MAGDALENA ESTATE VS.

MYRICK
71 PHIL. 346

FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots
No. 28 and 29 of Block 1, Parcel 9 of the San Juan
Subdivision, San Juan, Rizal. Their contract of sale
provides that the Price of P7,953 shall be payable in 120
equal monthly installments of P96.39 each on the second
day of every month beginning the date of execution of the
agreement.

In pursuance of said agreement, the vendee made

several payments amounting to P2,596.08, the last being
due and unpaid was that of May 2, 1930. By reason of this,
the vendor, through its president, notified the vendee that,
in view of his inability to comply with the terms of their
contract, said agreement had been cancelled, relieving him
of any further obligation thereunder, and that all amounts
paid by him had been forfeited in favor of the vendor. To
this communication, the vendee did not reply, and it
appears likewise that the vendor thereafter did not require
him to make any further disbursements on account of the
purchase price.

ISSUE:
Was the petitioner authorized to forfeit the
purchase price paid?

RULING:
No. The contract of sale contains no provision
authorizing the vendor, in the event of failure of the vendee
to continue in the payment of the stipulated monthly
installments, to retain the amounts paid to him on account
of the purchase price. The claim therefore, of the petitioner
that it has the right to forfeit said sums in its favor is
untenable. Under Article 1124 of the Civil Code, however,
he may choose between demanding the fulfillment of the
contract or its resolution. These remedies are alternative
and not cumulative, and the petitioner in this case, having
elected to cancel the contract cannot avail himself of the
other remedy of exacting performance. As a consequence
of the resolution, the parties should be restored, as far as
practicable, to their original situation which can be
approximated only be ordering the return of the things
which were the object of the contract, with their fruits and
of the price, with its interest, computed from the date of
institution of the action.

UNIVERSAL FOOD CORPORATION VS. CA

33 SCRA 1

FACTS:
This is a petition for certiorari by the UFC against
the CA decision of February 13, 1968 declaring the BILL
OF ASSIGNMENT rescinded, ordering UFC to return to
Magdalo Francisco his Mafran sauce trademark and to pay
his monthly salary of P300.00 from Dec. 1, 1960 until the
return to him of said trademark and formula.

In 1938, plaintiff Magdalo V. Francisco, Sr.

discovered a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly
known as MAFRAN sauce. It was used commercially since
1942, and in the same year plaintiff registered his
trademark in his name as owner and inventor with the
Bureau of Patents. However, due to lack of sufficient
capital to finance the expansion of the business, in 1960,
said plaintiff secured the financial assistance of Tirso T.
Reyes who, after a series of negotiations, formed with
others defendant Universal Food Corporation eventually
leading to the execution on May 11, 1960 of the
aforequoted "Bill of Assignment" (Exhibit A or 1).

On May 31, 1960, Magdalo Francisco entered into

contract with UFC stipulating among other things that he
be the Chief Chemist and Second Vice-President of UFC
and shall have absolute control and supervision over the
laboratory assistants and personnel and in the purchase
and safekeeping of the chemicals used in the preparation
of said Mafran sauce and that said positions are permanent
in nature.

In line with the terms and conditions of the Bill of

Assignment, Magdalo Francisco was appointed Chief
Chemist with a salary of P300.00 a month. Magdalo
Francisco kept the formula of the Mafran sauce secret to
himself. Thereafter, however, due to the alleged scarcity
and high prices of raw materials, on November 28, 1960,
Secretary-Treasurer Ciriaco L. de Guzman of UFC issued a
Memorandum duly approved by the President and General
Manager Tirso T. Reyes that only Supervisor Ricardo
Francisco should be retained in the factory and that the
salary of plaintiff Magdalo V. Francisco, Sr., should be
stopped for the time being until the corporation should
resume its operation. On December 3, 1960, President and
General Manager Tirso T. Reyes, issued a memorandum to
Victoriano Francisco ordering him to report to the factory
and produce "Mafran Sauce" at the rate of not less than
100 cases a day so as to cope with the orders of the
corporation's various distributors and dealers, and with
instructions to take only the necessary daily employees
without employing permanent employees. Again, on
December 6, 1961, another memorandum was issued by
the same President and General Manager instructing the
Assistant Chief Chemist Ricardo Francisco, to recall all
daily employees who are connected in the production of
Mafran Sauce and also some additional daily employees
for the production of Porky Pops. On December 29, 1960,
another memorandum was issued by the President and
General Manager instructing Ricardo Francisco, as Chief
Chemist, and Porfirio Zarraga, as Acting Superintendent,
to produce Mafran Sauce and Porky Pops in full swing
starting January 2, 1961 with further instructions to hire
daily laborers in order to cope with the full blast operation.
Magdalo V. Francisco, Sr. received his salary as Chief
Chemist in the amount of P300.00 a month only until his
services were terminated on November 30, 1960. On
January 9 and 16, 1961, UFC, acting thru its President and
General Manager, authorized Porfirio Zarraga and Paula
de Bacula to look for a buyer of the corporation including
its trademarks, formula and assets at a price of not less
than P300,000.00. Due to these successive memoranda,
without plaintiff Magdalo V. Francisco, Sr. being recalled
back to work, he filed the present action on February 14,
1961. Then in a letter dated March 20, 1961, UFC requested
said plaintiff to report for duty, but the latter declined the
request because the present action was already filed in
court.

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

RULING:

1. No. Certain provisions of the bill would lead

one to believe that the formula itself was transferred. To
quote, “the respondent patentee "assign, transfer and
convey all its property rights and interest over said
Mafran trademark and formula for MAFRAN SAUCE
unto the Party of the Second Part," and the last
paragraph states that such "assignment, transfer and
conveyance is absolute and irrevocable (and) in no case
shall the PARTY OF THE First Part ask, demand or sue
for the surrender of its rights and interest over said
MAFRAN trademark and mafran formula."

“However, a perceptive analysis of the entire

instrument and the language employed therein would lead
one to the conclusion that what was actually ceded and
transferred was only the use of the Mafran sauce formula.
This was the precise intention of the parties.”

The SC had the following reasons to back up the

above conclusion. First, royalty was paid by UFC to
Magdalo Francisco. Second, the formula of said Mafran
sauce was never disclosed to anybody else. Third, the Bill
acknowledged the fact that upon dissolution of said Corporation, the patentee rights and interests of
said
trademark shall automatically revert back to Magdalo
Francisco. Fourth, paragraph 3 of the Bill declared only
the transfer of the use of the Mafran sauce and not the
formula itself which was admitted by UFC in its answer.
Fifth, the facts of the case undeniably show that what was
transferred was only the use. Finally, our Civil Code allows
only “the least transmission of right, hence, what better
way is there to show the least transmission of right of the
transfer of the use of the transfer of the formula itself.”

2. No. Petitioner’s contention that Magdalo

Francisco’s petition for rescission should be denied
because under Article 1383 of the Civil Code of the
Philippines rescission can not be demanded except when
the party suffering damage has no other legal means to
obtain reparation, was of no merit because “it is predicated
on a failure to distinguish between a rescission for breach
of contract under Article 1191 of the Civil Code and a
rescission by reason of lesion or economic prejudice, under
Article 1381, et seq.” This was a case of reciprocal
obligation. Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder was
subordinated to anything other than the culpable breach of
his obligations by the defendant. Hence, the reparation of
damages for the breach was purely secondary. Simply put,
unlike Art. 1383, Art. 1191 allows both the rescission and
the payment for damages. Rescission is not given to the
party as a last resort, hence, it is not subsidiary in nature.
UNIVERSITY OF THE PHILIPPINES VS. DE LOS
ANGELES
35 SCRA 102

FACTS:
On November 2, 1960, UP and ALUMCO entered
into a logging agreement whereby the latter was granted
exclusive authority to cut, collect and remove timber from
the Land Grant for a period starting from the date of
agreement to December 31, 1965, extendible for a period of
5 years by mutual agreement.

On December 8, 1964, ALUMCO incurred an

unpaid account of P219,362.94. Despite repeated
demands, ALUMCO still failed to pay, so UP sent a notice
to rescind the logging agreement. On the other hand,
ALUMCO executed an instrument entitled
“Acknowledgment of Debt and Proposed Manner of
Payments. It was approved by the president of UP, which
stipulated the following:
3. In the event that the payments called for are not
sufficient to liquidate the foregoing indebtedness,
the balance outstanding after the said payments
have been applied shall be paid by the debtor in
full no later than June 30, 1965.
5. In the event that the debtor fails to comply with
any of its promises, the Debtor agrees without
reservation that Creditor shall have the right to
consider the Logging Agreement rescinded,
without the necessity of any judicial suit…
ALUMCO continued its logging operations, but
again incurred an unpaid account. On July 19,1965, UP
informed ALUMCO that it had, as of that date, considered
rescinded and of no further legal effect the logging
agreement, and that UP had already taken steps to have
another concessionaire take over the logging operation.
ALUMCO filed a petition to enjoin UP from conducting the
bidding. The lower court ruled in favor of ALUMCO,
hence, this appeal.

ISSUE:
Can petitioner UP treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial
pronouncement to that effect?

RULING:
Yes. In the first place, UP and ALUMCO had
expressly stipulated that upon default by the debtor, UP
has the right and the power to consider the Logging
Agreement of December 2, 1960 as rescinded without the necessity of any judicial suit. As to such
special stipulation
and in connection with Article 1191 of the Civil Code, the
Supreme Court, stated in Froilan vs. Pan Oriental Shipping
Co:
“There is nothing in the law that prohibits the
parties from entering into agreement that violation
of the terms of the contract would cause
cancellation thereof, even without court
intervention. In other words, it is not always
necessary for the injured party to resort to court
for rescission of the contract.”

ANGELES VS. CALASANZ

135 SCRA 323

FACTS:
On December 19, 1957, defendants-appellants
Ursula Torres Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a
contract to sell a piece of land located in Cainta, Rizal for
the amount of P3,920.00 plus 7% interest per annum. The
plaintiffs-appellees made a downpayment of P392.00 upon
the execution of the contract. They promised to pay the
balance in monthly installments of P41.20 until fully paid,
the installment being due and payable on the 19th day of
each month. The plaintiffs-appellees paid the monthly
installments until July 1966, when their aggregate
payment already amounted to P4,533.38.

On December 7, 1966, the defendants-appellants

wrote the plantiffs-appellees a letter requesting the
remittance of past due accounts. On January 28, 1967, the
defendants-appellants cancelled the said contract because
the plaintiffs failed to meet subsequent payments. The
plaintiffs’ letter with their plea for reconsideration of the
said cancellation was denied by the defendants.

The plaintiffs-appellees filed a case before the

Court of First Instance to compel the defendant to execute
in their favor the final deed of sale alleging inter alia that
after computing all subsequent payments for the land in
question, they found out that they have already paid the
total amount including interests, realty taxes and
incidental expenses. The defendants alleged in their
answer that the plaintiffs violated par. 6 of the contract to
sell when they failed and refused to pay and/or offer to pay
monthly installments corresponding to the month of
August, 1966 for more than 5 months, thereby
constraining the defendants to cancel the said contract.

The Court of First Instance rendered judgment in

favor of the plaintiffs, hence this appeal.

ISSUE:
Has the Contract to Sell been automatically and
validly cancelled by the defendants-appellants?

RULING:
No. While it is true that par.2 of the contract
obligated the plaintiffs-appellees to pay the defendants the
sum of P3,920 plus 7% interest per annum, it is likewise
true that under par 12 the seller is obligated to transfer the
title to the buyer upon payment of the said price.

The contract to sell, being a contract of adhesion,

must be construed against the party causing it. The
Supreme Court agree with the observation of the plaintiffsappellees
to the effect that the terms of a contract must be
interpreted against the party who drafted the same,
especially where such interpretation will help effect justice
to buyers who, after having invested a big amount of
money, are now sought to be deprived of the same thru the
prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect
which, in essence, and its entirety is most unfair to the
buyers.

Thus, since the principal obligation under the

contract is only P3,920.00 and the plaintiffs-appellees
have already paid an aggregate amount of P4,533.38, the
courts should only order the payment of the few remaining
installments but not uphold the cancellation of the
contract. Upon payment of the balance of P671.67 without
any interest thereon, the defendant must immediately
execute the final deed of sale in favor of the plaintiffs and
execute the necessary transfer of documents, as provided
in par.12 of the contract.

