VILLAROEL VS.

ESTRADA

FACTS:

On May 9, 1912, Alejandro Callao, mother of Juan Villaroel, obtained a loan of P1,000 from spouses Mariano Estrada and Severina
payable after seven years.

Alejandra died, leaving Juan Villaroel as sole heir, Spouses Mariano Estrada and Severina also died, leaving Bernardino Estrada as
sole heir.

On August 9, 1930, Juan Villaroel signed a document in which he declared to pay the debt of his deceased mother in the amount of
P1,000 with legal interest of 12% per annum.

The Court of First Instance of Laguna ordered Juan Villaroel to pay the amount of P1,000 with an interest of 12% per annum since
August 9, 1930 until full payment

Villaroel appealed.

ISSUE:
Whether or not the right to prescription may be waived or renounced.

RULING:

YES! Right to prescription may be waived or renounced. As a general rule, when a debt has already prescribed, it cannot be imposed
by the creditor. However, a new contract which recognizes and assumes the prescribed debt is an exception, for it would be valid
and enforceable. Hence, a person who acknowledges the correctness of the debt and promises to pay it despite knowing that the
debt has already prescribed, such as the case at bar, waived the benefit of the prescription.

Although the action to recover the original debt has already been prescribed when the claim was filed in this case, the question that
arises in this appeal is mainly whether, notwithstanding such a prescription, the action (may be) brought. However, the present action
is not based on the original obligation contracted by the defendant’s mother, who has already been prescribed, but in which the
defendant contracted on August 9, 1930 upon assuming the fulfillment of that obligation, Already prescribed. Since the defendant is
the sole inheritor of the primitive debtor, with the right to succeed in his inheritance, that debt, brought by his mother legally, although
it has lost its effectiveness by prescription, is now, however, for a moral obligation, which is consideration Sufficient to create and
render effective and enforceable its obligation voluntarily contracted on August 9, 1930 in Exhibit B.

The rule that a new promise to pay a pre-paid debt must be made by the same obligated person or by another legally authorized by
it, is not applicable to the present case in which it is not required to fulfill the obligation of the obligee originally, but of which he
voluntarily wanted to assume this obligation.

ANSAY VS. NDC

FACTS:

Ansay et al. filed against NDC a complaint praying for a 20% Christmas bonus for the years 1954 and 1955. The trial court dismissed
the complaint ratiocinating that a bonus is an act of liberality and the court takes it that it is not within its judicial powers to command
respondents to be liberal and that Ansay et al. admitted that NDC is not under legal duty to give such bonus and that the court has
no power to compel a party to comply with a moral obligation (Art. 142, NCC). Ansay et al. appealed and argued that there exists a
cause of action in their complaint because their claim rests on moral grounds or what in brief is defined by law as a natural obligation.

ISSUE:
Whether or not the grant of Christmas bonus for the years 1954 and 1955 demandable based on natural or moral obligation.

RULING:

NO! Article 1423 of the New Civil Code classifies obligations into civil or natural. “Civil obligations are a right of action to compel their
performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof”.

It is thus readily seen that an element of natural obligation before it can be cognizable by the court is voluntary fulfillment by the
obligor. Certainly retention can be ordered but only after there has been voluntary performance. But here there has been no voluntary
performance. In fact, the court cannot order the performance.

DBP VS. CONFESSOR

FACTS:

On February 10, 1940, spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from Agricultural and Industrial
Bank, now Development Bank of the Philippines, in the sum of P2,000, as evidenced by a promissory note of said date whereby they
bound themselves jointly and severally to pay the amount in ten equal yearly amortizations.
As the obligation remained unpaid even after the lapse if the ten-year period, Confesor, who was then a member of the Congress of
the Philippines, executed a second promissory note on April 11, 1961, expressly acknowledging the said loan and promising to pay
the same on or before June 15, 1961.

The spouses still failed to pay the obligation on the specified date. As a result, the DBP filed a complaint on September 11, 1970 in
the City Court of Iloilo City. The city court ordered payment from spouses. The CFI of Iloilo reversed the decision. Hence, this petition.

ISSUE:
Whether or not a promissory which was executed in consideration of a previous promissory note which has already been barred by
prescription is valid.

RULING:

YES! The second promissory note is valid because the said promissory note is not a mere acknowledgement of the debt that has
prescribed already. Rather, it is a new promise to pay the debt. A new promise is a new cause of action. Although a debt barred by
prescription is enforceable, a new contract recognizing and assuming the prescribed debt would be valid and enforceable.

