she had
already received the consideration of P150k for signing the same. The CA also found that
intimidation attended the signing of the promissory note. Eufrocina needed the Deed
countersigned by Carmela in order to comply with a BIR requirement so Eufrocina was forced to
sign the promissory note to assure Carmela that the money promised to her would be paid.
ISSUES:
1. Whether or not the CA erred in the appreciation of the facts of this case when it found
that intimidation attended the execution of the promissory note subject of this case?
2. Whether or not the CA erred when it found that the promissory note was without
consideration?

HELD:
Yes. Eufrocina insists that she was "forced" into signing the promissory note because
Carmela would not sign the document required by the BIR. Being forced into a situation does not
amount to vitiated consent where it is not shown that the party is deprived of free will and
choice. There is undue influence when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice. For undue influence to be
present, the influence exerted must have so overpowered the mind of a contracting party as to
destroy his free agency, making him express the will of another rather than his own. Eufrocina
may have desperately needed petitioner‗s signature on the Deed, but there is no showing that she
was deprived of free agency when she signed the promissory note.
Section 24 of the NIL provides that ―A contract is presumed to be supported by cause or
consideration.‖ The presumption that a contract has sufficient consideration cannot be
overthrown by a mere assertionthat it has no consideration. To overcome the presumption, the
alleged lack of consideration must be shown by preponderance of evidence. The burden to
provelack of consideration rests upon whoever alleges it, which, in the present case, is Eufrocina.
Eufrocina failed to prove that the promissory note was not supported by anyconsideration. From
her testimony and her assertions in the pleadings, it is clear that the promissory note was issued
for a cause or consideration, which, at the veryleast, was Carmela‗s signature on the document.
It may very well be argued that if such was the consideration, it was inadequate. Nonetheless,
even if theconsideration is inadequate, the contract would not be invalidated, unless there
hasbeen fraud, mistake, or undue influence. As previously stated, none of thesegrounds had been
proven present in this case.
 GOLDEN APPLE REALTY AND DEVELOPMENT CORPORATION, et. al., ,
vs.
SIERRA GRANDE REALTY CORPORATION, et. al.,.
G.R. No. 119857July 28, 2010

FACTS:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
nullify and set aside the Decision of the Court of Appeals (CA) dated January 23, 1995 and the
Resolution dated March 28, 1995 in CA-G.R. CV No. 40961.

ISSUE:
Whether or not the CA gravely erred?

HELD:
The petition is unmeritorious. We declare the contracts invalid. We find that there were
badges of fraud showing that the contracts were simulated and fraudulent. First, one of the
vendees, Rosvibon, was incorporated only on July 8, 1985 (Exhibit ―17-A‖). Thus, at the time
the Contract to Sell was executed, Rosvibon Realty Corporation had no legal personality to
purchase the property. Second, the deeds of absolute sale were executed irregularly. The notarial
acknowledgment did not indicate the residence certificates of the vendees which were in fact
obtained subsequent to the date of notarization. This is an anomaly which shows that the deeds of
sale were ante-dated to beat the resolution revoking the vendor's authority to sell. Third, there
was no sufficient consideration paid for the property involved and, worse, was attended with
fraudulent conflict of interest because the vendor, Bernardino Villanueva, was a stockholder of
the buyer corporations. This then refutes the whole discussion of petitioners as to the misuse or
misappreciation of the applicable laws by the CA in arriving at its judgment. Again, an
examination of the CA‗s Decision shows that the phrase did not refer to any particular provision
of a law, hence, the general and ordinary meaning of the phrase prevails. In the same manner,
this Court, in numerous cases[36] concerning various subjects, has used the same phrase in its
rulings referring to the said phrase's general and ordinary meaning. It bears to stress, however,
that the CA did not pass upon the corporate personality of Rosvibon nor did it declare the same
corporation's franchise invalid. Thus, there is no need for a quo warranto proceeding as claimed
by petitioners. The CA merely made the finding which is undisputed by the petitioners that
Rosbivon had no legal personality at the time of the execution of the Contract to Sell. According
to the CA, because of Rosbivon's lack of personality at the time of the execution of the Contract
to Sell, its presence as a party to the same transaction is taken as another indication that fraud
was indeed attendant. This is one of the situations included, and comprising the phrase badges of
fraud. The CA then had a basis in concluding the defect in the notarial requirement of the
transaction. The pertinent provisions of the Notarial Law[39] applicable at that time provides:
Sec. 251. Requirement as to notation of payment of cedula tax – Every contract, deed, or other
document acknowledged before a notary public shall have certified thereon that the parties
thereto have presented their proper cedula certificates or are exempt from the cedula tax, and
these shall be entered by the notary public as a part of such certification, the number, the place of
issues, and date of each cedula certificate as aforesaid. Another issue raised by petitioners is that
the CA erred in voiding the contracts on the ground of insufficiency of consideration or price,
because the claim of inadequacy of price must be proven and that the respondents belatedly
questioned the contracts' validity. They further claim that the consideration was substantial and
adequate.
It must be noted that the property in question, subject of the Contract to Sell for the sum of
P441,032.00, is a land with a contained area of, more or less, One Thousand Nine Hundred and
One (1,901) sq. m. with a two-storey residential building located in Pasay City. In claiming that
the said price of the property is not inadequate, petitioners stated that the payment of Elmer Tan
to pre-terminate Hayari's obligation amounting to Three Million One Hundred Thirty-Four
Thousand Nine Hundred Twenty-One Pesos (P3,134,921.00) as part of the consideration paid for
the property should be included. However, as correctly argued by respondent Sierra Grande, the
amortizations paid by Elmer Tan to Manphil was for a loan incurred by Hayari and not by
respondent Sierra Grande; thus, any payment of the amortizations on the loan of Hayari cannot
be considered as part of the consideration for the sale of the land owned by respondent Sierra
Grande. It is then safe to declare that respondent Sierra Grande did not benefit from the loan or
from its pre-termination. Moreover, the records are bereft of any evidence to support the claim of
petitioners that the sum of money paid by Elmer Tan, on behalf of Hayari, was part of the
consideration for the same property. What only appears is that the only consideration paid for the
sale of the Roberts property was the sum contained in the Contract to Sell, which was
P441,032.00 which, considering the size[40] and location[41] of the property, is inadequate.
What prompted Elmer Tan to pay the total amount of P3,134,921.00 cannot be gleaned from the
records, except that it was for the loan incurred by Hayari, which is an independent juridical
entity, separate and distinct from Sierra Grande. Hence, the CA did not commit any error in
declaring that there was an insufficiency of consideration or price as the same is shown on the
very face of the Contract to Sell. Anent the contention of petitioners that inadequacy of price
does not invalidate a contract, the said rule is not without an exception. As provided in the Civil
Code: Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence. The CA was clear
as to its main reason for invalidating the contracts in question – there was fraud. The inadequacy
of price was merely one of the circumstances upon which the CA was able to find the existence
of fraud and not the main cause for the invalidation of the subject contracts. All the other sub-
issues raised by petitioners are rendered inconsequential by the above disquisitions of this Court.
 ASKAY, plaintiff-appellant,
vs.
FERNANDO A. COSALAN, defendant-appellee.
G.R. NO. 21943 SEPTEMBER 15, 1924

FACTS:
The plaintiff in this case is Askay, an illiterate Igorrote between 70 and 80 years of age,
residing in the municipal district of Tublay, Province of Benguet, who at various times has been
the owner of mining property. The defendant is Fernando A. Cosalan, the nephew by marriage of
Askay, and municipal president of Tublay, who likewise has been interested along with his uncle
in mining enterprises About 1907, Askay obtained title to the Pet Kel Mineral Claim located in
Tublay, Benguet. On November 23, 1914, if we are to accept defendant's Exhibit 1, Askay sold
this claim to Cosalan. Nine years later, in 1923, Askay instituted action in the Court of First
Instance of Benguet to have the sale of the Pet Kel Mineral Claim declared null, to secure
possession of the mineral claim, and to obtain damages from the defendant in the amount of
P10,500. Following the presentation of various pleadings including the answer of the defendant,
and following trial before Judge of First Instance Harvey, judgment was rendered dismissing the
complaint and absolving the defendant from the same, with costs against the plaintiff. On being
informed of the judgment of the trial court, plaintiff attacked it on two grounds: The first,
jurisdictional, and the second, formal. Both motions were denied and an appeal was perfected.

ISSUE:
Whether or not the plaintiff has established his cause of action by a preponderance of the
evidence.

HELD:
Plaintiff contends that the sale of the Pet Kel Mineral Claim was accomplished through
fraud and deceit on the part of the defendant. Plaintiff may be right but in our judgment he has
failed to establish his claim. Fraud must be both alleged and proved. One fact exists in plaintiffs
favor, and this is the age and ignorance of the plaintiff who could be easily by the defendant, a
man of greater intelligence. Another fact is the inadequacy of the consideration for the transfer
which, according to the conveyance, consisted of P1 and other valuable consideration, and
which, according to the oral testimony, in reality consisted of P107 in cash, a bill-fold, one sheet,
one cow, and two carabaos. Gross inadequacy naturally suggest fraud is some evidence thereof,
so that it may be sufficient to show it when taken in connection with other circumstances, such as
ignorance or the fact that one of the parties has an advantage over the other. But the fact that the
bargain was a hard one, coupled with mere inadequacy of price when both parties are in a
position to form an independent judgment concerning the transaction, is not a sufficient ground
for the cancellation of a contract. Against the plaintiff and in favor of the defendant, the Court
had the document itself executed in the presence of witnesses and before a notary public and
filed with the mining recorder. The notary public, NicanorSison, and one of the attesting
witnesses, Apolonio Ramos, testified to the effect that in the presence of the plaintiff and the
defendant and of the notary public and the subscribing witnesses, the deed of sale was interpreted
to the plaintiff and that thereupon he placed his thumb mark on the document. Two finger print
experts, Dr. Charles S. Banks and A. Simkus, have declared in depositions that the thumb mark
on exhibit is that of Askay. No less than four other witnesses testified that at various times Askay
had admitted to them that he had sold the Pet Kel Mine to Fernando A. Cosalan. Having in mind
of these circumstances, how can the plaintiff expect the courts to nullify the deed of sale on mere
suspicion? Having waited nine years from the date when the deed was executed, nine years from
the time Fernando A. Cosalan started developing the mine, nine years from the time Askay
himself had been deprived of the possession of the mine, and nine years permitting of a third
party to obtain a contract of lease from Cosalan, how can the court overlook plaintiff's silent
acquiescence in the legal rights of the defendant? On the facts of record, the trial judge could
have done nothing less than dismiss the action.
 True/Real: Simulation of Contracts

HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE, ,

vs.

RODRIGO N. LIM,.
G.R. No. 152168, DECEMBER 10, 2004

FACTS:
The spouses Aurelio and Esperanza Balite were the owners of a parcel of land at
Catarman, Northern Samar. When Aurelio died intestate, his wife Esperanza and their children
inherited the subject property and became co-owners thereof. In the meantime, Esperanza
became ill and was in dire need of money fro her hospital expenses. She, through her daughter,
Cristeta, offered to sell to Rodrigo Lim, her undivided share for the price of P1,000,000.00.
Esperaza and Rodrigo agreed that under the Deed of Absolute Sale, it will be made to appear that
the purchase price of the property would be P150,000.00 although the actual price agreed upon
by them for the property was P1,000,000.00. On April 16, 1996, Esperanza executed a Deed of
Absolute Sale in favor of Rodrigo. They also executed on the same day a Joint Affidavit under
which they declared that the real price of the property was P1,000,000.00 payable to Esperanza
by installments. Only Esperanza and two of her children Antonio and Cristeta knew about the
said transaction. When the rest of the children knew of the sale, they wrote to the Register of
Deeds saying that their mother did not inform them of the sale of a portion of the said property
nor did they give consent thereto. Nonetheless, Rodrigo made partial payments to Antonio who is
authorized by his mother through a Special Power of Attorney. On October 23, 1996, Esperanza
signed a letter addressed to Rodrigo informing the latter that her children did not agree to the sale
of the property to him and that she was withdrawing all her commitments until the validity of the
sale is finally resolved. On October 31, 1996, Esperanza died intestate and was survived by her
children. Meanwhile, Rodrigo caused to be published in the Samar Reporter the Deed of
Absolute Sale.

ISSUE:
Whether or not there is undervaluation of consideration or the contract is valid.

HELD:
 No. The contract is an example of a simulated contract. Article 1345 of the Civil Code
provides that the simulation of a contract may either be absolute or relative. In absolute
simulation, there is a colorable contract but without any substance, because the parties have no
intention to be bound by it. An absolutely simulated contract is void, and the parties may recover
from each other what they may have given under the ―contract‖. On the other hand, if the
parties state a false cause is relatively simulated. Here, the parties‗ real agreement binds them. In
the present case, the parties intended to be bound by the Contract, even if it did not reflect the
actual purchase price of the property. The letter of Esperanza to respondent and petitioner‗s
admission that there was partial payment made on the basis of the Absolute Sale reveals that the
parties intended the agreement to produce legal effect. Since the Deed of Absolute Sale was
merely relatively simulated, it remains valid and enforceable. All the essential requisites
prescribed by law for the validity and perfection of contracts is present. However, the parties
shall be bound by their real agreement for a consideration of P1,000,000 as reflected by their
Joint Affidavit.
 RAFAEL G. SUNTAY, petitioners,
vs.
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.
G.R. NO. 114950, DECEMBER 19, 1995

FACTS:
Respondent Federico Suntay is the owner of a parcel of land and a rice mill, warehouse,
and other improvements situated in the said land. A rice miller, Federico, in a letter applied as a
miller-contractor of the National Rice and Corn Corporation (NARIC). He informed the NARIC
that he had a daily rice mill output of 400 cavans of palay and warehouse storage capacity of
150,000 cavans of palay.His application, although prepared by his nephew-lawyer, Rafael
Suntay, was disapproved,because at that time he was tied up with several unpaid loans. For
purposes of circumvention, he had thought of allowing Rafael to make the application for him.
Rafael preparedan absolute deed of salewhereby Federico, for and in consideration of
P20,000.00 conveyed to Rafael said parcel of land with all its existing structures. Said deed was
notarized as Document No. 57 and recorded on Page 13 of Book 1, Series of 1962, of the
Notarial Register of Atty. Herminio V. Flores. Less than three months after this conveyance, a
counter sale was prepared and signed by Rafael who also caused its delivery to Federico.
Through this counter conveyance, the same parcel of land with all its existing structures was sold
by Rafael back to Federico for the same consideration of P20,000.00. Although on its face, this
second deed appears to have been notarized as Document No. 56 and recorded on Page 15 of
Book 1, Series of 1962, of the notarial register of Atty. Herminio V. Flores, an examination
thereof will show that, recorded as Document No. 56 on Page 13, is not the said deed of sale but
a certain "real estate mortgage on a parcel of land with TCT No. 16157 to secure a loan of
P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of the same notarial
register could be found any entry pertaining to Rafael's deed of sale. Testifying on this
irregularity, Atty. Flores admitted that he failed to submit to the Clerk of Court a copy of the
second deed. Neither was he able to enter the same in his notarial register. Even Federico himself
alleged in his Complaint that, when Rafael delivered the second deed to him, it was neither dated
nor notarized. Upon the execution and registration of the first deed, Certificate of Title No. 0-
2015 in the name of Federico was cancelled and in lieu thereof, TCT No. T-36714 was issued in
the name of Rafael. Even after the execution of the deed, Federico remained in possession of the
property sold in concept of owner. Significantly, notwithstanding the fact that Rafael became the
titled owner of said land and rice mill, he never made any attempt to take possession thereof at
any time, while Federico continued to exercise rights of absolute ownership over the property. In
a letter, dated August 14, 1969, Federico, through his new counsel, Agrava&Agrava, requested
that Rafael deliver his copy of TCT No. T-36714 so that Federico could have the counter deed of
sale in his favor registered in his name. The request having been obviously turned down,
Agrava&Agrava filed a petition with the Court of First Instance of Bulacan asking Rafael to
surrender his owner's duplicate certificate of TCT No. T-36714. In opposition thereto, Rafael
chronicled the discrepancy in the notarization of the second deed of sale upon which said petition
was premised and ultimately concluded that said deed was a counterfeit or "at least not a public
document which is sufficient to transfer real rights according to law." On September 8, 1969,
Agrava&Agrava filed a motion to withdraw said petition, and, on September 13, 1969, the Court
granted the same. On July 8, 1970, Federico filed a complaint for reconveyance and damages
against Rafael. In his answer, Rafael scoffed at the attack against the validity and genuineness of
the sale to him of Federico's land and rice mill. Rafael insisted that said property was "absolutely
sold and conveyed . . . for a consideration of P20,000.00, Philippine currency, and for other
valuable consideration". While the trial court upheld the validity and genuineness of the deed of
sale executed by Federico in favor of Rafael, which deed is referred to above as Exhibit A, it
ruled that the counter-deed, referred to as Exhibit B, executed by Rafael in favor of Federico,
was simulated and without consideration, hence, null and void ab initio.
Moreover, while the trial court adjudged Rafael as the owner of the property in dispute, it
did not go to the extent of ordering Federico to pay back rentals for the use of the property as the
court made the evidential finding that Rafael simply allowed his uncle to have continuous
possession of the property because or their understanding that Federico would subsequently
repurchase the same. From the aforecited decision of the trial court, both Federico and Rafael
appealed. The Court of Appeals rendered judgment affirming the trial court's decision, with a
modification that Federico was ordered to surrender the possession of the disputed property to
Rafael. Counsel of Federico filed a motion for reconsideration of the aforecited decision. While
the motion was pending resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of
the heirs of Rafael who had passed away on November 23, 1988. Atty. Fojas prayed that said
heirs be substituted as defendants-appellants in the case. The prayer for substitution was duly
noted by the court in a resolution dated April 6, 1993. Thereafter, Atty. Fojas filed in behalf of
the heirs an opposition to the motion for reconsideration. The parties to the case were heard on
oral argument on October 12, 1993. On December 15, 1993, the Court of Appeals reversed itself
and rendered an amended judgment.
ISSUE:
Whether or not the deed of sale executed by Federico in favor of Rafael is simulated and
fictitious and, hence, null and void.

HELD:
In the aggregate, the evidence on record demonstrate a combination of circumstances
from which may be reasonably inferred certain badges of simulation that attach themselves to the
deed of sale in question. The complete absence of an attempt on the part of the buyer to assert his
rights of ownership over the land and rice mill in question is the most protuberant index of
simulation. The deed of sale executed by Federico in favor of his now deceased nephew, Rafael,
is absolutely simulated and fictitious and, hence, null and void, said parties having entered into a
sale transaction to which they did not intend to be legally bound. As no property was validly
conveyed under the deed, the second deed of sale executed by the late Rafael in favor of his
uncle, should be considered ineffective and unavailing. The allegation of Rafael that the lapse of
seven years before Federico sought the issuance of a new title in his name necessarily makes
Federico's claim stale and unenforceable does not hold water. Federico's title was not in the
hands of a stranger or mere acquaintance; it was in the possession of his nephew who, being his
lawyer, had served him faithfully for many years. Federico had been all the while in possession
of the land covered by his title and so there was no pressing reason for Federico to have a title in
his name issued. Even when the relationship between the late Rafael and Federico deteriorated,
and eventually ended, it is not at all strange for Federico to have been complacent and
unconcerned about the status of his title over the disputed property since he has been possessing
the same actually, openly, and adversely, to the exclusion of Rafael. It was only when Federico
needed the title in order to obtain a collaterized loan that Federico began to attend to the task of
obtaining a title in his name over the subject land and rice mill.
 Cause v. Motive

WILLIAM UY and RODEL ROXAS,,

v.

COURT OF APPEALS, et. al.,.

G.R. No. 109557September 9, 1999

FACTS:
Petitioners William Uy and RodelRoxas are agents authorized to sell eight (8) parcels of
land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands,
located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to be
utilized and developed as a housing project. On February 14, 1989, NHA approved the
acquisition of the said parcels of land with an area of 31.8231 hectares at the cost of P23.867
million, pursuant to which the parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of lands, however, only five were paid for by the NHA
because of the report it received from the Land Geosciences Bureau of the Department of
Environment and Natural Resources that the remaining area is located at an active landslide area
and therefore, not suitable for development into a housing project. NHA eventually cancelled the
sale over the remaining three (3) parcels of land. On March 9, 1992, petitioners filed a complaint
for damages. After trial, the RTC of Quezon City rendered the cancellation of contract to be
justified and awarded P1.255 million as damages in favor of petitioners. Upon appeal by
petitioners, the Court of Appeals reversed the decision and entered a new one dismissing the
complaint including the award of damages. The motion for reconsideration having been denied,
petitioners seek relief from this court contending, inter alia, that the CA erred in declaring that
NHA had any legal basis to rescind the subject sale.

ISSUE:
Whether or not a party‗s motive in entering into a contract affects the validity of the
contract.

HELD:
As a general rule, a party‗s motives for entering into a contract do not affect the contract.
However, when the motive predetermines the cause, the motive may be regarded as the cause. As
held in Liguez v. CA, it is well to note, however, that Manresa himself, while maintaining the
distinction and upholding the inoperativess of the motives of the parties to determine the validity
of the contract, expressly excepts from the rule those contracts that are conditioned upon the
attainment of the motives of either party. The same view is held by the Supreme Court of Spain,
in its decisions of Fevruary 4, 1941 and December 4, 1946, holdinmg that the motive may be
regarded as causa when it predermones the purpose of the contract.
 Onerou
s

PENTACAPITAL INVESTMENT CORPORATION, ,

v.

MAKILITO B. MAHINAY,.
G.R. No. 171736, July 5, 2010

FACTS:
Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay
based on two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00,
or a total amount of P1,936,800.00. These loans were evidenced by two promissory notesdated
February 23, 1996. Despite repeated demands, respondent failed to pay the loans, hence, the
complaint. Respondent explained that he was the counsel of Ciudad Real Development Inc.
(CRDI). In 1994, Pentacapital Realty Corporation offered to buy parcels of land known as the
Molino Properties. As the Molino Properties were the subject of a pending case, Pentacapital
Realty paid only the down payment amounting to P12,000,000.00. CRDI allegedly instructed
Pentacapital Realty to pay the former‗s creditors, including respondent who thus received a
check worth P1,715,156.90.It was further agreed that the balance would be payable upon the
submission of an Entry of Judgment showing that the case had been decided in favor of CRDI.

ISSUE:
Whether or not admission of respondent‗s supplemental compulsory counterclaim is
proper and is barred by res judicata..

HELD:
It is obvious that the alleged obligation of petitioner already existed and was known to
respondent at the time of the filing of his answer with counterclaim. He should have demanded
payment of his commission and share in the proceeds of the sale in that Answer with
Compulsory Counterclaim, but he did not. He is, therefore, proscribed from incorporating the
same and making such demand via a supplemental pleading. The promissory notes clearly stated
that respondent promised to pay petitioner P1,520,000.00 and P416,800.00, plus interests and
penalty charges, a year after their execution. Nowhere in the notes was it stated that they were
subject to a condition. As correctly observed by petitioner, respondent is not only a lawyer but a
law professor as well. This militates against respondent‗s claim that there was indeed such an
agreement. Thus, the promissory notes should be accepted as they appear on their face. It is well-
settled that when material facts or questions in issue in a former action were conclusively settled
by a judgment rendered therein, such facts or questions constitute res judicata and may not again
be litigated in a subsequent action between the same parties or their privies regardless of the
form of the latter. The first case originated from an interlocutory order of the RTC, while the
second case is an appeal from the decision of the court on the merits of the case.
 Remuneratory

Heirs of Ramon C. Gaite, et. al.,

v.

The Plaza, Inc. and FGU Corporation,

G.R. No. 177685, January 26, 2011

FACTS:
On July 16, 1980, The Plaza, Inc., through its President, Jose C. Reyes, entered into a
contractwith Rhogen Builders, represented by Ramon C. Gaite, for the construction of a
restaurant building in Greenbelt, Makati for the price of P7,600,000.00. On July 18, 1980, to
secure Rhogen‗s compliance with its obligation, Gaite and FGU Insurance Corporation (FGU)
executed a surety bond in favor of The Plaza. Thereafter, Rhogen commenced construction of the
restaurant building. September 10, 1980, Engineer Angelito Z. Gonzales, ordered Gaite to cease
and desist from continuing with the construction of the building for violation of Sections 301 and
302 of the National Building Code (P.D. 1096) and its implementing rules and regulations. On
October 7, 1980, Gaite wrote Reyes, regarding his actions/observations on the stoppage order
issued.On the permit for temporary structure, Gaite said the plans were being readied for
submission to the Engineering Department of the Municipality of Makati and the application was
being resent to Reyes for his appropriate action. Gaite thus thought that Reyes would handle the
matter by himself. In his reply-letter Reyes asserted that The Plaza is not the one to initiate a
solution to the situationarising from non-performance of its own contractual undertakings, and
that The Plaza has its rights and remedies to protect its interest.

ISSUE:
Whether or not petitioner is liable for damages.

HELD:
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable
value of the thing or services rendered despite the lack of a written contract, in order to avoid
unjust enrichment. In the case at bar, Rhogen failed to finish even a substantial portion of the
works due to the stoppage order issued just two months from the start of construction. Despite
the down payment received from The Plaza, Rhogen, was able to complete a meager percentage
much lower than that claimed. Moreover, Rhogen was found to have executed the works not in
accordance with the approved plans or failed to seek prior approval of the Municipal Engineer.
Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something
fails to do it, the same shall be executed at his cost. The court held that Rhogen committed a
serious breach of its contract with The Plaza, which justified the latter in terminating the
contract. Petitioners are thus liable for damages for having breached their contract with
respondent The Plaza.
 HICOBLINO M. CATLY, Petitioner,

v.

William Navarro, et. al., Respondents

G.R. No. 167239, May 5, 2010

FACTS:
Respondents Navarro, et al. filed a Complaintdated September 6, 1993 against Las Piñas
Ventures, Inc., now substituted by herein respondent Ayala Land, Inc., for annulment of TCT No.
T-5332 and recovery of possession with damagesrepresented by petitioner.Respondents alleged
that they owned and occupied 32 hectares of land which were registered in the name of their
predecessors-in-interest in 1920, as evidenced by tax declarations; that after conducting a
relocation survey, a portion of their land was included in a parcel of land covered by TCT No. T-
5332, registered in the name of Las Piñas Ventures, Inc. On May 14, 1997, petitioner filed a
Manifestation and Motionalleging that he was not consulted when therein heirs signed the MOA
with ALI; that his Contract for Legal and Other Valuable Services, wherein respondents engaged
his services as counsel, be noted on record; that should there be an amicable settlement of the
case, his attorney‗s fees should be awarded in full as stipulated in the contract to fully
compensate his efforts in representing herein respondents and therein heirs; and that the trial
court issued an order confirming his right to collect his attorney‗s fees to the exclusion of the
other agents and financiers.

ISSUE:
Whether or not the award of P30,000,000.00 as petitioner‗s total attorney‗s fees would
be appropriate.

HELD:
What petitioner sought in his earlier pleadingswas the execution and implementation of
the July 22, 1997 Separate Judgment which declared that in view of the terms and conditions
agreed upon by the parties under the Amendatory Agreement dated May 27, 1997, respondent
ALI is directed to immediately release the sum of P20,000,000.00 in favor of the petitioner as his
attorney‗s fees. The Court held that the Trial Court‗s Decision justifying the reduction of
attorney‗s fees would be downright unfair, especially since the settlement price was not entirely
allocated to his clients. The trial court should have taken the principle of quantum meruit with
regard to engagement of petitioner as respondents‗ counsel, the concept of compromise
agreement entered into by the parties. The amicable settlement was paid not only to the 8
respondents, but also to 66 other individuals (who had no written contract with petitioner, but
was assisted by the petitioner in the execution of the MOA and the Joint Motion for Judgment
Based on Compromise). Petitioner actively represented respondents and that for and in
consideration of the legal services rendered by petitioner, contribute 25% of the total area
recovered from Las Piñas Ventures, Inc. or its equivalent in cash upon successful termination of
court litigation; and that all litigation expenses shall be on the account of the petitioner‗s law
firm.The court held the amount of reasonable attorney‗s fees, on quantum meruit basis, that
petitioner Hicoblino M. Catly, now deceased and substituted by his wife, Lourdes A. Catly,
would be entitled to.
 Gratuitous

CONCHITA LIGUEZ, ,
vs.
THE HONORABLE COURT OF APPEALS, et. al.,
G.R. No. L-11240, December 18, 1957

FACTS:
The case began upon complaint filed by petitioner-appellant against the widow and heirs
of the late Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio
Bogac-Linot, of the municipality of Mati, Province of Davao. Plaintiff averred to be its legal
owner, pursuant to a deed of donation of said land, executed in her favor by the late owner,
Salvador P. Lopez, on 18 May 1943. The defense interposed was that the donation was null and
void for having an illicit causa or consideration, which was the plaintiff's entering into marital
relations with Salvador P. Lopez, a married man; and that the property had been adjudicated to
the appellees as heirs of Lopez by the court of First Instance, since 1949.

ISSUE:
Whether or not the Deed of Donation is valid and enforceable.

HELD:
Under Article 1412states that if the act in which the unlawful or forbidden cause does not
constitute a criminal offense, and when only one of the contracting parties is at fault, he cannot
recover, what he has given by reason of the contract, or ask for fulfilment of what has been
promised him. The other, who is not at fault, may demand the return of what he has given
without any obligation to comply with his promise. The prima facie donation inter vivos and its
acceptance by the donees having been proved by means of a public instrument, and the donor
having been duly notified of said acceptance, the contract is perfect and obligatory and it is
perfectly in order to demand its fulfilment, unless an exception is proved which is based on some
legal reason opportunely alleged by the donor or her heirs. So long as the donation in question
has not been judicially proved and declared to be null, inefficacious, or irregular, the land
donated is of the absolute ownership of the donees and consequently, does not form a part of the
property of the estate of the deceased Martina Lopez; wherefore the action instituted demanding
compliance with the contract, the delivery by the deforciant of the land donated, or that it be,
prohibited to disturb the right of the donees, should not be considered as incidental to the probate
proceedings aforementioned. In view of the foregoing, the decisions appealed from are reversed
and set aside, and the appellant Conchita Liguez declared entitled to so much of the donated
property as may be found, upon proper liquidation, not to prejudice the share of the widow Maria
Ngo in the conjugal partnership with Salvador P. Lopez or the legitimes of the forced heirs of the
latter.
 PHILIPPINE BANKING CORPORATION,
vs.
LUI SHE,
G.R. No. L-17587, September 12, 1967

FACTS:
90 years old, blind, crippled and an invalid, Justina Santos was left with no other relative
to live with inherited parcels of land in Manila. Wong, a lessee, was the trusted man to whom she
delivered various amounts for safekeeping. On November 15, 1957 she executed a contract of
lease for 50 years in favor of Wong, covering the portion then already leased to him and another
portion fronting Florentino Torres street. On December 21 she executed another contract giving
Wong the option to buy the leased premises for P120,000, payable within ten years at a monthly
installment of P1,000. The option was conditioned on his obtaining Philippine citizenship. On
October 28, 1958 she filed a petition to adopt him and his children on the erroneous belief that
adoption would confer on them Philippine citizenship. On November 18, 1958 she executed two
other contracts, one extending the term of the lease to 99 years, and another fixing the term of the
option of 50 years. In two wills executed on August 24 and 29, 1959, she bade her legatees to
respect the contracts she had entered into with Wong, but in a codicil she appears to have a
change of heart. Claiming that the various contracts were made by her because of machinations
and inducements practiced by him, she now directed her executor to secure the annulment of the
contracts.