Sagrada Orden vs. Nacoco 91 Phil. 503 (1952)

Nature: appeal from judgment of CFI of Manila

Facts and Background of the Case

- On Jan 4, 1942, during the Japanese occupation, Taiwan Tekkosho (Japanese corporation) acquired the
plaintiff’s property (land with warehouse in Pandacan, Manila) for Php140K
- On April 4, 1946, after the liberation, the US took control and custody of the aforementioned enemy’s
land under Sect 12 of the Trading with the Enemy Act
- In the same year, the Copra Export Management Company occupied the property under custodianship
agreement with the United States Alien Property Custodian
- In August 1946, when the Copra Export Management Co. vacated the property, the National Coconut
Corporation (NACOCO), the defendant, occupied it next
- Sagrada Orden (plaintiff) files claims on the property with the Court of First Instance of Manila and
against the Philippine Alien Property Administrator
- Plaintiff petitions that the sale of the property to Taiwan Tekkosho should be declared null and void as
it was executed under duress, that the interest of the Alien Property Custodian be cancelled, and that
NACOCO be given until February 28, 1949 to recover its equipment form the property and vacate the
premise
- The Republic of the Philippines is allowed to intervene
- CFI: the defendant (Philippine Alien Property Administrator) and the intervenor (RP) are released from
any liability but the plaintiff may reserve the right to recover from NACOCO reasonable rentals for the
use and occupation of the premises
- The sale of the property to the Taiwan Takkesho was declared void and the plaintiff was given the right
to recover Php3,000/month as reasonable rental from August 1946 (date when NACOCO occupied
property) to the date NACOCO vacates the premises
- the judgment is appealed to the SC

Legal Issues
1. WON the defendant is liable to pay rent for occupying the property in question

Judgment
1. The CFI’s decision that the defendant should pay rent from August 1946 to February 28, 1949 was
reversed, costs against the plaintiff

Ratio
Obligations can only arise from four sources: law, contracts or quasi-contracts, crime, or negligence (Art
1089, Spanish Civil Code).

There were no laws or an express agreement between the defendant or the Alien Property Custodian
with the plaintiff regarding payment of rent. The property was acquired by the Alien Property
Administrator through law (Trading with the Enemy Act) on the seizure of alien property and not as a
successor to the interests of the latter. There was no contract of rental b/w them and Taiwan Takkesho.
NACOCO entered possession of the property from the Alien Property Custodian without any expectation
of liability for its use. NACOCO did not commit any negligence or offense, and there was no contract,
implied or otherwise, entered into, that can be used as basis for claiming rent on the property before
the plaintiff obtained the judgment annulling the sale to Taiwan Takkesho. The plaintiff has no right to
claim rent from NACOCO.

Important Notes
Article 1157 of the New Civil Code states that there are 5 sources of obligations: laws, contracts, quasi-
contracts, felonies (acts or omissions punished by law), and quasi-delicts.

Sagrada Orden Vs Nacoco –Kinuha ng Hapon

ang lupa.
Action to recover parcel of land owned by P, and
then because of Japanese war was acquired by
other parties, then possessed by the US govt thru
its custodian then possessed by the defendant
without agreement with the US or with the
plaintiff, and def then leased a part of the land.

Issue: WON defendant is liable to Sagrada and

must pay the rentals.

Held: No. If liable at all must arise from any of

the four sources of obligations. APA was a trustee
of the US and if def liable, not to plaintiff but to
US govt. But defendant not liable for rentals bec
no express agreement bet the APA and Nacoco.
Existence of implied agreement is contrary to
the circumstances.
Source: Contract. But there was none.

Pelayo vs. Lauron –husband vs. in-laws

1906-Pelayo complained against Lauron and
Abella. Pelayo a doctor, rendered service to
daughter-in-law then demanded P500 from def.

Issue: WON Lauron is liable.

Held: No. Husband liable. Art. 142 and 143 or

Family Code. Rendering medical assistance,
mutual oblig. Oblig not presumed. Those
expressly determined in the Code or in special
laws are the only demandable ones.
Source: Laws. Family Code.

Leung Ben vs. O’Brien - Gambling

O’ Brien filed an action in the court of CFGI of
Manila to recover from Leung Ben the sum of
P15,000 alleged to have been lost by O’Brien to
Leung Ben in a series of gambling, banking and
percentage games:

Issue: WON O’Brien can recover the money from

Leung Ben.
Held: Yes. Upon general principles, recognized
both in the civil and common law, money lost in
gambling and voluntary paid by the loser to the
winner cannot, in the absence of statute, be
recovered in a civil action. But Act. No. 1757 of
the Phil. Comm, which defines and penalized
different forms of gambling contains numerous
provisions recognizing the right to recover money
lost in gambling. It must therefore be assumed
that the action of plaintiff was based upon the
right to recovery given by section 7 of said Act,
which declares that an action may be brought
against the banker by any person losing money at
a banking or percentage game.
Source: Law. Phil Comm and Civil Code.

G.R. No. L-4920 June 29, 1953

FRANCISCO DIANA and SOLEDAD DIANA, plaintiffs-appellants,
vs.
BATANGAS TRANSPORTATION CO., defendant-appellee.
Zosimo D. Tanalega for appellants.
Gibbs, Gibbs, Chuidian and Quasha for appellee.
BAUTISTA ANGELO, J.:
The present appeal stems from a case originally instituted in the Court of First Instance of Laguna
wherein plaintiffs seek to recover from defendant as a party subsidiarily liable for the crime committed
by an employee in the discharge of his duty the sum of P2,500 as damages, plus legal interest, and the
costs of action.
The appeal was originally taken to the Court of Appeals but the case was certified to this court on the
ground that it poses merely a question of law.
Plaintiffs are the heirs of one Florenio Diana, a former employee of the defendant. On June 21, 1945,
while Florenio Diana was riding in Truck No. 14, belonging to the defendant, driven by Vivencio Bristol,
the truck ran into a ditch at Bay, Laguna, resulting in the death of Florenio Diana and other passengers.
Subsequently, Vivencio Bristol was charged and convicted of multiple homicide through reckless
imprudence wherein, among other things, he was ordered to indemnify the heirs of the deceased in the
amount of P2,000. When the decision became final, a writ of execution was issued in order that the
indemnity may be satisfied but the sheriff filed a return stating that the accused had no visible leviable
property. The present case was started when defendant failed to pay the indemnity under its subsidiary
liability under article 103 of the Revised Penal Code. The complaint was filed on October 19, 1948 (civil
case No. 9221).
On December 13, 1948, defendant filed a motion to dis- miss on the ground that there was another
action pending between the same parties for the same cause (civil case No. 8023 of the Court of First
Instance of Laguna) in which the same plaintiffs herein sought to recover from the same defendant the
amount of P4,500 as damages resulting from the death of Florenio Diana who died while on board a
truck of defendant due to the negligent act of the driver Vivencio Bristol. This first action was predicated
on culpa aquiliana.
On December 16, 1948, plaintiffs filed a written opposition to the motion to dismiss. On February 3,
1949, the lower court, having found the motion well founded, dismissed the complaint, without special
pronouncement as to costs; and their motion for reconsideration having been denied, plaintiffs took the
present appeal.
The only question to be determined is whether the lower court correctly dismissed the complaint on the
sole ground that there was another action pending between the same parties for the same cause under
Rule 8, section 1(d) of the Rules of Court.
The determination of this issue hinges on the proper interpretation of Rule 8, section 1 (d) which allows
the dismissal of a case on the ground that "there is another action pending between the same parties
for the same cause." Former Justice Moran, commenting on this ground, says: "In order that this ground
may be invoked, there must be between the action under consideration and the other action, (1)
identity of parties, or at least such as representing the same interest in both actions; (2) identity of rights
asserted and relief prayed for, the relief being found on the same facts; and (3) the identity on the two
preceding particulars should be such that any judgment which may be rendered on the other action will,
regardless of which party is successful, amount to res adjudicata in the action under consideration." [I
Moran, Comments on the Rules of Court, (1952), p. 168.].
There is no doubt with regard to the identity of parties. In both cases, the plaintiffs and the defendant
are the same. With regard to the identity of reliefs prayed for, a different consideration should be made.
It should be noted that the present case (civil case No. 9221) stems from a criminal case in which the
driver of the defendant was found guilty of multiple homicide through reckless imprudence and was
ordered to pay an indemnity of P2,000 for which the defendant is made subsidiarily liable under article
103 of the Revised Penal Code, while the other case (civil case No. 8023) is an action for damages based
on culpa aquiliana which underlies the civil liability predicated on articles 1902 to 1910 of the old Civil
Code. These two cases involve two different remedies. As this court aptly said: "A quasi-delict or culpa
aquiliana is a separate legal institution under the Civil Code, with a substantivity all its own, and
individuality that is entirely apart and independent from a delict or crime. * * *. A distinction exists
between the civil liability arising from a crime and the responsibility for cuasi-delictos or culpa extra-
contractual. The same negligent act causing dam- ages may produce civil liability arising from a crime
under article 100 of the Revised Penal Code, or create an action for cuasi-delito or culpa extra-
contractual under articles 1902-1910 of the Civil Code (Barredo vs. Garcia and Al- mario, 73 Phil., 607).
The other differences pointed out between crimes and culpa aquiliana are:.
1. That crimes affect the public interest, while cuasi-delitos are only of private concern.
2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by
means of indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal
law clearly covering them, while the latter, cuasi-delitos, include all acts in which 'any kind of fault or
negligence intervenes. (P. 611, supra.).
Considering the distinguishing characteristics of the two cases, which involve two different remedies, it
can hardly be said that there is identity of reliefs in both actions as to make the present case fall under
the operation of Rule 8, section 1(d) of the Rules of Court. In other words, it is a mistake to say that the
present action should be dismissed because of the pendency of another action between the same
parties involving the same cause. Evidently, both cases involve different causes of action. In fact, when
the Court of Appeals dismissed the action based on culpa aquiliana (civil case No. 8023), this distinction
was stressed. It was there said that the negligent act committed by defendant's employee is not a quasi
crime, for such negligence is punishable by law. What plaintiffs should have done was to institute an
action under article 103 of the Revised Penal Code (CA-G.R. No. 3632-R). And this is what plaintiffs have
done. To deprive them now of this remedy, after the conviction of defendant's employee, would be to
deprive them altogether of the indemnity to which they are entitled by law and by a court decision,
which injustice it is our duty to prevent.
Wherefore, the order appealed from is reversed and the case is hereby remanded to the lower court for
further proceedings. No pronouncement as to costs.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Jugo, and Labrador, JJ., concur.