ISSUE:
Whether or not the contracts entered into by the parties are void.
HELD:
The court held that under the Constitution, aliens may not acquire private or public
agricultural lands, including residential lands, and, accordingly, judgment was affirmed.That
policy would be defeated and its continued violation sanctioned if, instead of setting the
contracts aside and ordering the restoration of the land to the estate of the deceased Justina
Santos, thus, the Court applied the general rule of pari delicto. The claim of Justina Santos
totalling P37,235, as rentals due to her after deducting various expenses, should be rejected as
the evidence is none too clear about the amounts spent by Wong for food masses and salaries of
her maids.His claim for P9,210.49 must likewise be rejected as his averment of liquidation is
belied by his own admission that even as late as 1960 he still had P22,000 in the bank and
P3,000 in his possession.Both claims were denied. The contracts in question were annulled and
set aside; the land subject-matter of the contracts is ordered returned to the estate of Justina
Santos as represented by the Philippine Banking Corporation; Wong Heng is ordered to pay the
PNB the sum of P56,564.35, with legal interest from the date of the filing of the amended
complaint; and the amounts consigned in court by Wong Heng shall be applied to the payment of
rental from November 15, 1959 until the premises shall have been vacated by his heirs.
 Form for Validity

SONIA F. LONDRES, et. al.,

v.

THE COURT OF APPEALS, et. al..

G.R. No. 136427, December 17, 2002

FACTS:
The present case stemmed from a battle of ownership over Lots 1320 and 1333 both
located in Barrio Baybay, Roxas City, Capiz. Paulina Arcenas originally owned these two parcels
of landpassed to her daughter, Filomena VidaI. The surviving children of Filomena, now claim
ownership over Lots 1320 and 1333.On the other hand, private respondents Consolacion Alivio
Alovera and Elena Alovera Santos anchor their right of ownership on the Absolute Sale executed
by Filomena on April 24, 1959. On March 30, 1989, petitioners filed a complaint for the
declaration of nullity of contract, damages and just compensation. Petitioners sought to nullify
the Absolute Sale and to recover just compensation from public respondents Department of
Public Works and Highways and Department of Transportation and Communication.

ISSUE:
Whether or not the Deed of Absolute Sale was valid and enforceable.

HELD:
A contract of sale is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price. Being consensual, a contract of sale
has the force of law between the contracting parties and they are expected to abide in good faith
with their respective contractual commitments. Article 1358 of the Civil Code, which requires
certain contracts to be embodied in a public instrument, is only for convenience, and registration
of the instrument is needed only to adversely affect third parties.Formal requirements are,
therefore, for the purpose of binding or informing third parties. Non-compliance with formal
requirements does not adversely affect the validity of the contract or the contractual rights and
obligations of the parties. It must be pointed out that when private respondents and Filomena
executed the sale in 1959, they based the description of the two lots on the tax declarations of
Filomena. Early tax declarations are, more often than not, based on approximation or estimation
rather than on computation. This is understandably so because of the absence then of technical
knowledge in the accurate measurement of lands.What really defines a piece of land is not the
area mentioned in its description, but the boundaries therein laid down, as enclosing the land and
indicating its limits.In this case, the boundaries of the two lots are sufficiently designated in the
Absolute Sale, leaving no room to doubt the identity of the objects of the sale.Applying Article
1370 of the Civil Code,the Court of Appeals agreed with the trial court that there could be no
room for interpretation as to the intention of the parties on the objects of their contract. Thus, the
Deed of Absolute Sale was valid and binding, therefore enforceable. Form for Convenience
 SPS. ANTONIO & LETICIA VEGA,

v.

SOCIAL SECURITY SYSTEM (SSS),.

G.R. No. 181672, September 20, 2010

FACTS:
Magdalena V. Reyes owned a piece of titled land in Pilar Village, Las Piñas City. On
August 17, 1979 she got a housing loan from respondent Social Security System (SSS) for which
she mortgaged her land. In late 1979, she asked the petitioner spouses to assume the loan and
buy her house and lot. Vegas agreed for Reyes to execute in their favor a deed of assignment of
real property with assumption of mortgage. The Vegas then took possession of the house in
January 1981. Reyes left the country and gave her sister, Julieta Reyes Ofilada, a special power
of attorney to convey ownership of the property. Sometime between 1983 and 1984, Ofilada
finally executed the deed promised. Ofilada kept the original and gave the Vegas two copies.
Unfortunately, a storm in 1984 resulted in a flood that destroyed the copy left with them.In 1992,
the Vegas learned that Reyes did not update the amortizations so the Vegas updated the
amortization themselves and paid P115,738.48 to the SSS, through Antonio Vega‗s personal
check. On April 16, 1993 respondent Pilar Development Corporation (PDC) filed an action for
sum of money against Reyes. PDC claimed that Reyes borrowed from Apex Mortgage and Loans
Corporation. Apex then assigned Reyes credit to the PDC hence, the suit for recovery of
debt.Unable to pay, on January 5, 1994 the RTC issued a writ of execution against Reyes and its
Sheriff levied on the property in Pilar Village.
ISSUE:
Whether or not the Vegas presented adequate proof of Reyes‗ sale of the subject property
to them.

HELD:
The court ruled that the Vegas were unable to prove that Reyes assigned the subject
property to them, given that they failed to present the deed of assignment in their favor upon a
claim that they lost it. But the rule requiring the presentation of the original of that deed of
assignment is not absolute.Secondary evidence of the contents of the original can be adduced,
when the original has been lost without bad faith on the part of the party offering it. Here, not
only did the Vegas prove the loss of the deed of assignment in their favor and what the same
contained, they offered strong corroboration of the fact of Reyes sale of the property to them.
They took possession of the house and lot after they bought it. Indeed, they lived on it and held it
in the concept of an owner for 13 years before PDC came into the picture. They also paid all the
amortizations to the SSS with Antonio Vega‗s personal check, even those that Reyes promised to
settle but did not. And when the SSS wanted to foreclose the property, the Vegas sent a
manager‗s check to it for the balance of the loan.Neither Reyes nor any of her relatives came
forward to claim the property. The Vegas amply proved the sale to them. Therefore, the sale was
valid and binding.
 CLARA M. BALATBAT, ,

v.

COURT OF APPEALS, et. al.

G.R. No. L-36378, January 27, 1992

FACTS:
Petitioner is the agricultural lessee of a parcel of land located at Santiago, Sta. Ana,
Pampanga which is owned by Daniel Garcia. The latter sold the land to private respondent
Domingo Pasion and had declared for taxation purposes under Tax Declaration No. 126.
Sometime after the sale, Domingo Pasion, on a claim that he will personally cultivate the land,
filed on 15 June 1970 with the Court of Agrarian Relations, a complaint to eject petitioner
alleging therein that he had notified petitioner of his intention to personally cultivate the
landholding, but despite the lapse of one (1) agricultural year from receipt of the notice thereof,
petitioner refused to vacate the land.

ISSUE:
Whether or not respondent‗s personal cultivation is no longer a ground to dispossess an
agricultural lessee of his landholding.

HELD:
Presidential Decree No. 27 provides:In all cases, the landowner may retain an area of not
more than seven hectares if such landowner is cultivating such area or will now cultivate it.The
redistribution of land, restructuring of property ownership, democratization of political power,
and implementation of social justice do not require that a landowner should be deprived of
everything he owns and that even small parcels as in these two cases now before us may not be
worked by the owner himself. The evil sought to be remedied by agrarian reform is the ancient
anachronism where one person owns the land while another works on it. The evil is not present
in cases of personal cultivation by the owner. Taking over by the landowner is subject to strict
requirements. In addition to proof of ownership and the required notices to the tenant, the bona-
fide intention to cultivate must be proved to the satisfaction of the court. And as earlier stated,
the tenant is protected in case the owner fails to cultivate the land within one year or to work the
land himself for three years. The seven hectares retention under P.D. No. 27 is applicable only to
landowners who do not own other agricultural lands containing an aggregate of more than seven
hectares or lands used for residential, commercial, industrial, or other urban purposes where they
derive adequate income to support themselves and their families.
 UNIVERSAL ROBINA SUGAR MILLING CORPORATION, ,

v.

HEIRS OF ANGEL TEVES, .

G. R. No. 128574, September 18, 2002

FACTS:
Andres Abanto (deceased) owned two parcels of land situated in Campuyo, Manjuyod,
Negros Oriental. One lot is registered in his name, the other lot is unregistered. On October 19,
1974, Andres Abanto's heirs executed an Extrajudicial Settlement of the Estate of the Deceased
Andres Abanto and Simultaneous Sale. Abanto's heirs adjudicated unto themselves the two lots
and sold the (a) unregistered lot of 193,789 square meters to the United Planters Sugar Milling
Company, Inc. (UPSUMCO), and (b) the registered lot covered by TCT No. H-37 to Angel M.
Teves. Out of respect for his uncle Ignacio Montenegro, Teves verbally allowed UPSUMCO to
use the lot covered by TCT No. H-37 for pier and loading facilities, free of charge, subjectto the
condition that UPSUMCO shall shoulder the payment of real property taxes and that its
occupation shall be co-terminus with its corporate existence. Years later, UPSUMCOs properties
were acquired by the Philippine National Bank, transferred to the Asset Privatization Trust then,
sold the same to Universal Robina Sugar Milling Corporation (URSUMCO). Upon learning of
URSUMCO's acquisition of his lot, Teves formally asked the corporation to turn over to him
possession thereof or the corresponding rentals.

ISSUE:
Whether or not respondents have established a cause of action against petitioner.

HELD:
. In a contract of sale, title to the property passes to the vendee upon delivery of the thing
sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to
pass to the vendee until full payment of the purchase price. In the case at bar, the subject
contract, duly notarized, provides:Extrajudicial Settlement of the Estate of the Deceased Andres
Abanto and Simultaneous Sale‖ and a certified true copy of TCT No. H-37 covering the disputed
lot. It is clear from the said instrument that the amount of P115,000.00 refers to the price for the
two lots as a whole. That the contract of sale was not registered does not affect its validity. Being
consensual in nature, it is binding between the parties, the Abanto heirs and Teves. Article 1358
of the New Civil Code, which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and the registration of the instrument would merely
affectthird persons.Formalities intended for greater efficacy or convenience or to bind third
persons, if not done, would not adversely affect the validity or enforceability of the contract
between the contracting parties themselves. Thus, by virtue of the valid sale, Angel Teves
stepped into the shoes of the heirs of Andres Abanto and acquired all their rights to the property.
 Reformation of Instruments, When
Prohobited

RITA SARMING, RUFINO SARMING, et. al., ,

v.

CRESENCIO DY, et. al..

G.R. No. 133643, June 6, 2002

FACTS:
After the death of Valentina Unto Flores, her three children, Jose, Venancio, and Silveria,
took possession of Lot 5734 with each occupying a one-third portion. The other parcel, Lot 4163
which is solely registered under the name of Silveria, was sub-divided between Silveria and Jose.
In January 1956, grandchildren of Jose, entered into a contract with plaintiff Alejandra Delfino,
for the sale of one-half share of Lot 4163 after offering the same to their co-owner, Silveria, who
declined for lack of money. Alejandras lawyer, prepared a notarized Settlement of Estate and
Sale of the delivered Original Certificate of Title No. 4918-A, covering Lot No. 5734, and not
the correct title covering Lot 4163. Two years later, when Alejandra discovered that what was
designated in the deed, Lot 5734, was the wrong lot, she inquired from the Registry of Deeds.
Alejandra Delfino paid the necessary fees so that the title to Lot 4163 could be released to
Silveria Flores, who promised to turn it over for the reformation of the deed of sale.

ISSUE:
Whether or not there is a cause of action for reformation of instrument and if reformation
is proper.

HELD:
Petitioners contend that there is no cause of action against them and their predecessor-in-
interest, Silveria Flores, because she and they were not parties to the contract sought to be
reformed.However, a close perusal of the deed would show that Silveria Flores was a party to the
contract. Her name did not appear as one of the sellers of half lot to Alejandra Delfino because
she never sold her share. It is established that it was Silveria Flores herself who delivered the
subject lot to the vendee Alejandra Delfino. The test of sufficiency of the facts found in a
complaint as constituting a cause of action is whether or not, admitting the facts alleged, the
court can render a valid judgment upon the same in accordance with the prayer in the complaint.
An examination of the complaintshows herein respondents, as plaintiffs in the trial court, are
entitled to the relief of reformation of instrument if the factual allegations of respondents are
deemed admitted: (1) that Silveria is a co-owner of Lots No. 5734 and 4163, in different shares;
(2) that the heirs of Jose, her co-owner in Lot No. 4163, offered to sell to her their one-half share
but she declined for lack of money; (3) that said share was later sold to Alejandra; (4) that
Silveria was asked to deliver the title of Lot No. 4163 but instead she delivered the title of Lot
No. 5734; (5) that after the sale, Alejandra occupied one-half portion of Lot No. 4163 while Lot
No. 5734 was still in the possession of Venancio and the heirs of Maxima and Silveria; (6) that it
was only when Alejandra was about to buy the adjacent lot that she realized that what was
indicated in the Settlement of Estate and Sale was Lot No. 5734 and not 4163. In sum, the court
find plaintiffs alleged sufficient facts in the complaint that properly constituted a cause of action
against the defendants. The court ordered that the document entitled Settlement of Estate and
Sale be reformed by changing the phrase Lot 5734 to Lot 4163 found in the sixth paragraph of
the deed, thereby ceding in favor of respondents one-half portion of Lot 4163 instead of Lot
5734.
 CEBU INTERNATIONAL FINANCE CORPORATION, ,
vs.
COURT OF APPEALS, VICENTE ALEGRE, .
G.R. No. 123031, October 12, 1999

FACTS:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged
in money market operations.On April 25, 1991, private respondent, Vicente Alegre, invested with
CIFC, five hundred thousand (P500,000.00) pesos, in cash. Petitioner issued a promissory note to
mature on May 27, 1991. On May 27, 1991, CIFC issued BPI Check No. 513397 in favor of the
private respondent as proceeds of his matured investment plus interest. The CHECK was drawn
from petitioners current account number 0011-0803-59, maintained with the Bank of the
Philippine Islands (BPI), main branch at Makati City.On June 17, 1991, private respondents wife
deposited the CHECK with Rizal Commercial Banking Corp. (RCBC), in Puerto Princesa,
Palawan. BPI dishonored the CHECK with the annotation, that the Check (is) Subject of an
Investigation. BPI took custody of the CHECK pending an investigation of several counterfeit
checks drawn against CIFCs aforestated checking account. BPI used the check to trace the
perpetrators of the forgery.Immediately, private respondent notified CIFC of the dishonored
CHECK and demanded, on several occasions, that he be paid in cash. CIFC refused the request,
and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI.
Thereafter, private respondent, through counsel, made a formal demand for the payment of his
money market placement. In turn, CIFC promised to replace the CHECK but required an
impossible condition that the original must first be surrendered.

ISSUE:
Whether or not the payment of negotiable instrument is a valid tender of payment.

HELD:
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan. The private respondent accepted the CHECK, instead of
requiring payment in money. Yet, when he presented it to RCBC for encashment, as early as June
17, 1991, the same was dishonored by non-acceptance. These facts were testified to by BPIs
manager. Under these circumstances, and after the notice of dishonor, the holder has an
immediate right of recourse against the drawer, and consequently could immediately file an
action for the recovery of the value of the check.In a loan transaction, the obligation to pay a sum
certain in money may be paid in money, which is the legal tender or, by the use of a check. A
check is not a legal tender, and therefore cannot constitute valid tender of payment. 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 managers check or
ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized as stated
under Article 1249 of the Civil Code.
 Interpretation of Contracts

ADR SHIPPING SERVICES, INC., ,

v.

MARCELINO GALLARDO and Court of Appeals,.

G.R. No. 134873, September 17, 2002

FACTS:
Petitioner ADR Shipping Services, Inc. entered into a contract with private respondent
Gallardo for the use of the former‗s vessel MV Pacific Breeze to transport logs to Taiwan. The
logs were the subject of a sales agreement between private respondent as seller being a timber
concessionaire and log dealer, and Stywood Philippines, as buyer. Private respondent paid an
advance charter fee of P242,000 representing ten percent of the agreed charter fee. Under the
charter agreement, the boat should be ready to load by February 5, 1988. The boat failed to arrive
on time, prompting private respondent to notify petitioner of its cancellation of the charter
contract and the withdrawal of the advance payment deposited to the account of ADR shipping.
ADR Shipping refused to return the advance payment to Gallardo claiming that the agreement on
the date of February 5, 1988 was just the ―reference commencing date‖ and the true loading
date was February 16, 1988. This prompted the latter to file a case for sum of money and
damages. The Regional Trial Court ordered ADR Shipping to pay Gallardo the advance payment
with 6 percent interest per annum and attorney‗s fees. The decision of the trial court was
affirmed by the Court of Appeals. Hence, this petition.

ISSUE:
Whether or not private respondent is entitled to the refund of the advance payment
representing his deposit for the charter of the ship provided by petitioner.

HELD:
Private respondent is entitled to the refund of the advance payment it made to petitioner.
There was ambiguity in the interpretation of the contract provisions as to the date of the loading
of the ship. Ambiguities in a contract are interpreted strictly, albeit not unreasonably, against the
drafter thereof when justified in light of the operative facts and surrounding circumstances. In
this case, ambiguity must be construed strictly against ADR which drafted and caused the
inclusion of the ambiguous provisions. The charter agreement explicitly states that February 5,
1988 is the intended date when the ship is expected ready to load while February 16, 1988 is
merely the canceling date. Considering that the subject contract contains the foregoing express
provisions, the parties have no other recourse but to apply the literal meaning of the stipulations.
The cardinal rule is that when the terms of the contract are clear, leaving no doubt as to the
intention of the parties, the literal meaning of its stipulations is controlling. Pursuant to the
provision of Art 1191 of the Civil Code, the power to rescind obligations is implied in reciprocal
ones in case one of the obligors should not comply with what is incumbent upon him, and the
injured party may rescind the obligation, with payment of damages. In this case the private
respondent is entitled to the return of his down payment, subject to a legal interest of 6 percent
per annum, and to the payment of damages.
 In Case of Doubt

Valentin Movido,

v.

Luis Reyes Pastor,

G.R. No. 172279, February 11, 2010

FACTS:
Respondent Luis Reyes Pastor filed a complaint for specific performance in the Regional
Trial Court (RTC) of Imus, Cavite, praying that petitioner Valentin Movido be compelled to
cause the survey of a parcel of land subject of their contract to sell. In his complaint, respondent
alleged that he and petitioner executed a kasunduan sa bilihan ng lupa where the latter agreed to
sell a parcel of land located in Paliparan, Dasmariñas, Cavite with an area of some 21,000 sq. m.
out of the 22,731 sq. m. covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq.
m. Respondent further alleged that another kasunduan was later executed supplementing the
kasunduan sa bilihan ng lupa. It provided that, if a Napocor power line traversed the subject lot,
the purchase price would be lowered to P200/sq. m. beyond the distance of 15 meters on both
sides from the center of the power line while the portion within a distance of 15 meters on both
sides from the center of the power line would not be paid. Respondent likewise claimed that
petitioner undertook to cause the survey of the property in order to determine the portion affected
by the Napocor power line. Lastly, respondent alleged that he already paid petitioner P5 million
out of the original purchase price of P8.4 million stated in the kasunduan sa bilihan ng lupa. He
was willing and ready to pay the balance of the purchase price but due to petitioner‗s refusal to
have the property surveyed despite incessant demands, his unpaid balance could not be
determined with certainty.

ISSUE:
Whether or not the petitioner‗s contention that it was the kasunduan, not the kasunduan
sa bilihan ng lupa, which was first executed by the parties is correct.

HELD:
 The issue of which of the two contracts was first executed by the parties is immaterial to
the resolution of this case. In the first place, both contracts were executed and notarized on the
same day, December 6, 1993. More importantly, both contracts, even independent of the time of
their execution but, taken together, clearly spell out in full the respective rights and obligations of
the parties. Indeed, a reading of the kasunduan sa bilihan ng lupa and the kasunduan would
readily reveal that payment of the purchase price does not depend on the survey of the property.
In other words, the purchase price should be paid whether or not the property is surveyed. The
survey of the property is important only insofar as the right of respondent to the reduction of the
purchase price is concerned. On the other hand, the survey of the property to determine the metes
and bounds of the 1,731 sq. m. portion that is excluded from the contract as well as the portions
covered by the kasunduan which will be subject to reduction of the purchase price, is also not
conditioned on the payment of any installment. Petitioner simply has to do it. In fact, under the
kasunduan sa bilihan ng lupa, the survey should be done before the date of the last installment.
Hence, the survey could have been done anytime after the execution of the agreement.
 TSPIC Corporation,

v.

TSPIC Employees Union (FFW),

G.R. No. 163419, February 13, 2008

FACTS:
TSPIC is engaged in the business of designing, manufacturing, and marketing integrated
circuits to serve the communication, automotive, data processing, and aerospace industries.
TSPIC Employees Union (Union), on the other hand, is the registered bargaining agent of the
rank-and-file employees of TSPIC. TSPIC and the Union entered into a Collective Bargaining
Agreement. As a result all the regular rank-and-file employees of TSPIC received a 10% increase
in their salary. A wage order was issued by the National Capital Region which raised the daily
minimum wage from PhP 223.50 to PhP 250, hence, the wages of 17 probationary employees
were increased to PhP 250.00. TSPIC implemented the new wage rates as mandated by the CBA.
As a result several employees received fewer wage. A few weeks after the salary increase for the
year 2001 became effective, TSPIC notified some of their employees were overpaid and the
overpayment would be deducted from their salaries in a staggered basis.

ISSUE:
Whether or not deduction of the alleged overpayment from the salaries of the affected
members of the Union constitute diminution of benefits in violation of law.

HELD:
The deduction of the alleged overpayment from the salaries of the respondents is a valid
act. The CBA provided in its provision in the computation for the increase in TSPIC‗s
employees, hence, the intention therein must be pursued basing on the principle that littera necat
spiritus vivificate. The fundamental doctrine in labor law that the CBA is the law between the
parties and they are obliged to comply with its provisions. Therefore, the error found by TSPIC
in pursuance to the terms in the CBA must be sustained. The Court also agrees that TSPIC in
charging the overpayments made to the respondents through staggered deductions from their
salaries does not constitute diminution of benefits. Any amount given to the employees in excess
of what they were entitled to, as computed above, may be legally deducted by TSPIC from the
employees‗ salaries because on the first place that excess was not vested in them legally as a
right because that will amount to unjust enrichment.
 Sps. Rafael and Zenaida Estanislao,

v.

East West Banking Corporation,

G.R. No. 178537, February 11, 2008

FACTS:
Spouses Rafael and Zenaida Estanislao obtained a loan from East West Banking
Corporation videnced by a promissory note and secured by two deeds of chattel mortgage of two
dump trucks and a bulldozer for the first and bulldozer and a wheel loader for the other. Spouses
defaulted in the amortizations and the entire obligation became due and demandable. The bank
filed a suit for replevin with damages but subsequently, the bank moved for suspension of the
proceedings on account of an earnest attempt to arrive at an amicable settlement of the case.
Both parties executed a Deed of Assignment, drafted by the bank, where it provides that the two
dump trucks and the bulldozer shall be transferred, assigned and conveyed for the full payment
of the debt. But the bank, for an unknown reason failed to sign on the deed, but it accepted the
three heavy vehicles freely and voluntarily upon delivery made by the petitioner. After some
time, the bank file a petition in court praying for the deliver of the other heavy vehicles
mortgaged in the second chattel mortgage. The regional trial court dismissed the complaint for
lack of merit but it was reversed and set aside by the court of appeals.

ISSUE:
Whether or not the Deed of Assignment, unsigned by private respondent, extinguishes the
whole and full obligation of the petitioner.

HELD:
The deed of assignment was a perfected agreement which extinguished petitioner‗s total
outstanding obligation to the respondent. The deed explicitly provides that the assignor
(petitioners), in full payment of its obligation, shall deliver the three units of heavy equipment to
the assignee (respondent), which accepts the assignment in full payment of the above-mentioned
debt. This could only mean that should petitioners complete the delivery of the three units of
heavy equipment covered by the deed, respondent‗s credit would have been satisfied in full, and
petitioner‗s aggregate indebtedness would then be considered to have been paid in full as well.
The nature of the assignment was a dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money. Such transaction is governed by the law on sales.
Even if we were to consider the agreement as a compromise agreement, there was no need for
respondent‗s signature on the same, because with the delivery of the heavy equipment which the
latter accepted, the agreement was consummated. Respondent‗s approval may be inferred from
its unqualified acceptance of the heavy equipment.
 Agrifina Aquintey,

v.

Sps. Felicidad and Rico Tibong,

G.R. No. 166704, December 20, 2006

FACTS:
Agrifina Aquintey filed a complaint for sum of money and damages against the
respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured
loans from her on several occasions, at monthly interest rates. Despite demands, the spouses
Tibong failed to pay their outstanding loan exclusive of interests. Spouses Tibong admitted that
they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other
borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of
assignment in favor of Agrifina, and that their debtors had executed promissory notes in
Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original
obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new
collector of their debtors; and the obligation to pay the balance of their loans had been
extinguished.

ISSUE:
Whether or not consent is necessary in novation.

HELD:
Novation which consists in substituting a new debtor (delegado) in the place of the
original one (delegante) may be made even without the knowledge or against the will of the latter
but not without the consent of the creditor. Substitution of the person of the debtor may be
effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third
person who consents to the substitution and assumes the obligation. Thus, the consent of those
three persons is necessary. In this kind of novation, it is not enough to extend the juridical
relation to a third person; it is necessary that the old debtor be released from the obligation, and
the third person or new debtor takes his place in the relation. Without such release, there is no
novation; the third person who has assumed the obligation of the debtor merely becomes a co-
debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are
considered obligated jointly. Therefore, the Court agrees with the appellate court‗s decision that
respondents' obligation to pay the balance of their account with petitioner was extinguished, pro
tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of
petitioner.
 Adoracion E. Cruz, et.al.,

v.

The Honorable Court of Appeals, et.al.,

G.R. NO.122904, April 15,2005

FACTS:
Herein petitioner is the mother of her co petitioners Thelma Cruz, Gerry Cruz and Nerissa
Cruz-Tamayo, as well as Arnel Cruz, who was one of the defendants in Civil Case No. 49466.
Petitioners files said case on February 11, 1983 against Arnel Cruz and herein private
respondents Summit Financing Corporation (―Summit‖), Victor S. Sta. Ana and Maximo C.
Contreras, the last two in their capacity as deputy sheriff and ex-officio sheriff of Rizal,
respectively, and Ramon G. Manalastas in his capacity as Acting Register of Deeds of Rizal. The
Complaint alleged that petitioners and Arnel Cruz were co-owners of a parcel of land situated in
Taytay, Rizal. Yet the property, which was then covered by Transfer Certificate of Title (TCT)
No. 495225, was registered only in the name of Arnel Cruz. According to petitioners, the
property was among the properties they and Arnel Cruz inherited upon the death of Delfin Cruz,
husband of Adoracion Cruz. On August 22, 1977, petitioners and Arnel Cruz executed a Deed of
Partial Partition, distributing to each of them their shares consisting of several lots previously
held by them in common. Among the properties adjudicated to defendant Cruz was the parcel of
land covered at the time by TCT No. 495225. It is the subject of this case. Subsequently, the
same parties to the Deed of Partition agreed in writing to share equally in the proceeds of the sale
of the properties although they have been subdivided and individually titled in the names of the
former co-owners pursuant to the Deed of Partition. This arrangement was embodied in a
Memorandum of Agreement executed on August 23, 1977 or a day after the partition. The tenor
of the Memorandum of Agreement was annotated at the back of the TCT No. 495225 on
September 1, 1977. Sometime in January 1983, petitioner Thelma Cruz discovered that TCT No.
514477 was issued on October 18, 1982 in the name of Summit. Upon investigation, petitioners
learned that Arnel Cruz had executed a Special Power of Attorney on May 16, 1980 in favor of
one Nelson Tamayo, husband of petitioner Nerissa Cruz Tamayo, authorizing him to obtain a
loan in the amount of One Hundred Four Thousand Pesos from respondent Summit, to be
secured by a real estate mortgage on the subject parcel of land. Since the loan remained
outstanding on maturity, Summit instituted extra-judicial foreclosure proceedings, and at the
foreclosure sale, it was declared the highest bidder. Consequently, Sheriff Sta. Ana issued a
Certificate of Sale to respondent Summit which more than a year later consolidated its ownership
of the foreclosed property. Upon presentation of the affidavit of consolidation of ownership, the
Acting Register of Deeds of Rizal cancelled TCT No. 495225 and issued and in lieu thereof,
TCT No. 514477 in the name of respondent Summit. In their complaint before the RTC,
petitioners asserted that they co-owned the properties with Arnel Cruz, as evidenced by the
Memorandum of Agreement. Hence, they argued that the mortgage was void since they did not
consent to it.

ISSUE:
Whether or not the real estate mortgage on the property then covered by TCT No. 495225
is valid and whether the mortgaged property was the exclusive property of Arnel Cruz when it
was mortgaged.

HELD:
A reading of the provisions of the Deed of Partition, no other meaning can be gathered
other than that petitioners and Arnel Cruz had put an end to the co-ownership. In the aforesaid
deed, the shares of petitioners and Arnel Cruz‗s in the mass of co-owned properties were
concretely determined and distributed to each of them. In particular, to Arnel Cruz was assigned
the disputed property. There is nothing from the words of said deed which expressly or impliedly
stated that petitioners and Arnel Cruz intended to remain as co-owners with respect to the
disputed property or to any of the properties for that matter.
Petitioners do not question the validity or efficacy of the Deed of Partial Partition. In fact,
they admitted its existence in their pleadings and submitted it as a part of their evidence. Thus,
the deed is accorded its legal dire effect. Since a partition legally made confers upon each heir
their exclusive ownership of the property adjudicated to him, it follows that Arnel Cruz acquired
absolute ownership over the specific parcels of land assigned to him in the Deed of Partial
Partition, including the property subject of this case. As the absolute owner thereof then, Arnel
Cruz had the right to enjoy and dispose of the property, as well as the right to constitute a real
estate mortgage over the same without securing the consent of the petitioners. On the other hand,
there is absolutely nothing in the Memorandum of Agreement which diminishes the right of
Arnel Cruz to alienate or encumber the properties allotted to him in the deed of partition. As
correctly held by the Court of Appeals, the parties only bound themselves to share in the
proceeds of the sale of the properties. The agreement does not direct reconveyance of the
properties to reinstate the common ownership of the properties. Moreover, to ascertain the intent
of the parties in a contractual relationship, it is imperative that the various stipulations provided
for in the contracts be construed together, consistent with the parties contemporaneous and
subsequent acts as regards the execution of the contract. Subsequent to the execution of the Deed
of Partition and Memorandum of Agreement, the properties were titled individually in the names
of the co-owners to which they were respectively adjudicated, to the exclusion of the other co-
owners. Petitioners Adoracion Cruz and Thelma Cruz separately sold the properties distributed to
them as absolute owners thereof. Being clear manifestations of sole and exclusive dominion over
the properties affected, the acts signify total incongruence with the state of co-ownership claimed
by the petitioners. The real estate mortgage on the disputed property is valid and does not
contravene the agreement of the parties.
 Rizalina Gabriel Gonzales,

v.