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in
CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the
trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion
and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial
Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin
Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously
paying the rental and complying with all the conditions of the lease contract; that on several occasions
before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and
are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a
price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter
dated January 28, 1987 with the same request; that since defendants failed to specify the terms and
conditions of the offer to sell and because of information received that defendants were about to sell
the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property
to them.
Defendants filed their answer denying the material allegations of the complaint and interposing a
special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which was granted by
the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs
for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence,
there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right
of first refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs
summarily dismissing the complaint subject to the aforementioned condition that if the defendants
subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or
lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven
Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino
G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed
with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between the parties concerning the sale of the property.
Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual,
moral and exemplary damages will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts may render summary judgment when
there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a
matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the
court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but
subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-
appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million
pesos or lower; however, considering the mercurial and uncertain forces in our market economy today.
We find no reason not to grant the same right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The
Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H,
Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu
Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of
which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor
of the VENDEE, his heirs, executors, administrators or assigns, the above-described property with all the
improvements found therein including all the rights and interest in the said property free from all liens
and encumbrances of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his
favor and other expenses incidental to the sale of above-described property including capital gains tax
and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was
cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3,
1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees
demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property
subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-
881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-
41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio
Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and
Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as
evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the
Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the
petition for review and that the same was denied by the highest tribunal in its resolution dated May 6,
1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by
the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become
final and executory.
It is the observation of the Court that this property in dispute was the subject of the Notice of Lis
Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had
become final to the effect that should the defendants decide to offer the property for sale for a price of
P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today,
the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in
litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15
Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title
be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the issuance of another title to
Buen Realty Corporation, is hereby set aside as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff
Ramon Enriquez of this Court to implement said Writ of Execution ordering the defendants among
others to comply with the aforesaid Order of this Court within a period of one (1) week from receipt of
this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor
of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in
favor of Buen Realty Corporation which was previously executed between the latter and defendants and
to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was
issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared
without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the
writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the
name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from
the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such arrangements as the
right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out
some fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or
juridical tie which is the efficient cause established by the various sources of obligations (law, contracts,
quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to
be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the
demandability of the obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which 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 (Art. 1305, Civil Code). A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period
from the time the prospective contracting parties indicate interest in the contract to the time the
contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of
the essential elements thereof. A contract which is consensual as to perfection is so established upon a
mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause
thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement,
as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real property, is essential
in order to make the act valid, the prescribed form being thereby an essential element thereof. The
stage of consummation begins when the parties perform their respective undertakings under the
contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs,
the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally,
the full payment of the purchase price), the breach of the condition will prevent the obligation to convey
title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said
that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is
devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the condition would prevent such
perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the
second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not
the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of
the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn;
the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily
when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to
the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and
has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before
the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art.
1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs.
Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado,
135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil
Code which ordains 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."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would
be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an
independent contract by itself, and it is to be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws
the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue
for specific performance on the proposed contract ("object" of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach
of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in
fact, it has been intended to be part of the consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar
instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482,
Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to
point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither
can the right of first refusal, understood in its normal concept, per se be brought within the purview of
an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article
1319 9 of the same Code. An option or an offer would require, among other things, 10 a clear certainty
on both the object and the cause or consideration of the envisioned contract. In a right of first refusal,
while the object might be made determinate, the exercise of the right, however, would be dependent
not only on the grantor's eventual intention to enter into a binding juridical relation with another but
also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at
best be so described as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here,
its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that
merely recognizes its existence, nor would it sanction an action for specific performance without
thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not
to say, however, that the right of first refusal would be inconsequential for, such as already intimated
above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 12
of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser
of the property, has acted in good faith or bad faith and whether or not it should, in any case, be
considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters
that must be independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the property, without first
being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ
of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-
21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by
this Court. As already stated, there was nothing in said decision 13 that decreed the execution of a deed
of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the
cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng
Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at
the time the execution of any deed of sale between the Cu Unjiengs and petitioners.

AYSON-SIMON VS. ADAMOS AND FERIA

G.R. NO. L-39378 AUGUST 28, 1984

FACTS:
Defendants, Nicolas Adamos and Vicente Feria,
purchased two lots forming part of the Piedad Estate in
Quezon City, from Juan Porciuncula. Thereafter, the
successors-in-interest of the latter filed Civil Case No. 174
for annulment of the sale and the cancellation of TCT No.
69475, which had been issued to defendants-appellants by
virtue of the disputed sale. The Court rendered a Decision
annulling the saleThe said judgment was affirmed by the
Appellate Court and had attained finality.

Meanwhile, during the pendency of the case above,

defendants sold the said two lots to Petitioner Generosa
Ayson-Simon for Php3,800.00 plus Php800.00 for
facilitating the issuance of the new titles in favor of
petitioner. Due to the failure of the defendants to deliver
the said lots, petitioner filed a civil case for specific
performance. The trial court rendered judgment to
petitioner’s favor. However, defendants could not deliver
the said lots because the CA had already annulled the sale
of the two lots in Civil Case No. 174. Thus, petitioner filed
another civil case for the rescission of the contract.

Defendants were contending that petitioner cannot choose

to rescind the contract since petitioner chose for specific
performance of the obligation. Also, even though
petitioner can choose to rescind the contract, it would not
be possible, because it has already prescribed.

ISSUES:
1. Can petitioner choose to rescind the contract even after choosing for the specific performance of the
obligation?
2. Had the option to rescind the contract prescribed?

RULING:
1. Yes. The rule that the injured party can
only choose between fulfillment and rescission of the
obligation, and cannot have both, applies when the
obligation is possible of fulfillment. If, as in this case, the
fulfillment has become impossible, Article 1191 allows the injured party to seek rescission even after he
has chosen
fulfillment.

2. No. Article 1191 of the Civil Code provides

that the injured party may also seek rescission, if the
fulfillment should become impossible. The cause of action
to claim rescission arises when the fulfillment of the
obligation became impossible when the Court of First
Instance of Quezon City in Civil Case No. 174 declared the
sale of the land to defendants by Juan Porciuncula a
complete nullity and ordered the cancellation of Transfer
Certificate of Title No. 69475 issued to them. Since the two
lots sold to plaintiff by defendants form part of the land
involved in Civil Case No. 174, it became impossible for
defendants to secure and deliver the titles to and the
possession of the lots to plaintiff. But plaintiff had to wait
for the finality of the decision in Civil Case No. 174,
According to the certification of the clerk of the Court of
First Instance of Quezon City (Exhibit "E-2"), the decision
in Civil Case No. 174 became final and executory "as per
entry of Judgment dated May 3, 1967 of the Court of
Appeals." The action for rescission must be commenced
within four years from that date, May 3, 1967. Since the
complaint for rescission was filed on August 16, 1968, the
four year period within which the action must be
commenced had not expired.

ARANETA VS PHIL. SUGAR ESTATES

DEVELOPMENT CO.
20 SCRA 330

FACTS:
J. M. Tuason & Co., Inc. is the owner of a big tract
land situated in Quezon City, and on July 28, 1950,
[through Gregorio Araneta, Inc.] sold a portion thereof to
Philippine Sugar Estates Development Co., Ltd.
The parties stipulated, among in the contract of
purchase and sale with mortgage, that the buyer will build
on the said parcel land the Sto. Domingo Church and
Convent while the seller for its part will construct streets.

But the seller, Gregorio Araneta, Inc., which began

constructing the streets, is unable to finish the
construction of the street in the Northeast side because a
certain third-party, by the name of Manuel Abundo, who
has been physically occupying a middle part thereof,
refused to vacate the same;
Both buyer and seller know of the presence of
squatters that may hamper the construction of the streets
by the seller. On May 7, 1958, Philippine Sugar Estates
Development Co., Lt. filed its complaint against J. M.
Tuason & Co., Inc., and instance, seeking to compel the
latter to comply with their obligation, as stipulated in the
above-mentioned deed of sale, and/or to pay damages in
the event they failed or refused to perform said obligation.

The lower court and the appellate court ruled in

favor of Phil. Sugar estates, and gave defendant Gregorio
Araneta, Inc., a period of two (2) years from notice hereof,
within which to comply with its obligation under the
contract, Annex "A".

Gregorio Araneta, Inc. resorted to a petition for

review by certiorari to this Court.

ISSUES:
Was there a period fixed?

RULING:
Yes. The fixing of a period by the courts under
Article 1197 of the Civil Code of the Philippines is sought to
be justified on the basis that petitioner (defendant below)
placed the absence of a period in issue by pleading in its
answer that the contract with respondent Philippine Sugar
Estates Development Co., Ltd. gave petitioner Gregorio
Araneta, Inc. "reasonable time within which to comply
with its obligation to construct and complete the streets."
If the contract so provided, then there was a period fixed, a
"reasonable time;" and all that the court should have done
was to determine if that reasonable time had already
elapsed when suit was filed if it had passed, then the court
should declare that petitioner had breached the contract,
Was it within the powers of the lower court to set the
performance of the obligation in two years time?

NO. Even on the assumption that the court should have

found that no reasonable time or no period at all had been
fixed (and the trial court's amended decision nowhere
declared any such fact) still, the complaint not having
sought that the Court should set a period, the court could
not proceed to do so unless the complaint included it as
first amended;
Granting, however, that it lay within the Court's power to
fix the period of performance, still the amended decision is
defective in that no basis is stated to support the conclusion that the period should be set at two years
after
finality of the judgment. The list paragraph of Article 1197
is clear that the period can not be set arbitrarily. The law
expressly prescribes that “the Court shall determine such
period as may under the circumstances been probably
contemplated by the parties.”

It must be recalled that Article 1197 of the Civil Code

involves a two-step process. The Court must first
determine that "the obligation does not fix a period" (or
that the period is made to depend upon the will of the
debtor)," but from the nature and the circumstances it can
be inferred that a period was intended" (Art. 1197, pars. 1
and 2). This preliminary point settled, the Court must then
proceed to the second step, and decide what period was
"probably contemplated by the parties" (Do., par. 3). So
that, ultimately, the Court can not fix a period merely
because in its opinion it is or should be reasonable, but
must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to
have pulled the two-year period set in its decision out of
thin air, since no circumstances are mentioned to support
it. Plainly, this is not warranted by the Civil Code.
Does “reasonable time” mean that the date of performance
would be indefinite?

The Court of Appeals objected to this conclusion that it

would render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; and this
very indefiniteness is what explains why the agreement did
not specify any exact periods or dates of performance.

SINGSON ENCARNACION VS. BALDOMAR

77 PHIL 470

FACTS:
Vicente Singson Encarnacion leased his house to
Jacinta Baldomar and her son, Lefrando Fernando upon a
month-to-month basis. After Manila was liberated in the
last war, Singson Encarnacio notified Baldomar and her
son Fernando to vacate the house because he needed it for
his office as a result of the destruction of the building
where he had his office before. Despite the demand, the
Baldomar and Fernando continued their occupancy.

The defense of Baldomar and Fernando was that the

contract with Singson Encarnacion authorized them to
continue occupancy indefinitely while they should
faithfully fulfill their obligation with respect to payment of
rentals. Singson Encarnacion contended that the lease had
always and since the beginning been upon a month-tomonth
basis.

ISSUE:
Was it tenable for Singson Encarnacion to discontinue
the lease of Baldomar and her son?

RULING:
The continuance and fulfillment of the contract of lease
cannot be made to depend solely and exclusively upon the
free and uncontrolled choice of the lessees between
continuing paying the rentals or not, completely depriving
the owner of all say in the matter. The defense of Baldomar
and Fernando would leave to the sole and exclusive will of
one of the contracting parties the validity and fulfillment of
the contract of lease, within the meaning of Article 1256 of
the Civil Code. For if this were allowed, so long as the
lessee elected to continue the lease by continuing the
payment of the rentals the owner would never be able to
discontinue the lease; conversely, although the owner
should desire the lease to continue, the lessee could
effectively thwart his purpose if he should prefer to
terminate the contract by the simple expedient of stopping
payment of the rentals.

Ong vs. Century (kf)

The Court of First Instance of Iloilo rendered a judgment in favor of the plaintiff, sentencing the
defendant company to pay him the sum of P45,000, the value of certain policies of fire insurance, with
legal interest thereon from February 28, 1923, until payment, with the costs. The defendant company
appealed from this judgment, and now insists that the same must be modified and that it must be
permitted to rebuild the house burnt, subject to the alignment of the street where the building was
erected, and that the appellant be relieved from the payment of the sum in which said building was
insured.
The appellant contends that under clause 14 of the conditions of the policies, it may rebuild the house
burnt, and although the house may be smaller, yet it would be sufficient indemnity to the insured for
the actual loss suffered by him.
If this clause of the policies is valid, its effect is to make the obligation of the insurance company an
alternative one, that is to say, that it may either pay the insured value of house, or rebuild it. It must be
noted that in alternative obligations, the debtor, the insurance company in this case, must notify the
creditor of his election, stating which of the two prestations he is disposed to fulfill, in accordance with
article 1133 of the Civil Code. The object of this notice is to give the creditor, that is, the plaintiff in the
instant case, opportunity to express his consent, or to impugn the election made by the debtor, and only
after said notice shall the election take legal effect when consented by the creditor, or if impugned by
the latter, when declared proper by a competent court. In the instance case, the record shows that the
appellant company did not give a formal notice of its election to rebuild, and while the witnesses,
Cedrun and Cacho, speak of the proposed reconstruction of the house destroyed, yet the plaintiff did
not give his assent to the proposition, for the reason that the new house would be smaller and of
materials of lower kind than those employed in the construction of the house destroyed. Upon this
point the trial judge very aptly says in his decision: "It would be an imposition unequitable, as well as
unjust, to compel the plaintiff to accept the rebuilding of a smaller house than the one burnt, with a
lower kind of materials than those of said house, without offering him an additional indemnity for the
difference in size between the two house, which circumstances were taken into account when the
insurance applied for by the plaintiff was accepted by the defendant."
Election alleged by the appellant to rebuild the house burnt instead of paying the value of the insurance
is improper.