Honorable Court of Appeals and Lutgarda Santiago,

G.R. No. L37453, May 25, 1979

FACTS:
Private respondents, Mr. and Mrs. Gabriel Caballero, are the registered owneres of two
parcels of land situated in Cubao, Quezon City described in Transfer Certificate fo Title No.
247309 (Lot 1) and TCT No. 247310 (Lot 2). The spouses‗ residence stood in Lot 2. Sometime
in 1979, they obtained a loan from the Cavite Development Bank in the amount of P225,000.00.
The two lots were mortgaged to secure their loan. The loan matured in 1984. To pay the loan
they offered Lot 1 for sale. The offer was advertised in the Bulletin Today. However, offers to
purchase from prospective buyers did not materialize. On October 24, 1985, a certain Mrs.
Lagrimas approached the spouses offering to broker the sale to an interested buyer. Initially, the
spouses told the broker that they were selling only to direct buyers. Nonetheless, Mrs. Lagrimas
brought to the spouses her buyer, herein petitioner Napoleon H. Gonzales, who turned out to be
Mrs. Lagrimas‗ relative. Petitioner offered to buy the vacant lot for P470,000.00. Initially,
respondents refused to reduce their asking price. Petitioner bargained for a lower price with the
suggestion that on paper the price will be markedly lower so the spouses would pay lower capital
gains tax. Petitioner assured the spouses this could be done since he had connections with the
Bureau of Internal Revenue. The spouses agreed to sell at P470.000.00. Petitioners paid the bank
P375,000.00, to be deducted from the purchase price. After the mortgage was cancelled and upon
release of the two titles, Gonzales asked for the deeds of sale of the two lots and delivery of the
titles to him. Defendants signed the deed of sale covering only Lot 1 but refused to deliver its
title until petitioner paid the remaining balance of P70,000.00 This prompted petitioner to file a
complaint for specific performance and damages.

ISSUE:
Whether or not the sale involved only Lot 1 and not both Lots.

HELD:
Principally, the issue here is whether the contract of sale between the parties involved Lot
1 and 2 as claimed by petitioner or only Lot 1 as private respondents contend. In a case where we
have to judge conflicting claims on the intent of the parties, as in this instance, judicial
determination of the parties‗ intention is mandated. Contemporaneous and subsequent acts of the
parties material to the case are to be considered. Petitioner admits he himself caused the
preparation of the deed of sale presented before the lower court. Yet he could not explain why I
referred only to the sale of Lot 1 and not to the two lots, if the intention of the parties was really
to cover the sale of two lots. As the courts a quo observed, even if it were true that two lots were
mortgaged and were about to be foreclosed, the ads private respondents placed in the Bulletin
Today offered only Lot 1 and was strong indication that they did not intend to sell Lot 2. The 501
sq.m. lot was offered for P1,150.00 per sq.m. It alone would have fetched P576,150.00. The loan
still to be paid the bank was only P375,000.00 which was what petitioner actually paid the bank.
As the trial court observed, it was incomprehensible why the spouses would part with two lots,
one with a 2-storey house, and both situated at a prime commercial district for less than the price
of one lot. Contrary to what petitioner would make us believe, the sale of Lot 1 valued at
P576,150.00 for P470,000.00, with petitioner assuming the bank loan of P375,000.00 as well as
payment of the capital gains tax, appears more plausible.
 Juana Almira, et.al.,

v.

Court Of Appeals and Federico Briones,

G.R. No. 115966, March 20, 2003

FACTS:
Petitioners are the wife and the children of the late Julio Garcia who inherited from his
mother, Ma. Alibudbud, a portion of a 90,655 square meter property denominated as lot 1642 of
the Sta. Rosa Estate in Brgy. Caingin Sta. Rosa Laguna. The lot was co-owned and registered in
the names of three persons with the following shares: Vicente de Guzman (1/2), Enrique
Hemedes (1/4) and Francisco Alibudbud, the father of Ma. Alibudbud (1/4). Although there wad
no separate title in the name of Julio Garcia, there were tax declaration in his name to the intent
of his grandfather‗s share covering the area of 21460 square meter. On July 5, 1984, petitioner as
heirs of Julio Garcia, and respondent Federico Brines entered a Kasunduan ng Pagbibilihan
(Kasunduan for Brevity) over the 21460 square meter portion for the sum of P150.000.00.
Respondent paid P65, 000.00 upon execution of the contract while the balance of P85, 000.00
was made payable within six (6) months from the date of the execution of the instrument. The
time of the execution of the kasunduan, petitioners allegedly informed respondent that TCT No.
RT-1076 was in the possession of their cousin, Conchila Alibudbud, who having bought Vicente
de Guzman‗s ½ shares, owned the bigger portion of lot 1642. This standing notwithstanding,
respondent willingly entered into the Kasunduan provided that the full payment of the purchase
price will be made upon delivery to him of the title. Respondent took possession of the property
subject of the Kasunduan and made various payments to petitioiners amountiong to P58500.00.
However upon failure of petitionere to deliver to him a separate title to the property in the name
of Julio Garcia he refused to make further payments, prompting petitioner to file a civil action
before the RTC for a rescission of the Kasunduan, return by respondent to petitioner of the
possession of the subject parcel of land, and payment by respondent of damages in favour of
petitioners.

ISSUE:
Whether or not the petitioner may rescind the Kasunduan pursuant to Article 1191 of the
Civil Code for the failure of respondent to give full payment of the balance of the purchase price.

HELD:
 The right of the parties are governed by the terms ands the nature of the contract they
entered. Hence, although the nature of the Kasunduan was never places in dispute by both
parties, it is necessary to ascertain whether the Kasunduan is a contract to sell or a contract of
Sale. Although both parties have consistency referred to the Kasunduan as a contract to Sell, a
careful reading of the provision of the Kasunduan reveals that it is a contract of Sale. A deed of
sale is absolute in nature in the absence of an any stipulation reserving title to the vendor until
full payment of the purchase price. The delivery of a separation title in the name of Julio Garcia
was a condition imposed on respondent‗s obligation to pay the balance of the purchase price. It
was not a condition imposed in the perfection of the contract of Sale. The rescission will not
prosper since the power to rescind is only given to the injured party. The injured party is the
party who has faithfully fulfilled his obligation. In the case at bar, the petitioners were not ready,
willing and able to comply with their obligation to deliver a separate title in the name of Julio
Garcia to respondent therefore, thy are not in a position to ask for rescission. Failure to comply
with a condition imposed on the performance of an obligation gives the other party the option
either to refuse to proceed with the sale or to waive the condition under Art 1545 of the civil
code. Hence it is the respondent who has the option.
 Doctrine of ―Complementary Contracts Construed Together

PHILIPPINE BANK OF, COMMUNICATIONS,

v.

ELENA LIM,et. al.,

G.R. No. 158138, April 12, 2005

FACTS:
On September 3, 1999, the Philippine Bank of Communications filed a complaint against
Elena Lim, Ramon Calderon and Tri-Oro International Trading & Manufacturing Corporation
with the Regional Trial Court of Manila for the collection of a deficiency amounting to
P4,014,297.23 exclusive of interest. Petitioner alleged therein that respondents obtained a loan
from it and executed a continuing surety agreement dated November 16, 1995 in favor of
petitioner for all loans, credits, etc., that were extended or may be extended in the future to
respondents. Petitioner granted a renewal of said loan upon respondent‗s request, the most recent
being on January 21, 1998 as evidenced by Promissory Note Renewal BD-Variable No.
8298021001 in the amount of P3,000,000.00. It was expressly stipulated therein that the venue
for any legal action that may arise out of said promissory note shall be Makati City, to the
exclusion of all other courts‗. Respondents allegedly failed to pay said obligation upon maturity.
Thus, petitioner foreclosed the real estate mortgage executed by respondents valued at
P1,081,600.00 leaving a deficiency balance of P4,014,297.23 as of August 31, 1999.
Respondents moved to dismiss the complaint on the ground of improper venue, invoking the
stipulation contained in the last paragraph of the promissory note with respect to the
restrictive/exclusive venue. The trial court denied said motion asseverating that petitioner had
separate causes of action arising from the promissory note and the continuing surety agreement.

ISSUE:
Whether or not the CA had decided the issue of venue in a way not in accord with law
and applicable decisions of this Court and had thereby departed from the accepted and usual
course of judicial proceedings, as to call for this Honorable Supreme Court‗s power of
supervision and appellate review.
HELD:
Petitioner‗s final plea for liberality in applying the rules on venue must be rejected. As
earlier discussed, the PN was a contract of adhesion. Ambiguities therein are to be construed
against the party that prepared the contract. On the same principle, petitioner can no longer
disavow the stipulation on venue, considering that it drafted the Surety Agreement. Besides, this
alleged technicality caused no miscarriage of substantial justice, as petitioner may refile the case.
The inconveniences brought about by its failure to observe the rules on venue sprang from its
own acts. Hence, it cannot blame the courts or anyone else for the resulting delay in the
adjudication of the merits of its cause.
 SPOUSES EFREN N. RIGOR and ZOSIMA D. RIGOR owners of CHIARA
CONSTRUCTION,

v.

CONSOLIDATED ORIX LEASING and FINANCE CORPORATION,

G.R. No. 136423, 20Aug 2002

FACTS:
Petitioners obtained a loan from private respondent Consolidated Orix Leasing and
Finance Corporation in the amount of P1,630,320.00. Petitioners executed a promissory note on
July 31, 1996 promising to pay the loan in 24 equal monthly installments of P67,930.00 every
fifth day of the month commencing on September 5, 1996. The promissory note also provides
that default in paying any installment renders the entire unpaid amount due and payable. To
secure payment of the loan, petitioners executed in favor of private respondent a deed of chattel
mortgage over two dump trucks. Petitioners failed to pay several installments despite demand
from private respondent. On January 5, 1998, private respondent sought to foreclose the chattel
mortgage by filing a complaint for Replevin with Damages against petitioners before the
Regional Trial Court of Dagupan City.After service of summons, petitioners moved to dismiss
the complaint on the ground of improper venue based on a provision in the promissory note
which states that, all legal actions arising out of this note or in connection with the chattels
subject hereof shall only be brought in or submitted to the proper court in Makati City,
Philippines. Private respondent opposed the motion to dismiss and argued that venue was
properly laid in Dagupan City where it has a branch office based on a provision in the deed of
chattel mortgage which states that, in case of litigation arising out of the transaction that gave
rise to this contract, complete jurisdiction is given the proper court of the city of Makati or any
proper court within the province of Rizal, or any court in the city, or province where the
holder/mortgagee has a branch office, waiving for this purpose any proper venue. After a further
exchange of pleadings, the Dagupan trial court denied petitioners‗ motion to dismiss Not
satisfied with the orders, petitioners filed a petition for certiorari before the Court of Appeals
imputing grave abuse of discretion by the Dagupan trial court in denying the motion to dismiss
which was denied.

ISSUE:
Whether or not venue was properly laid under the provisions of the chattel mortgage
contract in the light of Article 1374 of the Civil Code.
HELD:
Yes. Art. 1374 provides that the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken
jointly. Applying the doctrine to the instant case, we cannot sustain petitioners‗ contentions. The
promissory note and the deed of chattel mortgage must be construed together. Private respondent
explained that its older standard promissory notes confined venue in Makati City where it had its
main office. After it opened a branch office in Dagupan City, private respondent made
corrections in the deed of chattel mortgage, but due to oversight, failed to make the
corresponding corrections in the promissory notes. Petitioners affixed their signatures in both
contracts. The presumption is applied that a person takes ordinary care of his concerns. It is
presumed that petitioners did not sign the deed of chattel mortgage without informing themselves
of its contents. As aptly stated in a case, they being of age and businessmen of experience, it
must be presumed that they acted with due care and have signed the documents in question with
full knowledge of their import and the obligation they were assuming thereby. In any event,
petitioners did not contest the deed of chattel mortgage under Section 8, Rule 8 of the Revised
Rules of Civil Procedure.
As held in Velasquez, this omission effectively eliminated any defense relating to the
authenticity and due execution of the deed, e.g. that the document was spurious, counterfeit, or of
different import on its face as the one executed by the parties; or that the signatures appearing
thereon were forgeries; or that the signatures were unauthorized. Clearly, the Court of Appeals
did not err in ruling that venue was properly laid in Dagupan City as provided in the deed of
chattel mortgage. The Court holds that private respondent is not barred from filing its case
against petitioners in Dagupan City where private respondent has a branch office as provided for
in the deed of chattel mortgage. Petition denied.
 RODOLFO P. VELASQUEZ,

v.

COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK,

INC.,
G.R. No. 124049, June 30, 1999

FACTS:
The case arose from a complaint for a sum of money with preliminary attachment filed
with the Regional Trial Court of Makati City by private respondent Philippine Commercial
International Bank (PCIB) against petitioner Rodolfo P. Velasquez together with Mariano N.
Canilao Jr., Inigo A. Nebrida, Cesar R. Dean and Artemio L. Raymundo. Sometime in December
1994 the Pick-up Fresh Farms, Inc. (PUFFI), of which petitioner Velasquez was an officer and
stockholder, filed an application for a loan of P7,500,000.00 with PCIB under the government's
Guarantee Fund for Small and Medium Enterprises (GFSME). On 16 April 1985 the parties
executed the corresponding loan agreement. As security for the loan, promissory notes numbered
TL 121231 and TL 121258 for the amounts of P4,000,000.00 and P3,500,000.00, respectively,
were signed by Inigo A. Nebrida and Mariano N. Canilao, Jr. as officers of and for both PUFFI
and Aircon and Refrigeration Industries, Inc. (ARII). A chattel mortgage was also executed by
ARII over its equipment and machineries in favor of PCIB. Petitioner along with Nebrida and
Canilao, Jr. also executed deeds of suretyship in favor of PCIB. Separate deeds of suretyship
were further executed by Cesar R. Dean and Artemio L. Raymundo. When PUFFI defaulted in
the payment of its obligations PCIB foreclosed the chattel mortgage. The proceeds of the sale
amounted to P678,000.00. Thus, PCIB filed an action to recover the remaining balance of the
entire obligation including interests, penalties and other charges. Exemplary damages and
attorney‗s fees of 25% of the total amount due were also sought. On 9 October 1989 a writ of
preliminary attachment was granted by the trial court. On 20 June 1990 the trial court rendered a
summary judgment in favor of PCIB holding petitioner and Canilao solidarily liable to pay
P7,227,624.48 plus annual interest of 17%, and P700,000.00 as attorney‗s fees and the costs of
suit. The case was dismissed without prejudice with regard to the other defendants as they were
not properly served with summons. On appeal, the Court of Appeals on 28 September 1995
affirmed in toto the RTC judgment. Petitioner‗s motion for reconsideration was thereafter
denied. Hence this petition.

ISSUE:
 Whether or not the appellate court committed reversible error in sustaining or affirming
the summary judgment despite the existence of genuine triable issues of facts and in refusing to
set aside the default order against petitioner.

HELD:
The more appropriate doctrine in this case is that of the ―complementary contracts
construed together‖ doctrine. The surety bond must be read in its entirety and together with the
contract between the NPC and the contractors. The provisions must be construed together to
arrive at their true meaning. Certain stipulations cannot be segregated and then made to control.
That the ―complementary contracts construed together‖ doctrine applies in this case finds
support in the principle that the surety contract is merely an accessory contract and must be
interpreted with its principal contract, which in this case was the loan agreement. This doctrine
closely adheres to the spirit of Art. 1374 of the Civil Code which states that Art. 1374. The
various stipulations of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly. Applying the ―complementary
contracts construed together doctrine leaves no doubt that it was the intention of the parties that
petitioner would be personally liable in the deed of suretyship because the loan agreement,
among others, provided to further secure the obligations of the BORROWER to the LENDER,
Messrs. Nebrida, Raymundo, Canilao, Dean and Velasquez and Aircon and Refrigeration Ind.
Inc. shall each execute a suretyship agreement in favor of the LENDER in form and substance
acceptable to the LENDER.
 Defective Contracts

HEIRS OF SOFIA QUIRONG,

v.

DEVELOPMENT BANK OF THE PHILIPPINES,

G.R. No. 173441, December 3, 2009

FACTS:
When the late Emilio Dalope died, he left a 589-square meter untitled lot in Sta. Barbara,
Pangasinan, to his wife, Felisa Dalope and their nine children, one of whom was Rosa Dalope-
Funcion. To enable Rosa and her husband Antonio Funcion get a loan from respondent
Development Bank of the Philippines (DBP), Felisa sold the whole lot to the Funcions. With the
deed of sale in their favor and the tax declaration transferred in their names, the Funcions
mortgaged the lot with the DBP. On February 12, 1979, after the Funcions failed to pay their
loan, the DBP foreclosed the mortgage on the lot and consolidated ownership in its name on June
17, 1981. Four years later or on September 20, 1983 the DBP conditionally sold the lot to Sofia
Quirong for the price of P78,000.00. In their contract of sale, Sofia Quirong waived any warranty
against eviction. The contract provided that the DBP did not guarantee possession of the property
and that it would not be liable for any lien or encumbrance on the same. Quirong gave a down
payment of P14,000.00. Two months after that sale or on November 28, 1983 Felisa and her
eight children filed an action for partition and declaration of nullity of documents with damages
against the DBP and the Funcions before the Regional Trial Court (RTC) of Dagupan City. On
December 16, 1992 the RTC rendered a decision, declaring the DBP's sale to Sofia Quirong valid
only with respect to the shares of Felisa and Rosa Funcion in the property. The DBP resisted the
writ by motion to quash, claiming that the decision could not be enforced because it failed to
state by metes and bounds the particular portions of the lot that would be assigned to the different
parties in the case. The RTC denied the DBP's motion. The Court of Appeals (CA) reversed the
RTC decision and dismissed the heirs' action on the ground of prescription. Hence, this petition.

ISSUES:
 Whether or not the heirs of Quirong were entitled to the rescission of the DBP's sale of
the subject lot to the late Sofia Quirong as a consequence of her heirs having been evicted from
it.

HELD:
The remedy of "rescission" is not confined to the rescissible contracts enumerated under
Article 1381. Article 1191 of the Civil Code gives the injured party in reciprocal obligations,
such as what contracts are about, the option to choose between fulfillment and "rescission."
"Rescission" is a subsidiary action based on injury to the plaintiff's economic interests as
described in Articles 1380 and 1381. "Resolution," the action referred to in Article 1191, on the
other hand, is based on the defendant's breach of faith, a violation of the reciprocity between the
parties. As an action based on the binding force of a written contract, therefore, rescission
(resolution) under Article 1191 prescribes in 10 years. Ten years is the period of prescription of
actions based on a written contract under Article 1144. The supreme court conclusion is that the
Court has reached respecting the first issue presented in this case, it would serve no useful
purpose for it to further consider the issue of whether or not the heirs of Quirong would have
been entitled to the rescission of the DBP's sale of the subject lot to Sofia Quirong as a
consequence of her heirs having been evicted from it. As the Court has ruled, their action was
barred by prescription. The CA acted correctly in reversing the RTC decision and dismissing
their action. In view of the case, the supreme court denied the petition and affirm the decision of
the CA.
 Nature and Effects

SAMUEL U. LEE, et. al.,

v.

BANGKOK BANK PUBLIC COMPANY,

G.R. No. 173349, February 09, 2011

FACTS:
Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI)
entered into two separate Credit Line Agreements (CLAs) with Respondent Bangkok Bank
Public Company, Limited (Bangkok Bank) on November 29, 1995 and April 17, 1996,
respectively. MDEC and MHI are owned and controlled by the Lee family: Thelma U. Lee,
Maybelle L. Lim, Daniel U. Lee and Samuel U. Lee (Samuel). Both corporations have
interlocking directors and management led by the Lee family; and engaged in the manufacturing
and export of garments, ladies' bags and apparel. On July 25, 1996, MDEC was likewise granted
a loan facility by Asiatrust Development Bank, Inc. (Asiatrust). This facility had an available
credit line of forty million pesos (PhP 40,000,000) for letters of credit, advances on bills and
export packing; and a separate credit line of two million dollars (USD 2,000,000) for bills
purchase. In the meantime, in May 1997, Samuel bought several parcels of land in Cupang,
Antipolo, and later entered into a joint venture with Louisville Realty and Development
Corporation to develop the properties into a residential subdivision, called Louisville
Subdivision. These properties in Cupang, Antipolo are the subject properties in the instant case
(Antipolo properties) and are covered by Transfer Certificate of Title. MDEC and MHI initially
had made payments with their CLAs until they defaulted and incurred aggregate obligations to
Bangkok Bank in the amount of USD 1,998,554.60 for MDEC and USD 800,000 for MHI.
Similarly, the Lee corporations defaulted in their obligations with other creditors On February
16, 1998, MDEC, MHI, and three other corporations owned by the Lee family filed before the
Securities and Exchange Commission (SEC) a Consolidated Petition for the Declaration of a
State of Suspension of Payments and for Appointment of a Management
Committee/Rehabilitation Receiver. On February 20, 1998, the SEC issued a Suspension Order
enjoining the Lee corporations from disposing of their property in any manner except in the
ordinary course of business, and from making any payments outside the legitimate expenses of
their business during the pendency of the petition. July 20, 1999, Bangkok Bank filed the instant
case before the RTC. The RTC dismissed the case. However, the CA granted the appeal, and
reversed and set aside the RTC decision. Hence, this petition.

ISSUE:
Whether or not Bangkok Bank can maintain an action to rescind the REM on the subject
Antipolo properties despite its failure to exhaust all legal remedies to satisfy its claim.

HELD:
The Supreme Court ruled that under Sec. 5.2 of RA 8799, the SEC's original and
exclusive jurisdiction over all cases enumerated under Sec. 5 of PD 902-A was transferred to the
appropriate RTC. RA 8799, Sec. 5.2, however, expressly stated as an exception, that the "the
Commission shall retain jurisdiction over pending suspension of payment/rehabilitation cases
filed as of 30 June 2000 until finally disposed." Accordingly, the Consolidated Petition for the
Declaration of a State of Suspension of Payments and for Appointment of a Management
Committee/Rehabilitation Receiver filed on February 16, 1998 by MDEC, MHI and three other
corporations owned by the Lee family, remained under the jurisdiction of the SEC until finally
disposed of pursuant to the last sentence of Sec. 5.2 of RA 8799. The SEC's jurisdiction is
evident from the statutorily vested power of jurisdiction, supervision and control by the SEC
over all corporations, partnerships or associations, which are grantees of primary franchise,
license or permit issued by the government to operate in the Philippines, and its then original and
exclusive jurisdiction over petitions for suspension of payments of said entities. Secs. 3 and 5 of
PD 902-A pertinently provides:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all
corporations, partnerships or associations, who are the grantees of primary franchise and/or a
license or permit issued by the government to operate in the Philippines; and in the exercise of its
authority, it shall have the power to enlist the aid and support of any and all enforcement
agencies of the government, civil or military. Sec. 5. In addition to the regulatory and
adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under existing
laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases
involving: (d) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or association has no
sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver
or Management Committee created pursuant to this Decree. In sum, the Supreme Court granted
the petition.
 EQUATORIAL REALTY DEVELOPMENT, INC.,

v.

MAYFAIR THEATER, INC.,

370 SCRA 56

FACTS:
Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two
two-storey buildings constructed thereon. On June 1, 1967, Carmelo entered into a lease with
Mayfair Theater, Inc. (Mayfair) for a period of 20 years. The lease covered a portion of the
second floor and mezzanine. Two (2) years later, Mayfair entered into a second lease with
Carmelo for the lease of another property, a part of the second floor and two spaces on the
ground floor. The lease was also for a period of twenty (20) years. Both leases contained a
provision granting Mayfair a right of first refusal to purchase the said properties. However, on
July 30, 1978, within the 20-year-lease term, Carmelo sold the subject properties to Equatorial
Realty Development, Inc. (Equatorial) for the sum of P11.3M without their first being offered to
Mayfair. As a result, Mayfair filed a complaint for specific performance and damages. After trial,
the court ruled in favor of Equatorial. On appeal, the Court of Appeals (CA) reversed and set
aside the judgment of the lower court. On November 21, 1996, the Supreme Court denied
Equatorial‗s petition for review and declared the contract between Carmelo and Equatorial
rescinded. The decision became final and executory and Mayfair filed a motion for its execution,
which the court granted on April 25, 1997. However, Carmelo could no longer be located thus
Mayfair deposited with the court its payment to Carmelo. The lower court issued a deed of
reconveyance in favor of Carmelo and issued new certificates in the name of Mayfair. On
September 18, 1997, Equatorial filed an action for the collection of sum of money against
Mayfair claiming payment of rentals or reasonable compensation for the defendant‗s use of the
premises after its lease contracts had expired. The lower court debunked the claim of the
petitioner for unpaid rentals, holding that the rescission of the Deed of Absolute Sale in the
mother case did not confer on Equatorial any vested or residual proprietary rights, even in
expectancy.

ISSUE:
Whether or not Equatorial may collect rentals or reasonable compensation for Mayfair‗s
use of subject premises after its lease contracts had expired.
HELD:
NO. Rent is a civil fruit that belongs to the owner of the property producing it by right of
accession. Consequently and ordinarily, the rentals that fell due from the time of the perfection of
the sale to petitioner until its rescission by final judgment should belong to the owner of the
property during that period. Petitioner never took actual control and possession of the property
sold, in view of the respondent‗s timely objection to the sale and continued actual possession of
the property. The objection took the form of a court action impugning the sale that was rescinded
by a judgment rendered by the Court in the mother case. It has been held that the execution of a
contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there
is no impediment that may prevent the passing of the property from the hands of the vendor into
those of the vendee. When there is such impediment, fiction yields to reality; the delivery has not
been effected. Hence, respondent‗s opposition to the transfer of property by way of sale to
Equatorial was a legally sufficient impediment that effectively prevented the passing of the
property into the latter‗s hands. Article 1386 of the Civil Code provides rescission, which creates
the obligation to return the things, which were the object of the contract, together with their
fruits, and the price with its interest, but also the rentals paid, if any, had to be returned by the
buyer.
 MARIA ANTONIA SIGUAN,

v.

ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM,

G.R. No. 134685, 1999 Nov 19

FACTS:
On 25 and 26 August 1990, Lim issued two Metrobank checks in the sums of P300,000
and P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee
bank, the checks were dishonored for the reason "account closed." Demands to make good the
checks proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22,
docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23
of the Regional Trial Court (RTC) of Cebu City. In its decision dated 29 December 1992, the
court a quo convicted Lim as charged. The case is pending before this Court for review and
docketed as G.R. No. 134685. It also appears that on 31 July 1990, Lim was convicted of estafa
by the RTC of Quezon City in Criminal Case No. Q-89-22162 filed by a certain Victoria Suarez.
This decision was affirmed by the Court of Appeals. On appeal, however, the Supreme Court, in
a decision promulgated on 7 April 1997, acquitted Lim but held her civilly liable in the amount
of P169,000, as actual damages, plus legal interest. Meanwhile, on 2 July 1991, a Deed of
Donation conveying parcels of land and purportedly executed by Lim on 10 August 1989 in
favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of
Deeds of Cebu City. New transfer certificates of title were thereafter issued in the names of the
donees. On 23 June 1993, petitioner filed an accion pauliana against Lim and her children before
Branch 18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as
null and void the new transfer certificates of title issued for the lots covered by the questioned
Deed. The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that
sometime in July 1991, Lim, through a Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of creditors, including her; that Lim conspired
and confederated with her children in antedating the questioned Deed of Donation, to petitioner's
and other creditors' prejudice; and that Lim, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations. On the other hand, Lim denied any liability to
petitioner. She claimed that her convictions in Criminal Cases Nos. 22127-28 were erroneous,
which was the reason why she appealed said decision to the Court of Appeals. As regards the
questioned Deed of Donation, she maintained that it was not antedated but was made in good
faith at a time when she had sufficient property. Finally, she alleged that the Deed of Donation
was registered only on 2 July 1991 because she was seriously ill. In its decision of 31 December
1994 the trial court ordered the rescission of the questioned deed of donation; (2) declared null
and void the transfer certificates of title issued in the names of private respondents Linde, Ingrid
and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate
the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner,
jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney's fees; and
P5,000 as expenses of litigation. On appeal, the Court of Appeals, in a promulgated on 20
February 1998, reversed the decision of the trial court and dismissed petitioner's accion pauliana.
It held that two of the requisites for filing an accion pauliana were absent, namely, (1) there must
be a credit existing prior to the celebration of the contract; and (2) there must be a fraud, or at
least the intent to commit fraud, to the prejudice of the creditor seeking the rescission. According
to the Court of Appeals, the Deed of Donation, which was executed and acknowledged before a
notary public, appears on its face to have been executed on 10 August 1989. Under Section 23 of
Rule 132 of the Rules of Court, the questioned Deed, being a public document, is evidence of the
fact which gave rise to its execution and of the date thereof. No antedating of the Deed of
Donation was made, there being no convincing evidence on record to indicate that the notary
public and the parties did antedate it.
Since Lim's indebtedness to petitioner was incurred in August 1990, or a year after the
execution of the Deed of Donation, the first requirement for accion pauliana was not met. Anent
petitioner's contention that assuming that the Deed of Donation was not antedated it was
nevertheless in fraud of creditors because Victoria Suarez became Lim‗s creditor on 8 October
1987, the Court of Appeals found the same untenable, for the rule is basic that the fraud must
prejudice the creditor seeking the rescission.

ISSUE:
Whether or not the Deed of Donation executed by Rosa Lim in favor of her children be
rescinded for being in fraud of petitioner Maria Antonia Siguan.

HELD:
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration
of the contract of donation, still her action for rescission would not fare well because the third
requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of
creditors may be rescinded only when the creditors cannot in any manner collect the claims due
them. Also, Article 1383 of the same Code provides that the action for rescission is but a
subsidiary remedy which cannot be instituted except when the party suffering damage has no
other legal means to obtain reparation for the same. The term "subsidiary remedy" has been
defined as "the exhaustion of all remedies by the prejudiced creditor to collect claims due him
before rescission is resorted to." It is, therefore, "essential that the party asking for rescission
prove that he has exhausted all other legal means to obtain satisfaction of his claim. Petitioner
neither alleged nor proved that she did so. On this score, her action for the rescission of the
questioned deed is not maintainable even if the fraud charged actually did exist‖.
 KHE HONG CHENG, et. al.,

v.

COURT OF APPEALS, et. al.,

355 S 701

FACTS:
Khe Hong Cheng is the owner of Butuan Shipping Lines. On Oct. 4 1985, Phil.
Agricultural Trading Corp shipped onboard a vessel owned by Khe Hong Cheng, 3400 bags of
copra from Masbate to Zamboanga. The said shipment of copra was covered by a marine
insurance American Home Insurance (Philam). However, somewhere in Negros, the ship sank
resulting to total loss of the shipment. Because of the loss, American Home Insurance paid the
amount of 354,000 to the consignee- Phil Agrl Later, American Home, having been subrogated
into the rights of the consignee, filed in the RTC of Makati an action for recovery of money
against Khe Hong Cheng. Pending the case, or on Dec. 20,1989, Khe Hong Cheng executed a
deed of donations of parcels of land in favor of his children Sandra Joy and Ray Stevens (pang
artista ug ngalan) and new TCTs were issued in their names. On Dec. 29. 1993, the trial court
rendered a favorable judgment to Philam and ordered Cheng to pay the amount of 354k
representing the amount paid by Philam to Phil Agrl. After the decision became final, a writ of
execution was issued and despite earnest efforts of the sheriff he could not find any property
under the name of Butuan Shipping Lines or Cheng. Jan. 17, 1997-Sheriff with Philam‗s counsel
went to Butuan and thereon discovered that Cheng had no more property left and that he had
conveyed the subject properties to his children. Feb. 25, 1997- Philam filed for a rescission of the
deeds of donation and for the nullification of the tcts in the name of petitioner‗s kids. Petitioner
contend that Philam‗s action already prescribed and that the registration of the TCTs . On
December 1989 in the name of his children constituted a constructive notice to philam and that
the action of the latter was filed only on February 1997, way beyond 4 years.

ISSUE:
Whether or not the action for rescission has prescribed.