RONQUILLO VS. COURT OF APPEALS

G.R. No. L-55138

FACTS:
Petitioner Ernesto V. Ronquillo was one of four (4)
defendants for the collection of the sum of P117,498.98
plus attorney's fees and costs. The other defendants were
Offshore Catertrade, Inc., Johnny Tan and Pilar Tan.
On December 13, 1979, the lower court rendered
its Decision based on the compromise agreement, which
stipulates, among others, that the Plaintiff agrees to reduce
its total claim of P117,498.95 to only P110,000.00 and
defendants agree to acknowledge the validity of such claim
and further bind themselves to initially pay out of the total
indebtedness of P110,000.00 the amount of P55,000.00
on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to
pay within a period of six months from January 1980, or
before June 30, 1980.

Upon the defendant’s default, herein private

respondent (then plaintiff) filed a Motion for Execution.
Ronquillo and another defendant Pilar Tan offered to pay
their shares of the 55,000 already due.

But on January 22, 1980, private respondent

Antonio So moved for the reconsideration and/or
modification of the aforesaid Order of execution and
prayed instead for the "execution of the decision in its
entirety against all defendants, jointly and severally.

Petitioner opposed the said motion arguing that

under the decision of the lower court being executed which
has already become final, the liability of the four (4)
defendants was not expressly declared to be solidary,
consequently each defendant is obliged to pay only his own
pro-rata or 1/4 of the amount due and payable.

ISSUE:
What is the nature of the liability of the defendants
(including petitioner), was it merely joint, or was it several
or solidary?

RULING:

SOLIDARY.

In this regard, Article 1207 and 1208 of the Civil

Code provides -
"Art. 1207. The concurrence of two or more
debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with
the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.

Art. 1208. If from the law, or the nature or the

wording of the obligation 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 and debtors, the credits or debts being
considered distinct from one another, subject to the Rules
of Court governing the multiplicity of suits."

Clearly then, by the express term of the

compromise agreement, the defendants obligated
themselves to pay their obligation "individually and
jointly."

The term "individually" has the same meaning as

"collectively", "separately", "distinctively", respectively or
"severally". An agreement to be "individually liable"
undoubtedly creates a several obligation, and a "several
obligation" is one by which one individual binds himself to
perform the whole obligation.

The obligation in the case at bar being described as

"individually and jointly", the same is therefore enforceable against one of the numerous obligors.

PNB vs. Independent Planters Association (kf)

Appeal by PNB from the Order of the defunct Court of First Instance of Manila dismissing PNB's
complaint against several solidary debtors for the collection of a sum of money on the ground that one
of the defendants (Ceferino Valencia) died during the pendency of the case (i.e., after the plaintiff had
presented its evidence) and therefore the complaint, being a money claim based on contract, should be
prosecuted in the testate or intestate proceeding for the settlement of the estate of the deceased
defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads: SEC. 6. Solidary obligation
of decedent.— the obligation of the decedent is solidary with another debtor, the claim shall be filed
against the decedent as if he were the only debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. In a joint obligation of the decedent, the claim shall be
confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse against one, some or all of its
solidary debtors under Article 1216 of the Civil Code — ART. 1216. The creditor may proceed against any
one of the solidary debtors or some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be directed against the others, so long
as the debt has not been fully collected.
ISSUE: whether in an action for collection of a sum of money based on contract against all the solidary
debtors, the death of one defendant deprives the court of jurisdiction to proceed with the case against
the surviving defendants.
HELD: It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek
satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or convenient for
the protection of his interests; and if, after instituting a collection suit based on contract against some or
all of them and, during its pendency, one of the defendants dies, the court retains jurisdiction to
continue the proceedings and decide the case in respect of the surviving defendants.
Similarly, in PNB vs. Asuncion, A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court
reveals that nothing therein prevents a creditor from proceeding against the surviving solidary debtors.
Said provision merely sets up the procedure in enforcing collection in case a creditor chooses to pursue
his claim against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. Said
provision gives the creditor the right to 'proceed against anyone of the solidary debtors or some or all of
them simultaneously.' The choice is undoubtedly left to the solidary, creditor to determine against
whom he will enforce collection. In case of the death of one of the solidary debtors, he (the creditor)
may, if he so chooses, proceed against the surviving solidary debtors without necessity of filing a claim
in the estate of the deceased debtors. It is not mandatory for him to have the case dismissed against the
surviving debtors and file its claim in the estate of the deceased solidary debtor . . .
Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over Article 1216 of the New
Civil Code, the former being merely procedural, while the latter, substantive.

IMPERIAL INSURANCE INC. VS. DAVID

133 SCRA 317, November 21, 1984

FACTS:
Felicisimo V. Reyers and his wife Emilia T. David,
herein defendant-appellant, executed 2 indemnity
agreements in favor of appellee The Imperial Insurance
Inc, jointly and severally to assure indemnification of the
latter of whatever liability it may incur in connection with
its posting the security bonds to lift the attachments in 2
civil cases instituted for the amount of P60, 000 and
P40,000, for the benefit of Felicisimo V. Reyes.

The spouses jointly and severally, executed

another indemnity agreement in favor of appellee to assure
indemnification of the latter under a homestead bond for
the sum of P7, 500.00 it had executed jointly and severally
with them in favor of the Development Bank of the
Philippines.
Felicisimo later died and Special Proceedings
entitled “In the Matter of the Intestate Estate of Felicisimo
V. Reyes,” commenced. His wife qualified and took her
oath of office as the administratix of the said intestate
estate.

Meanwhile, judgment was rendered in the two

Civil Cases against the spouses. Appellee made demands
on Emilia David to pay the amounts of P60,000 and P40,
000 under the surety bonds and arrears in premiums
thereon. A motion to dismiss was filed by the appellant on
the ground the plaintiff’s cause of action, if there be any,
have been barred for its failure to file its claims against the
estate of the deceased Felicisimo V. Reyes in due time. She
contends that appellee’s claim should have been presented
according to Rule 86 of the Revised Rules of Court and its
failure to do so operates to bar its claim forever.
After trial, the court rendered judgment against
the herein appellant Emilia T. David.
ISSUE:
Can the creditor choose to proceed against the
surviving solidary debtor instead of bringing an action in
accordance with Rule 86 (sec. 5) of the Revised Rules of
Court?

RULING:
Yes. Under the law and well-settled jurisprudence,
when the obligation is a solidary one, the creditor may
bring his action in toto against any of the debtors obligated
in solidum. In the case at bar, appellant signed a joint and
several obligation with her husband in favor of herein
appellee; as a consequence, the latter may demand from
either of them the whole obligation. As distinguished from
a joint obligation where each of the debtor is entitled only
for a proportionate part of the debt and the creditor is
entitled only to a proportionate part of the credit, in a
solidary obligation the creditor may enforce the entire
obligation against one of the debtors. Moreover, in the case
of Philippine International Surety vs. Gonzales, “Where the
obligation assumed by several persons is joint and several,
each of the debtors is answerable for the whole obligation
with the right to seek contribution from his co-debtors.”
Article 1216 of the Civil Code also states that, “The creditor
may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so
long as the debt has not been fully collected.” There is
nothing improper, as held in Manila Surety & Fidelity Co.
vs. Villarama, in the creditor’s filing of an action against
the surviving solidary debtor alone, instead of instituting a
proceeding for the settlement of the deceased debtor
wherein his claim would be filed.

Lambert vs. Fox 26 phil 588 (kf)

This is an action brought to recover a penalty prescribed on a contract as punishment for the breach
thereof.
Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery business,
found itself in such condition financially that its creditors, including the plaintiff and the defendant,
together with many others, agreed to take over the business, incorporate it and accept stock therein in
payment of their respective credits. A few days after the incorporation was completed plaintiff and
defendant entered into the following agreement: xxx the undersigned mutually and reciprocally agree
not to sell, transfer, or otherwise dispose of any part of their present holdings of stock in said John R.
Edgar & Co. Inc., till after one year from the date hereof. Either party violating this agreement shall pay
to the other the sum of one thousand (P1,000) pesos as liquidated damages, unless previous consent in
writing to such sale, transfer, or other disposition be obtained.
Notwithstanding this contract the defendant Fox sold his stock in the said corporation to E. C.
McCullough of the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R.
Edgar & Co., Inc.
The learned trial court decided the case in favor of the defendant upon the ground that the intention of
the parties as it appeared from the contract in question was to the effect that the agreement should be
good and continue only until the corporation reached a sound financial basis, and that that event having
occurred some time before the expiration of the year mentioned in the contract, the purpose for which
the contract was made and had been fulfilled and the defendant accordingly discharged of his obligation
thereunder. The complaint was dismissed upon the merits.
ISSUE: Did the court erred in the construction of the contract?
HELD: "As for us, we do not construe or interpret this law. It does not need it. We apply it. By applying
the law, we conserve both provisions for the benefit of litigants. The first and fundamental duty of
courts, in our judgment, is to apply the law. Construction and interpretation come only after it has been
demonstrated that application is impossible or inadequate without them. They are the very last
functions which a court should exercise. The majority of the law need no interpretation or construction.
They require only application, and if there were more application and less construction, there would be
more stability in the law, and more people would know what the law is."
In the case at bar the parties expressly stipulated that the contract should last one year. No reason is
shown for saying that it shall last only nine months. Whatever the object was in specifying the year, it
was their agreement that the contract should last a year and it was their judgment and conviction that
their purposes would not be subversed in any less time. What reason can give for refusing to follow the
plain words of the men who made the contract? We see none.
In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule that
parties who are competent to contract may make such agreements within the limitations of the law and
public policy as they desire, and that the courts will enforce them according to their terms. (Civil Code,
articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., 33; Palacios vs. Municipality of
Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in
which the court is authorized to intervene for the purpose of reducing a penalty stipulated in the
contract is when the principal obligation has been partly or irregularly fulfilled and the court can see that
the person demanding the penalty has received the benefit of such or irregular performance. In such
case the court is authorized to reduce the penalty to the extent of the benefits received by the party
enforcing the penalty.
In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as legal
results are concerned. In either case the party to whom payment is to be made is entitled to recover the
sum stipulated without the necessity of proving damages. Indeed one of the primary purposes in fixing a
penalty or in liquidating damages, is to avoid such necessity.
The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation
as well as of the individual parties to the contract, and is reasonable as to the length of time of the
suspension. We do not here undertake to discuss the limitations to the power to suspend the right of
alienation of stock, limiting ourselves to the statement that the suspension in this particular case is legal
and valid.
The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the
plaintiff and against the defendant for P1,000, with interest; without costs in this instance.

ELEIZEGUI VS MANILA LAWN TENNIS CLUB

G.R. 967
FACTS:

This suit concerns the lease of a piece of land for a

fixed consideration and to endure at the will of the lessee.
By the contract of lease the lessee is expressly authorized
to make improvements upon the land, by erecting
buildings of both permanent and temporary character, by
making fills, laying pipes, and making such other
improvements as might be considered desirable for the
comfort and amusement of the members.

With respect to the term of the lease the present

question has arisen. In its decision three theories have been presented: One which makes the duration
depend upon the will of the lessor, who, upon one month's notice
given to the lessee, may terminate the lease so stipulated;
another which, on the contrary, makes it dependent upon
the will of the lessee, as stipulated; and the third, in
accordance with which the right is reversed to the courts to
fix the duration of the term.

The first theory is that which has prevailed in the

judgment below, as appears from the language in which
the basis of the decision is expressed: "The court is of the
opinion that the contract of lease was terminated by the
notice given by the plaintiff on August 28 of last year . . . ."
And such is the theory maintained by the plaintiffs, which
expressly rests upon article 1581 of the Civil Code, the law
which was in force at the time the contract was entered
into (January 25, 1890). The judge, in giving to this notice
the effect of terminating the lease, undoubtedly considers
that it is governed by the article relied upon by the
plaintiffs, which is of the following tenor: "When the term
has not been fixed for the lease, it is understood to be for
years when an annual rental has been fixed, for months
when the rent is monthly. . . ." The second clause of the
contract provides as follows: "The rent of the said land is
fixed at 25 pesos per month."