HELD:
As Art. 1389 provides, an action of rescission must be commenced w/in 4 years. Since
the provision is silent as to when the prescriptive period shall commence, Art. 1150 is
instructive: Art. 1150. The time for prescription for all kinds of actions, when there is no special
provision which ordains otherwise, shall be counted from the day they may be brought. This
Court enunciated the principle that it is the legal possibility of bringing the action which
determines the starting point for the computation of the prescriptive period for the action. action
to rescind or an accion pauliana must be of last resort, availed of only after all other legal
remedies have been exhausted and have been proven futile.
 RAFAEL G. SUNTAY, et. al.,

v.

THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY,

G.R. No. 114950, December 19, 1995

FACTS:
Federico Suntay was the registered owner of a parcel of land in dispute. He applied as a
miller contractor of the National Rice and Corn Corporation (NARIC) but the same was
disapproved by NARIC because he was tied up with several unpaid loans. For purposes of
circumvention, he asked his nephew-lawyer, Rafael to prepare an absolute deed of sale of the
said land in dispute in consideration of Php 20,000.00 in favor of Rafael. Less that 3 months after
his conveyance, the same parcel of land was sold back to Federico for the same consideration.
However on the second sale there was irregularity because it appears that said land was not sold
but was mortgaged in favor of the Hagonoy Rural Bank. Moreover, after the execution of the
deed, Federico remained in possession of the property sold. Federico requested Rafael to deliver
his copy of TCT no. T-36714 so that Federico could have the counter deed of sale in his favor
registered on his name but Rafael refuses. Federico filed a complaint for reconveyance and
damages against Rafael. The trial court rendered its decision that Rafael is the owner of the
property in dispute but not to the extent of ordering Federico to pay back rentals for the use of
the propert. The CA rendered its decision in favor of Federico.

ISSUE:
Whether or not said second deed of absolute sale is null and void.

HELD:
The cumulative effect of the evidence on record as chronicled aforesaid identified badges
of simulation proving that the sale by Federico to his deceased nephew of his land and rice mill,
was not intended to have any legal effect between them. Though the notarization of the deed of
sale in question vests in its favor the presumption of regularity, it is not the intention nor the
function of the notary public to validate and make binding an instrument never, in the first place,
intended to have any binding legal effect upon the parties thereto. The intention of the parties
still and always is the primary consideration in determining the true nature of a contract. The SC
hold that the deed of sale executed by Federico in favor of his now deceased nephew, Rafael, is
absolutely simulated and fictitious and, hence, null and void, said parties having entered into a
sale transaction to which they did not intend to be legally bound. As no property was validly
conveyed under the deed, the second deed of sale executed by the late Rafael in favor of his
uncle, should be considered ineffective and unavailing.
 Voidable Contracts

CARMELA BROBIO MANGAHAS, ,

v.
EUFROCINA A. BROBIO, .
G.R. No. 183852, October 20, 2010

FACTS:
On January 10, 2002, Pacifico S. Brobio died intestate, leaving three parcels of land. He
was survived by his wife, respondent Eufrocina A. Brobio, and four legitimate and three
illegitimate children; petitioner Carmela Brobio Mangahas is one of the illegitimate children. On
May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial Settlement of Estate of
the Late Pacifico Brobio with Waiver. In the Deed, petitioner and Pacificos other children, in
consideration of their love and affection for respondent and the sum of P150,000.00, waived and
ceded their respective shares over the three parcels of land in favor of respondent. According to
petitioner, respondent promised to give her an additional amount for her share in her fathers
estate. Thus, after the signing of the Deed, petitioner demanded from respondent the promised
additional amount, but respondent refused to pay, claiming that she had no more money. A year
later, while processing her tax obligations with the Bureau of Internal Revenue (BIR), respondent
was required to submit an original copy of the Deed. Left with no more original copy of the
Deed, respondent summoned petitioner to her office on May 31, 2003 and asked her to
countersign a copy of the Deed. Petitioner refused to countersign the document, demanding that
respondent first give her the additional amount that she promised. Considering the value of the
three parcels of land (which she claimed to be worth P20M), petitioner asked for P1M, but
respondent begged her to lower the amount. Petitioner agreed to lower it to P600,000.00.
Because respondent did not have the money at that time and petitioner refused to countersign the
Deed without any assurance that the amount would be paid, respondent executed a promissory
note. Petitioner agreed to sign the Deed when respondent signed the promissory note. When the
promissory note fell due, respondent failed and refused to pay despite demand. Petitioner made
several more demands upon respondent but the latter kept on insisting that she had no money. On
January 28, 2004, petitioner filed a Complaint for Specific Performance with damagesaw against
respondent. The Regional Trial Court (RTC) rendered a decision in favor of petitioner. The CA
reversed the RTC decision and dismissed the complaint. Hence, this petition.
ISSUE:
Whether or not the promissory note is void for lack of consent and consideration.

HELD:
The Supreme Court ruled that contracts are voidable where consent thereto is given
through mistake, violence, intimidation, undue influence, or fraud. In determining whether
consent is vitiated by any of these circumstances, courts are given a wide latitude in weighing the
facts or circumstances in a given case and in deciding in favor of what they believe actually
occurred, considering the age, physical infirmity, intelligence, relationship, and conduct of the
parties at the time of the execution of the contract and subsequent thereto, irrespective of whether
the contract is in a public or private writing. It is alleged that mistake, violence, fraud, or
intimidation attended the execution of the promissory note. Still, respondent insists that she was
"forced" into signing the promissory note because petitioner would not sign the document
required by the BIR. The fact that respondent may have felt compelled, under the circumstances,
to execute the promissory note will not negate the voluntariness of the act. As rightly observed
by the trial court, the execution of the promissory note in the amount of P600,000.00 was, in fact,
the product of a negotiation between the parties. Respondent herself testified that she bargained
with petitioner to lower the amount. The remedy suggested by the CA is not the proper one under
the circumstances. An action for partition implies that the property is still owned in common.
Considering that the heirs had already executed a deed of extrajudicial settlement and waived
their shares in favor of respondent, the properties are no longer under a state of co-ownership;
there is nothing more to be partitioned, as ownership had already been merged in one person.
Wherefore, the decision of the CA is reversed and set aside and the decision of the RTC is
reinstated.
 CORNELIA M. HERNANDEZ, ,
vs.
CECILIO F. HERNANDEZ, .
G.R. No. 158576, March 09, 2011

FACTS:
This case involves the controversy between the parties which began when the Republic of
the Philippines, through the Department of Public Works and Highways (DPWH), offered to
purchase a portion of a parcel of land with an area of 80,133 square meters, covered by the
Registry of Deeds for Tanauan, Batangas, located at San Rafael, Sto. Tomas, Batangas, for use in
the expansion of the South Luzon Expressway. The land is pro-indiviso owned by Cornelia M.
Hernandez petitioner herein, Atty. Jose M. Hernandez, deceased father of respondent Cecilio F.
Hernandez represented by Paciencia Hernandez and Mena Hernandez, also deceased and
represented by her heirs. The initial purchase price that was offered by the government was
allegedly at Thirty-Five pesos (P35.00) per square meter for 14,643 square meters of the
aforementioned land. The Hernandez family rejected the offer. After a series of negotiations with
the DPWH, the last offer stood at Seventy Pesos (P70.00) per square meter. They still did not
accept the offer and the government was forced to file an expropriation case. On 9 August 1993,
an expropriation case was filed by the Republic of the Philippines, through the DPWH, before
the Regional Trial Court, Tanauan, Batangas. During the course of the expropriation proceedings,
an Order dated 13 September 1996 was issued by the RTC Branch 83, informing the parties of
the appointment of commissioners to help determine the just compensation. On 18 October 1996,
Cornelia, and her other co-owners who were also signatories of the 11 November 1993 letter,
executed an irrevocable Special Power of Attorney (SPA) appointing Cecilio Hernandez as their
"true and lawful attorney" with respect to the expropriation of the subject property. The SPA
stated that the authority shall be irrevocable and continue to be binding all throughout the
negotiation. It further stated that the authority shall bind all successors and assigns in regard to
any negotiation with the government until its consummation and binding transfer of a portion to
be sold to that entity with Cecilio as the sole signatory in regard to the rights and interests of the
signatories therein. There was no mention of the compensation scheme for Cecilio, the attorney-
in-fact. Cecilio, despite the service of summons and copy of the complaint failed to file an
answer. The trial court explained further that Cecilio was present in the address supplied by the
petitioner but refused to receive the copy. The trial court even gave Cecilio ten (10) more days,
from his refusal to accept the summons, to file his answer. Upon the
motion of the petitioner, respondent Cecilio was declared in default. The RTC denied the motion
and nullified the quitclaim in favor of Cecilio. Cecilio appealed the Decision of the trial court.
The appellate court, in its Decision dated 29 May 2003 reversed and set aside the ruling of the
trial court. Hence, this petition.

ISSUE:
Whether or not the CA erred in holding the validity of the receipt and quitclaim document
contrary to law and jurisprudence.

HELD:
The Supreme Court ruled that a contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable. In determining whether consent is
vitiated by any of the circumstances mentioned, courts are given a wide latitude in weighing the
facts or circumstances in a given case and in deciding in their favor what they believe to have
actually occurred, considering the age, physical infirmity, intelligence, relationship, and the
conduct of the parties at the time of the making of the contract and subsequent thereto,
irrespective of whether the contract is in public or private writing. And, in order that mistake may
invalidate consent, it should refer to the substance of the thing which is the object of the contract,
or those conditions which have principally moved one or both parties to enter the contract.
It was the rejection likewise of the last offer that led to the filing of the expropriation case
on 9 August 1993. Clear as day, the conditions that moved the parties to the contract were the
base price at P70.00 per square meter, the increase of which would be compensated by 20% of
whatever may be added to the base price; and the ceiling price of P300.00 per square meter,
which was considerably high reckoned from the base at P70.00, which would therefore, allow
Cecilio to get all that which would be in excess of the elevated ceiling. The ceiling was, from the
base, extraordinarily high, justifying the extraordinary grant to Cornelio of all that would exceed
the ceiling. In view of this case, the decision of the CA is reversed and set aside. The decision of
the RTC is reinstated with modification.
 MANUEL O. FUENTES, et.al.,

v.

CONRADO G. ROCA, et. al.,

21 April 2010

FACTS:
On October 11, 1982, Sabrina Taroza sold to her own son Tarciano T. Roca her titled of
358 sq.m lot located at Canelar, Zamboanga under a deed of absolute sale. Six years later,
Tarciano T. Roca offered to the spouses Fuentes the same titlle of land bought to her mother with
stipulations that Fuentes should pay a downpayment of 60,000.00 pesos for the transfer of lot to
them and within 6 months Tarciano would have to vacate the lot of structures , occupants and
secure the consent of his stranged wife. Upon compliance, Fuentes spouses must have to pay
Tarciano the amount of 140,000.00 pesos. On January 11, 1989 a document of absolute sale as
issued to the Fuentes. One year after, Tarciano T. Roca died, which was followed by his wife 9
months after. The children of Roca filed for an action of annulment of sale and reconveyance of
the land against the Fuentes on the ground that Tarciano's wife didn't gave her consent upon her
husband and that fraud and forgery. Spouses Fuentes denied such allegations and claims that the
forgery case is personal to Rosario the wife of Tarciano and she alone could claim it besides the
4-year prescriptive period for nullifying the sale on the ground of fraud had already elapsed. The
RTC ruled in favor of the Fuentes, however, the Court of Appeals reversed the decision of the
RTC.

ISSUES:
Whether or not Rosario's signature was forged.

HELD:
The Supreme Court agrees with CA's observation that Rosario's signature strokes on the
affidavit appears heavy, deliberate and forced. Her specimen signature on the other hand are
consistent of a lighter stroke and more fluid. The way the letter "R" and "S" were written is also
remarkably different. The variance is obvious even to the untrained eye. For the second issue, the
SC held its decision based on Art. 173 which provides that in order that the wife may bring an
action for annulment of sale on the ground of lack of spousal consent during the marriage within
10 years from the transaction. Consequently, the action that the Rocas, her heirs, brought in 1997
fell within ten years of the January 11, 1989 sale. Therefore it did not yet prescribe. Even if the
claim of the spouses for prescription was based on fraud and forgery and that the prescriptive
period to be applied is 4 years, the answer is still No, because the sale was void from the
beginning and thus the land remained the property of Tarciano and Rosario despite that sale.
When the two died, they passed on the ownership to their heirs, namely the Rocas, and as lawful
owners thaey had the right to exclude any person from its enjoyment and disposal (Art 429 of the
Civil Code). In fairness to the Fuentes, the SC held that they should be entitled among other
things, to be recovered from the Tarciano's heirs the amount of 200, 000.00php with legal interest
until fully paid chargeable against his estate. They are also to be entitled to a reimbursement with
the improvements they inroduced with a right of retention until reimbursement is made.
 Voidable Contracts: Annulment

Associated Bank,

v.

Sps. Montano,
16 October 2010

FACTS:
In 1964, the Spouse Montano owned 3 parcels of land situated in Tanza, Cavite which
was utilized as an integrated farm and a stud farm used for raising horses. Respondent Monatano
went on self exile in USA to avoid the harassment of Pres. Marcos during the Martial Law
regime, upon which they transferred said properties to Tres Cruces Agro- Industrial Corporation
(TCAIC) in exchange for shares of stocks in the company with a 98% control over TCAIC. After
a year, the TCAIC sold the properties to International Country Club Incorporation (ICCI) for
6,000,000.09 php, thus the title of properties were now transferred to the ICCI. The ICCI then
mortgaged the parcels of land to the Citizens bank and Trust corporation now Associated Bank
for an amount of 2,000,000.00 php. The mortgage became mature but remain unpaid thereby
prompting the Associated Bank to forclosed the mortgaged and put in in a public auction.
Associated Bank as the highest bidder then buy the property with an amount of 5,7000,000.00
php. Meanwhile, the Montano returned to the country and after discovering the transfer of the
properties the Montano immediately took physical possession of the same and began cultivating
it. They also filed for a petition of reconveyance and pray for the declaration of nullity upon
transfer of CTC. On the other hand, the associated bank filed its Motion for Preliminary Hearing
on the affirmative defense and motion to dismiss for the complaint stated no cause of action, and
that the case was already barred by the statute of limitations.

ISSUE:
1. Whether or not motion to dismiss is on its propriety.
2. Whether or not the complaint for reconveyanace should be dismissed.

HELD:
 As to the first issue, Yes the motion to dismiss was on its propriety. The SC held that the
rule is based on practicality, as when the issues involved in a particular case can be disposed of
in a preliminary hearing and if there is no motion to dismiss was filed then the pleading gorund
as affirmative defenses can be heard in a preliminary hearing as that of the motion to dismiss.
Respondent on the other hand fails to oppose the motion to dismiss despite having been given the
opportunity to do so, any right to contest the same was already waived by them. As to the second
issue, it is true that the action for reconveyance of property resulting from fraud may be barred
by the statute of limitations which requires that the action shall be filed within 4 years from
discovery of fraud, but be it noted that the basis of reconveyance by the respondent is threat,
duress and intimidation. As provided in Art. 1391 of the civil code an action for annulment for it
shall be brought within four years, thus when Marcos ouster from power on February 21, 1986
and since the respondents filed its complaint for reconveynace on September 15, 1989 the four
years prescriptive period was not prescribed. The SC denied for the dismissal of reconveyance
and remitted the case to the RTC for trial with cost against the petitioner.
 WILLIAM ALAIN MIAILHE, ,

v.

COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES,

354 SCRA 675

FACTS:
Petitioner, William Alain Miailhe, on his own behalf and on behalf of Victoria Desbarats-
Miailhe, Monique Miailhe-Sichere and Elaine Miailhe-Lencquesaing filed a Complaint for
Annulment of Sale, Reconveyance and Damages against the Republic of the Philippines and
defendant Development Bank of the Philippines. The petitioner alleged that DBP forged,
threatened and intimidated petitioner to sell the property to DBP for the grossly low price. The
RTC and CA rendered their decision in favor of DBP and that the action is already prescribed.

ISSUE:
Whether or not extrajudicial demands did not interrupt prescription?

HELD:
In the present case, there is as yet no obligation in existence. Respondent has no
obligation to reconvey the subject lots because of the existing Contract of Sale. Although
allegedly voidable, it is binding unless annulled by a proper action in court.12 Not being a
determinate conduct that can be extrajudically demanded, it cannot be considered as an
obligation either. Since Article 1390 of the Civil Code states that voidable "contracts are binding,
unless they are annulled by a proper action in court," it is clear that the defendants were not
obligated to accede to any extrajudicial demand to annul the Contract of Sale.
 First Philippine Holdings Corporation,

v.

Trans Middle East (Phils.) EQUITIES Inc.,

04 December 2009

FACTS:
FHPC, formerly known as Meralco Securities Corporation incorporated on 30 June 1961
by Filipino Entrepreneurs led by Eugenio Lopez Sr. sold its 6,299,179.00 php shares of common
stock in Philippine Commercial International Bank (PCIB), now Equitable PCIB to TMEE. Such
shares according to the FHPC were obtained by the TMEE through fraud, acts contrary to Law,
Morals, Good Customs and Public Policy and such acquisition is voidable, void or
unenforceable. FHPC filed then its motion for leave to intervene and admit complaint in
intervention and was granted by the court. On the other hand, TMEE filed its motion to dismiss
the complaint-in-intervention by the FHPC on the ground that the action of FHPC has already
prescribed under Article 1391 of the Civil Code. Since the action was filed only on 28 December
1988 and the sale was 24 May 1984 the action was already 7 months late from the date of
prescription.

ISSUE:
Whether or not the sale of property is void and the prescriptive period had elapsed.

HELD:
No, the SC found that the sale is not void for a suit for the annulment of voidable contract
on account of fraud shall be filed within four years from the discovery of the same, here, from
the time the questioned sale transaction on May 24, 1984 took place, FHPC didn't deny that it
had actual knowledge of the same. Simply, petitioner was fully aware of the sale of the PCIB
shares to TMEE and despite full knowledge petitioners did not question the said sale from its
inception and sometime thereafter. it was only four years and seven months had elapsed
following the knowledge or discovery of the alleged fraudulent sale that the petitioner assailed
the same, by then it was too late for the petitioners to beset same transaction, since the
prescriptive period had already come into play. The SC therefore denied the instant petition and
affirmed the resolution of the SB with cost against the petitioner.
 Effects

Manuel Luis Sanchez,

v.

Mapalad Realty Corporation,

541 SCRA 397

FACTS:
Respondent Mapalad was the registered owner of four (4) parcels of land located along
Roxas Boulevard, Baclaran, Parañaque. The PCGG issued writs of sequestration for Mapalad
and all its properties. Josef, Vice president/treasurer and General Manager of Mapalad
discovered that the 4 TCTs were missing, however the four missing tcts turned out to be in
possession of Nordelak Development Corporation. Nordelak came into possession of the 4 TCTs
by deed of sale purportedly executed by Miguel Magsaysay in his capacity as President and
Board Chairman of Mapalad. Mapalad filed an action for annulment of deed of sale and
reconveyance of title with damages against Nordelak. RTC ruled in favour of Nordelak. The Ca
reversed the decision of RTC.

ISSUE:
Whether or not there was a valid sale between Mapalad and Nordelak.

HELD:
In the present case, consent was purportedly given by Miguel Magsaysay, the person who
signed for and in behalf of Mapalad in the deed of absolute sale dated November 2, 1989.
However, as he categorically stated on the witness stand during trial, he was no longer connected
with Mapalad on the said date because he already divested all his interests in said corporation as
early as 1982. Even assuming, for the sake of argument, that the signatures purporting to be his
were genuine, it would still be voidable for lack of authority resulting in his incapacity to give
consent for and in behalf of the corporation. Lack of consideration makes a contract of sale
fictitious. A fictitious sale is void ab initio. The alleged deed of absolute sale dated November 2,
1989 notwithstanding, the contract of sale between Mapalad and Nordelak is not only voidable
on account of lack of valid consent on the part of the purported seller, but also void ab initio for
being fictitious on account of lack of consideration.
 Rizalino Oesmer, et al.,

v.

Paraiso Development Corporation,

514 SCRA 228
FACTS:
Petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso
Development Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of
brokering the sale of petitioners‗ properties to respondent corporation. A Contract to Sell was
drafted. A check in the amount of P100,000.00, payable to Ernesto, was given as option money.
Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract
to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document. However
petitioners informed respondent corporation about their intention to rescind the Contract to Sell
and to return the amount of Php 100,000.00. respondent did not respond to the aforesaid letter.
Petitioners, therefore, filed a complaint for Declaration of Nullity or for Annulment of Option
Agreement or Contract to Sell with damages. The RTC rendered its decision in favor to
respondent. CA affirmed the decision of RTC with modification.

ISSUE:
Whether or not there was a perfected contract between petitioners and respondents.

HELD:
It is well-settled that contracts are perfected by mere consent, upon the acceptance by the
offeree of the offer made by the offeror. From that moment, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. To produce a
contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be
express or implied. For a contract to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.
In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to
the respondent of their shares in the subject parcels of land by affixing their signatures on the
said contract. Such signatures show their acceptance of what has been stipulated in the Contract
to Sell and such acceptance was made known to respondent corporation when the duplicate copy
of the Contract to Sell was returned to the latter bearing petitioners‗ signatures.
 Perpetua Vda. De Ape,

v.

Court of Appeals at. al.,

456 SCRA 193

FACTS:
Generosa Cawit de Lumayno (private respondent herein), joined by her husband, Braulio,
instituted a case for "Specific Performance of a Deed of Sale with Damages" against Fortunato
and his wife Perpetua (petitioner herein). She supposedly demanded that Fortunato execute the
corresponding deed of sale and to receive the balance of the consideration. However, Fortunato
unjustifiably refused to heed her demands. Private respondent, therefore, prayed that Fortunato
be ordered to execute and deliver to her "a sufficient and registrable deed of sale involving his
one-eleventh (1/11) share or participation in Lot No. 2319 of the Escalante Cadastre. Private
respondent testified that Fortunato went to her store at the time when their lease contract was
about to expire. He allegedly demanded the rental payment for his land but as she was no longer
interested in renewing their lease agreement, they agreed instead to enter into a contract of sale
which Fortunato acceded to provided private respondent bought his portion of Lot No. 2319 for
P5,000.00. Thereafter, she asked her son-in-law Flores to prepare the aforementioned receipt.

ISSUE:
Whether or not the receipt signed by Fortunato proves the existence of a contract of sale
between him and private respondent.

HELD:
Under Article 1332 of the Civil Code which provides that "[w]hen one of the parties is
unable to read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former." As can be gleaned from Flores's testimony, while he was very much
aware of Fortunato's inability to read and write in the English language, he did not bother to fully
explain to the latter the substance of the receipt (Exhibit "G"). He even dismissed the idea of
asking somebody else to assist Fortunato considering that a measly sum of thirty pesos was
involved. Evidently, it did not occur to Flores that the document he himself prepared pertains to
the transfer altogether of Fortunato's property to his mother-in-law. It is precisely in situations
such as this when the wisdom of Article 1332 of the Civil Code readily becomes apparent which
is "to protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness or
some other handicap.
 Julian Francisco, et. al.,

v.

Pastor Herrera,
392 SCRA 317

FACTS:
Petitioner bought 2 parcels of land from Eligio Herrera Sr. The children of Eligio, Sr.
contended that the contract price for the two parcels of land was grossly inadequate so they tried
to negotiate with petitioner. However petitioner refused. The children of Herrera filed a
complaint for annulment of sale. The RTC rendered its decision in favor of the children that Ca
affirmed the decision of RTC.

ISSUE:
Whether or not said contract is void.

HELD:
In the present case, it was established that the vendor Eligio, Sr. entered into an
agreement with petitioner, but that the former‗s capacity to consent was vitiated by senile
dementia. Hence, we must rule that the assailed contracts are not void or inexistent per se; rather,
these are contracts that are valid and binding unless annulled through a proper action filed in
court seasonably. An annullable contract may be rendered perfectly valid by ratification, which
can be express or implied. Implied ratification may take the form of accepting and retaining the
benefits of a contract. As found by the trial court and the Court of Appeals, upon learning of the
sale, respondent negotiated for the increase of the purchase price while receiving the installment
payments. It was only when respondent failed to convince petitioner to increase the price that the
former instituted the complaint for reconveyance of the properties. Clearly, respondent was
agreeable to the contracts, only he wanted to get more. Further, there is no showing that
respondent returned the payments or made an offer to do so. This bolsters the view that indeed
there was ratification. One cannot negotiate for an increase in the price in one breath and in the
same breath contend that the contract of sale is void.
 ROSARIO L. DE BRAGANZA, ET AL., ,
vs.
FERNANDO F. DE VILLA ABRILLE, .
105 P 456

FACTS:
Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the
Court of Appeal's decision whereby they were required solidarily to pay Fernando F. de Villa
Abrille the sum of P10,000 plus 2 % interest from October 30, 1944. Because payment had not
been made, Villa Abrille sued them in March 1949. The RTC and CA rendered its decision in
favor of Abrile despite the fact tht Guillermo and Rodolfo are minors.

ISSUE:
Whether or not Guillermo and Rodolfo can be held liable to pay the loan.

HELD:
The SC held that being minors, Rodolfo and Guillermo could not be legally bound by
their obligation.These minors may not be entirely absolved from monetary responsibility. In
accordance with the provisions of Civil Code, even if their written contact is unenforceable
because of non-age, they shall make restitution to the extent that they have profited by the money
they received. (Art. 1340) There is testimony that the funds delivered to them by Villa Abrille
were used for their support during the Japanese occupation. Such being the case, it is but fair to
hold that they had profited to the extent of the value of such money, which value has been
authoritatively established in the so-called Ballantine Schedule: in October 1944, P40.00
Japanese notes were equivalent to P1 of current Philippine money.
 MIGUEL KATIPUNAN, et. al., ,

v.

BRAULIO KATIPUNAN, JR., .

375 SCRA 199

FACTS:
Respondent is the owner of a lot and a five-door apartment constructed thereon occupied
by lessees. On December 29, 1985, respondent, assisted by his brother, petitioner, entered into a
Deed of Absolute Sale with their other brothers (co-petitioners, represented by their father, Atty.
Balguma involving the subject property for P187, 000. 00. Consequently, respondent‗s title to
the property was cancelled and in lieu thereof, a new TCT was issued in favor of petitioners.
Thereafter, respondent filed with the RTC a complaint for annulment of the above Deed of
Absolute Sale on the ground that petitioners, with evident bad faith, conspired with one another
in taking advantage of his ignorance, he being only a third grader and through insidious words
and machinations, they made him sign a document purportedly a contract of employment, which
turned out to be a Deed of Absolute Sale. The lower court dismissed the complaint holding that
respondent failed to prove his causes of action since he admitted that: 1.) He obtained loans from
the Balgumas; 2.) He signed the Deed of Absolute Sale; and 3.) He acknowledged selling the
property and that he stopped collecting the rentals. The said decision was however reversed by
the Court of Appeals.

ISSUE:
Whether or not the subject contract is void ab initio or voidable on the ground that one of
the parties is incapable of giving consent or where consent is vitiated by mistake, fraud, or
intimidation.

HELD:
A contract of sale is born from the moment there is meeting of minds upon the thing
which is the object of the contract and upon the price. This meeting of minds speaks of the intent
of the parties in entering into the contract respecting the subject matter and the consideration
thereof. Thus, the elements of a contract of sale are consent, object, and price in money or its
equivalent. Under Article 1330 of the Civil Code, consent may be vitiated by any of the
following: 1.) mistake, 2.) violence, 3.) intimidation, 4.) undue influence, and 5.) fraud. The
presence of any of these vices renders the contract voidable. A contract where one of the parties
is incapable of giving consent or where the consent is vitiated by mistake, fraud, or intimidation,
is not void ab initio but only voidable and is binding upon the parties unless annulled by proper
court action. The effect of annulment is to restore the parties to the status quo ante in so far as
legally and equitably possible. As an exception, however, to the principle of mutual restitution,
Article 1399 provides that when the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make restitution, except when he has been
benefited by the things or price received by him. Since the Deed of Absolute Sale between
Respondent and the Balguma brothers is voidable, and hereby annulled, then the restitution of
the property and its fruits to respondent is just and proper. Therefore, the petitioners are hereby
ordered to turn over to respondent Braulio Katipunan, Jr. the rentals they received for the five-
door apartment corresponding to the period from January, 1986 up to the time the property shall
have been returned to him, with interest at the legal rate.
 NILO R. JUMALON,

v.

COURT OF APPEALS, et. al.,

375 SCRA 175

FACTS:
On July 16, 1991, petitioner and complainant entered into a Conditional Sales Agreement
whereby the latter purchased from the former a house and lot. On July 24, 1991, petitioner
executed in favor of complainant a Deed of Absolute Sale. Title was transferred to complainant
on July 29, 1991. Thereafter, complainant learned from neighboring residents that the presence
of high-tension wires in the subdivision where the house and lot is located generate tremendous
static electricity and produce electric sparks whenever it rains. Upon complainant‗s inquiries to
the Meralco and HLURB, he found out that the subject house and lot was built within the 30-
meter right of way of Meralco wherein high tension wires carrying 115, 000 volts are located
which posed serious risks on the property and its occupants. Consequently, sometime in
November 1992, complainant filed a case for declaration of nullity or annulment of sale of real
property before the R.T.C.. The lower court dismissed the case. Thereafter, complainant filed
before the HLURB a complaint before the HLURB seeking the rescission of the Conditional
Sales Agreement and the Absolute Deed of Sale on the ground of fraud. HLURB rendered
decision in favor of complainant which was upheld by the Court of Appeals, hence this petition.

ISSUE:
Whether or not there was fraud on the part of petitioner as to warrant the rescission of the
Conditional Sales Agreement and of the Absolute Deed of Sale.

HELD:
The Supreme Court found the petition without merit for it involved questions of fact
which is not reviewable unless it is within the ambit of exceptions. Nonetheless, SC agrees with
the Court of Appeals that respondent de Leon was entitled to annul the sale. There was fraud in
the sale of the subject house. It is not safely habitable. It is built in a subdivision area where there
is an existing 30-meter right of way of the Manila Electric Company (Meralco) with high-tension
wires over the property, posing a danger to life and property. The construction of houses
underneath the high tension wires is prohibited as hazardous to life and property because the line
carries 115,000 volts of electricity, generates tremendous static electricity and produces electric
sparks whenever it rained.
 Unauthorized Contracts

NELSON CABALES, ET. AL.,

v.

COURT OF APPEALS,
August 31, 2007

FACTS:
Saturnina and her children Bonifacio, Albino, Francisco, Leonara, Alberto and petitioner
Rito inherited a parcel of land. They sold such property to Dr. Cayetano Corrompido with a right
to repurchase within 8 years. Alberto secured a note from Dr. Corrompido in the amount of Php
300.00. Alberto died leaving a wife and son, petitioner Nelson. Within the 8-year redemption
period, Bonifacio and Albino tendered their payment to Dr. Corrompido. But Dr. Corrompido
only released the document of sale with pacto de retro after Saturnina paid the share of her
deceased son, Alberto, plus the note. Saturnina and her children executed an affidavit to the
effect that petitioner Nelson would only receive the amount of Php 176.34 from respondents-
spouses when he reaches the age if 21 considering that Saturnina paid Dr. Corrompido Php
966.66 for the obligation of petitioner Nelson‗s late father Alberto.

ISSUE:
Whether or not the sale entered into is valid and binding.

HELD:
The legal guardian only has the plenary power of administration of the minor‗s property.
It does not include the power to alienation which needs judicial authority. Thus when Saturnina,
as legal guardian of petitioner Rito, sold the latter‗s pro indiviso share in subject land, she did
not have the legal authority to do so. The contarct of sale as to the pro indiviso share of Petitioner
Rito was unenforceable. However when he acknowledged receipt of the proceeds of the sale on
July24, 1986, petitioner Rito effectively ratified it. This act of ratification rendered the sale valid
and binding as to him.
 Necessity of Writing

ANNUCIACION VDA. DE OUANO, et al.,

v.

THE REPUBLIC OF THE PHILIPPINES, et. al.,

G.R. No. 168770 February 9, 2011
FACTS:
In 1949, the National Airport Corporation (NAC), MCIAA‗s predecessor agency,
pursued a program to expand the Lahug Airport in Cebu City. Through its team of negotiators,
NAC met and negotiated with the owners of the properties situated around the airport. During the
negotiation the government assured them of their right to repurchase if the project does not push
through or once Lahug Airport closes or its operations transferred to Mactan-Cebu Airport
(MCIAA). Expropriation proceedings the was conducted, and the court issued to grant the same,
such judgment became final. However, at the end of 1991, or soon after the transfer of the
aforesaid lots to MCIAA, Lahug Airport completely ceased operations, Mactan Airport having
opened to accommodate incoming and outgoing commercial flights. On the ground, the
expropriated lots were never utilized for the purpose they were taken as no expansion of Lahug
Airport was undertaken. This development prompted the former lot owners to formally demand
from the government that they be allowed to exercise their promised right to repurchase. The
demands went unheeded. Civil suits followed. After trial, the RTC granted the civil suits in favor
of the land owners and directed the MCIAA to reconvey the lots to the owners.

ISSUE:
Whether or not the testimonial evidence of the petitioners proving the promises,
assurances and representations by the airport officials and lawyers are inadmissbale under the
Statute of Frauds.

HELD:
MCIAA‗s invocation of the Statute of Frauds is misplaced primarily because the statute
applies only to executory and not to completed, executed, or partially consummated contracts.
Carbonnel v. Poncio, et al., quoting Chief Justice Moran, explains the rationale behind this rule,
thusly: "The reason is simple. In executory contracts there is a wide field for fraud because
unless they may be in writing there is no palpable evidence of the intention of the contracting
parties. The statute has been precisely been enacted to prevent fraud." However, if a contract has
been totally or partially performed, the exclusion of parol evidence would promote fraud or bad
faith, for it would enable the defendant to keep the benefits already derived by him from the
transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities
assumed or contracted by him thereby.
 Orduña, et al. v. Fuentebella

G.R. No. 176841 June 29, 2010

Facts: AntonitaOrduña purchased a residential lot from Gabriel Sr. payable in in stallments but
no deed of sale was executed. The installments were paid to Gabriel Sr. and later to Gabriel Jr.
after the death of the former. Improvements were thereafter introduced by petitioner and the
latter even paid its real property tax since 1979. Unknown to Orduña, the property has been
subject to further alienations until the same was ceded to respondent, Fuentebella, Jr. Orduña,
after being demanded by Fuentebilla to vacate the disputed land, then filed a Complaint for
Annulment of Sale, Title, Reconveyance with Damages with a prayer to acquire ownership over
the subject lot upon payment of their remaining balance. The Regional Trial Court dismissed the
petition because the verbal sale between Gabriel Sr. and Orduña was unenforceable under the
Statute of Frauds. This was later affirmed by the Court of Appeals.

Issue: Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under
the Statute of Frauds.

Ruling: No. It is a well-settled rule that the Statute of Frauds as expressed in Article 1403, par.
(2), of the Civil Code is applicable only to purely executory contracts and not to contracts which
have already been executed either totally or partially. Here, the verbal contract of sale has been
partially executed through the partial payments made by Orduña duly received by both Gabriel
Jr. and his father. The purpose of the Statute of Fraud is prevention fraud and perjury in the
enforcement of obligations depending for their evidence on the unassisted memory of witnesses,
by requiring some contracts and transactions to be evidenced by a writing signed by the party to
be charged. Since there is already ratification of the verbal contract through the acceptance of
benefits through the partial payments, it is thus withdrawn from the purview of the Statute of
Frauds.
 Municipality of Hagonoy v. Hon. Dumdum

G.R. No. 168289 March 22, 2010

Facts: Respondent, doing business as KD Surplus was contacted by petitioner Ople. Respondent
had entered into an agreement with petitioner municipality through Ople for the delivery of
motor vehicles, which supposedly were needed to carry out certain developmental undertakings
in the municipality. However, despite having made several deliveries, Ople allegedly did not
heed respondent‗s claim for payment. Petitioners filed a Motion to Dismiss claiming that the
action was unenforceable under the statute of frauds. Petitioners also filed a Motion to Dissolve
and/or Discharge the Writ of Preliminary Attachment Already Issued, invoking among others,
immunity of the state from suit.

Issue: Whether or not, as a municipal corporation, the Municipality of Hagonoy is immune from
suit, and that its properties are by law exempt from execution and garnishment.

Ruling: The general rule spelled out in Section 3, Article XVI of the Constitution is that the state
and its political subdivisions may not be sued without their consent. Otherwise put, they are open
to suit but only when they consent to it. Consent is implied when the government enters into a
business contract, as it then descends to the level of the other contracting party; or it may be
embodied in a general or special law such as that found in Book I, Title I, Chapter 2, Section 22
of the Local Government Code of 1991, which vests local government units with certain
corporate powers one of them is the power to sue and be sued.
Be that as it may, a difference lies between suability and liability. As held in City of
Caloocan v. Allarde, where the suability of the state is conceded and by which liability is
ascertained judicially, the state is at liberty to determine for itself whether to satisfy the judgment
or not. Execution may not issue upon such judgment, because statutes waiving non-suability do
not authorize the seizure of property to satisfy judgments recovered from the action. These
statutes only convey an implication that the legislature will recognize such judgment as final and
make provisions for its full satisfaction. Thus, where consent to be sued is given by general or
special law, the implication thereof is limited only to the resultant verdict on the action before
execution of the judgment. The functions and public services rendered by the State cannot be
allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and
specific objects. The writ of attachment in this case would only prove to be useless and
unnecessary under the premises, since the property of the municipality may not, in the event that
respondent‗s claim is validated, be subjected to writs of execution and garnishment unless, of
course, there has been a corresponding appropriation provided by law.
 Shoemaker v. La Tondeña

G.R. No. L-45667 May 9, 1939

Facts: Defendant company La Tondena, Inc. entered into a written contract of lease of services
with plaintiff Harry Ives Shoemaker for a period of 5 years, with a compensation consisting of
8% of the net earnings of defendant. That during each year that the contract was in force,
plaintiff would receive monthly during the period of the contract of the sum of Php 1,500.00 or
Php 18,000.00 per annum as minimum compensation if 8% of the net earnings of the
aforementioned alleged business would not reach the amount. The defendant company alleged
that there were changes in the contract in which both the parties agreed upon. Plaintiff filed a
complaint against defendant company. The defendant interposed a demurrer based on the ground
that the facts therein alleged do not constitute a cause of action, since it is not averred that the
alleged mutual agreement modifying the contract of lease of services, has been put in writing,
whereas it states that its terms and conditions may only be modified upon the written consent of
both parties.

Issue: Whether or not the court a quo erred in sustaining the demurrer interposed by the
defendant company to the second amended complaint filed by plaintiff, on the ground that the
facts alleged therein do not constitute a cause of action.

Ruling: When in an oral contract which by its terms, is not to be performed within 1 year from
the execution thereof, one of the contracting parties has complied within the year with the
obligations imposed on him said contract, the other party cannot avoid the fulfillment of what is
incumbent on him under the same contract by invoking the statute of frauds because the latter
aims to prevent and not to protect fraud.
 PNB vs. Philippine Vegetable Oil Company

G.R. No. L-25400

Facts: This appeal involves the legal right of the PNB to obtain a judgement against Vegetable
Oil Co., Inc., for Php 15,812,454 and to foreclose a mortgage on the property of the PVOC for
Php 17,000,000.00 and the legal right of the Phil C. Whitaker as intervenor to obtain a judgement
declaring the mortgage which the PNB seeks to foreclose to be without force and effect,
requiring an accouting from the PNB of the sales of the property and assets of the Vegetable Co.
and ordering the PVOC and the PNB to pay him the sum of Php 4,424,418.37 In 1920, the
Vegetable Oil Company, found itself in financial straits. It was in debt to the extent of
approximately Php 30,000,000.00. The PNB was the largest creditor. The VOC owed the bank
Php 17,000,000.00. The PNB was securedly principally by a real and chattel mortgage in favor
of the bank on its vessels Tankerville and H.S. Everett to guarantee the payment of sums not
exceed Php 4,000,000.00

Issue: Whether or not the plaintiff had failed to comply with the contract, that it was alleged to
have celebrated with the defendant and the intervenor, that it would furnish funds to the
defendant so that it could continue operating its factory.

Ruling: In the present instance, it is found that the Board of Directors of the PNB had not
consented to an agreement for practically unlimited backing of the V corporation and had not
ratified any promise to that effect made by its general manager. All the evidence, documentary
and oral, pertinent to the issue considered and found to disclose no binding promise, tacit, or
express made by the PNB to continue indefinitely the operation of the V corporation.
Accordingly, intervenorWhitaker is not entitled to recover damages from the bank.
 Parol Evidence Rule

Vda. De Ouano, et al. v. RP, 9 February 2011

G.R. No. 168770 February 9, 2011

Facts: In 1949, the National Airport Corporation (NAC), MCIAA‗s predecessor agency, pursued
a program to expand the Lahug Airport in Cebu City. Through its team of negotiators, NAC met
and negotiated with the owners of the properties situated around the airport. During the
negotiation the government assured them of their right to repurchase if the project does not push
through or once Lahug Airport closes or its operations transferred to Mactan-Cebu Airport
(MCIAA). Expropriation proceedings was conducted, and the court issued to grant the same,
such judgment became final. However, at the end of 1991, or soon after the transfer of the
aforesaid lots to MCIAA, Lahug Airport completely ceased operations, Mactan Airport having
opened to accommodate incoming and outgoing commercial flights. On the ground, the
expropriated lots were never utilized for the purpose they were taken as no expansion of Lahug
Airport was undertaken. This development prompted the former lot owners to formally demand
from the government that they be allowed to exercise their promised right to repurchase. The
demands went unheeded. Civil suits followed. After trial, the RTC granted the civil suits in favor
of the land owners and directed the MCIAA to reconvey the lots to the owners.

Issue: Whether or not parole evidence may be used to prove the transactions of the parties.

Ruling: YES. Analyzing the situation of the cases at bar, there can be no serious objection to the
proposition that the agreement package between the government and the private lot owners was
already partially performed by the government through the acquisition of the lots for the
expansion of the Lahug airport. The parties, however, failed to accomplish the more important
condition in the CFI decision decreeing the expropriation of the lots litigated upon: the expansion
of the Lahug Airport. The project––the public purpose behind the forced property taking––was,
in fact, never pursued and, as a consequence, the lots expropriated were abandoned. Be that as it
may, the two groups of landowners can, in an action to compel MCIAA to make good its oral
undertaking to allow repurchase, adduce parol evidence to prove the transaction. At any rate, the
objection on the admissibility of evidence on the basis of the Statute of Frauds may be waived if
not timely raised. Records tend to support the conclusion that MCIAA did not, as the Ouanos and
the Inocians posit, object to the introduction of parol evidence to prove its commitment to allow
the former landowners to repurchase their respective properties upon the occurrence of certain
events.
 Executory vs. Executed vs. Partially Executory Contracts

Municipality of Hagonoy v. Hon. Dumdum

G.R. No. 168289 March 22, 2010

Facts: Private respondent, Emily Rose Go Ko Lim Chao, who is engaged in buy and sell
business of surplus business, equipment machineries, spare parts and related supplies filed a
complaint for collection of sum of money, including damages against the petitioners,
Municipality of Hagonoy, Bulacan and its ormer chief executive, Mayor Felix V. Ople in his
official and personal capacity. The private respondent claimed that because of Ople‘s earnest
representation that funds had already been allowed for the project, she agreed to deliver from her
personal principal business in Cebu City twenty-one motor vehicles whose valued totaled to
5,820,000.00 php but the petitioners here instead filed a motion to dismiss on the ground that the
claim on which the action had been brought was unenforceable under the statute of frauds,
pointing out that there was no written contract or document that would evince the supposed
agreement they entered into with the respondent. The petitioners also filed for Motion to
Dissolve and /or Discharge the Writ of Preliminary Attachment already issued by the court
invoking immunity of the State from suit, unenforceability of contract, and failure to substantiate
the allegation of fraud. But the trial court denied all the petitions of the petitioners; hence the
petitioners brought this case to CA believing that the trial court committed grave abuse of
discretion upon issuing two orders.

Issue: Whether or not complaint is unenforceable under the Statutes of Fraud.

Ruling: The SC held that the Statute of frauds is descriptive of statutes that require certain
classes of contracts to be in writing, and that to do deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulate the formalities of the contract
necessary to render its enforceability. In other words, the Statute of fraud only lays down the
method by which the enumerated contracts maybe proved. It does not also declare any contract
invalid because they are not reduced into writing inasmuch as, by law, contracts are obligatory in
whatever form they may havebeen entered into provided that all their essential requisites for
validity are present. Thus the claim of the respondent is well-substantiated.
 Tan v. Villapaz,

G.R. No. 160892 November 22, 2005

Facts: Respondent CarmelitoVillapaz issued a Philippine Bank of Communications (PBCom)

crossed check in the amount of P250,000.00, payable to the order of petitioner Tony Tan. The
Malita, Davao del Sur Police issued an invitation-request to petitioner Antonio Tan inviting him
to appear before the Deputy Chief of Police Office on June 27, 1994 at 9:00 o‗clock in the
morning in connection with the request of [herein respondent] CarmelitoVillapaz, for conference
of vital importance. The invitation-request was received by petitioner Antonio Tan on June 22,
1994 but on the advice of his lawyer, he did not show up at the Malita, Davao del Sur Police
Office. Respondent filed a Complaint for sum of money against petitioners-spouses, alleging
that, , his issuance of the February 6, 1992 PBCom crossed check which loan was to be settled
interest-free in six (6) months; on the maturity date of the loan or on August 6, 1992, petitioner
Antonio Tan failed to settle the same, and despite repeated demands, petitioners never did.
Petitioners alleged that they never received from respondent any demand for payment, be it
verbal or written, respecting the alleged loan; since the alleged loan was one with a period —
payable in six months, it should have been expressly stipulated upon in writing by the parties but
it was not.

Issue: Whether or not the Court of Appeals erred in concluding that the transaction in dispute
was a contract of loan and not a mere matter of check encashment as found by the trial court.

Ruling: At all events, a check, the entries of which are no doubt in writing, could prove a loan
transaction. That petitioner Antonio Tan had, on February 6, 1992, an outstanding balance of
more than P950,000.00 in his account at PBComMonteverde branch where he was later to
deposit respondent‗s check did not rule out petitioners‗ securing a loan. It is pure naivete to
believe that if a businessman has such an outstanding balance in his bank account, he would have
no need to borrow a lesser amount. In fine, as petitioners‗ side of the case is incredible as it is
inconsistent with the principles by which men similarly situated are governed, whereas
respondent‗s claim that the proceeds of the check, which were admittedly received by
petitioners, represented a loan extended to petitioner Antonio Tan is credible, the preponderance
of evidence inclines on respondent.
 Sps. David v. Tiongson

G.R. No. 108169 August 25, 1999

Facts: Three sets of plaintiffs, namely spouses Ventura, spouses David and Vda. De Basco, filed
a complaint for specific performance with damages, against private respondents spouses
Tiongson, alleging that the latter sold to them lots located in Pampanga.

The parties expressly agreed that in case of payment has been fully paid respondents would
execute an individual deed of absolute sale in plaintiff's favor.

The respondents demanded the execution of a deed of sale and issuance of certificate of title but
the respondents refused to issue the same.

The trial court rendered its decision in favor of the respondents. However the CA ruled that
contract of sale was not been perfected between spouses David and/or Vda. De Basco and
respondents. As with regard to the spouses Ventura, the CA affirmed the RTC.

Issue: Whether or not contract of sale has not been perfected between petitioners and
respondents.

Ruling: The SC ruled that there was a perfected contact. However, the statute of frauds is
inapplicable. The rule is settled that the statute of frauds applies only to executor and not to
completed, executed or partially executed contract. In the case of spouses David, the payment
made rendered the sales contract beyond the ambit of the stature of frauds.

The CA erred in concluding that there was no perfected contract of sale. However, in view of the
stipulation of the parties that the deed of sale and corresponding certificate of title would be
issued after full payment, then, they entered into a contract to sell and not a contract of sale.
 Cordial v. Miranda

G.R. No. 135495 December 14, 2000

Facts: David Miranda, a businessman from Angeles City, was engaged in rattan business.
GenerBuelva was the supplier of David but the former met an accident and died. Genero Cordial
and Miranda met through Buelva's widow, Cecilla. They agreed that Cordial will be his supplier
of rattan poles. Cordial shipped rattan poles as to the agreed number of pieces and sizes however
Miranda refused to pay the cost of the rattan poles delivered. Miranda alleged that there exist no
privity of contract between Miranda and Cordial. Cordial filed a complaint against Miranda. The
RTC rendered its decision in favor of the petitioner. The CA reversed the decision of the RTC.

Issue: Whether or not Statute of Frauds applies in this case.

Ruling: The CA and respondent Miranda stress the absence of a written memorandum of the
alleged contract between the parties. Respondent implicitly argues that the alleged contract is
unenforceable under the Statute of Frauds. However, the statute of frauds applies only to
executor and not to completed, executed, or partially executed contracts. Thus, were one party
has performed one‗s obligation, oral evidence will be admitted to prove the agreement. In the
present case, it has already been established that petitioner had delivered the rattan poles to
respondent. The contract was partially executed. The Statute of Frauds does not apply.
 Villanueva-Mijares v. CA

G.R. No. 108921 April 12, 2000

Facts: During his lifetime, Felipe Villanueva owned a parcel of land in Kalibo, Capiz. Upon his
death, ownership of the land was passed onto his children. Pedro, one of the children, got his
share. The remaining undivided portion of the land was held in trust by Leon. His co-heirs made
several seasonable and lawful demands upon him to subdivide and partition the property, but no
subdivision took place.

After the death of Leon, private respondents discovered that the shares of four of the heirs of
Felipe were purchased by Leon as evidenced by a deed of sale.

Issue: Whether or not the deed of sale was unenforceable against the private respondents for
being an unauthorized contract.

Ruling: The court has ruled thatthe nullity of the unenforceable contract is of a permanent nature
and it will exist as long the unenforceable contract is not duly ratified. The mere lapse of time
cannot give efficacy to such a contract. The defect is such that it cannot be cured except by the
subsequent ratification of the unenforceable contract by the person in whose name the contract
was executed.

In the instant case, there is no showing of any express or implied ratification of the assailed deed
of sale by the private respondents Procerfina, Ramon, Prosperidad, and Rosa. Thus, the deed of
sale must remain unenforceable as to them.
 Remedies – Unenforceable Contract

Rosencor v. Inquing, 354 S 119

G.R. No. 140479 March 8, 2000

Facts: Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-
story residential apartment and owned by spouses Faustino and CresenciaTiangco. The lease was
not covered by any contract. The lessees were renting the premises then for Php 150.00 a month
and were allegedly verbally granted by the lessors the pre-emptive right to purchase the property
if ever they decide to sell the same. Upon the death of the spouses Tiangco, the management of
the property was adjudicated to their heirs who were represented by Eufrocina de Leon. The
lessees received a letter from de Leon advising them that the heirs of the late spouses have
already sold the property to Resencor. The lessees filed an action before the RTC praying for the
following: a) rescission of the Deed of Absolute Sale between de Leon and Rocencor, b) the
defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon, c) de Leon
be ordered to reimburse the plaintiffs for the repair of the property or apply the said amount as
part of the purchase of the property. The RTC dismissed the complaint while the Ca reversed the
decision of the RTC.

Issue: Whether or not a right of first refusal is indeed covered by the provisions of the NCC on
the Statute of Frauds.

Ruling: A right of first refusal is not among those listed as unenforceable under the statute of
frauds. Furthermore, the application of Article 1403, par. 2(e) of the NCC, presupposes the
existence of a perfected, albeit unwritten, contract of sale. A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected contract of sale of real property. At
best, it is a contractual grant, not of the sale of the real property involved but of the right of first
refusal over the property sought to be sold. It is thus evident that the statute of frauds does not
contemplate cases involving a right of right of first refusal. As such, a right of first refusal need
not be written to be enforceable and may be proven by oral evidence.
 Firme v. Buka,

G.R. No. 146608 October 23, 2003

Facts: Petitioner Spouses Firmeare the registered owner of a parcel of land located on Dahlia
Avenue, Fairview Park, Quezon City. Bukal Enterprises filed a complaint for specific
performance and damges with the trial court, aleeging that the Spouses Firme reneged on their
agreement to sell the property. The complaint asked the trial court to order the Spouses Firme to
execute the deed of sale and to delover the title of the property to BukalEnterpises upon payment
of the agreed purchase price. The RTC rendered its decision against Bukal. The CA reversed and
set aside the decision of the RTC.The Court of Appeals held that the lack of a board resolution
authorizing Aviles to act on behalf of Bukal Enterprises in the purchase of the Property was
cured by ratification; inasmuch as Bukal Enterprises ratified the purchase when it filed the
complaint for the enforcement of the sale. Hence, this appeal.

Issue: Whether or not Statute of Frauds is applicable.

Ruling:There was no consent on the part of the Spouses Firme. Consent is an essential element
for the existence of a contract, and where it is wanting, the contract is non-existent. The essence
of consent is the conformity of the parties on the terms of the contract, the acceptance by one of
the offer made by the other. The Spouses Firme flatly rejected the offer of Aviles to buy the
Property on behalf of Bukal Enterprises. There was therefore no concurrence of the offer and the
acceptance on the subject matter, consideration and terms of payment as would result in a
perfected contract of sale. Further, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses Firme. Aviles did not have the
proper authority to negotiate for Bukal Enterprises.
The CA held that partial performance of the contract of sale takes the oral contract out of the
scope of Statute of Frauds. This conclusion arose from the appellate court‗s erroneous finding
that there was a perfected contract of sale. The records show that there was no perfected contract
of sale. There is therefore no basis for the application of the Stature of Frauds. The application of
the Statute of Frauds presupposes the existence of a perfected contract
 Void/Inexistent Contracts

Querubin v. COMELEC

G.R. No. 218787 December 08, 2015

Facts: On October 27, 2014, the COMELEC en banc, through its Resolution No. 14-0715,
released the bidding documents for the "Two-Stage Competitive Bidding for the Lease of
Election Management System (EMS) and Precinct-Based Optical Mark Reader (OMR) or
Optical Scan (OP-SCAN) System." Specified in the published Invitation to Bid are the details for
the lease with option to purchase, through competitive public bidding, of twenty-three thousand
(23,000) new units of precinct-based OMRs or OP-SCAN Systems, with a total Approved
Budget for Contract of P2,503,518,000, to be used in the 2016 National and Local Elections. The
COMELEC Bids and Awards Committee (BAC) set the deadline for the submission by interested
parties of their eligibility requirements and initial technical proposal on December 4, 2014.

The joint venture of Smartmatic-TIM Corporation (SMTC), Smartmatic International Holding

B.V., and Jarltech International Corporation (collectively referred to as "Smartmatic JV")
responded to the call and submitted bid for the project on the scheduled date. IndraSistemas, S.A.
(Indra) and MIRU Systems Co. Ltd. likewise signified their interest in the project, but only
Indra, aside from Smartmatic JV, submitted its bid.

Issue: Whether or not the contract is void.

Ruling: No. While it is true that SMTC's AOI made specific mention of the automation of the
2010 National and Local Elections as its primary purpose, it is erroneous to interpret this as
meaning that the corporation's authority to transact business will cease thereafter. Indeed, the
contractual relation between SMTC and the COMELEC has been the subject of prior
controversies that have reached the Court, and We have on these occasions held that even beyond
the 2010 election schedule, the parties remain to have subsisting rights and obligations relative to
the products and services supplied by SMTC to the COMELEC for the conduct of the 2010
polls.
 Golden Apple v. Sierra Grande

G.R. No. 119857 July 28, 2010

Facts:On December 1, 1981, Hayari Trading Corporation (Hayari), through a Loan Agreement,
borrowed from Manphil Investment Corporation (Manphil) the amount of Two Million Five
Hundred Thousand Pesos (P2,500,000.00) for the benefit of Filipinas Textile Mills, Inc. (Filtex).
On the same date, Hayari President Yu Han Yat, Jr., his wife Terry Villanueva Yu and the latter's
uncle, Bernardino Villanueva, executed an Assumption of Joint and Solidary Liability for and in
consideration of the loan granted to Hayari, assuming joint and solidary liability with Hayari for
the due and punctual payment of all and/or any amortizations on the loan, as well as all amounts
payable to Manphil, in connection therewith and for the strict performance and fulfillment of the
obligation of Hayari. In connection therewith, Valiant Realty and Development Corporation,
represented by its General Manager Bernardino Villanueva, and Sierra Grande Realty
Corporation (Sierra Grande), represented by Terry Villanueva Yu, executed a Third Party Real
Estate Mortgage in favor of Manphil over a parcel of land, otherwise known as the Roberts
property. Filtex also constituted a real estate mortgage over certain parcels of land that it owned
and also constituted a chattel mortgage over the machinery of Hayari in order to secure payment
of the loan. Thereafter, Bernardino Villanueva suggested that the Roberts property be subdivided
to make it easier for Sierra Grande to sell the same. On June 22, 1985, as suggested, the Board of
Directors of Sierra Grande, passed a resolution authorizing General Manager Bernardino
Villanueva, brother of their deceased father, to hire a geodetic engineer and cause the subdivision
plan to be approved by the Land Registration Commission, and to sell the subdivided lots after
approval of the subdivision plan, if found to be necessary and for which the corporation may
need to carry its purpose.

Issue: Whether or not one of the vendee corporations is not yet in existence at the time the
Contract to Sell was executed cannot be directly questioned by any party to a suit as the
existence of a corporation may only be attacked by the Government through the Solicitor
General in a quo warranto proceeding called for the purpose and not by a collateral attack
whereby the corporate existence is questioned in some incidental proceedings not provided by
law for the express purpose of attacking the corporate existence.
Ruling:No. It bears to stress, however, that the CA did not pass upon the corporate personality of
Rosvibon nor did it declare the same corporation's franchise invalid. Thus, there is no need for a
quo warranto proceeding as claimed by petitioners. The CA merely made the finding which is
undisputed by the petitioners that Rosbivon had no legal personality at the time of the execution
of the Contract to Sell. According to the CA, because of Rosbivon's lack of personality at the
time of the execution of the Contract to Sell, its presence as a party to the same transaction is
taken as another indication that fraud was indeed attendant.
 Heirs of M. Doronio v. Heirs of F. Doronio

G.R. No. 169454 December 27, 2007

Facts: Petitioners are the heirs of MaralinoDoronio, while respondents are the heirs of
FortunatoDoronio. The property in dispute is one of a private deed of donation propter nuptias
who was executed by Spouses Simeon Doronio and Cornelia Gante in favor of MaralinoDoronio
and his wife Veronica Pico. The heirs of FortuantoDoronio contended that only the half of the
property was actually incorporated in the deed of donation because it stated that Fortunato is the
owner of the adjacent property. Eager to obtain the entire property, the heirs of Marcelino filed a
petition ―For the Registration of a Private Deed of Donation‖. The RTC granted the petition.
The heirs of Fortunato filed a pleading in the form of petition. In the petition, they prayed that an
order be issued declaring null and void the registration of the private deed of donation. The RTC
ruled in favor of the heirs of Marcelino. The CA reversed the decision of RTC.

Issue: Whether or not the donation propter nuptias is valid.

Ruling: Article 633 of the OCC provides that gifts of real property, in order to be valid, must
appear in a public document. It is settled that a donation of real estate propter nuptias is void
unless made by public instrument. In the instant case, the donation propter nuptias did not
become valid. Neither did it create any right because it was not made in a public instrument.
Hence, it conveyed no title to the land in question to petitioner‗s predecessors.
 Sps. Bernales v. Heirs of Sambaan

G.R. No. 163271 January 15, 2010

Facts: Julian Sambaan (Julian) married to GuillermaSaarenas-Sambaan (Guillerma), was the

registered owner of a property located at Bulua, Cagayan de Oro City. The lot was covered by
Transfer Certificate of Title (TCT) No. T-14202 issued on March 8, 1972. The respondents
herein and the petitioner Myrna Bernales (Myrna) are the children of Julian and Guillerma.
Myrna, who is the eldest of the siblings, is the present owner and possessor of the property in
question.
Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon, and was hospitalized
due to a gunshot wound. On April 11, 1975, Julian allegedly requested his children to gather so
that he could make his last two wishes. Julian‗s first wish was for the children to redeem the
subject property which was mortgaged to Myrna and her husband Patricio Bernales (Patricio),
while his second wish was for his remains not to be brought to the house of Myrna at Nazareth,
Cagayan de Oro City.
Thus, in 1982, respondent AbsalonSambaan (Absalon), one of Julian‗s children, offered to
redeem the property but the petitioners refused because they were allegedly using the property as
tethering place for their cattle. In January 1991, respondents received information that the
property covered by TCT No. T-14202 was already transferred to petitioners‘ name. Whereupon,
they secured a copy of the Deed of Absolute Sale dated December 7, 1970 which bore the
signatures of their parents and had it examined by the National Bureau of Investigation (NBI).
The result of the examination revealed that the signatures of their parents, Julian and Guillerma,
were forged.

Issue: Whether or not prescription did not bar respondents‘ action to recover ownership of the
subject property.

Ruling: No. Citing Article 1454 of the Civil Code, petitioners assert that since the respondents
admit that there was a mortgage transaction between Julian and herein petitioners involving the
subject property there is no dispute that an implied trust was created by operation of law. In
which case, respondents‘ right to reconveyance had already prescribed when they filed the
annulment case on April 3, 1992, or more than 10 years after petitioners‘ repudiated such implied
trust. The supposed vendor's signature having been proved to be a forgery, the
instrument is totally void or inexistent as "absolutely simulated or fictitious" under Article 1409
of the Civil Code. According to Article 1410, "the action or defense for the declaration of the
inexistence of a contract does not prescribe‖. The inexistence of a contract is permanent and
incurable which cannot be cured either by ratification or by prescription.
 Heirs of Liwagon v. Heirs of Liwagon

G.R. No. 193117 November 26, 2014

Facts: Petitioners and respondents in the case at bar are all children and grandchildren of the late
spouses Angel and Francisca Liwagon. On June 4, 1957, Angel was provisionally awarded the
following parcel of land through the Board of Liquidators of the Y. Furukawa Plantation. One of
Angel‗s sons named Demetrio, together with his wife Regina, stayed with the former and
administered the property in litigation. The defendants – who are all Demetrio‗s children –
helped with the cultivation and took care of the family‗s copra-making business. Eventually,
Angel applied to the Y. Furukawa Tarragona Plantation for final acquisition of the land by sale. A
deed of conveyance was thus executed in Angel‗s favor. As he grew older, Angel stayed with his
children, one after the other. He became sickly in 1976, while staying with one of his daughters
in Misamis Occidental, until the time of his death in 1978. Upon their father‗s demise, the
[petitioners] demanded of their brother Demetrio for the partition of the subject landholding.
Demetrio pleaded to defer the partition for economic reasons, to which the [petitioners]
acquiesced by permitting the spouses Demetrio and Regina, and their children, to continuously
occupy the land in litigation. When Demetrio died, followed shortly by Regina, [petitioner]
Josefina signified her demand for partition to one of Demetrio‗s sons named Rodrigo. Rodrigo
ignored the demand, however, contending that they now owned the property as inheritance from
their parents, who had earlier lawfully acquired the land by purchase from their grandfather, as
evidenced by a Deed of Sale dated 24 July 1972. As heirs of Angel and Francisca, the
[petitioners] presently brought the instant case for annulment of the sale, partition, accounting
and damages against the defendants-heirs of Spouses Demetrio and Regina.