ISSUE:
Was there a conventional term, a duration, agreed
upon in the contract in question?

RULING:
Yes. The obligations which, with the force of law,
the lessors assumed by the contract entered into, so far as
pertaining to the issues, are the following: "First. . . . They
lease the above-described land to Mr. Williamson, who
takes it on lease . . . for all the time the members of the
said club may desire to use it . . . Third. . . . the owners of
the land undertake to maintain the club as tenant as long
as the latter shall see fit, without altering in the slightest
degree the conditions of this contract, even though the
estate be sold."
In view of these clauses, it can not be said that
there is no stipulation with respect to the duration of the
lease, or that, notwithstanding these clauses, article 1581,
in connection with article 1569, can be applied. If this were
so, it would be necessary to hold that the lessors spoke in
vain that their words are to be disregarded a claim which
can not be advanced by the plaintiffs nor upheld by any
court without citing the law which detracts all legal force
from such words or despoils them of their literal sense.
May 24, 2010
NATIONAL MARKETING CORPORATION VS.
FEDERATION OF UNITED NAMARCO
DISTRIBUTORS, INC.
49 SCRA 238

FACTS:
On November 16, 1959, the NAMARCO and the
FEDERATION entered into a Contract of Sale stipulating
among others that Two Hundred Thousand Pesos
(P200,000.00) be paid as part payment, and
FEDERATION deposits with the NAMARCO upon signing
of the items and/or merchandise a cash basis payment
upon delivery of the duly indorsed negotiable shipping
document covering the same. To insure payment of the
goods by the FEDERATION, the NAMARCO accepted
three domestic letters of credit which is an accepted draft
and duly executed trust receipt approved by the Philippine
National Bank.

Upon arrival of the goods in Manila in January,

1960, the NAMARCO billed FEDERATION Statement of
Account for P277,357.91, covering shipment of the 2,000
cartons of PK Chewing Gums, 1,000 cartons of Juicy Fruit
Chewing Gums, and 500 cartons of Adams Chicklets;
Statement of Account of P135,891.32, covering shipment of
the 168 cartons of Blue Denims; and Statement of Account
of P197,824.12, covering shipment of the 183 bales of
Khaki Twill, or a total of P611,053.35. Subsequently, it was
received by FEDERATION on January 29, 1960. However,
on March 2, 1960 FEDERATION filed a complaint against
Namarco for undelivery of some items contained in the
contract of sale. FEDERATION refuses to pay
acknowledge the domestic letters of credit until full
delivery is done by NAMARCO.

ISSUE:
Should FEDERATION be obliged to pay the
amount of the merchandise even if there was still
incomplete delivery of items by NAMARCO?

RULING:
Yes. The right of the NAMARCO to the cost of the
goods existed upon delivery of the said goods to the
FEDERATION which, under the Contract of Sale, had to
pay for them. Therefore, the claim of the NAMARCO for
the cost of the goods delivered arose out of the failure of
the FEDERATION to pay for the said goods, and not out of
the refusal of the NAMARCO to deliver the other goods to
the FEDERATION. Furthermore, FEDERATION’s nonpayment
would result to it being unjustly enriched.
However, the lower court erred in imposing interest at the
legal rate on the amount due, "from date of delivery of the
merchandise", and not from extra-judicial demand. In the
absence of any stipulations on the matter, the rule is that
the obligor is considered in default only from the time the
obligee judicially or extra-judicially demands fulfillment of
the obligation and interest is recoverable only from the
time such demand is made. There being no stipulation as
to when the aforesaid payments were to be made, the
FEDERATION is therefore liable to pay interest at the legal
rate only from June 7, 1960, the date when NAMARCO
made the extra-judicial demand upon said party.

PICZON VS. PICZON

G.R. No. L-29139, November 15, 1974

FACTS:
This an appeal from the decision of the Court of
First Instance of Samar in its Civil Case No. 5156, entitled
Consuelo P. Piczon, et al. vs. Esteban Piczon, et al.,
sentencing defendants-appellees, Sosing Lobos and Co.,
Inc., as principal, and Esteban Piczon, as guarantor, to pay
plaintiffs-appellants "the sum of P12,500.00 with 12%
interest from August 6, 1964 until said principal amount of
P12,500.00 shall have been duly paid, and the costs."
Annex "A", the actionable document of appellants
reads thus:
AGREEMENT OF LOAN
KNOW YE ALL MEN BY THESE PRESENTS:
That I, ESTEBAN PICZON, of legal age, married,
Filipino, and resident of and with postal address in
the municipality of Catbalogan, Province of Samar,
Philippines, in my capacity as the President of the
corporation known as the "SOSING-LOBOS and
CO., INC.," as controlling stockholder, and at the
same time as guarantor for the same, do by these
presents contract a loan of Twelve Thousand Five
Hundred Pesos (P12,500.00), Philippine
Currency, the receipt of which is hereby
acknowledged, from the "Piczon and Co., Inc."
another corporation, the main offices of the two
corporations being in Catbalogan, Samar, for
which I undertake, bind and agree to use the loan
as surety cash deposit for registration with the
Securities and Exchange Commission of the
incorporation papers relative to the "Sosing-Lobos
and Co., Inc.," and to return or pay the same
amount with Twelve Per Cent (12%) interest per
annum, commencing from the date of execution
hereof, to the "Piczon and Co., Inc., as soon as the
said incorporation papers are duly registered and
the Certificate of Incorporation issued by the
aforesaid Commission.

IN WITNESS WHEREOF, I hereunto signed my

name in Catbalogan, Samar, Philippines, this 28th
day of September, 1956.
(signed)Esteban Piczon

ISSUE:
Was the trial court correct in its decision that
defendant will only have to pay the interest from August 6,
1964 instead of September 28, 1956?

RULING:
No. Instead of requiring appellees to pay interest
at 12% only from August 6, 1964, the trial court should
have adhered to the terms of the agreement which plainly
provides that Esteban Piczon had obligated Sosing-Lobos
and Co., Inc. and himself to "return or pay (to Piczon and
Co., Inc.) the same amount (P12,500.00) with Twelve Per
Cent (12%) interest per annum commencing from the date
of the execution hereof", Annex A, which was on
September 28, 1956. Under Article 2209 of the Civil Code
"(i)f 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." In the case at bar, the "interest agreed
upon" by the parties in Annex A was to commence from
the execution of said document.
Appellees' contention that the reference in Article
2209 to delay incurred by the debtor which can serve as
the basis for liability for interest is to that defined in
Article 1169 of the Civil Code is untenable. In Quiroz vs.
Tan Guinlay, 5 Phil. 675, it was held that the article cited
by appellees (which was Article 1100 of the Old Civil Code
read in relation to Art. 1101) is applicable only when the
obligation is to do something other than the payment of
money. And in Firestone Tire & Rubber Co. (P.I.) vs.
Delgado, 104 Phil. 920, the Court squarely ruled that if the
contract stipulates from what time interest will be counted,
said stipulated time controls, and, therefore interest is
payable from such time, and not from the date of the filing
of the complaint (at p. 925). Were that not the law, there
would be no basis for the provision of Article 2212 of the
Civil Code providing that "(I)nterest due shall earn legal
interest from the time it is judicially demanded, although
the obligation may be silent upon this point." Incidentally,
appellants would have been entitled to the benefit of this
article, had they not failed to plead the same in their
complaint. Their prayer for it in their brief is much too
late. Appellees had no opportunity to meet the issue
squarely at the pre-trial.

FIRESTONE TIRE VS. DELGADO

G.R. No. L-11162, December 4, 1958

FACTS:
On September 22, 23, and 25, 1953, the
defendants, Mario Delgado and Leonor Delgado Dee,
doing business under the trade name of Caltex Quick
Service Station, in Cebu City, received from the plaintiff
Firestone Tire Rubber, Co., goods and merchandise valued
at P6,966.73, payable on October 31, 1953, subject to the
condition that in case of default, defendants would pay
interest of 12 per cent a year from the date of default, plus
25 per cent of the said amount as attorney's fees and
liquidated damages in case of suit. Demand for payment
was duly made by the plaintiff. and defendants in a letter
dated May 21, 1954, proposed to pay the outstanding
balance of P5,865.00 according to the following schedule:
May-P500.00, June-500.00, July-,500.00, August-
1,500.00, September-1,600.00 and October-1,265.00. In a
letter dated June 12, 1954, plaintiff accepted the proposal
on the condition, however, "that if you fail to comply with
your schedule, we will immediately refer the balance of
your account to our lawyer for collection without further
notice." Defendants paid the May installment of P500.00
on May 16, 1954. On account of the June installment, they
paid P200.00 on June 25, 1954 and P250.00 on July 10,
1954, or a total of P450.00. After said payments, there
remained a balance of P4,915.62, which the defendants
had not paid up to the present time. In view of said failure,
plaintiff brought the present action on July 19, 1954 to
collect said unpaid balance.

ISSUE:
May the Plaintiff enforce a judicial action against
defendant for failure to meet the obligation?

RULING:
Yes. This case is a plain case of a debtor failing,
without any valid reason, to pay for goods and
merchandise bought and received by him on the date he
promised to pay. He made a proposition to the vendor to
pay the balance of the value of the goods in six monthly
installments, and the vendor, out of consideration, granted
the request, but with the condition that failure to strictly
observe the installments payments would result in a
judicial suit without further notice for the recovery of the
whole amount.

After paying less than two monthly installments,

and without any satisfactory explanation, the debtor
simply failed and refused to pay the balance of over
P4,000.00 up to the present time. The courts cannot look
with favor upon such delinquency in the performance of a
clear obligation, especially when, as in this case, a debtor
presumably a merchant and trader, received the goods
bought and presumably had sold them and received the
price and benefits of the sale.

VERMEN REALTY DEVELOPMENT

CORPORATION VS. COURT OF APPEALS G.R. No.
101762

FACTS:
Under the conditions of the so-called “Offsetting
Agreement”, Vermen Realty (the first party in the contract)
and Seneca Hardware (the second party) were under a
reciprocal obligation. Seneca Hardware shall deliver to
Vermen Realty construction materials worth P552,000.00.
Vermen Realty's obligation under the agreement is threefold:
he shall pay Seneca Hardware P276,000.00 in cash;
he shall deliver possession of units 601 and 602, Phase I,
Vermen Pines Condominiums (with total value of
P276,000.00) to Seneca Hardware; upon completion of
Vermen Pines Condominiums Phase II, Seneca Hardware
shall be given option to transfer to similar units therein.
As found by the appellate court and admitted by
both parties, Seneca Hardware had paid Vermen Realty
the amount of P110,151.75, and at the same time delivered
construction materials worth P219,727.00. Pending
completion of Phase II of the Vermen Pines
Condominiums, Vermen Realty delivered to Seneca
Hardware units 601 and 602 at Phase I of the Vermen
Pines Condominiums (Rollo, p. 28). In 1982, the Vermen
Realty repossessed unit 602. As a consequence of the
repossession, the officers of the Seneca Hardware
corporation had to rent another unit for their use when
they went to Baguio on April 8, 1982.

In its reply the Vermen Realty corporation averred

that Room 602 was leased to another tenant because
Seneca Hardware corporation had not paid anything for
purchase of the condominium unit. Vermen Realty
corporation demanded payment of P27,848.25
representing the balance of the purchase price of Room
601.

On June 21, 1985, Seneca Hardware filed a

complaint with the Regional Trial Court of Quezon City
(Branch 92) for rescission of the Offsetting
Agreement with damages. In said complaint, Seneca
Hardware alleged that Vermen Realty Vermen Realty
Corporation had stopped issuing purchase orders of
construction materials after April, 1982, without valid
reason, thus resulting in the stoppage of deliveries of
construction materials on its (Seneca Hardware) part, in
violation of the Offsetting Agreement.
After conducting hearings, the trial court rendered
a decision dismissing the complaint and ordering the
plaintiff (Seneca Hardware in this petition) to pay
defendant (Vermen Realty in this petition) on its
counterclaim in the amount of P27,848.25 representing
the balance due on the purchase price of condominium
unit 601.