Issue: Whether or not the purported deed of sale is void and the present action is barred by
prescription.

Ruling: Both the trial and appellate courts correctly ruled in favor of the due execution of the
subject Deed of Sale, which was duly acknowledged and recorded by Atty. Alfredo Abayon in
his notarial registry. It is a rule in our jurisdiction that the act of notarization by a notary public
converts a private document into a public document, making it admissible in evidence without
further proof of its authenticity. By law, a notarial document is entitled to full faith and credit
upon its face. It enjoys the presumption of regularity and is a prima facie evidence of the facts
stated therein – which may only be overcome by evidence that is clear, convincing and more than
merely preponderant. Without such evidence, the presumption must be upheld. Petitioners failed
to overcome this presumption. In the case at bar, a single fact fatal to the cause of petitioners is
clear: that aside from the sole testimony of petitioner Josefina that the signature appearing in the
assailed Deed of Sale is not that of her father, no clear, positive and convincing evidence was
shown to corroborate such claim. The trial court correctly appreciated the testimony of Josefina
in its ruling.
 Campos v. Pastrana

G.R. No. 175994 September 29, 2010

Facts: The first case arose from the refusal of Carlito Campos (Carlito), the father of herein
petitioners, to surrender the possession of a fishpond he leased from respondents‗ mother,
SalvacionBuenvenida, despite the expiration of their contract of lease in 1980. Alleging that he
was an agricultural lessee, Carlito filed an agrarian case docketed as CAR Case No. 1196
(Agrarian Case) against his lessor. After trial, the Regional Trial Court of Roxas City, Branch 14,
found that Carlito was not an agricultural tenant. He then appealed to the CA and subsequently to
this Court, but was unsuccessful. While the appeal in the Agrarian Case was pending before the
CA, herein respondents filed the second case, Civil Case No. V-5417, against Carlito for
Recovery of Possession and Damages with Preliminary Mandatory Injunction (Possession Case)
involving the same fishpond subject of the earlier agrarian case. On November 27, 1990, the
Regional Trial Court of Roxas City, Branch 16, rendered a Decision finding Carlito to have
retained possession of the fishpond notwithstanding the expiration of the contract of lease and
ordering him to pay rentals, the value of the produce and damages to the herein respondents. The
Decision became final and executory and a Writ of Execution was issued on February 7, 1995.
Subsequently, on September 19, 1995, an Alias Writ of Execution was also issued. Both were
returned unsatisfied as per Sheriff‗s Return of Service dated November 14, 1995.

Issue: Whether or not the issuance of transfer certificates of title to petitioners did not vest upon
them ownership of the properties.

Ruling: No. The fact that petitioners were able to secure titles in their names did not operate to
vest upon them ownership over the subject properties. That act has never been recognized as a
mode of acquiring ownership. The Torrens system does not create or vest title. It only confirms
and records title already existing and vested. It does not protect a usurper from the true owner. It
cannot be a shield for the commission of fraud. In the instant case, petitioner Rosemarie Campos
supposedly bought the residential properties in 1985 but did not have the assailed Deed of
Absolute Sale registered with the proper Registry of Deeds for more than five years, or until a
month before the promulgation of the judgment in the Possession Case. Hence, we affirm the
finding of the CA that the purported deed was antedated. Moreover, her failure to take exclusive
possession of the property allegedly sold, or, alternatively, to collect rentals is contrary to the
principle of ownership and a clear badge of simulation. On these grounds, we we cannot hold
that Rosemarie Campos was an innocent buyer for valu
 Gurrea v. Suplico, 488 S 332

G.R. No. 144320 April 26, 2006

Facts: The petition arose from a complaint for annulment of title with prayer preliminary
injunction filed with the court of First Instance by Rosalina Gurrea in her capacity as attorney-in-
fact of the heirs of Ricardo Gurrea. The complaint was filed against Atty. Enrique Suplico.

Atty. Suplico alleged that the property was for the payment of his services rendered to the late
Ricardo Gurrea which they offered to him as payment.

Issue: Whether or not petitioners are entitled to the cancellation of respondent attorney‘s title
over the subject property and the reconveyance thereof to the herein petitioners or to the estate of
the Late Ricardo.

Ruling: Having been established that the subject property was still the object of litigation at the
time the subject deed of Transfer Rights and Interest was executed, the assignment of rights and
interest over the subject property in favor of respondent is null and void for being violative of the
provisions of Article 1491 of the Civil Code which expressly prohibits lawyers from acquiring
property or rights which may be the object of any litigation in which they may take part by virtue
of their profession.

It follows that respondent‘s title over the subject property should be cancelled and the property
reconveyed to the estate of Ricardo, the same to be distributed to the latter‘s heirs. This is
without prejudice, however, to respondent‘s right to claim attorney‘s fees from the estate of
Ricardo, it being undisputed legal services for the latter.
 Frenzel v. Catito, 406 S 55

G.R. No. 143958 July 11, 2003

Facts: Alfred Frenzel and EderlinaCatito had an amorous relationship which started in King‗s
Cross, a night spot in Sydney. During their relationship Alfred bought properties in the
Philippines in the name of Ederlina. Their relationship started to deteriorate when the husband of
Ederlina threatened Ederlina that he would file a bigamy case against her for having an illicit
affair with Alfred, who was also married. Alfred filed a complaint against Ederlina for specific
performance, declaration of real and personal properties, sum of money and damages.

Issue: Whether or not acquisition of a parcel of land is valid.

Ruling: The sales of three parcels of land in favor of the petitioner who is a foreigner is illegal
per se. The transactions are void ab initio because they were entered into in violation of the
Constitution. Thus, to allow the petitioner to recover the properties or the money used in the
purchase of the parcels of land would be subversive of public policy. An action for recovery of
what has been paid without just cause has been designated as an accion in rem verso. This
provision does not apply if, as in this case, the action is proscribed by the Constitution or by the
application of the pari delicto doctrine. 68 It may be unfair and unjust to bar the petitioner from
filing an accion in rem verso over the subject properties, or from recovering the money he paid
for the said properties, but, as Lord Mansfield stated in the early case of Holman vs. Johnson:
"The objection that a contract is immoral or illegal as between the plaintiff and the defendant,
sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the
objection is ever allowed; but it is founded in general principles of policy, which the defendant
has the advantage of, contrary to the real justice, as between him and the plaintiff."
 La Bugal-B'laan v. Ramos

G.R. No. 127882 December 1, 2004

Facts:Petitioners challenged constitutionality of Republic Act No. 7942 (The Philippine Mining
Act of 1995) and its Implementing Rules and Regulations and the Financial and Technical
Assistance Agreement dated March 30, 1995, executed by the government with Western Mining
Corporation (Philippines), Inc. On January 27, 2004, the Supreme Court en banc promulgated its
decision declaring the unconstitutionality of certain provisions of RA 7942 as well as of the
entire FTAA executed between the government and WMCP, mainly on the finding that FTAAs
are service contracts prohibited by the 1987 Constitution. Subsequently, respondents filed
separate Motions for Reconsideration.

In a Resolution dated March 9, 2004, the Supreme Court required petitioners to comment. The
case was set for Oral Argument on June 29, 2004. After hearing the opposing sides, the Court
required the parties to submit their respective memoranda in amplification of their arguments. On
the same day, the Court noted inter alia, the Manifestation and Motion for Intervention filed by
the Office of the Solicitor General on behalf of public respondents. The OSG said that it was not
interposing any objection to the Motion for Intervention filed by the Chamber of Mines of the
Philippines, Inc. and was in fact joining and adopting the latter‗s Motion for Reconsideration.
Memoranda were accordingly filed by the intervenor as well as by petitioners, public
respondents, and private respondent, dwelling at length on three issues, namely, (1) mootness of
the case by the sale of WMC shares in WMCP to Sagittarius which 60% its equity is owned by
Filipinos and by the subsequent transfer and registration of the FTAA from WMCP to
Sagittarius; (2) constitutionality of the assailed provisions of the Mining Law, its Implementing
Rules and Regulations and the WMCP FTAA; and, (3) proper interpretation of the phrase
―agreements involving either technical of financial assistance contained in paragraph 4 of
Section 2 of Article XII of the Constitution.

Among the assailed provisions of the Mining Law were Section 80 and the colatilla in Section
84, as well as Section 112. The petitioners alleged that these sections limit the State‗s share in a
mineral production-sharing agreement to just the excise tax on the mineral product and the
WMCP FTAA contains a provision which grants the contractor unbridled and automatic
authority to convert the FTAA into MPSA (mineral production-sharing agreements. However, the
Court ruled that these were not argued upon by the parties in their respective pleadings. Also, the
Court stated that these particular provisions do not come within issues that were defined and
delineated by during the Oral Argument, particularly the third issue, which pertained exclusively
to FTAAs.

Issue: Whether or not it is a void contract.

Ruling:Section 7.9 of the WMCP FTAA has effectively given away the State's share without
anything in exchange. Moreover, it constitutes unjust enrichment on the part of the local and
foreign stockholders in WMCP, because by the mere act of divestment, the local and foreign
stockholders get a windfall, as their share in the net mining revenues of WMCP is automatically
increased, without having to pay anything for it.Being grossly disadvantageous to government
and detrimental to the Filipino people, as well as violative of public policy, Section 7.9 must
therefore be stricken off as invalid.

Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by
government for the benefit of the contractor to be deductible from the State's share in net mining
revenues, it results in benefiting the contractor twice over. This constitutes unjust enrichment on
the part of the contractor, at the expense of government. For being grossly disadvantageous and
prejudicial to government and contrary to public policy, Section 7.8(e) must also be declared
without effect. It may likewise be stricken off without affecting the rest of the FTAA.
 Jaworski v. PAGCOR

G.R. No. 144463 January 14, 2004

Facts: PAGCOR's Board of Directors approved an instrument denominated as "Grant of

Authority and Agreement for the Operation of Sports Betting and Internet Gaming." This granted
Sports and Games and Entertainment Corporation (SAGE) the authority to operate and maintain
a sports betting station in PAGCOR's casino locations, and internet gaming facilities to service
local and international bettors provided that, to the satisfaction of PAGCOR, appropriate
safeguards and procedures are established to ensure the integrity and fairness of the games
Sen. Jaworski, in his capacity as member of the Senate and Chairman of the Senate Committee
on Games, Amusement and Sports, filed the instant petition, praying that the grant of authority
by PAGCOR in favor of SAGE be nullified.

Issue: Whether not PAGCOR's legislative franchise includes the right to vest another entity to
operate internet gambling.

Ruling: PAGCOR has acted beyond the limits of its authority when it passed on or shared its
franchise to SAGE.

In the present case, the grant of authority gives SAGE the privilege to actively participate,
partake, and share PAGCOR‘s franchise to operate a gambling activity. The grant of franchise is
a special privilege that constitutes a right and a duty to be performed by the grantee. The grantee
must not perform its activities arbitrarily and whimsically but must abide by the limits set by its
franchise and strictly adhere to its terms and conditionalities.

While PAGCOR is allowed under its charter to enter into operator‘s and/or management
contracts, it is not allowed under the same charter to relinquish or share its franchise, much less
grant a veritable franchise to another entity such as SAGE. SAGE has to obtain a separate
legislative franchise and not "ride on" PAGCOR‘s franchise if it were to legally operate on-line
Internet gambling.
The "Grant of Authority and Agreement to Operate Sports Betting and Internet Gaming"
executed by PAGCOR in favor of SAGE was declared null and void.
 Action for Declaration of Nullity

Heirs of Balite v. Lim, 446 S 56

G.R. No. 152168 December 10, 2004

Facts: The spouses Aurelio and Esperanza Balite were the owners of a parcel of land at
Catarman, Northern Samar. When Aurelio died intestate, his wife Esperanza and their children
inherited the subject property and became co-owners thereof. Esperanza, through her daughter,
Cristeta, offered to sell to Rodrigo Lim, her undivided share for the price of P1,000,000.00.
Esperaza and Rodrigo agreed that under the Deed of Absolute Sale, it will be made to appear that
the purchase price of the property would be P150,000.00 although the actual price agreed upon
by them for the property was P1,000,000.00. On April 16, 1996, Esperanza executed a Deed of
Absolute Sale in favor of Rodrigo. They also executed on the same day a Joint Affidavit under
which they declared that the real price of the property was P1,000,000.00 payable to Esperanza
by installments. Only Esperanza and two of her children Antonio and Cristeta knew about the
said transaction. When the rest of the children knew of the sale, they wrote to the Register of
Deeds saying that their mother did not inform them of the sale of a portion of the said property
nor did they give consent thereto. Petitioners filed a complaint against Rodrigo with the Regional
Trial Court for the annulment of sale, quieting of title, injunction and damages. RTC ruled that
the sale by Esperanza of the property was valid. The Court of Appeals affirmed the trial court‗s
ruling that the lack of consent of the co-owners did not nullify the sale.

Issue: Whether or not the Deed of Absolute Sale is null and void on the ground that it is falsified;
it has an unlawful cause; and it is contrary to law and/or public policy.

Ruling: No. The contract is an example of a simulated contract. Article 1345 of the Civil Code
provides that the simulation of a contract may either be absolute or relative. In absolute
simulation, there is a colorable contract but without any substance, because the parties have no
intention to be bound by it. An absolutely simulated contract is void, and the parties may recover
from each other what they may have given under the contract. On the other hand, if the parties
state a false cause is relatively simulated. Here, the parties‗ real agreement binds them. In the
present case, the parties intended to be bound by the Contract, even if it did not reflect the actual
purchase price of the property. The letter of Esperanza to respondent and petitioner‗s admission
that there was partial payment made on the basis of the Absolute Sale reveals that the parties
intended the agreement to produce legal effect.Since the Deed of Absolute Sale was merely
relatively simulated, it remains valid and enforceable. All the essential requisites prescribed by
law for the validity and perfection of contracts are present.
 Pineda v. CA, 376 S 222

G.R. No. 127094 February 6, 2002

Facts: The appellees and the petitioner, Pineda, executed an Agreement to Exchange Real
Properties. The appellees exchanging their property at White Plains with that of the Pinedas
located in California. At the time of the execution of the agreement, the White Plains property
was mortgaged with the GSIS, while the California property also had a mortgaged obligation. As
stated in the exchange agreement, Pineda paid the appellees the total amount of $12, 000. Pineda
and the spouses Duque executed an agreement to sell over the white plains property, whereby
Pineda sold the property in the amount of P1.6M. Pineda paid the mortgage of the White Plains
property and requested the appellees for a written authority for the release of the title from GSIS.
The appellees gave Pineda the authority with the understanding that Pineda will deliver the title
to the appellees. Upon their return to the Philippines, the appellees discovered that the spouses
Duque were occupying the White Plains property and a fictitious deed of sale in the name of
Pineda. In a civil case filed by the appellees, the trial court declared them as the absolute owners
of the property located in White Plains.

Issue: Whether or not there was a valid contract of sale between Pineda and the Duques.

Ruling: No. Pineda‘s sale of the property to the Duques was not authorized by the real owners of
the land -- the Bañezes. The Civil Code provides that in a sale of a parcel of land or any interest
therein made through an agent, a special power of attorney is essential. This authority must be in
writing; otherwise the sale shall be void. In his testimony, Mr. Duque confirmed that at the time
he purchased the property from Pineda, the latter had no special power of attorney to sell the
property. A special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired for a valuable consideration. Without an
authority in writing, Pineda could not validly sell the property in question to the Duques. Hence,
any sale in favor of the Duques is void.
 Cruz v. Bancom, 379 S 490

G.R. No. 147788 March 19, 2002

Facts: The petitioners are the registered owners of an agricultural land. Candelaria Sanchez
introduced the petitioner to Norma Sulit who offered to buy the petitioner‗s lot. The asking price
for the property is P7000,000 but Norma only has P25,000 which the petitioner accepted as an
earnest money with agreement that the title will be transferred in the name of Norma after she
pays the remaining balance. Norma failed to pay the balance but negotiated to transfer the title in
her name which the petitioner refused. However, through Candelaria Sanchez the title was
transferred to Norma upon the execution of a deed of sale made by the petitioner in favor of
Sanchez who obtained a bank loan using the petitioner‗s land as collateral. She then executed on
the same day another deed of sale in favor of Norma. Both deed of sales reflect the amount of
only P150,000.00. Using the deed of sale Norma was able to register the property in her name.
Norma obtained a loan from Bancom while mortgaging the land title. Meanwhile, a special
agreement was entered into by petitioner and Norma. When Norma failed to pay the remaining
balance stipulated in their special agreement, the petitioner filed a complaint for the
reconveyance of the land. Bancom claimed priority as mortgagee in good faith. Norma defaulted
payment with the bank and the property was foreclosed and auctioned with Bancom as the
highest bidder.

Issue: Whether or not the sale and mortgage are valid?

Ruling: As a general rule, if the terms of the contract are clear and unambiguous its stipulations
shall control but when its words contravene with the intention of the parties, the intention shall
prevail over the words of the contract. Simulation of contract takes place when the parties do not
want the express words of the contract to have its legal effect. It may be absolute or relative.
When parties do not intend to be bound at all it is absolute simulated contract and considered
void. When the parties conceal their true agreement, it is a relative simulated contract and binds
the parties when it does not prejudice third persons and is not contrary to law, morals, good
custom, public order, and public policy. It was shown that although a deed of absolute sale was
executed in the amount of P150,000 no consideration was involved as no exchange of money
took place between them. Norma and Candelaria also did not assert their right to ownership over
the property. It was clear that the deed of sale was simulated in order to facilitate the bank loan to
be secured by Candelaria using the property as collateral. The fact that Norma obtained
registration of the property in her name does not entitle her to ownership since the simulated
deed of sale produced no legal effect. A simulated contract is not a recognized mode of
transferring ownership.
 Prohibited Contracts

Hadja Fatima v. HadjiAbubacar

G.R. No. 179743 August 2, 2010

Facts: Respondent HadjiAbubakarMarahum sold to Petitioner Hadji Fatima Magoyag a certain

two-storey market stall located in the public market of Marawi City. The sale was evidenced by a
Deed of Assignment which also stated that although there was a sale, possession will remain with
the seller HadjiMaruhom and that he will pay a monthly rental. However, after several years
HadjiMaruhom suddenly stopped paying rentals. Petitioner demanded payment but respondent
failed to fulfill his promise and refused to vacate the premises. On August 22, 1994 petitioner
filed a complaint for recovery of possession and damages with the RTC of Marawi City.

Issue: Whether or not the Deed of Assignment prove the existence of a sale.

Ruling: The Deed of Assignment is a clear indication that the transaction was really of a sale and
not of a loan with an equitable mortgage. The language in the document is crystal clear,
unambiguous and needs no further interpretation. However, the validity of the sale lies not with
the interpretation of the contract. The sale was ultimately declared as invalid because the
respondent, HadjiMaruhom is not the owner of the property. Records show that it is the city of
Marawi who owned the property and as a mere grantee, he was expressly prohibited from
selling, donating or otherwise alienating the said property without the consent of the city
government. Violation of the condition shall automatically render the sale, null and void. One
cannot give what one does not have ― Nemodatqoud non habet.
 Infotech v. COMELEC

G.R. No. 159139 January 13, 2004

Facts: On June 7, 1995, Congress passed Republic Act 8046, which authorized COMELEC to
conduct a nationwide demonstration of a computerized election system and allowed the poll
body to pilot-test the system in the March 1996 elections in the Autonomous Region in Muslim
Mindanao (ARMM). On December 22, 1997, Congress enacted Republic Act 8436 authorizing
COMELEC to use an automated election system (AES) for the process of voting, counting votes
and canvassing/consolidating the results of the national and local elections. It also mandated the
poll body to acquire automated counting machines (ACMs), computer equipment, devices and
materials; and to adopt new electoral forms and printing materials. Initially intending to
implement the automation during the May 11, 1998 presidential elections, COMELEC
eventually decided against full national implementation and limited the automation to the
ARMM. However, due to the failure of the machines to read correctly some automated ballots in
one town, the poll body later ordered their manual count for the entire Province of Sulu. In the
May 2001 elections, the counting and canvassing of votes for both national and local positions
were also done manually, as no additional ACMs had been acquired for that electoral exercise
allegedly because of time constraints. On October 29, 2002, COMELEC adopted in its
Resolution 02-0170 a modernization program for the 2004 elections. It resolved to conduct
biddings for the three phases of its Automated Election System; namely, Phase I - Voter
Registration and Validation System; Phase II - Automated Counting and Canvassing System; and
Phase III - Electronic Transmission. On January 24, 2003, President Macapagal-Arroyo issued
EO No. 172, which allocated the sum of P2.5 billion to fund the AES for the May 10, 2004
elections. Upon the request of COMELEC, she authorized the release of an additional P500
million. On January 28, 2003, the Commission issued an Invitation to Apply for Eligibility and to
Bid. On February 17, 2003, the poll body released the Request for Proposal (RFP) to procure the
election automation machines. The Bids and Awards Committee (BAC) of COMELEC convened
a pre-bid conference on February 18, 2003 and gave prospective bidders until March 10, 2003 to
submit their respective bids. Among others, the RFP provided that bids from
manufacturers, suppliers and/or distributors forming themselves into a joint venture may be
entertained, provided that the Philippine ownership thereof shall be at least 60 percent. Joint
venture is defined in the RFP as a group of two or more manufacturers, suppliers and/or
distributors that intend to be jointly and severally responsible or liable for a particular contract.
Basically, the public bidding was to be conducted under a two-envelope/two stage system. The
bidder‗s first envelope or the Eligibility Envelope should establish the bidder‗s eligibility to bid
and its qualifications to perform the acts if accepted. On the other hand, the second envelope
would be the Bid Envelope itself. Out of the 57 bidders, the BAC found MPC and the Total
Information Management Corporation eligible. For technical evaluation, they were referred to
the BAC‗s Technical Working Group and the Department of Science and Technology. In its
Report on the Evaluation of the Technical Proposals on Phase II, DOST said that both MPC and
TIMC had obtained a number of failed marks in the technical evaluation. Notwithstanding these
failures, COMELEC en banc, on April 15, 2003, promulgated Resolution No. 6074 awarding the
project to MPC. The Commission publicized this Resolution and the award of the project to
MPC on May 16, 2003.

Issue: Whether or not the COMELEC, the agency vested with the exclusive constitutional
mandate to oversee elections, gravely abused its discretion when, in the exercise of its
administrative functions, it awarded to MPC the contract for the second phase of the
comprehensive Automated Election System.

Ruling: Yes. There is grave abuse of discretion (1) when an act is done contrary to the
Constitution, the law or jurisprudence; or (2) when it is executed whimsically, capriciously or
arbitrarily out of malice, ill will or personal bias. In the present case, the Commission on
Elections approved the assailed Resolution and awarded the subject Contract not only in clear
violation of law and jurisprudence, but also in reckless disregard of its own bidding rules and
procedure. For the automation of the counting and canvassing of the ballots in the 2004
elections, COMELEC awarded the Contract to Mega Pacific Consortium‖ an entity that had not
participated in the bidding. Despite this grant, the poll body signed the actual automation
Contract with Mega Pacific Solutions, Inc., a company that joined the bidding but had not met
the eligibility requirements. COMELEC awarded this billion-peso undertaking with inexplicable
haste, without adequately checking and observing mandatory financial, technical and legal
requirements. It also accepted the preferred computer hardware and software even if, at the time
of the award, they had undeniably failed to pass eight critical requirements designed to safeguard
the integrity of elections, especially the following three items: (a)They failed to achieve the
accuracy rating criteria of 99.9995 percent set-up by the COMELEC itself, (b) They were not
able to detect previously downloaded results at various canvassing or consolidation levels and to
prevent these from being inputted again and (c) They were unable to print the statutorily required
audit trails of the count/canvass at different levels without any loss of data Because of the
foregoing violations of law and the glaring grave abuse of discretion committed by Comelec, the
Court declared null and void the assailed Resolution and the subject Contract. The illegal,
imprudent and hasty actions of the Commission have not only desecrated legal and
jurisprudential norms, but have also cast serious doubts upon the poll body‗s ability and capacity
to conduct automated elections. Truly, the pith and soul of democracy credible, orderly, and
peaceful elections has been put in jeopardy by the illegal and gravely abusive acts of
COMELEC. The letter-protest is sufficient compliance with the requirement to exhaust
administrative remedies particularly because it hews closely to the procedure outlined in Section
55 of RA 9184. And even without that May 29, 2003 letter-protest, the Court still holds that
petitioners need not exhaust administrative remedies in the light of Paat v. Court of Appeals.
 Pabugais v. Sahijwani, 423 S 596

G.R. No. 156846 February 23, 2004

Facts: Pursuant to an Agreement And Undertaking on December 3, 1993, petitioner Teddy G.

Pabugais, in consideration of the amount of P15,487,500.00, agreed to sell to respondent Dave P.
Sahijwani a lot containing 1,239 square meters located at Jacaranda Street, North Forbes Park,
Makati, Metro Manila. Respondent paid petitioner the amount of P600,000.00 as
option/reservation fee and the balance of P14,887,500.00 to be paid within 60 days from the
execution of the contract, simultaneous with delivery of the owner‗s duplicate Transfer
Certificate of Title in respondent‗s name the Deed of Absolute Sale; the Certificate of Non-Tax
Delinquency on real estate taxes and Clearance on Payment of Association Dues. The parties
further agreed that failure on the part of respondent to pay the balance of the purchase price
entitles petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by the
latter of the necessary documents obliges him to return to respondent the said option/reservation
fee with interest at 18% per annum. Petitioner failed to deliver the required documents. In
compliance with their agreement, he returned to respondent the latter‗s P600,000.00
option/reservation fee by way of Far East Bank & Trust Company Check, which was, however,
dishonored. Petitioner claimed that he twice tendered to respondent, through his counsel, the
amount of P672,900.00 (representing the P600,000.00 option/reservation fee plus 18% interest
per annum computed from December 3, 1993 to August 3, 1994) in the form of Far East Bank &
Trust Company Manager‗s Check No. 088498, dated August 3, 1994, but said counsel refused to
accept the same. On August 11, 1994, petitioner wrote a letter to respondent saying that he is
consigning the amount tendered with the Regional Trial Court of Makati City. On August 15,
1994, petitioner filed a complaint for consignation. Respondent‗s counsel, on the other hand,
admitted that his office received petitioner‗s letter dated August 5, 1994, but claimed that no
check was appended thereto. He averred that there was no valid tender of payment because no
check was tendered and the computation of the amount to be tendered was insufficient, because
petitioner verbally promised to pay 3% monthly interest and 25% attorney‗s fees as penalty for
default, in addition to the interest of 18% per annum on the P600,000.00 option/reservation fee.
On November 29, 1996, the trial court rendered a decision declaring the consignation invalid for
failure to prove that petitioner tendered payment to respondent and that the latter refused to
receive the same. Petitioner appealed the decision to the Court of Appeals. Petitioner‗s motion to
withdraw the amount consigned was denied by the Court of Appeals and the decision of the trial
court was affirmed. On a motion for reconsideration, the Court of Appeals declared the
consignation as valid in an Amended Decision dated January 16, 2003. It held that the validity of
the consignation had the effect of extinguishing petitioner‗s obligation to return the
option/reservation fee to respondent. Hence, petitioner can no longer withdraw the same.
Unfazed, petitioner filed the instant petition for review contending that he can withdraw the
amount deposited with the trial court as a matter of right because at the time he moved for the
withdrawal thereof, the Court of Appeals has yet to rule on the consignation‗s validity and the
respondent had not yet accepted the same.

Issue: Whether or not assigning the amount of P672, 900.00 to Atty. De Guzman is prohibited.

Ruling: The amount consigned with the trial court can no longer be withdrawn by petitioner
because respondent‗s prayer in his answer that the amount consigned be awarded to him is
equivalent to an acceptance of the consignation, which has the effect of extinguishing
petitioner‗s obligation. Moreover, petitioner failed to manifest his intention to comply with the
―Agreement and Undertaking‖ by delivering the necessary documents and the lot subject of the
sale to respondent in exchange for the amount deposited. Withdrawal of the money consigned
would enrich petitioner and unjustly prejudice respondent. The withdrawal of the amount
deposited in order to pay attorney‗s fees to petitioner‗s counsel, Atty. De Guzman, Jr., violates
Article 1491 of the Civil Code which forbids lawyers from acquiring by assignment, property
and rights which are the object of any litigation in which they may take part by virtue of their
profession. Furthermore, Rule 10 of the Canons of Professional Ethics provides that the lawyer
should not purchase any interest in the subject matter of the litigation which he is conducting.
The assailed transaction falls within the prohibition because the Deed assigning the amount of
P672,900.00 to Atty. De Guzman, Jr., as part of his attorney‗s fees was executed during the
pendency of this case with the Court of Appeals.

In his Motion to Intervene, Atty. De Guzman, Jr., not only asserted ownership over said amount,
but likewise prayed that the same be released to him. That petitioner knowingly and voluntarily
assigned the subject amount to his counsel did not remove their agreement within the ambit of
the prohibitory provisions. To grant the withdrawal would be to sanction a void contract. The
instant petition for review is denied.
 Liguez v. CA, 102 P 577

G.R. No. L-11240 December 18, 1957

Facts: Petitioner filed a complaint for the recovery of parcel of land against the widow and heirs
of Salvador Lopez. Petitioner averred that he is the owner of the aforementioned parcel of land
pursuant to a Deed of Donation executed in her favor by the late owner, Salvador Lopez. The
defense interposed that the donation was null and void for having illicit cause or consideration
which was the petitioner‗s entering into a marital relations with Salvador, a married man, and
that the property had been adjudicated to the appellees as heirs of Salvador Lopez by the Court
of First Instance. Meanwhile, the Court of Appeals found that the Deed of Donation was
prepared by a Justice of Peace and was ratified and signed when petitioner Liquez was still a
minor, 16 years of age. It was the ascertainment of the Court of Appeals that the donated land
belonged to the conjugal partnership of Salvador and his wife and that the Deed of Donation was
never recorded. Hence, the Court of Appeals held that the Deed of Donation was inoperative and
null and void because the donation was tainted with illegal cause or consideration.

Issue: Whether or not the Deed of Donation is void for having illicit cause or consideration.

Ruling: No. Under Article 1279 of the Civil Code of 1989, which was the governing law during
the execution of the Deed of Donation, the liberality of the donor is deemed cover only in those
contracts that are pure beneficence. In these contracts, the idea of self-interest is totally absent in
the part of the transferee. Here, the facts as found demonstrated that in making the donation,
Salvador Lopez was not moved exclusively by the desire to benefit the petitioner but also to
secure her cohabiting with him. Petitioner seeks to differentiate between the liberality of Lopez
as cause and his desire as a motive. However, motive may be regarded as cause when it
predetermined the purpose of the contract. The Court of Appeals rejected the claim of petitioner
on the ground on the rule on pari delicto embodied in Article 1912 of the Civil Code. However,
this rule cannot be applied in the case because it cannot be said that both parties had equal guilt
where petitioner was a mere minor when the donation was made and that it was not shown that
she was fully aware of the terms of the said donation.
 Philbank v. Lui She, 21 S 52

G.R. No. L-17587 September 12, 1967

Facts: Justina who inherited parcels of land in Manila executed a contract of lease in favor of
Wong, covering a portion already leased to him and another portion of the property. The lease
was for 50 years, although the lease was given the right to withdraw at any time from the
agreement with a stipulated monthly rental. She executed another contract giving Wong the
option to buy the leased premises for P120,000.00 payable within 10 years at monthly
installment of P1,000.00. The option was conditioned on his obtaining Philippine citizenship,
which was then pending. His application for naturalization was withdrawn when it was
discovered that he was a resident of Rizal.

She executed two another contracts one extending the term of 99 years and the term fixing the
term of the option of 50 years. In the two wills, she bade her legatees to respect the contract she
had entered into with Wong, but it appears to have a change of heart in a codicil. Claiming that
the various contracts were made because of her machinations and inducements practiced by him,
she now directed her executor to secure the annulment of the contracts.

The complaint alleged that Wong obtained the contracts through fraud. Wong denied having
taken advantage of her trust in order to secure the execution of the contracts on question. He
insisted that the various contracts were freely and voluntarily entered into by the parties.

The lower court declared all the contracts null and void with the exception of the first, which is
the contract lease.

Issue: Whether or not the contracts entered into by the parties are void.

Ruling: The contract is void. The Court held the lease and the rest of the contracts were obtained
with the consent of Justina freely given and voluntarily, hence the claim that the consent was
vitiated due to fraud or machination is bereft of merit. However the contracts are not necessarily
valid because of the Constitution provides that aliens are not allowed to own lands in the
Philippines. The illicit purpose then becomes the illegal cause, rendering the contracts void.
It does not follow from what has been said that because the parties are in pari delicto they will be
left where they are, without relief. For one thing, the original parties who were guilty of whom it
would be unjust to impute their guilt. For another thing, Article 1416 of the Civil Code provides
an exception to the pari de licto, that when the agreement is not illegal per se but is merely
prohibited, and the prohibition of the law is designed for the protection of the plaintiff, he may
recover what he has paid or delivered.
 Vigilar v. Aquino

G.R. No. 180388 January 18, 2011

Facts: On 19 June 1992, petitioner Angelito M. Twaño, then Officer-in-Charge (OIC)-District

Engineer of the Department of Public Works and Highways (DPWH) 2nd Engineering District of
Pampanga sent an Invitation to Bid to respondent Arnulfo D. Aquino, the owner of A.D. Aquino
Construction and Supplies. The bidding was for the construction of a dike by bulldozing a part of
the Porac River at Barangay Ascomo-Pulungmasle, Guagua, Pampanga.Subsequently, on 7 July
1992, the project was awarded to respondent, and a "Contract of Agreement" was thereafter
executed between him and concerned petitioners for the amount of PhP1,873,790.69, to cover
the project cost. By 9 July 1992, the project was duly completed by respondent, who was then
issued a Certificate of Project Completion dated 16 July 1992. Respondent Aquino, however,
claimed that PhP1,262,696.20 was still due him, but petitioners refused to pay the amount. He
thus filed a Complaint for the collection of sum of money with damages before the Regional
Trial Court of Guagua, Pampanga. Petitioners avers that the complaint was a suit against the
state; that respondent failed to exhaust administrative remedies; and that the "Contract of
Agreement" covering the project was void for violating Presidential Decree No. 1445, absent the
proper appropriation and the Certificate of Availability of Funds. On 28 November 2003, the
lower court ruled in favor of respondent. On appeal, the CA reversed and set aside the decision
of the lower court ,disposing that the "CONTRACT AGREEMENT" entered into between the
plaintiff-appellee‗s construction company, which he represented, and the government, through
the Department of Public Works and Highway (DPWH) – Pampanga 2nd Engineering District, is
declared null and void ab initio.

Issue: Whether or not the contract agreement is valid, thus making respondent liable.

Ruling: Yes. Specifically, C.V. Canchela& Associates is similar to the case at bar, in that the
contracts involved in both cases failed to comply with the relevant provisions of Presidential
Decree No. 1445 and the Revised Administrative Code of 1987. Nevertheless, "the illegality of
the subject Agreements proceeds, it bears emphasis, from an express declaration or prohibition
by law, not from any intrinsic illegality. As such, the Agreements are not illegal per se, and the
party claiming there under may recover what had been paid or delivered. The government project
involved in this case, the construction of a dike, was completed way back on 9 July 1992. For
almost two decades, the public and the government benefitted from the work done by
respondent. Petitioners cannot escape the obligation to compensate respondent for services
rendered and work done by invoking the state‗s immunity from suit. This Court has long
established that the doctrine of governmental immunity from suit cannot serve as an instrument
for perpetrating an injustice to a citizen. Justice and equity sternly demand that the State's cloak
of invincibility against suit be shred in this particular instance, and that petitioners-contractors be
duly compensated — on the basis of quantum meruit — for construction done on the public
works housing project.
 EPG Construction v. Vigilar, 354 S 566

G.R. No. 131544 March 16, 2001

Facts: In 1983, the Ministry of Human Settlement entered into a Memorandum of Agreement
(MOA) with the Ministry of Public Works and Highways, where the latter undertook to develop
a housing project by the ministry and on the site construct thereon 145 housing units. By virtue
of the MOA, the Ministry of Public Works and Highways forged individual contracts with herein
petitioners EPG Construction Co., Ciper Electrical and Engineering, Septa Construction Co.,
Phil. Plumbing Co., Home Construction Inc., World Builders Inc., Glass World Inc., Performance
Builders Development Co. and De Leon Araneta Construction Co., for the construction of the
housing units. Under the contracts, the scope of construction and funding therefor covered only
around ―2/3 of each housing unit.‖ After complying with the terms of said contracts, and by
reason of the verbal request and assurance of then DPWH Undersecretary AberCanlas that
additional funds would be available and forthcoming, petitioners agreed to undertake and
perform ―additional constructions‖ for the completion of the housing units, despite the absence
of appropriations and written contracts to cover subsequent expenses for the ―additional
constructions.‖ Petitioners received payment for what was originally stipulated. However,
petitioners demanded payment for the unpaid balance of P5,918,315.63 constituting payment for
the additional constructions which petitioners argued formed an implied contract. They claimed
that payment should be based on the principle of quantum meruit. DPWH Secretary Gregorio
Vigilar denied the subject money claims prompting herein petitioners to file before the Regional
Trial Court of Quezon City, Branch 226, a Petition for Mandamus praying for payment.

Issue: Whether or not petitioners are entitled to payment

Ruling: Although the Court agreed with respondent‗s postulation that the ―implied contracts‖,
which covered the additional constructions, are void, in view of violation of applicable laws,
auditing rules and lack of legal requirements, it nonetheless find the instant petition laden with
merit and uphold, in the interest of substantial justice, petitioners-contractors‗ right to be
compensated for the "additional constructions" on the public works housing project, applying the
principle of quantum meruit. To begin with, petitioners-contractors assented and agreed to
undertake additional constructions for the completion of the housing units, believing in good
faith and in the interest of the government and, in effect, the public in general, that appropriations
to cover the additional constructions and completion of the public works housing project would
be available and forthcoming. On this particular score, the records reveal that the verbal request
and assurance of then DPWH Undersecretary Canlas led petitioners-contractors to undertake the
completion of the government housing project, despite the absence of covering appropriations,
written contracts, and certification of availability of funds, as mandated by law and pertinent
auditing rules and issuances. To put it differently, the ―implied contracts,‖ declared void in this
case, covered only the completion and final phase of construction of the housing units, which
structures, concededly, already existed, albeit not yet finished in their entirety at the time the
―implied contracts‖ were entered into between the government and the contractors.
 Gochan v. Young, 354 S 207

G.R. No. 131889 March 12, 2001

Facts: Felix Gochan Sr.‗s daughter, Alice, mother of [herein respondents], inherited 50 shares of
stock in Gochan Realty from the former. Alice died in 1955, leaving the 50 shares to her
husband, John Young, Sr. When their all their children reached the age of majority, John, Sr.
requested Gochan Realty to partition the shares of his late wife by issuing the shares of stock to
[herein respondents] and cancelling it in his name. Respondent corporation refused. On 1990,
John, Sr. died, leaving the shares to the [respondents]. On February 8, 1994, [respondents]
Cecilia GochanUy and Miguel Uy filed a complaint with the SEC for issuance of shares of stock
to he rightful owners, nullification of shares of stock, reconveyance of property impressed with
rust, accounting, removal of officers and directors and damages against petitioners. Petitioners
then assert that respondents were not the real parties in interest and had no capacity to sue, and
respondents causes of action had already been barred by the Statute of limitations.

Issue: Whether or not respondents have legal standing to push through with their complaint.

Ruling: On November 21, 1979, respondents Felix Gochan& Sons Realty Corporation did not
have unrestricted earnings in its books to cover the purchase price of the 208 shares of stock it
was then buying from complainant Cecilia GochanUy, thereby rendering said purchase null and
void ab initio for being violative of the trust fund doctrine and contrary to law, morals, good
customs, public order, and public policy. Thus, Cecilia remains a stockholder of the corporation
in view of the nullity of the Contract of Sale. Necessarily, petitioner‗s contention that the action
has prescribed cannot be sustained. Prescription cannot be invoked as a ground if the contract is
alleged to be void ab initio. It is axiomatic that the action or defense for the declaration of nullity
of a contract does not prescribe. In Section 2 of Rule 87, while permitting an executor or
administrator to represent or to bring suits on behalf of the deceased, do not prohibit the heirs
from representing the deceased. The heirs can thusly represent Young in the present case. Given
the circumstances, the claim of petitioners was then dismissed and the case remanded to the RTC
for trial.
 Francisco v. Herrera,

G.R. No. 139982 November 21, 2002

Facts:Eligio Herrera, Sr., father of the respondent, was the owner of two parcels of land. At two
incidents on 1991, petitioner bought the two parcels of land for Php1,000,000.00 and
PhP750,000.00.

Contending that the contract price for the 2 parcels of land was grossly inadequate, the children
of Eligio tried to negotiate with Julian to increase the purchase price. When he refused, Pastor
then filed a complaint for annulment of sale with the RTC.
In his complaint, Pastor claimed ownership over the second parcel allegedly by virtue of a sale in
his favor since 1973.

He likewise claimed that the first parcel was subject to the co-ownership of the surviving heirs of
Francisca, the wife of Eligio, considering that she died intestate in April 1990, before the alleged
sale to Julian. Pastor also alleged that the sale of the 2 lots was null and void on the ground that,
at the time of sale, Eligio was already incapacitated to give consent to a contract because he was
afflicted with senile dementia.

In his answer, Julian alleged that Pastor had effectively ratified both contracts of sale by
receiving the consideration offered in each transaction.
The RTC declared the deeds of sale as null and void which was affirmed by CA.

Issue: Whether or not the disputed contract is void or merely voidable.

Ruling: In the case at bar, it was established that the vendor Eligio, Sr., entered into an
agreement with petitioner, but that the former‗s capacity to consent was vitiated by senile
dementia. Hence, the assailed contracts are not void or inexistent per se; rather, these are
contracts that are valid and binding unless annulled through a proper action filed in court
seasonably.

An annullable contract may be rendered perfectly valid by ratification which can be express or
implied. Implied ratification may take the form of accepting and retaining the benefit of a
contract. This is what happened in this case. Respondent negotiated for the increase of the
purchase price while receiving the installment payments.
 Mendezona v. Ozamiz,

G.R. No. 143370 February 6, 2002

Facts: Carmen Ozamiz executed a notarized Deed of Absolute Sale in favor of the petitioners in
consideration of the sum of One Million Forty Thousand Pesos (P1,040,000.00).The petitioners
initiated the suit to remove a cloud on their said respective titles caused by the inscription
thereon of a notice of lispendens, which came about as a result of an incident in a Special
Proceeding of the RTC.
Montalvan was designated as guardian over the person of Carmen Ozamiz while petitioner
Mendezona, respondents Roberto J. Montalvan and Julio H. Ozamiz were designated as joint
guardians over the properties of the said ward.

The respondents opposed the petitioners' claim of ownership of the Lahug property and alleged
that the titles issued in the petitioners names are defective and illegal, and the ownership of the
said property was acquired in bad faith and without value inasmuch as the consideration for the
sale is grossly inadequate and unconscionable. RTC ruled in favor of petitioners. The appellate
court reversed the factual findings of the trial court and ruled that the Deed of Absolute Sale
dated April 28, 1989 was a simulated contract since the petitioners failed to prove that the
consideration was actually paid, and, furthermore, that at the time of the execution of the contract
the mental faculties of Carmen Ozamiz were already seriously impaired. Thus, the appellate
court declared that the Deed of Absolute Sale of April 28, 1989 is null and void. It ordered the
cancellation of the certificates of title issued in the petitioners‗ names and directed the issuance
of new certificates of title in favor of Carmen Ozamiz or her estate. The motion for
reconsideration was denied.

Issue: Whether or not the CA erred in ruling that the Deed of Absolute Sale dated on April 28,
1989 was a Simulated Contract.

Ruling: Yes. Simulation is defined as "the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purposes of deception, the appearances of a
juridical act which does not exist or is different from what that which was really executed." The
requisites of simulation are: (a) an outward declaration of will different from the will of the
parties; (b) the false appearance must have been intended by mutual agreement; and (c) the
purpose is to deceive third persons. None of these were clearly shown to exist in the case at bar.
Contrary to the erroneous conclusions of the appellate court, a simulated contract cannot be
inferred from the mere non-production of the checks. It was not the burden of the petitioners to
prove so.

A person is presumed to be of sound mind at any particular time and the condition is presumed to
continue to exist, in the absence of proof to the contrary. Competency and freedom from undue
influence, shown to have existed in the other acts done or contracts executed, are presumed to
continue until the contrary is shown.
 Kinds of Natural Obligation

Manzanilla v. CA
G.R. No. L-75342 March 15, 1990

Facts: Spouses Manzanilla sold on installment an undivided one-half portion of their residential
house and lot. At the time of the sale, the said property was mortgaged to the Government
Service Insurance System (GSIS), which fact was known to the vendees, spouses Magdaleno and
Justina Campo. The Campo spouses took possession of the premises upon payment of the first
installment. Some payments were made to petitioners while some were made directly to GSIS.
The GSIS filed its application to foreclose the mortgage on the property for failure of the
Manzanilla spouses to pay their monthly amortizations. The property was sold at public auction
where GSIS was the highest bidder. Two months before the expiration of the period to redeem,
the Manzanilla spouses executed a Deed of Absolute Sale of the undivided one half portion of
their property in favor of the Campo spouses. Upon the expiration of the period to redeem
without the Manzanilla spouses exercising their right of redemption, title to the property was
consolidated in favor of the GSIS and a new title issued in its name. The Manzanilla spouses
succeeded in re-acquiring the property from the GSIS. An Absolute Deed of Sale was executed
by GSIS in favor of the Manzanilla spouses and a new certificate of title was issued to them. The
Manzanilla spouses mortgaged the property to the Biñan Rural Bank. Petitioner Ines Carpio
purchased the property from the Manzanilla spouses and agreed to assume the mortgage in favor
of Biñan Rural Bank. Private respondent Justina Campo registered her adverse claim over the
said portion of land with the Register of Deeds of Quezon City. On the other hand, petitioner
Ines Carpio filed an ejectment case against private respondent Justina. Private respondent Justina
Campo filed a case for quieting of title against the Manzanilla spouses and Ines Carpio praying
for the issuance to her of a certificate of title over the undivided one-half portion of the property
in question.

Issue: Whether or not petitioners Manzanillas are under any legal duty to reconvey the undivided
one-half portion of the property to private respondent Justina Campo.

Ruling: There was no mistake or fraud on the part of petitioners when the subject property was
re-acquired from the GSIS. Private respondent's right over the one-half portion was obliterated
when absolute ownership and title passed on to the GSIS after the foreclosure sale. The property
as held by GSIS had a clean title. The property that was passed on to petitioners retained that
quality of title. As regards the rights of private respondent Ines Carpio, she is a buyer in good
faith and for value. There was no showing that at the time of the sale to her of the subject
property, she knew of any lien on the property except the mortgage in favor of the Biñan Rural
Bank. No other lien was annotated on the certificate of title. She is also not required by law to go
beyond what appears on the face of the title.
 Rural Bank of Paranaque v. Remolado

G.R. No. L-62051 March 18, 1985

Facts: IsidraRemolado, a resident of Rizal, owned a lot with a bungalow which was leased to
Beatriz Cabagnot. The said lot is located at Molave St., United Paranaque, Rizal. In 1966 she
mortgaged the lot to the Rural Bank of Paranaque as security for a loan of P15,000. She paid the
loan. On April 17, 1971 she again mortgaged it to the bank. She failed to pay the loan amounting
to P18,000. The bank foreclosed the mortgage on July 21, 1972 and bought the lot at the
foreclosure sale at P22,192.70. The lot had a one year period of redemption which was to expire
on August 21, 1973.
On August 8, 1973 the bank advised her that she has up to August 23 to redeem the property with
the price amounting to P 25,491.96. No redemption was made. The bank consolidated its
ownership of the property and was issued the title of the land on September 5. However, on
September 24 the bank, again, extended the deadline to October 31, without specifying the
repurchase price. On October 26, Remolado and her daughter promised to pay the bank P33,000
on October 31. She failed to meet the deadline and only paid the bank on November 5. The
amount was returned to her the following day for the assistant manager did not intend to receive
the money for the bank was no longer willing to allow the repurchase. On that day, November 6,
she filed an action to compel the bank to return the property to her for P25,491.96 plus interest
and other charges and pay P35,000 as damages. The repurchase price was not consigned. A
notice of lispendens was registered. On November 15, the bank sold the property to PilarAysip
for P50,000, along with the new title issued to Aysip with an annotation of lispendens. The trial
court ordered the bank to return the property to Remolado upon payment of P25,491.96 plus
interest and other bank charges and P15,000 for damages. The Appellate Court affirmed the
judgment.

Issue: Whether or not the property may be returned to Remolado even though there was no
binding agreement for its repurchase.

Ruling: No. The Appellate Court's judgment is reversed and set aside. The complaint and
counterclaim are dismissed and the notice of lispendens is cancelled. There was no binding
agreement for its repurchase. Remolado had no cause of action because she did not repurchase
the property on or before October 31, 1971. As a rule, equity follows the law. There may be a
natural obligation (Art. 1423), but if there is no enforceable legal duty, the action must fail
although the disadvantaged party deserves commiseration or sympathy. The bank acted within its
legal rights when it refused to give Remolado any extension to repurchase after October 31,
1973.
 TRUST

Cojuangco v. Republic,

G.R. No. 180702

Facts: A complaint was filed against the defendants Eduardo Cojuangco Jr., the ACCRA
lawyers, DaniloUrsua and 71 corporations by the Presidential Commission on Good Government
(PCGG) referred here as Republic of the Philippines with regard to a block of San Miguel
Corporation (SMC) stock which were allegedly bought through the CIIF Holding Companies and
funded by the coconut levy fund passing through the Unicom Oil Mills and directly from UCPB.
The coconut levy funds were considered as government funds since this came from contributions
from the coconut farmers with the purpose of improving and stabilizing the coconut farming
industry, however these were said to be privatized under presidential directives of then Pres.
Marcos. Defendant Cojuangco Jr., being close with the Marcoses is said to have taken undue
advantage of his association, influence and connection, embarked upon different devices and
schemes including the use of the ACCRA Lawyers as nominee shareholders and the defendant
corporations as fronts to unjustly enrich themselves at the expense of the Filipino people when
he misused the coconut levy fund, amounting to $150 million, to purchase 33 million shares of
the SMC through the holding companies. Hence with the allegations mentioned and with
different cases and issues which remain unresolved, the block of shares representing 20% of the
outstanding capital stock of SMC remained sequestered by the government.
During the pre-trial brief, the Sandiganbayan sought clarification from the parties, particularly
the Republic, on their respective positions, but at the end it found the clarifications
"inadequately" enlightening. To resolve various pending motions and pleadings, Sandiganbayan
lifted and declared the Writs of Sequestration null and void.

Issue: Whether or not Sandiganbayan has committed grave abuse of discretion.

Ruling: Among the WOS issued, only one writ WOS 87-0218 complied with PCGG Rules and
Regulations requirement that the issuance be made by at least two Commissioners. However,
even if Writ of Sequestration No. 87-0218 complied with the requirement that the same be issued
by at least two Commissioners, the records fail to show that it was issued with factual basis or
with factual foundation. It is the absence of a prima facie basis for the issuance of a writ of
sequestration and not the lack of authority of two (2) Commissioners which renders the said writ
void ab initio. Thus, being the case, Writ of Sequestration No. 87-0218 must be automatically
lifted. Consequently, the writs of sequestration nos. 86-0062, 86-0069, 86-0085, 86-0095, 86-
0096, 86-0097 and 86-0098 must be lifted for not having complied with the pertinent provisions
of the PCGG Rules and Regulations, all of which were issued by only one Commissioner.
Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two the
conditions imposed for the lifting of the WOS. The Sandiganbayan thereby acted with the best of
intentions, being all too aware that the claim of the Republic to the sequestered assets and
properties might be prejudiced or harmed pendente lite unlessthe protective conditions were
annotated in the corporate books of SMC. Moreover, theissue became academic following the
Sandiganbayan‗s promulgation of its decision dismissing the Republic's Amended Complaint,
which thereby removed the stated reason - "the Republic continues to hold a claim on the shares
which is yet to be resolved" - underlying the need for the annotation of the conditions (whether
four or two).
 Ringor v. Ringor,

G.R. No. 147863 August 13, 2004

Facts: Jacobo applied for the registration of his lands under the Torrens system. He filed three
land registration cases alone, with his son Juan, or his grandson Jose, applying jointly with him.
Jose died on April 30, 1971. Respondents demanded from Jose‗s children, herein petitioners, the
partition and delivery of their share in the estate left by Jacobo and under Jose‗s administration.
The petitioners refused and attempts at amicable settlement failed. On March 27, 1973,
respondents filed a Complaint for partition and reconveyance with damages, docketed as Civil
Case No. D-3037. An Amended Complaint was admitted by the lower court in its Order of
August 6, 1973.

Issue: Whether or not there was a valid express trust established by Jacobo Ringor.

Ruling: Express trusts, sometimes referred to as direct trusts, are intentionally created by the
direct and positive acts of the settlor or the trustor – by some writing, deed, or will, or oral
declaration. It is created not necessarily by some written words, but by the direct and positive
acts of the parties. No particular words are required, it being sufficient that a trust was clearly
intended. Unless required by a statutory provision, such as the Statute of Frauds, a writing is not
a requisite for the creation of a trust. Such a statute providing that no instruments concerning
lands shall be ―created‖ or declared unless by written instruments signed by the party creating
the trust, or by his attorney, is not to be construed as precluding a creation of a trust by oral
agreement, but merely as rendering such a trust unenforceable. Contrary to the claim of
petitioners, oral testimony is allowed to prove that a trust exists. It is not error for the court to
rely on parol evidence, - - i.e., the oral testimonies of witnesses Emeteria Ringor, Julio Monsis
and Teofilo Abalos - - which the appellate court also relied on to arrive at the conclusion that an
express trust exists. What is crucial is the intention to create a trust. While oftentimes the
intention is manifested by the trustor in express or explicit language, such intention may be
manifested by inference from what the trustor has said or done, from the nature of the
transaction, or from the circumstances surrounding the creation of the purported trust. However,
an inference of the intention to create a trust, made from language, conduct or circumstances,
must be made with reasonable certainty. It cannot rest on vague, uncertain or indefinite
declarations.

An inference of intention to create a trust,predicated only on circumstances, can be made only

where they admit of no other interpretation. In the present case, credible witnesses testified that
(1) the lands subject of Expedientes 241 and 4449 were made and transferred in the name of Jose
merely for convenience since Juan predeceased Jacobo; (2) despite the Compraventas,
transferring all the lands in Jose‗s name, Jacobo continued to perform all the acts of ownership
including possession, use and administration of the lands; (3) Jacobo did not want to partition the
lands because he was still using them; (4) when Jacobo died, Jose took over the administration of
the lands and conscientiously and unfailingly gave his siblings their share in the produce of the
lands, in recognition of their share as co-owners; and (5) Jose did not repudiate the claim of his
siblings and only explained upon their expression of the desire for partitioning, that it was not
going to be an easy task.
 Salvador v. CA,

G.R. No. 109910 April 5, 1995

Facts: Assailed in this petition is the legal determination made by the Court of Appeals on the
issues of which portion of Lot No. 6080 and Lot No. 6180 formed part of the conjugal assets of
the spouses Pastor Makibalo and Maria Yabo, and of whether or not the rights of Pastor's co-
heirs in the estate of Maria Yabo were extinguished through prescription or laches.

Issue: Whether or not prescription and laches can be applied against the co-heirs of Pastor
Makibalo.

Ruling: What needs to be addressed first is whether or not Pastor Makibalo has acquired by
prescription the shares of his other co-heirs or co-owners. Prescription as a mode of acquiring
ownership requires a continuous, open, peaceful, public, and adverse possession for a period of
time fixed by law. This Court has held that the possession of a co-owner is like that of a trustee
and shall not be regarded as adverse to the other co-owners but in fact as beneficial to all of
them. Acts which may be considered adverse to strangers may not be considered adverse insofar
as co-owners are concerned. A mere silent possession by a co-owner, his receipt of rents, fruits or
profits from the property, the erection of buildings and fences and the planting of trees thereon,
and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out
by clear and convincing evidence that he exercised acts of possession which unequivocably
constituted an ouster or deprivation of the rights of the other co-owners. Thus, in order that a co-
owner's possession may be deemed adverse to the cestuique trust or the other co-owners, the
following elements must concur: (1) that he has performed unequivocal acts of repudiation
amounting to an ouster of the cestuique trust or the other co-owners; (2) that such positive acts of
repudiation have been made known to the cestuique trust or the other co-owners; and (3) that the
evidence thereon must be clear and convincing. In Pangan vs. Court of Appeals, this Court had
occasion to lay down specific acts which are considered as acts of repudiation: Filing by a trustee
of an action in court against the trustor to quiet title to property, or for recovery of ownership
thereof, held in possession by the former, may constitute an act of repudiation of the trust
reposed on him by the latter. The issuance of the certificate of title would constitute an open and
clear repudiation of any trust, and the lapse of more than 20 years, open and adverse possession
as owner would certainly suffice to vest title by prescription. An action
for the reconveyance of land based on implied or constructive trust prescribes within 10 years.
And it is from the date of the issuance of such title that the effective assertion of adverse title for
purposes of the statute of limitation is counted. The prescriptive period may only be counted
from the time petitioners repudiated the trustrelation in 1955 upon the filing of the complaint for
recovery of possession against private respondents so that the counterclaim of the private
respondents contained in their amended answer wherein they asserted absolute ownership of the
disputed realty by reason of the continuous and adverse possession of the same is well within the
l0-year prescriptive period. There is clear repudiation of a trust when one who is an apparent
administrator of property causes the cancellation of the title thereto in the name of the apparent
beneficiaries and gets a new certificate of title in his own name. It is only when the defendants,
alleged co-owners of the property in question, executed a deed of partition and on the strength
thereof obtained the cancellation of the title in the name of their predecessor and the issuance of
a new one wherein they appear as the new owners of a definite area each, thereby in effect
denying or repudiating the ownership of one of the plaintiffs over his alleged share in the entire
lot, that the statute of limitations started to run for the purposes of the action instituted by the
latter seeking a declaration of the existence of the co-ownership and of their rights thereunder.

The records do not show that Pastor Makibalo adjudicated to himself the whole estate of his wife
by means of an affidavit filed with the Office of the Register of Deeds as allowed under Section
1 Rule 74 of the Rules of Court, or that he caused the issuance of a certificate of title in his name
or the cancellation of the tax declaration in Alipio's name and the issuance of a new one in his
own name. The only act which may be deemed as a repudiation by Pastor of the co-ownership
over the lots is his filing on 28 April 1976 of an action to quiet title (Civil Case No. 5000). The
period of prescription started to run only from this repudiation. However, this was tolled when
his co-heirs, the private respondents herein, instituted on 8 October 1976 an action for partition
(Civil Case No. 5174) of the lots.
 Kinds: Express Trust v. Implied Trust

Huang v. CA, 236 S 420

G.R. No. 108525 September 13, 1994

Facts: Private respondents Dolores and Aniceto Sandoval wanted to buy two lots in Dasmarinas
Village, Makati but was allowed to buy only one lot per policy of the subdivision owner. Private
respondents bought Lot 21 and registered it in their name. Respondents also bought Lot 20 but
the deed of sale was in the name of petitioner Ricardo Huang and registered in his name.
Respondents constructed a house on Lot 21 while petitioners were allowed by respondents to
build a house on Lot 20. Petitioners were also allowed to mortgage the Lot 20 to the SSS to
secure a loan. Respondents actually financed the construction of the house, the swimming pool,
and the fence surrounding the properties on the understanding that the petitioners would merely
hold title in trust for the respondents‗ beneficial interest.

Petitioner Huangs leased the property to Deltron Corporation for its official quarters without the
permission of the respondents. But later, the lessees prohibited the use of the swimming pool by
the respondents, and the Huangs began challenging the respondents‗ ownership of the property.
Thus, respondents filed a complaint before the trial court for the nullification of the deed of sale
to the petitioners and the quieting of title of Lot 20. The trial court found that the respondents
were the real owners of the Lot 20 and therefore ordered the petitioners to vacate the property
and to remit to the respondents the rentals earned from Lot 20. The Court of Appeals affirmed
the lower court‗s decision. Hence, the instant recourse.

Issue: Whether or not petitioners can claim ownership of the property registered in their name
but for which was paid by the respondents.

Ruling: No. Respondent Sandoval provided the money for the purchase of Lot 20 but the
corresponding deed of sale and transfer certificate of title were placed in the name of petitioner
Huang. Through this transaction, a resulting trust was created. Petitioner became the trustee of
Lot 20 and its improvements for the benefit of respondent as owner. Article 1448 of the New
Civil Code provides that there is an implied trust when property is sold and the legal estate is
granted to one party but the price is paid by another for the purpose of having the beneficial
interest for the property. A resulting trust arises because of the presumption the he who pays for a
thing intends a beneficial therein for himself. Given these provisions of law, petitioner was
only a trustee of the property in question for the benefit of the respondent who is the real owner.
Therefore, petitioner cannot claim ownership of the property even when it was registered in his
name. Thus, petition is denied. The decision of the trial court as sustained by the Court of
Appeals is affirmed, with costs against petitioners.
 Vda.deEsconde v. CA, 253 S 66

G.R. No. 103635 February 1, 1996

Facts: Petitioners Constancia, Benjamin and Elenita, and private respondent Pedro, are the
children of the late EulogioEsconde and petitioner Catalina Buan. EulogioEsconde was one of
the children and heirs of Andres Esconde. Andres is the brother of EstanislaoEsconde, the
original owner of the disputed lot who died without issue on April 1942. Survived by his only
brother, Andres, Estanislao left an estate consisting of four (4) parcels of land in Samal, Bataan.
Eulogio died in April, 1944 survived by petitioners and private respondent. At that time, Lazara
and Ciriaca, Eulogio's sisters, had already died without having partitioned the estate of the late
EstanislaoEsconde.

On December 5, 1946, the heirs of Lazara, Ciriaca and Eulogio executed a deed of extrajudicial
partition, with the heirs of Lazara identified therein as the Party of the First Part, that of Ciriaca,
the Party of the Second Part and that of Eulogio, the Party of the Third Part. Since the children of
Eulogio, with the exception of Constancia, were then all minors, they were represented by their
mother and judicial guardian, petitioner Catalina Buanvda. De Esconde who renounced and
waived her usufructuary rights over the parcels of land in favor of her children in the same deed.
The deed bears the thumbmark of Catalina Buan and the signature of ConstanciaEsconde, as well
as the approval and signature of Judge Basilio Bautista.

Pursuant to the same deed, transfer certificates of title were issued to the new owners of the
properties. Transfer Certificate of Title No. 394 for Lot No. 1700 was issued on February 11,
1947 in the name of private respondent but Catalina kept it in her possession until she delivered
it to him in 1949 when private respondent got married.

Meanwhile, Benjamin constructed the family home on Lot No. 1698-B which is adjacent to Lot
No. 1700. A portion of the house occupied an area of twenty (20) square meters, more or less, of
Lot No. 1700. Benjamin also built a concrete fence and a common gate enclosing the two (2)
lots, as well as an artesian well within Lot No. 1700.