On appeal, respondent court reversed the trial

court's decision as adverted to above.

ISSUE:
Do the circumstances of the case warrant
rescission of the Offsetting Agreement as prayed for by
Seneca Hardware?

RULING:
Yes. The Court ruled in favor of Seneca Hardware.
There is no controversy that the provisions of the
Offsetting Agreement are reciprocal in nature. Reciprocal
obligations are those created or established at the same
time, out of the same cause, and which results in a mutual
relationship of creditor and debtor between parties. In
reciprocal obligations, the performance of one is
conditioned on the simultaneous fulfillment of the other
obligation Under the agreement, Seneca Hardware shall
deliver to Vermen Realty construction materials. Vermen
Realty's obligation under the agreement is three-fold: he
shall pay Seneca Hardware P276,000.00 in cash; he shall
deliver possession of units 601 and 602, Phase I, Vermen
Pines Condominiums (with total value of P276,000.00) to
Seneca Hardware; upon completion of Vermen Pines
Condominiums Phase II, Seneca Hardware shall be given
option to transfer to similar units therein.
Article 1191 of the Civil Code provides the remedy
of rescission in (more appropriately, the term is
"resolution") in case of reciprocal obligations, where one of
the obligors fails to comply with what is incumbent upon
him.

In the case at bar, Vermen Realty argues that it

was Seneca Hardware who failed to perform its obligation
in the Offsetting Agreement.
Seneca Hardware, on the other hand, points out
that the subject of the Offsetting Agreement is Phase II of
the Vermen Pines Condominiums. It alleges that since
construction of Phase II of the Vermen Pines
Condominiums has failed to begin it has reason to move
for rescission of the Offsetting Agreement, as it cannot
forever wait for the delivery of the condominium units to
it.

It is evident from the facts of the case that Seneca

Hardware did not fail to fulfill its obligation in the
Offsetting Agreement. The discontinuance of delivery of
construction materials to Vermen Realty stemmed from
the failure of Vermen Realty to send purchase orders to
Seneca Hardware.

The impossibility of fulfillment of the obligation on

the part of Vermen Realty necessitates resolution of the
contract for indeed, the non-fulfillment of the obligation
aforementioned constitutes substantial breach of the
Offsetting Agreement.

ABAYA VS. STANDARD VACUUM OIL CO.

The errors assigned boils down to the singles
question of whether or not the appellant is entitled to the
damages, compensatory as well as moral and exemplary,
supposedly sustained as a consequences of appealles’
refusal to appoint him operator of the station in
controversy. The trial court correctly termed the
stipulation of appointing the appellant as operator subject
to the condition of the “operator’s agreement” as a
reciprocal obligation.
In reciprocal obligations, the performance of one is
conditioned on the simultaneous fulfillment of the other.
When one party to the reciprocal obligation refuses to
assume and perform the obligation imposed on him,
the other party does not incur in delay, Article 119 of the Civil
Code provides that “the power to rescind obligation is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him”.
There is no reason here to sustain the contention that in
the circumstances fulfillment of the obligation was
impossible.

AGCAOILI VS. GSIS

No. L-30056, August 30, 1988
FACTS:
The appellant Government Service Insurance
System (GSIS) approved the application of the appellee
Marcelo Agcaoili for the purchase of the house and lot in
the GSIS Housing Project at Nangka, Marikina, Rizal, but
said application was subject to the condition that the latter
should forthwith occupy the house. Agcaoili lost no time in
occupying the house but he could not stay in it and had to
leave the very next day because the house was nothing
more than a shell, in such a state that civilized occupation
was not possible: ceiling, stairs, double walling, lighting
facilities, water connection, bathroom, toilet kitchen,
drainage, were inexistent. Agcaoili did however asked a
homeless friend, a certain Villanueva, to stay in the
premises as some sort of watchman, pending the
completion of the construction of the house. He thereafter
complained to the GSIS but to no avail.
Subsequently, the GSIS asked Agcaoili to pay the
monthly amortizations of P35.56 and other fees. He paid
the first monthly amortizations and incidental fees, but
refused to make further payments until and unless the
GSIS completed the housing unit. Thereafter, GSIS
cancelled the award and required Agcaoili to vacate the
premise. The house and lot was consequently awarded to
another applicant. Agcaoili reacted by instituting suit in
the Court of First Instance of Manila for specific
performance and damages. The judgment was rendered in
favor of Agcaoili. GSIS then appealed from that judgment.

ISSUE:
Was the cancellation by GSIS of the award in favor
of petitioner Agcaoili just and proper?

RULING:
No. It was the duty of the GSIS, as seller, to deliver
the thing sold in a condition suitable for its enjoyment by
the buyer for the purpose contemplated. There would be
no sense to require the awardee to immediately occupy and
live in a shell of a house, structure consisting only of four
walls with openings, and a roof. GSIS had an obligation to
deliver to Agcaoili a reasonably habitable dwelling in
return for his undertaking to pay the stipulated price.
Since GSIS did not fulfill that obligation, and was not
willing to put the house in habitable state, it cannot invoke
Agcaoili’s suspension of payment of amortizations as cause
to cancel the contract between them. It is axiomatic that
“In reciprocal obligations, neither party incurs in delay if
the other does not comply

ARRIETA VS. NATIONAL RICE AND CORN

CORPORATION
GR L-15645 January 31, 1964
FACTS:
On May 19, 1952, plaintiff-appellee Mrs. Paz
Arrieta participated in a public bidding called by NARIC
for the supply of 20,000 metric tons of Burmese rice. As
her bid of $203, 000 per metric ton was the lowest, she
was awarded he contract for the same. On July 1, 1952,
Arrieta and NARIC entered into Contract of Sale of Rice
under the term of which the former obligated herself to
deliver to the latter 20, 000 metric tons of Burmese rice at
$203, 000 per metric ton. In turn, NARIC committed itself
to pay for the imported rice “by means of an irrevocable,
confirmed and assignable letter of credit in US currency in
favor of Arrieta and/or supplier in Burma, immediately.”
However, it was only on July 30, 1952 that NARIC
took the first step to open a letter of credit by forwarding to
the PNB its application for Commercial Letter of Credit.
On the same day, Arrieta, thru counsel, advised NARIC of
the extreme necessity for the opening of the letter of credit
since she had by then made a tender to her supplier in
Rangoon, Burma equivalent to 5% of the F.O.B. price of
20, 000 tons at $180.70 and in compliance with the
regulations in Rangoon, this 5% will be confiscated if the
required letter of credit is not received by them before
August 4, 1952.
On August 4, PNB informed NARIC that its
application for a letter of credit has been approved by the
Board of Directors with the condition that 50% marginal
cash deposit be paid and that drafts a5e to be paid upon
presentment. It turned out that NARIC was not in financial
position to meet the condition. As a result of the delay, the
allocation of Arrieta’s supplier in Rangoon was cancelled
and the 5% deposit amounting to 524 kyats or
approximately P200, 000 was forfeited.

ISSUE:
Was NARIC liable for damages?

RULING:
Yes. One who assumes a contractual obligation
and fails to perform the same on account of his inability to
meet certain bank which inability he knew and was aware
of when he entered into contract, should be held liable in
damages for breach of contract.

Under Article 1170 of the Civil Code, not only

debtors guilty of fraud, negligence or default but also
debtor of every, in general, who fails in the performance of
his obligations is bound to indemnify for the losses and
damages caused thereby.

CLAUDINA VDA. DE VILLARUEL, ET AL. VS.

MANILA MOTOR CO., INC.
104 PHIL. 926
FACTS:
On May 31, 1940, the plaintiffs Villaruel and
defendant Manila Motor Co. Inc. entered into a contract
whereby the defendant agreed to lease plaintiffs building
premises.
On October 31, 1940, the leased premises were placed in
the possession of the defendant until the invasion of 1941.
The Japanese military occupied and used the property
leased as part of their quarters from June, 1942 to March,
1945, in which no payment of rentals were made. Upon the
liberation of the said city, the American forces occupied
the same buildings that were vacated by the Japanese.
When the United States gave up the occupancy of the
premises, defendant decided to exercise their option to
renew the contract, in which they agreed. However, before
resuming the collection of rentals, Dr. Alfredo Villaruel
upon advice demanded payment of rentals corresponding
to the time the Japanese military occupied the leased
premises, but the defendant refused to pay. As a result
plaintiff gave notice seeking the rescission of the contract
and the payment of rentals from June, 1942 to March,
1945; this was rejected by the defendant. Despite the fact
the defendant under new branch manager paid to plaintiff
the sum of P350 for the rent, the plaintiff still demanded
for rents in arrears and for the rescission of the contract of
lease. The plaintiff commenced an action before the CFC of
Neg. Occidental against defendant company. During the
pendency of the case, the leased building was burned
down. Because of the occurrence, plaintiffs demanded
reimbursement from the defendants, but having been
refused, they filed a supplemental complaint to include a
3rd cause of action, the recovery of the value of the burned
building. The trial court rendered judgment in favor of the
plaintiff. Hence the defendants appeal.

ISSUE:
Is Manila Motor Co. Inc. liable for the loss of the
leased premises?

RULING:
No. Clearly, the lessor's insistence upon collecting
the occupation rentals for 1942-1945 was unwarranted in
law. Hence, their refusal to accept the current rentals
without qualification placed them in default (mora
creditoris or accipiendi) with the result that thereafter,
they had to bear all supervening risks of accidental injury
or destruction of the leased premises. While not expressly
declared by the Code of 1889, this result is clearly inferable
from the nature and effects of mora.
In other words, the only effect of the failure to
consign the rentals in court was that the obligation to pay
them subsisted and the lessee remained liable for the
amount of the unpaid contract rent, corresponding to the
period from July to November, 1946; it being undisputed
that, from December 1946 up to March 2, 1948, when the
commercial buildings were burned, the defendantsappellants
have paid the contract rentals at the rate of
P350 per month. But the failure to consign did not
eradicate the default (mora) of the lessors nor the risk of
loss that lay upon them.

MARANAN VS PEREZ
20 SCRA 412

FACTS:
Rogelio Corachea, a passenger in a taxicab owned
and operated by Pascual Perez, was stabbed and killed by
the driver, Simeon Valenzuela. Valenzuela was found
guilty for homicide by the Court of First Instance and was
sentenced to suffer Imprisonment and to indemnify the
heirs of the deceased in the sum of P6000. While pending
appeal, mother of deceased filed an action in the Court of
First Instance of Batangas to recover damages from Perez
and Valenzuela. Defendant Perez claimed that the death
was a caso fortuito for which the carrier was not liable. The
court a quo, after trial, found for the plaintiff and awarded
her P3,000 as damages against defendant Perez. The claim
against defendant Valenzuela was dismissed. From this
ruling, both plaintiff and defendant Perez appealed to this
Court, the former asking for more damages and the latter
insisting on non-liability.

Defendant-appellant relied solely on the ruling

enunciated in Gillaco vs. Manila Railroad Co. that the
carrier is under no absolute liability for assaults of its
employees upon the passengers.

ISSUE:
Was the contention of the defendant valid?

RULING:
No. The attendant facts and controlling law of that
case and the one at bar were very different. In the Gillaco
case, the passenger was killed outside the scope and the
course of duty of the guilty employee. The Gillaco case was
decided under the provisions of the Civil Code of 1889
which, unlike the present Civil Code, did not impose upon
common carriers absolute liability for the safety of
passengers against willful assaults or negligent acts
committed by their employees. The death of the passenger
in the Gillaco case was truly a fortuitous event which
exempted the carrier from liability. It is true that Art. 1105
of the old Civil Code on fortuitous events has been
substantially reproduced in Art. 1174 of the Civil Code of
the Philippines but both articles clearly remove from their
exempting effect the case where the law expressly provides
for liability in spite of the occurrence of force majeure. The
Civil Code provisions on the subject of Common Carriers
are new and were taken from Anglo-American Law. The
basis of the carrier's liability for assaults on passengers
committed by its drivers rested either on the doctrine of
respondent superior or the principle that it was the
carrier's implied duty to transport the passenger safely.
Under the second view, upheld by the majority and also by
the later cases, it was enough that the assault happens
within the course of the employee's duty. It was no defense
for the carrier that the act was done in excess of authority
or in disobedience of the carrier's orders. The carrier's
liability here was absolute in the sense that it practically
secured the passengers from assaults committed by its own
employees.

LAWYERS COOPERATIVE PUBLISHING

COMPANY VS. PERFECTO
13 SCRA 762

FACTS:
On May 3, 1955, Perfecto Tabora bought from
Lawyers Cooperative Publishing Company one complete
set of American jurisprudence, in an installment basis
amounting to Php 1,682.40, including freight charges. He
made a partial payment of Php 300.00. The books were
then delivered on May 15, 1955. However, on that same
day, a big fire broke out, which destroyed the buildings,
including the law office and library of Tabora. When
Tabora reported the incident to the company, they replied
in good will and sent him free books.

Subsequently, Tabora failed to pay the

installments agreed upon, even when demanded by them.
So the company filed a case to recover the balance plus 25
percent of the amount due as damages. Tabora used force
majeure as a defense. He contended that since the loss was
due to fortuitous event he cannot be held liable for the loss.
The court ruled in favor of the company. So Tabora took
the case to the Court of Appeals, which later modified the
decision, eliminating the portion that referred to
liquidated damages.

ISSUE:
Should Tabora be exempted from liability because
of fortuitous event?
RULING:
No. Though it was agreed that the title of the
ownership of the books should remain with the seller until
the purchase price shall have been fully paid, it was also
expressly agreed upon that the loss or damage after
delivery shall be borne by the buyer. In pursuance of the
contract, the ownership of the goods has been retained by the seller merely to secure performance by
the buyer of his
obligation. Moreover, the goods were at the buyer’s risk
from the time of the delivery.

PEDRO D. DIOQUINO VS. LAUREANO

G.R. No. L-25906 May 28, 1970
FACTS:
Attorney Pedro Dioquino is the owner of a car. He
went to the office of the MVO, Masbate, to register the
same where he met the defendant Federico Laureano, a
patrol officer of said MVO office. Dioquino requested
Laureano to introduce him to one of the clerks in the MVO
Office, who could facilitate the registration of his car and
the request was attended to. Laureano rode on the car of
Atty. Dioquino on his way to the P.C. Barracks at Masbate.
While about to reach their destination, the car driven by
plaintiff's driver and with Laureano as the sole passenger
was stoned by some 'mischievous boys,' and its windshield
was broken. Laureano chased the boys and he was able to
catch one of them. The plaintiff and Laureano with the boy
returned to the P.C. barracks and the father of the boy was
called, but no satisfactory arrangements were made about
the damage to the windshield.
It was likewise noted in the decision now on
appeal: "The defendant Federico Laureano refused to file
any charges against the boy and his parents because he
thought that the stone-throwing was merely accidental and
that it was due to force majeure. So he did not want to take any action and after delaying the
settlement, after perhaps
consulting a lawyer, the defendant Federico Laureano
refused to pay the windshield himself and challenged that
the case be brought to court for judicial adjudication.
There is no question that the plaintiff tried to convince the
defendant Federico Laureano just to pay the value of the
windshield and he even came to the extent of asking the
wife to convince her husband to settle the matter amicably
but the defendant Federico Laureano refused to make any
settlement, clinging [to] the belief that he could not be held
liable because a minor child threw a stone accidentally on
the windshield and therefore, the same was due to force
majeure."

ISSUE:
Is Federico Laureano liable for the payment of the
windshield of Atty Dioquino?

RULING:
No. The law being what it is, such a belief on the
part of defendant Federico Laureano was justified. The
express language of Art. 1174 of the present Civil Code
which is a restatement of Art. 1105 of the Old Civil Code,
except for the addition of the nature of an obligation
requiring the assumption of risk, compels such a
conclusion. It reads thus: "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." Even under the old Civil
Code then, as stressed by us in the first decision dating
back to 1908, in an opinion by Justice Mapa, the rule was
well-settled that in the absence of a legal provision or an
express covenant, "no one should be held to account
for fortuitous cases." Its basis, as Justice Moreland
stressed, is the Roman law principle major casus est,
cui humana infirmitas resistere non potest.
Authorities of repute are in agreement, more specifically
concerning an obligation arising from contract "that some
extraordinary circumstance independent of the will of the
obligor, or of his employees, is an essential element of a
caso fortuito." If it could be shown that such indeed was
the case, liability is ruled out. There is no requirement of
"diligence beyond what human care and foresight can
provide."
The error committed by the lower court in holding
defendant Federico Laureano liable appears to be thus
obvious. Its own findings of fact repel the motion that he
should be made to respond in damages to the plaintiff for
the broken windshield. What happened was clearly
unforeseen. It was a fortuitous event resulting in a loss
which must be borne by the owner of the car. It was
misled, apparently, by the inclusion of the exemption from
the operation of such a provision of a party assuming the
risk, considering the nature of the obligation undertaken.
A more careful analysis would have led the lower court to a
different and correct interpretation. The very wording of
the law dispels any doubt that what is therein
contemplated is the resulting liability even if caused by a
fortuitous event where the party charged may be
considered as having assumed the risk incident in the
nature of the obligation to be performed. It would be an
affront, not only to the logic but to the realities of the
situation, if in the light of what transpired, as found by the
lower court, defendant Federico Laureano could be held as
bound to assume a risk of this nature. There was no such
obligation on his part.
The decision of the lower court of November 2, 1965
insofar as it orders defendant Federico Laureano to pay
plaintiff the amount of P30,000.00 as damages plus the
payment of costs, is hereby reversed. It is affirmed insofar
as it dismissed the case against the other two defendants, Juanita Laureano and Aida de Laureano, and
declared that
no moral damages should be awarded the parties.

AUSTRIA VS. COURT OF APPEALS

39 SCRA 527
FACTS:
Maria G. Abad received from Guillermo Austria a
pendant with diamonds to be sold on a commission basis
or to be returned on demand. While walking home, the
purse containing the jewelry and cash was snatched by two
men. A complaint of the incident was filed in the Court of
First Instance against certain persons.
Abad failed to return the jewelry or pay for its
value despite demands made by Austria. Austria brought
an action against the Abad spouses for the recovery of the
pendant or of its value and damages. Abad spouses set up
the defense that the alleged robbery had extinguished their
obligation.

ISSUE:
Should the Abad spouse be held liable for the loss
of the pendant?

RULING:
No. The Court ruled that the exempting provision
of Article 1174 of the Civil Code is applicable in the case. It
is a recognized jurisdiction that to constitute a caso
fortuito that would exempt a person from responsibility, it
is necessary that the event must be independent of the
human will or of the obligor’s will; the occurrence must
render it impossible for the debtor to fulfill the obligation
in a normal manner; and that the obligor must be free of
participation in, or aggravation of, the injury to the
creditor. To avail of the exemption granted, it is not
necessary that the persons responsible for the event should
be found or punished. It is sufficient that to unforeseeable
event which is the robbery took place without concurrent
fault or negligence on the part of the obligor which can be
proven by preponderant evidence. It was held that the act
of Maria Abad in walking home alone carrying the jewelry
was not negligent for at that time the incidence of crimes
was not high.

REPUBLIC VS. LUZON STEVEDORING

CORPORATION
21 SCRA 279
FACTS:
In the early afternoon of August 17, 1960, barge L-
1892, owned by the Luzon Stevedoring Corporation was
being towed down the Pasig River by two tugboats when
the barge rammed against one of the wooden piles of the
Nagtahan bailey bridge, smashing the posts and causing
the bridge to list. The river, at the time, was swollen and
the current swift, on account of the heavy downpour in
Manila and the surrounding provinces on August 15 and
16, 1960.

The Republic of the Philippines sued Luzon

Stevedoring for actual and consequential damage caused
by its employees, amounting to P200,000. Defendant
Corporation disclaimed liability on the grounds that it had
exercised due diligence in the selection and supervision of
its employees that the damages to the bridge were caused
by force majeure, that plaintiff has no capacity to sue, and
that the Nagtahan bailey bridge is an obstruction to
navigation.

After due trial, the court rendered judgment on

June 11, 1963, holding the defendant liable for the damage
caused by its employees and ordering it to pay plaintiff the
actual cost of the repair of the Nagtahan bailey bridge
which amounted to P192,561.72, with legal interest from
the date of the filing of the complaint.

ISSUE:
Was the collision of appellant's barge with the
supports or piers of the Nagtahan bridge caused by
fortuitous event or force majeure?

RULING:
Yes. Considering that the Nagtahan bridge was an
immovable and stationary object and uncontrovertedly
provided with adequate openings for the passage of water
craft, including barges like of appellant's, it was undeniable
that the unusual event that the barge, exclusively
controlled by appellant, rammed the bridge supports raises
a presumption of negligence on the part of appellant or its
employees manning the barge or the tugs that towed it. For
in the ordinary course of events, such a thing will not
happen if proper care is used. In Anglo American
Jurisprudence, the inference arises by what is known as
the "res ipsa loquitur" rule
The appellant strongly stressed the precautions
taken by it on the day in question: that it assigned two of
its most powerful tugboats to tow down river its barge L-
1892; that it assigned to the task the more competent and
experienced among its patrons, had the towlines, engines
and equipment double-checked and inspected' that it instructed its patrons to take extra precautions;
and
concludes that it had done all it was called to do, and that
the accident, therefore, should be held due to force
majeure or fortuitous event.

These very precautions, however, completely

destroyed the appellant's defense. For caso fortuito or
force majeure (which in law are identical in so far as they
exempt an obligor from liability) by definition, are
extraordinary events not foreseeable or avoidable, "events
that could not be foreseen, or which, though foreseen, were
inevitable" (Art. 1174, Civ. Code of the Philippines). It was,
therefore, not enough that the event should not have been
foreseen or anticipated, as was commonly believed but it
must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening was not impossibility to
foresee the same. The very measures adopted by appellant
prove that the possibility of danger was not only
foreseeable, but actually foreseen, and was not caso
fortuito.

LASAM VS. SMITH

45 PHIL 657
FACTS:
The defendant was the owner of a public garage in the
town of San Fernando, La Union, and engaged in the
business of carrying passengers for hire from one point to
another in the Province of La Union and the surrounding
provinces. Defendant undertook to convey the plaintiffs
from San Fernando to Currimao, Ilocos Norte, in a Ford
automobile. On leaving San Fernando, the automobile was
operated by a licensed chauffeur, but after having reached
the town of San Juan, the chauffeur allowed his assistant,
Bueno, to drive the car. Bueno held no driver’s license, but
had some experience in driving. The car functioned well
until after the crossing of the Abra River in Tagudin, when,
according to the testimony of the witnesses for the
plaintiffs, defects developed in the steering gear so as to
make accurate steering impossible, and after zigzagging for
a distance of about half kilometer, the car left the road and
went down a steep embankment. The automobile was
overturned and the plaintiffs pinned down under it. Mr.
Lasam escaped with a few contusions and a dislocated rib,
but his wife, Joaquina, received serious injuries, among
which was a compound fracture of one of the bones in her
left wrist. She also suffered nervous breakdown from
which she has not fully recovered at the time of trial.
The complaint was filed about a year and a half after
and alleges that the accident was due to defects in the
automobile as well as to the incompetence and negligence
of the chauffeur.
The trial court held, however, that the cause of action rests
on the defendant’s breach of the contract of carriage and
that, consequently, articles 1101-1107 of the Civil Code, and
not article 1903, are applicable. The court further found
that the breach of contact was not due to fortuitous events
and that, therefore the defendant was liable in damages.

ISSUE:
Is the trial court correct in its findings that the breach
of contract was not due to a fortuitous event?

RULING:
Yes. It is sufficient to reiterate that the source of the
defendant’s legal liability is the contract of carriage; that by
entering into that contract he bound himself to carry the
plaintiffs safely and securely to their destination; and that
having failed to do so he is liable in damages unless he
shows that the failure to fulfill his obligation was due to
causes mentioned in article 1105 of the Civil Code, which
reads:
“No one shall be liable for events which could not be
foreseen or which, even if foreseen, were inevitable, with
the exception of the cases in which the law expressly
provides otherwise and those in which the obligation itself
imposes such liability.”