Issue: Whether or not the action was already barred with laches and prescription.
Ruling: Trust is the legal relationship between one person having an equitable ownership in
property and another person owning the legal title to such property, the equitable ownership of
the former entitling him to the performance of certain duties and the exercise of certain powers
by the latter. Trusts are either express or implied. An express trust is created by the direct and
positive acts of the parties, by some writing or deed or will or by words evidencing an intention
to create a trust. No particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended.

On the other hand, implied trusts are those which, without being expressed, are deducible from
the nature of the transaction as matters of intent or which are superinduced on the transaction by
operation of law as matters of equity, independently of the particular intention of the parties. In
turn, implied trusts are either resulting or constructive trusts.

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a
typical trust, confidence is reposed in one person who is named a trustee for the benefit of
another who is called the cestuique trust, respecting property which is held by the trustee for the
benefit of the cestuique trust. A constructive trust, unlike an express trust, does not emanate
from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are
linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor
any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends
holding the property for the beneficiary.

If, as petitioners insist, a mistake was committed in allotting Lot No. 1700 to private respondent,
then a trust relationship was created between them and private respondent. However, private
respondent never considered himself a trustee. If he allowed his brother Benjamin to construct or
make improvements thereon, it appears to have been out of tolerance to a brother. Consequently,
if indeed, by mistake, private respondent was given the entirety of Lot No. 1700, the trust
relationship between him and petitioners was a constructive, not resulting, implied trust.
Petitioners, therefore, correctly questioned private respondent's exercise of absolute ownership
over the property. Unfortunately, however, petitioners assailed it long after their right to do so
had prescribed.
The rule that a trustee cannot acquire by prescription ownership over property entrusted to him
until and unless he repudiates the trust, applies to express trusts and resulting implied trusts.
However, in constructive implied trusts, prescription may supervene even if the trustee does not
repudiate the relationship. Necessarily, repudiation of the said trust is not a condition precedent
to the running of the prescriptive period.

Since the action for the annulment of private respondent's title to Lot No. 1700 accrued during
the effectivity of Act No. 190, Section 40 of Chapter III thereof applies. It provides: Sec. 40.
Period of prescription as to real estate. An action for recovery of title to, or possession of, real
property, or an interest therein, can only be brought within ten years after the cause of such
action accrues.

Thus, in Heirs of Jose Olviga v. Court of Appeals, the Court ruled that the ten-year prescriptive
period for an action for reconveyance of real property based on implied or constructive trust
which is counted from the date of registration of the property, applies when the plaintiff is not in
possession of the contested property. In this case, private respondent, not petitioners who
instituted the action, is in actual possession of Lot No. 1700.
 Tala Realty v. Banco Filipino,

G.R. No. 137533 November 22, 2002

Facts: Petitioner Tala Realty Services Corporation alleges that it is the absolute owner of nine
parcels of land and their improvements by virtue of separate Deeds of Absolute Sale executed
between Tala and the respondent Banco Filipino Savings and Mortgage Bank on August 25.
1981. The Bulacan property is the subject matter of the case. Thereafter, Tala and the Bank
entered into separate lease contracts over the nine properties. The contracts had the same form
and terms. except for the description of the property and the amount of the monthly rentals. The
contracts provided for twenty-year lease periods renewable for another twenty years at the option
of the Bank. The monthly rental for the Bulacan property was P9,800.00.

Later that same day, the parties revised the nine lease contracts. The terms of the lease were
shortened to eleven years renewable for a period of nine years "at the option of the lessee under
terms and conditions mutually agreeable to both parties", but the monthly rental for the Bulacan
property remained P9,800.00.

Almost eleven years after the execution of the nine lease contracts. Tala's director, Elizabeth H.
Palma, wrote to the Bank reminding the latter that the contracts were about to expire on August
31, 1992, and that the Bank had earlier signified its interest to renew the lease contracts.
Meantime, Tala would lease the properties to the Bank on a month-to-month basis until the
agreement was finalized. On January 20, 1993, the Bank requested Tala to send its representative
to the Bank's office to negotiate the renewal of the lease. Tala's director, Elizabeth Palma,
negotiated the renewal and submitted a proposal for increased rental. Tala reiterated the
increased rental which was agreed upon in the previous negotiation. Thus, the new monthly
rental rate for the Bulacan property was P31,800.00.

However, for several months from the time of negotiation, the Bank failed to take action on
Tala's proposed terms for the renewal of the lease contract. Tala also informed the Bank that
since it had been ten months since the expiration of the lease contracts in August 1992 and the
Bank had not taken any definite action to renew the contracts despite being furnished copies of
the same in December 1992. Tata declared itself free to "lease, dispose, sell and/or in any way
alienate the bank branch sites subject of the lease agreement." However, the Bank clarified that it
is the one which had the option to renew the lease and that it had communicated to Tale it was
exercising its option to do so.

From the time the lease contract over the Bulacan property expired in August 1992 until March
1994, the Bank continued to occupy the subject Bulacan property. It paid Tala monthly rentals at
the old rate of P9,800.00 from September 1, 1992 until March 1994, but refused to pay the
P22,000.00 difference between the old monthly rate and the new rate of P31,800.00. Beginning

Issue: Whether or not the implied trust created under the obligation was valid.

Ruling: Tala's right to lease the property to the Bank proceeds from its (Tala's) claim of
ownership of the property based on a contract of sale executed between it and the Bank on
August 25. 1981. The Bank, however, disputes Tale's ownership "in fee simple" as stated in its
20-year lease contract with Tala as it (the Bank) alleges that there is an implied trust relationship
between the Bank as trustor and beneficiary and Tala as trustee. Pursuant to this implied trust, the
Bank in April 1994 demanded Tala to perform its obligation as trustee and return the disputed
property to the Bank as trustor and beneficiary. The Bank is of the view, therefore, that since it
had already sought enforcement of the implied trust and reconveyance of the subject property,
the Bank had the right to its possession and Tala did not have a right to eject it from the property.

The Bank cannot use the defense of nor seek enforcement of its alleged implied trust with Tala
since its purpose was contrary to law. As admitted by the Bank, it "warehoused" its branch site
holdings to Tala to enable it to pursue its expansion program and purchase new branch sites
including its main branch in Makati. and at the same time avoid the real property holdings limit
under Sections 25(a) and 34 of the General Banking Act which it had already reached. The Bank
stated in its Memorandum that "the (n)ew branch sites which the Respondent (Bank) will be
disqualified from buying, by reason of the aforecited limitations under existing banking laws and
regulations, will be acquired for it by the Petitioner (Tala) which will forthwith lease them to the
Respondent (Bank).‖ The Bank also admitted that the agreement that the branch sites will be
returned to the bank anytime at its pleasure at the same transfer price- was differently stated in
the lease contracts as a "first preference to buy" because the Bank was apprehensive that the
agreement to return property. "if spelled out as-is in the documents, might provide basis for the
Central Bank to question the sale and simultaneous lease back of the branch sites as simulated
and accordingly, derail the expansion program of the Respondent"

Clearly, the Bank was well aware of the limitations on its real estate holdings under the General
Banking Act and that its -warehousing agreement" with Tala was a scheme to circumvent the
limitation. Thus, the Bank opted not to put the agreement in writing and call a spade a spade, but
instead phrased its right to reconveyance of the subject property at any time as a "first preference
to buy' at the "same transfer price. This arrangement which the Bank claims to be an implied
trust is contrary to law. Thus, while the sale and lease of the subject property genuine and
binding upon the parties, the implied trust cannot be enforced even assuming the parties intended
to create it. The Bank cannot thus demand reconveyance of the property based on its alleged
implied trust relationship with Tala. Wherefore, the petition is dismissed.
 Express Trust

Medina v. CA, 196 P 205 (1981)

G.R. No. L-26107 November 27, 1981

Facts: On March 6, 1957, herein petitioners filed the complaint in the trial court seeking to
recover from herein respondents a parcel of land situated in the sitio of Oac, municipality of
Milagros, province of Masbate, containing an area of 321.1156 hectares and praying that
respondents be ordered to deliver to them possession and ownership thereof with accounting,
damages and costs and litigation expenses.
Among others, the complaint alleged that petitioner Margarita Medina as plaintiff inherited with
her sister Ana Medina the said parcel of land from their father Pedro Medina; that upon their
father's death, she and her sister Ana Medina being then minors were placed under the care and
custody of the spouses Sotero Medina and Restituta Zurbito, as guardians of their persons and
property; that the land in dispute was placed under the management of Sotero Medina as
administrator thereof, and upon Sotero's death under the management of his widow, Restituta
Zurbito; that she later discovered that the land in question was surreptitiously declared for
taxation purposes in the name of Andres Navarro, Jr., grandson of Restituta Zurbito; that said
respondents as defendants had without color of title denied petitioners' ownership and instead
had claimed ownership thereof since the year 1948 and exercised acts of possession and
ownership thereon to the exclusion of petitioners; that petitioners had demanded that respondents
vacate the premises and deliver possession and ownership thereof, but the latter failed and
refused to do so; that respondent Andres Navarro, Jr. had excavated soil from the land in question
and sold the same to the Provincial Government of Masbate without the knowledge and consent
of petitioners and appropriated the proceeds thereof to his personal benefit to the damage and
prejudice of the plaintiff; and that respondent Restituta Zurbito Vda. de Medina never rendered
an accounting of the income of the property in question in spite of their repeated demands and
instead appropriated all the income therefrom to her personal use and benefit.
Respondents as defendants alleged on the other hand that petitioner Margarita and her deceased
sister Ana were but illegitimate children of Pedro Medina and for that reason did not enjoy the
status of recognized natural children, such that when Pedro died intestate, Francisco Medina,
Pedro's father who was still living, succeeded to his properties; that upon the death of Francisco,
his children succeeded to his properties and the land in dispute was adjudicated to Gregorio,
Sotero, and Narciso Medina; that in a deed of extrajudicial partition the land was later
adjudicated solely to Narciso Medina; that Narciso Medina having become sole and exclusive
owner of the land in question by virtue of said partition sold the same to Restituta and her
husband Sotero Medina on June 29, 1924, as evidenced by a deed of sale; that from that day,
respondents had actually possessed the land in question in the concept of owners, publicly,
openly and continuously and adversely against the whole world so that whatever right, interest,
title or participation petitioners had or might have had in the property had been lost by extinctive
prescription and by virtue of the 33 years of exclusive actual possession in the concept of owner
of the spouses Sotero and Restituta Medina who had thereby acquired title thereto by acquisitive
prescription, even granting arguendo that petitioners had some title, right or interest over the
land.

Issue: Whether or not petitioners' action for recovery thereof has been barred by prescription.

Ruling: As provided by our Civil Code, "Trusts are either express or implied. Express trusts are
created by the intention of the trusts are of the parties. Implied trusts come into being by
operation of law." (Art. 1441) "No express trusts concerning an immovable or any interest
therein may be proven by parol evidence." (Art. 1443) "An implied trust may be proven by oral
evidence." (Art. 1457). Applied to the case at bar, if an express trust had been constituted upon
the occupancy of the property by respondents in favor of the petitioners, prescription of action
would not lie, the basis of the rule being that the possession of the trustee is not adverse to the
beneficiary. But if there were merely a constructive or implied trust, the action to recover may be
barred by prescription of action or by acquisitive prescription by virtue of respondents'
continuous and adverse possession of the property in the concept of owner-buyer for thirty-three
years. The appellate court correctly held that the facts and evidence of record do not support
petitioners' claim of the creation of an express trust and imprescriptibility of their claim, ruling
squarely that "the facts do not warrant the conclusion that an express trust was created over the
land in dispute. Although no particular words are required for the creation of an express trust, a
clear intention to create a trust must be shown (Article 1444, Civil Code of the Philippines); and
the proof of fiduciary relationship must be clear and convincing.

Express trusts are those intentionally created by the direct and positive act of the trustor, by some
writing, deed or win, or oral declaration (54 Am. Jur. 33-34). The creation of an express trust
must be manifested with reasonable certainty and cannot be inferred from loose and vague
declarations or from ambiguous circumstancessusceptible of other interpretations (54 Am. Jur.
48-49). Nowhere in the record is there any evidence, and the plaintiffs do not even raise the
pretention, that the original owner of the property Pedro Medina, father of plaintiff Margarita
Medina, appointed, designated or constituted Sotero Medina (the husband of defendant Restituta
Zurbito Medina) as the trustee of the land in dispute. Plaintiffs' contention that there was an
express trust must, therefore, fail."
 Filipinas Port v. Go

G.R. No. 161886 March 16, 2007

Facts: Eliodoro C. Cruz, Filport‗s president from 1968-1991, wrote a letter to the corporation‗s
BOD questioning the creation and election of the following positions with a monthly
remuneration of P13,050.00 each. Cruz requested the board to take necessary action to recover
from those elected to the aforementioned positions the salaries they have received. In June 4,
1993, Cruz, purportedly in representation of Filport and its stockholders, among which is herein
co-petitioner Minterbro, filed with the SEC a derivative suit against Filport's BOD for acts of
mismanagement detrimental to the interest of the corporation and its shareholders at large. Cruz
prayed that the BOD be made to pay Filport, jointly and severally, the sums of money variedly
representing the damages incurred as a result of the creation of the offices/positions complained
of and the aggregate amount of the questioned increased salaries. RTC: BOD have the power to
create positions not in the by-laws and can increase salaries. But Edgar C. Trinidad under the
third and fourth causes of action to restore to the corporation the total amount of salaries he
received as assistant vice president for corporate planning; and likewise ordering Fortunato V. de
Castro and Arsenio Lopez Chua under the fourth cause of action to restore to the corporation the
salaries they each received as special assistants respectively to the president and board chairman.
In case of insolvency of any or all of them, the members of the board who created their positions
are subsidiarily liable.

Issues: Whether or not there was mismanagement.

Ruling: No. Section 35 of the Corporation Code, the creation of an executive committee (as
powerful as the BOD) must be provided for in the bylaws of the corporation. Notwithstanding
the silence of Filport‗s bylaws on the matter, we cannot rule that the creation of the executive
committee by the board of directors is illegal or unlawful. One reason is the absence of a
showing as to the true nature and functions of executive committee. But even assuming there was
mismanagement resulting to corporate damages and/or business losses, respondents may not be
held liable in the absence of a showing of bad faith in doing the acts complained of.
Determination of the necessity for additional offices and/or positions in a corporation is a
management prerogative which courts are not wont to review in the absence of any proof that
such prerogative was exercised in bad faith or with malice.
 Implied Trust

Vda.De Gualberto v. Go

G.R. No. 139843 July 21, 2005

Facts: Petitioners are the heirs of GenerosoGualberto, the former registered owner of a parcel of
land situated in Siniloan, Laguna. Sometime in 1965, the subject parcel of land was sold by
Generoso and his wife Natividad to respondents' father, Go Kiang. In April 1973, Natividad
executed an affidavit attesting to the fact that the parcel of land had truly been sold by her and
her husband to the Sps Go.

In Dec. 1973, in a case for unlawful detainer filed against petitioners, they alleged that the
plaintiff therein was not a real party in interest and therefore has no legal capacity and cause of
action to sue them.

Issue: Whether or not an action for reconveyance of property based on nullity of title prescribes.

Ruling: An action for reconveyance of registered land based on implied trust prescribes in 10
years, the point of reference being the date of registration of the deed or the date of the issuance
of the certificate of title over the property.

The SC has ruled that the 10-year prescriptive period applies only when the person enforcing the
trust, either implied or expressed, is not in possession of the property. If a person claiming to be
its owner is in actual possession of the property, the right to seek reconveyance does not
prescribe. The reason is that the one who is in actual possession of the land claiming to be its
owner may wait until his possession is disturbed or his title is attacked before taking steps to
vindicate his right. His undisturbed possession gives him a continuing right to seek the aid of a
court of equity to ascertain and determine the nature of the adverse claim of a third party and its
effect on his own title, which right can be claimed only by one who is in possession.
In the present case, petitioners remained in actual possession of the property after their father's
sale to Go Kiang and up to the lifting of their complaint in this case. The SC's actual conclusion
is that respondents had actual possession of the subject property ever since. Thus, the action for
reconveyance in the instant case is not in the nature of an action for quieting of title and is not
imprescriptible.

Heirs of Yap v. CA, 371 P 523

G.R. No. 133047 August 17, 1999

Facts: Ramon Yap purchased a parcel of land situated at 123 Batanes Street, Galas, Quezon City,
covered by Transfer Certificate of Title No. 82001/T-414, from the spouses Carlos and Josefina
Nery. The lot was thereupon registered in the name of Ramon Yap under Transfer Certificate of
Title No. 102132. In 1967, Ramon Yap constructed a two storey 3-door apartment building for
the use of the Yap family. One-fifth (1/5) of the cost of the construction was defrayed by Ramon
Yap while the rest was shouldered by Chua Mia, the mother of Lorenzo, Benjamin and Ramon.
Upon its completion, the improvement was declared for real estate tax purposes in the name of
Lorenzo Yap in deference to the wishes of the old woman. On 18 March 1992, Ramon Yap sold
the land and his share of the 3-door apartment to his brother, his herein co-respondent Benjamin
Yap pursuant to a Deed of Sale. The controversy started when herein petitioners, by a letter of 08
June 1992, advised respondents of the formers claim of ownership over the property and
demanded that respondents execute the proper deed necessary to transfer the title to them.

Issue: Whether or not there was implied trust in this case.

Ruling: One basic distinction between an implied trust and an express trust is that while the
former may be established by parol evidence, the latter cannot. Even then, in order to establish
an implied trust in real property by parol evidence, the proof should be as fully convincing as if
the acts giving rise to the trust obligation are proven by an authentic document and cannot be
established upon vague and inconclusive proof. Unfortunately for petitioners, the issues they
submit in the case at bar boil down to the appreciation of the evidence presented. The Court of
Appeals, sustaining the court a quo, has found the evidence submitted by petitioners to be utterly
wanting, consisting mainly of the self-serving testimony of Sally Yap. She herself admitted that
the business establishment of her husband Lorenzo was razed by fire in 1964 that would
somehow place to doubt the claim that he indeed had the means to purchase the subject land
about two years later from the Nery spouses. Upon the other hand, Ramon Yap was by then an
accountant with apparent means to buy the property himself. At all events, deserve utmost regard
when not devoid of evidentiary support. No cogent reason had been shown by petitioners for the
Court to now hold otherwise. A trust or a provision in the terms of a trust would be invalid if the
enforcement of the trust or provision is against the law even though its performance does not
involve the commission of a criminal or tortuous act. It likewise must follow that what the
parties are not allowed to do expressly is one that they also may not do impliedly as, for instance,
in the guise of a resulting trust.
 Heirs of Kionisala v. Heirs of Dacut,

G.R. No. 147379 February 27, 2002

Facts: On 19 December 1995 private respondents filed a complaint for declaration of nullity of
titles, reconveyance and damages against petitioners. This complaint involved two (2) parcels of
land known as Lot No. 1017 and Lot No. 1015 with areas of 117,744 square meters and 69,974
square meters respectively, located in Pongol, Libona, Bukidnon. On 7 September 1990 Lot No.
1017 was granted a free patent to petitioners Heirs of AmbrocioKionisala under Free Patent No.
603393, and on 13 November 1991 Lot 1015 was bestowed upon Isabel Kionisala, one of the
impleaded heirs of AmbrocioKionisala under Free Patent No. 101311-91-904. Thereafter, on 19
November 1990 Lot 1017 was registered under the Torrens system and was issued Original
Certificate of Title No. P-19819 in petitioners name, while on 5 December 1991 Lot No. 1015
was registered in the name of Isabel Kionisala under Original Certificate of Title No. P-20229.In
support of their causes of action for declaration of nullity of titles and reconveyance, private
respondents claimed absolute ownership of Lot 1015 and 1017 even prior to the issuance of the
corresponding free patents and certificates of title.

Issue: Whether or not the cause of action has prescribed in this case.

Ruling: The test of the sufficiency of the facts to constitute a cause of action is whether
admitting the facts alleged the court could render a valid judgment upon the same in accordance
with the prayer of the complaint. The complaint does not allege an action for reversion but that it
sufficiently states either a cause of action for declaration of nullity of free patents and certificates
of title or alternatively a cause of action for reconveyance of these two pieces of realty. The court
rule that neither the action for declaration of nullity of free patents and certificates of title nor the
action for reconveyance based on an implied trust of the same lots has prescribed. That a free
patent issued over private land is null and void, and produces no legal effects whatsoever. Quos
nullumest, nullumproduciteffectum. Moreover, private respondents claim of open, public,
peaceful, continuous and adverse possession of the two (2) parcels of land and its illegal
inclusion in the free patents of petitioners and in theiroriginal certificates of title, also amounts to
an action for quieting of title which is imprescriptible. The action for reconveyance based on
implied trust, on the other hand, prescribes only after ten (10) years from 1990 and 1991 when
the free patents and the certificates of title were registered. Obviously the action had not
prescribed when privaterespondents filed their complaint against petitioners on 19 December
1995.
 Ramos v. Ramos, 61 S 284

G.R. No. L-19872 December 3, 1974

Facts: Spouses Martin Ramos and Candida Tanate died on October 4, 1906 and October
26, 1880, respectively. They were survived by their 3 children. Moreover, Martin was survived
by his 7 natural children. In December 1906, a special proceeding for the settlement of the
intestate estate of said spouses was conducted. Rafael Ramos, a brother of Martin, administered
the estate for more than 6 years. Eventually, a partition project was submitted which was signed
by the 3 legitimate children and 2 of the 7 natural children. A certain TimoteoZayco signed in
representation of the other 5 natural children who were minors. The partition was sworn to
before a justice of peace.

The conjugal hereditary estate was appraised at P74,984.93, consisting of 18 parcels of land,
some head of cattle and the advances to the legitimate children. One-half thereof represented the
estate of Martin. 1/3 thereof was the free portion or P12,497.98. The shares of the 7 natural
children were to be taken from that 1/3 free portion. Indeed, the partition was made in
accordance with the Old Civil code. Thereafter, Judge Richard Campbell approved the partition
project. The court declared that the proceeding will be considered closed and the record should
be archived as soon as proof was submitted that each heir had received the portion adjudicated to
him.

On February 3, 1914, Judge Nepumoceno asked the administrator to submit a report showing
that the shares of the heirs had been delivered to them as required by the previous decision.
Nevertheless, the manifestation was not in strict conformity with the terms of the judge‘s order
and with the partition project itself. 8 lots of the HimamaylanCadastre were registered in equal
shares in the names of Gregoria (widow of Jose Ramos) and her daughter, when in fact the
administrator was supposed to pay the cash adjudications to each of them as enshrined in the
partition project. Plaintiffs were then constrained to bring the suit before the court seeking for the
reconveyance in their favor their corresponding participations in said parcels of land in
accordance with Article 840 of the old Civil Code. Note that 1/6 of the subject lots represents the
1/3 free portion of martin‘s shares which will eventually redound to the shares of his 7 legally
acknowledged natural children. The petitioners‘ action was predicated on the theory that their
shares were merely held in trust by defendants. Nonetheless, no Deed of Trust was alleged and
proven. Ultimately, the lower court dismissed the complaint on the grounds of res judicata,
prescription and laches.

Issue: Whether or not the plaintiffs' action was barred by prescription, laches and res judicata to
the effect that they were denied of their right to share in their father‘s estate.

Ruling: Yes, there was inexcusable delay thereby making the plaintiffs‘ action unquestionably
barred by prescription and laches and also by res judicata. Inextricably interwoven with the
questions of prescription and res judicata is the question on the existence of a trust. It is
noteworthy that the main thrust of plaintiffs‘ action is the alleged holding of their shares in trust
by defendants. Emanating from such, the Supreme Court elucidated on the nature of trusts and
the availability of prescription and laches to bar the action for reconveyance of property
allegedly held in trust. It is said that trust is the right, enforceable solely in equity to the
beneficial enjoyment of property, the legal title to which is vested in another. It may either be
express or implied. The latter ids further subdivided into resulting and constructive trusts.
Applying it now to the case at bar, the plaintiffs did not prove any express trust. Neither did they
specify the kind of implied trust contemplated in their action. Therefore, its enforcement maybe
barred by laches and prescription whether they contemplate a resulting or a constructive trust.
 Intestate Estate of Ty v. CA, 356 S 661

G.R. No. 112872 April 19, 2001

Facts: Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent
Alejandro B. Ty. Alexander died of leukemia on May 19, 1988 and was survived by his wife,
petitioner Sylvia, and only child, Krizia Katrina. On November 4, 1992, petitioner filed a motion
for leave to sell or mortgage estate property in order to generate funds for the payment of
deficiency estate taxes. Private respondent Alejandro Ty then filed two complaints for the
recovery of the above-mentioned property, praying for the declaration for nullity of the deed of
absolute sale of the shares of stock executed by private respondent in favor of the deceased
Alexander, and Civil Case, praying for the recovery of the pieces of property that were placed in
the name of deceased Alexander.

Issue: Whether or not there was an express trust between deceased and respondent.

Ruling: Petitioner contends that private respondent is attempting to enforce an unenforceable

express trust over the disputed real property. Petitioner is in error when she contends that an
express trust was created by private respondent when he transferred the property to his son. In
the cases at hand, private respondent contends that the pieces of property were transferred in the
name of the deceased Alexander for the purpose of taking care of the property for him and his
siblings. Such transfer having been effected without cause of consideration, a resulting trust was
created.

A resulting trust arises in favor of one who pays the purchase money of an estate and places the
title in the name of another, because of the presumption that he who pays for a thing intends a
beneficial interest therein for himself. The trust is said to result in law from the acts of the
parties. Such a trust is implied in fact, which may be proven by oral evidence under Article 1457
of the Civil Code, and it matters not whether property is real or personal.

Petitioners' assertion that private respondents action is barred by the statute of limitations is
erroneous. The statue of limitations cannot apply in this case. Resulting trusts generally do not
prescribe, except when the trustee repudiates the trust.
 Vda. De Reterto v. Barz,

G.R. No. 148180 December 19, 2001

Facts: When Sps Esteban Perez and Lorenza Sanchez dies intestate, their rights over the property
were inherited by their daughter, Juana Perez, married to NumerianoBarz, who then declared the
properly, for taxation purposes, under her name but with an area of only 13,160 square meters,
more or less. On April 16, 1929, Juana Perez, widow Barz, executed a deed confirming her
execution of a Deed of Absolute Sale in favor of PanfiloRetuerto, married to Catalina Ceniza,
over a portion of the Hacienda de Mandaue. However, on April 26, 1935, PanfiloRetuerto
purchased the aforementioned parcel of land, this time, from the Archbishop of Cebu. In the
meantime, the San Carlos Seminary in Cebu filed a Petition with the Regional Trial Court for the
Issuance of titles over several parcels of land in Hacienda de Mandaue, including Lot No 896-A,
earlier purchased by PanfiloRetuerto from Juana Perez and from Archbishop of Cebu. No decree
was issued because Second World War ensued in the Pacific. However, PanfiloRetuerto failed to
secure the appropriate decree after the war.

Issue: Whether or not the cause of action has prescribed in this case.

Ruling: Constructive trusts are created in equity to prevent unjust enrichment, arising against
one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property
which he ought not, in equity and good conscience, to hold. Petitioners failed to substantiate their
allegation that their predecessor-in-interest had acquired any legal right to the property subject of
the present controversy. Nor had they adduced any evidence to show that the certificate of title of
Pedro Barz was obtained through fraud. Even assuming arguendo that Pedro Barz acquired title
to the property through mistake or fraud, petitioners are nonetheless barred from filing their
claim of ownership. An action for reconveyance based on an implied or constructive trust
prescribes within ten years from the time of its creation or upon the alleged fraudulent
registration of the property. Since registration of real property is considered a constructive notice
to all persons, then the ten-year prescriptive period is reckoned from the time of such registering,
filing or entering. Thus, petitioners should have filed an action for reconveyance within ten years
from the issuance of OCT No. 521 in November 16, 1968. This, they failed to do so. No action
for reconveyance has been filed by herein petitioners. They interposed their claim of ownership
for the first time in their Answer and by way of Affirmative Defenses to the complaint for
quieting of title filed by herein respondents in 1989. This cannot be allowed. Under Section 48 of
PD 1529, a certificate of title cannot be subject to collateral attack; it cannot be altered, modified
or cancelled except in a direct proceeding. The issue of the validity of title, whether or not it was
fraudulently issued, can only be raised in an action expressly instituted for that purpose.
 ChiaoLiong Tan v. CA,

G.R. No. 106251 November 19, 1993

Facts: Chiao Long Tan claims to be the owner of a 1976 Isuzu Elf van. As owner thereof,
petitioner says he has been in possession, enjoyment, and utilization of the van until his older
brother, Tan Ban Yong, unlawfully took it away from him. Petitioner relies on the fact that the
van is registered under his name; that he sent his brother to pay for the van and the receipt was
issued in his name because his money that was used to pay for the vehicle; that he allowed his
brother to use the vehicle because the latter was working for the company and that his brother
refused to return the vehicle and appropriated the same for himself.

Issue: Whether or not there was an implied trust in this case.

Ruling: It is true that a certificate of registration of a motor vehicle in one‗s name creates a
strong presumption of ownership. The person in whose favor it has been issued, is virtually the
owner thereof unless proven otherwise. Such presumption is rebuttable by competent proof. It
was undeniable that an implied trust was created when the certificate of registration of the
vehicle was placed in the petitioner‗s name although the price thereof was paid by private
respondent. A trust, which drives its strength form the confidence one reposes on another
especially between brothers, does not lose that character simply because of what appears is a
legal document. Hence, petition is denied.
 O'laco v. Co Cho Chit,

G.R. No. 58010 March 31, 1993

Facts: Private respondent – spouses Valentin Co Cho Chit and O‗Lay Kia learned from the
newspaper that O‗Laco sold the Oroquieta property to the Roman Catholic archbishop for
P230,000. Respondent spouses sued petitioner to recover the purchase price asserting that
petitioners knows that they were the real vendees and the legal title thereto was merely placed in
her name. They contend that O‗Laco breached the trust when she sold the land. While petitioner
assert that she merely left the certificate of title covering the property with the private respondent
for safekeeping.

Issue: Whether or not the trust between parties has prescribed.

Ruling: Unlike express trusts concerning immovables or any interest therein which cannot be
proved by parol evidence, implied trusts may be established by oral evidence. However, in order
to establish an implied trust in real property by parol evidence, the proof should be as fully
convincing as if the acts giving rise to the trust obligation were proven by an authentic
document. It cannot be established upon vague and inconclusive proof. After a thorough review
of the evidence on record, the court held that a resulting trust was indeed intended by the parties
under Art. 1448 of the New Civil Code. As stipulated by the parties, the document of sale, the
owner's duplicate copy of the certificate of title, insurance policies, receipt of initial premium of
insurance coverage and real estate tax receipts were all in the possession of respondent-spouses
which they offered in evidence. As emphatically asserted by respondent O Lay Kia, the reason
why these documents of ownership remained with her is that the land in question belonged to
her. Indeed, there can be no persuasive rationalization for the possession of these documents of
ownership by respondent-spouses for seventeen (17) years after the Oroquieta property was
purchased in 1943 than that of precluding its possible sale, alienation or conveyance by Emilia
O'Laco, absent any machination or fraud. This continued possession of the documents, together
with other corroborating evidence spread on record, strongly suggests that Emilia O'Laco merely
held the Oroquieta property in trust for respondent-spouses. As differentiated from constructive
trusts, where the settled rule is that prescription may supervene, in resulting trust, the rule of
imprescriptibility may apply for as long as the trustee has not repudiated the trust.
 Saint Louis University
School of Law

793
OBLIGATIONS AND CONTRACTS