As will be seen, some extraordinary circumstances

independent of the will of the obligor, or of his employees,
is an essential element of a caso fortuito. In the present
case, this element is lacking. It is not suggested that the
accident in question was due to an act of God or to adverse
road conditions which could have been foreseen. As far as
the record shows, the accident was caused either by defects
in the automobile or else through the negligence of its
driver. That is not a caso fortuito.

VICTORIAS PLANTERS ASS., INC., ET AL. VS.

VICTORIAS MILLING CO., INC.
G.R. No. L-6648 July 25, 1955
FACTS:
The petitioners Victorias Planters Association, Inc.
and North Negros Planters Association, Inc. and thr
respondent Victorias Milling Co., Inc entered into a milling
contract whereby they stipulated a 30-year period within
which the sugar cane produced by the petitioner would be
milled by the respondent central. The parties also
stipulated that in the event of force majuere, the contract
shall be deemed suspended during this period. The
petitioner failed to deliver the sugar cane during the four
years of the Japanese occupation and the two years after
liberation when the mill was being rebuilt or a total of six
years.
ISSUE:
Can the petitioners be compelled to deliver sugar
cane for six more years after the expiration of the 30-year
period to make up for what they failed to deliver to the
respondent?

RULING: No. Fortuitous event relieves the obligor from

fulfilling the contractual obligation under Article 1174 of
the Civil Code. The stipulation in the contract that in the
event of force majeure the contract shall be deemed
suspended during the said period does not mean that the
happening of any of those events stops the running of the
period agreed upon. It only relieves the parties from the
fulfillment of their respective obligations during that timethe
petitioner from delivering the sugar cane and the
respondent central from milling. In order that the
respondent central may be entitled to demand from the
petitioner the fulfillment of their part in the contracts, the
latter must have been able to perform it but failed or
refused to do so and not when they were prevented by
force majeure such as war. To require the petitioners to
deliver the sugar cane which they failed to deliver during
the six years is to demand from them the fulfillment of an
obligation, which was impossible of performance during
the time it became due. Nemo tenetur ed impossibilia. The
respondent central not being entitled to demand from the
petitioners the performance of the latter’s part of the
contracts under those circumstances cannot later on
demand its fulfillment. The performance of what the law
has written off cannot be demanded and required. The
prayer that the petitioners be compelled to deliver sugar
cannot for six years more to make up for what they failed
to deliver, the fulfillment of which was impossible, of
granted, would in effect be an extension of the terms of the
contracts entered into by and between the parties.

ANGEL WAREHOUSING VS. CHELDA

G.R. No. L-25704 April 24, 1968
FACTS:
Plaintiff corporation filed suit in the Court of First
Instance of Manila on May 29, 1964 against the
partnership Chelda Enterprises and David Syjueco, its
capitalist partner, for recovery of alleged unpaid loans in
the total amount of P20,880.00, with legal interest from
the filing of the complaint, plus attorney's fees of
P5,000.00. Alleging that post dated checks issued by
defendants to pay said account were dishonored, that
defendants' industrial partner, Chellaram I. Mohinani, had
left the country, and that defendants have removed or
disposed of their property, or are about to do so, with
intent to defraud their creditors, preliminary attachment
was also sought.
Answering, defendants averred that they obtained
four loans from plaintiff in the total amount of
P26,500.00, of which P5,620.00 had been paid, leaving a
balance of P20,880.00; that plaintiff charged and
deducted from the loan usurious interests thereon, at rates
of 2% and 2.5% per month, and, consequently, plaintiff has
no cause of action against defendants and should not be
permitted to recover under the law. A counterclaim for
P2,000.00 attorney's fees was interposed.
Plaintiff filed on June 25, 1964 an answer to the
counterclaim, specifically denying under oath the
allegations of usury.

ISSUE:
In a loan with usurious interest, may the creditor
recover the principal of the loan?

RULING:
Great reliance is made by appellants on Art. 1411 of
the New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality of
the cause or object of the contract, and the act constitutes
criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the
contract.

This rule shall be applicable when only one of the

parties is guilty; but the innocent one may claim what he
has given, and shall not be bound to comply with his
promise.

The Supreme Court do not agree with such

reasoning. Article 1411 of the New Civil Code is not new; it
is the same as Article 1305 of the Old Civil Code. Therefore,
said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No.
2655, as amended), a loan with usurious interest is not
totally void only as to the interest.

True, as stated in Article 1411 of the New Civil

Code, the rule of pari delicto applies where a contract's nullity proceeds from illegality of the cause or
object of
said contract.

However, appellants fail to consider that a contract

of loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the debt;
the accessory stipulation is to pay interest thereon. And
said two stipulations are divisible in the sense that the
former can still stand without the latter. Article 1273, Civil
Code, attests to this: "The renunciation of the principal
debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force."

BRIONES VS CAMMAYO
GR 23559 October 4, 1971
FACTS:

Aurelio G. Briones filed an action in the Municipal

Court of Manila against Primitivo, Nicasio, Pedro, Hilario
and Artemio, all surnamed Cammayo, to recover from
them, jointly and severally, the amount of P1,500.00, plus
damages, attorney's fees and costs of suit.
Defendants executed the real estate mortgage as
security for the loan of P1,200.00 given to Primitivo P.
Cammayo upon the usurious agreement that defendant
pays to the plaintiff, out of the alleged loan of P1,500.00
(which includes as interest the sum of P300.00) for one
year.
Although the mortgage contract was executed for
securing the payment of P1,500.00 for a period of one
year, without interest, the truth and the real fact is that
plaintiff delivered to the defendant Primitivo P. Cammayo
only the sum of P1,200.00 and withheld the sum of
P300.00 which was intended as advance interest for one
year.

On account of said loan of P1,200.00, defendant

Primitivo P. Cammayo paid to the plaintiff during the
period from October 1955 to July 1956 the total sum of
P330.00 which plaintiff, illegally and unlawfully refused to
acknowledge as part payment of the account but as in
interest of the said loan for an extension of another term of
one year.

ISSUE:
Can Briones recover the amount of P1,500.00?

RULING:
Loan is valid but usurious interest is void. Creditor
has the right to recover his capital by judicial action. To
discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the loan
becomes one without stipulation as to payment of interest.
It should not, however, be interpreted to mean forfeiture
even of the principal, for this would unjustly enrich the
borrower at the expense of the lender. Furthermore, penal
sanctions are available against a usurious lender, as a
further deterrence to usury.
In simple loan with stipulation of usurious
interest, the prestation of the debtor to pay the principal
debt, which is the cause of the contract (Article 1350, Civil
Code), is not illegal. The illegality lies only as to the
prestation to pay the stipulated interest; hence, being
separable, the latter only should be deemed void, since it is
the only one that is illegal.

Barrredo, J., concurring

The Usury law is clear that he may recover only all
interests, including of course, the legal part thereof, with
legal interests from the date of judicial demand, without
maintaining that he can also recover the principal he has
already paid to the lender.

Castro Fernando, and Conception, JJ., dissenting

In a contract which is tainted with usury, that is,
with a stipulation (whether written or unwritten) to pay
usurious interest, the prestation to pay such interest is an
integral part of the cause of the contract. It is also the
controlling cause, for a usurer lends his money not just to
have it returned but indeed, to acquire in coordinate gain.
Article l957, which declares the contract itself – not
merely the stipulation to pay usurious interest -- void,
necessarily regards the prestation to pay usurious interest
as an integral part of the cause, making it illegal.

MANILA TRADING SUPPLY CO. VS. MEDINA

2 SCRA 549 (1961)

FACTS:
Mariano Medina had an account prior to May 7,
1956 with Manila Trading and Supply Co. with an amount
of P60,000 for which Medina executed a promissory note.
The note provided that upon failure to pay the
installments, the remaining amount will immediately
become due and payable at the option of the holder of the
note with 33.33% amount due for attorney’s fees and
expenses of collection.

On January 8, 1957, Manila Trading & Co. filed a

complaint against Medina for failure to pay installments
from September 1956 to January 7, 1957. Medina filed an
answer admitting allegations but said the 33.33% for
attorneys fees were exorbitant and unconscionable. He
pleaded that on January 24, 1957, an additional P4,000
was paid so that he will not be sued and allowed to pay the
balance. Upon petition of plaintiff, a writ of attachment
was issued and levied upon eleven of defendant's buses.
His counterclaim was damages for the loss of his earnings.
Plaintiff denied the defense and counterclaim.
Plaintiff provided evidence of 21 payments made
by defendant from June 6, 1956 to Jan. 21, 1957. The
defendant testified that he has 10 other payments with
receipts but the dates and serial numbers are unclear for it
was eaten by ‘anay’. Defendant claims that his payment on
Jan. 1957 gives rise to the presumption that prior
installments have been paid.
ISSUE:
Are the presented receipts genuine to raise the
presumption that prior installments were paid?

RULING:
No. Appellant avers that the genuine receipts
dated January, 1957 raise the presumption that prior
installments were paid. This might be true if such receipts
recited that they were issued for the installments
corresponding to the month of January, 1957; but nowhere
does that fact appear. And even if such recital had been
made, the resulting presumption would only be prima
facie, and the evidence before us is clear that the payments
made do not correspond to the installments falling due on
the dates of the genuine receipts.
As pointed out by the trial court, it is highly
suspicious that these receipts should be mutilated precisely
at the places where the serial numbers and the year of
issue must appear, while the receipts for intervening
payments recognized by the plaintiff remained intact. In
addition, the numbers that Medina attributed to them are
not in sequence. It is difficult to believe that a trading
company should issue receipts numbered at random, since
it would make auditing control impossible.

GALAR VS. SASI

47 O.G. 6241

FACTS:
Luis Galar borrowed Php 15,000 from Juan Isasi
for which the former drew two promissory notes. As a
payment, Galar paid to PNB on behalf of Aberri Inc., which
was controlled by Isasi and his wife, the outstanding
balance of Php 15,848.90. In turn, PNB cancelled the
indebtedness of Aberri Inc., released the mortgage that
had been constituted, and delivered the title to Galar.
Upon notifying Isasi of the payment made, Isasi refused to
recognize the payment of Galar to PNB. Hence the attorney
of Galar advised Isasi that they would consign in the court
the sum of Php 20,000, representing the face value of the
promissory notes. They then filed a case in the court to
declare the promissory notes paid and discharged.
Isasi, on the other hand, tendered the sum of Php
15,848.90 paid by Galar to the PNB for the account and in
the name of Aberri Inc. Upon refusal by Galar, Isasi, on
behalf of the company, consigned the amount in the CFI of
Manila and filed a complaint, praying that Galar be
ordered to restore to Aberri Inc. all documents relative to
the obligation formerly due to the PNB and to reimburse
the amount paid by Galar to the bank be considered
cancelled in view of the consignation.

ISSUE:
1. Can Luis Galar legally pay the debt without
awaiting the demand on the part of Isasi?
2. Should Galar’s payment of the debt of Aberri
Inc. to the bank be set off against the notes?

RULING:
1. Yes. A demand note was subject neither to
suspensive condition nor a suspensive period. The demand
was not a condition precedent since the effectivity and
binding effect of the note does not depend upon the
making of the demand. The note was binding even before
the demand is made. Neither did the note constitute an
implied suspensive period since there was nothing to
prevent the creditor for making demand at any time. It
follows, therefore, that the demand note was strictly a pure
obligation as defined in Article 1179. The periods of 15 and
30 days after demand stipulated in the promissory notes
could have no other purpose but to protect the debtor by
giving him sufficient time to raise money to meet the
demand. The period being solely for the debtor’s
protection and benefit, the debtor could renounce it validly
at any time. Galar was lawfully entitled to make payment
even if no demand had yet been made by Isasi.
2. Yes. The payment of Galar of the indebtedness
of Aberri Inc to the PNB redounded to the benefit of Isasi
who had absolute control of said corporation. Thus, said
payment was valid and discharged the obligation, even if
such payment was not authorized by Isasi or Aberri Inc.,
for which Galar had the right to demand reimbursement
for the amount paid. However, such reimbursement was
unnecessary. Such reimbursement was extinguished by its
total absorption in the larger amount due from Galar to
Isasi. The consignation, therefore, of Isasi was invalid since
it no longer had any obligation towards Galar. On the
other hand, the balance of Php 4,151.10 due and owing
from Galar to Isasi was extinguished upon the
consignation of Galar in the court the sum of Php 20,000.