Prescription was renounced when Confessor signed the second promissory note. The right to prescription may be waived or
renounced. Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired.

The Court ruled that when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new contract
recognizing and assuming the prescribed debt would be valid and enforceable.

The statutory limitation bars the remedy but does not discharge the debt. A new express promise to pay a debt barred ... will take the
case from the operation of the statute of limitations as this proceeds upon the ground that as a statutory limitation merely bars the
remedy and does not discharge the debt, there is something more than a mere moral obligation to support a promise, to wit a – pre-
existing debt which is a sufficient consideration for the new the new promise; upon this sufficient consideration constitutes, in fact, a
new cause of action.

HEIRS OF ROLDAN VS. HEIRS OF ROLDAN

FACTS:

Natalia Magtulis owned Lot No. 4696, an agricultural land in Kalibo. Her heirs included Gilberto Roldan and Silvela Roldan, her two
children by her first marriage; and, Leopolda Magtulis her child with another man named Juan Aguirre. After her death in 1961, Natalia
left the lot to her children. However, Gilberto and his heirs took possession of the property to the exclusion of respondents.

On 19 May 2003, Heirs of Silvela filed before the RTC a Complaint for Partition and Damages against Heirs of Gilberto. The latter
refused to yield the property on these grounds: (1) respondent heirs of Silvela had already sold her share to Gilberto; and (2)
respondent heirs of Leopolda had no cause of action, given that he was not a child of Natalia.

During trial, Heirs of Gilberto failed to show any document evidencing the sale of Silvela's share to Gilberto. Thus, RTC ruled that the
heirs of Silvela remained co-owners of the property they had inherited from Natalia and concluded Leopoldo as a son of Natalia.

Considering that Gilberta, Silvela, and Leopolda were all descendants of Natalia, the RTC declared each set of their respective heirs
entitled to one-third share of the property.

Heirs of Gilberta appealed to the CA. which was denied. Heirs of Gilberta appealed to the Supreme Court and additionally contend
that respondents lost their rights over the property, since the action for partition was lodged before the RTC only in 2003, or 42 years
since Gilberto occupied the property in 1961. For the heirs of Gilberto, prescription and laches already preclude the heirs of Silvela
and the heirs of Leopoldo from claiming co-ownership over Lot No. 4696.

ISSUE:
Whether or not prescription and laches bar respondents from claiming co-ownership over Lot No. 4696

RULING:

NO! According to petitioners, prescription and laches have clearly set in given their continued occupation of the property in the last
42 years. Prescription cannot be appreciated against the co-owners of a property, absent any conclusive act of repudiation made
clearly known to the other co-owners.[32]

Here, petitioners merely allege that the purported co-ownership "was already repudiated by one of the parties" without supporting
evidence. Aside from the mere passage of time, there was failure on the part of petitioners to substantiate their allegation of laches
by proving that respondents slept on their rights.[33] Nevertheless, had they done so, two grounds deter them from successfully
claiming the existence of prescription and laches.

First, as demanded by the repudiation requisite for prescription to be appreciated, there is a need to determine the veracity of factual
matters such as the date when the period to bring the action commenced to run. In Macababbad, Jr. v. Masirag,[34] we considered
that determination as factual in nature. The same is true in relation to finding the existence of laches. We held in Crisostomo v. Garcia,
Jr.[35] that matters like estoppel, laches, and fraud require the presentation of evidence and the determination of facts. Since petitions
for review on certiorari under Rule 45 of the Rules of Court, as in this case, entertain questions of law,[36] petitioners claim of
prescription and laches fail.
Second, petitioners have alleged prescription and laches only before this Court. Raising a new ground for the first time on appeal
contravenes due process, as that act deprives the adverse party of the opportunity to contest the assertion of the claimant.[37] Since
respondents were not able to refute the issue of prescription and laches, this Court denies the newly raised contention of petitioners.

SAGRADA ORDEN VS. NACOCO

FACTS:

This is an action to recover the possession of a piece of real property (land and warehouses) situated in Pandacan Manila, and the
rentals for its occupation and use. The land belongs to the plaintiff, Sagrada Orden, in whose name the title was registered before
the war. During the Japanese military occupation, the land was acquired by a Japanese corporation, Taiwan Tekkosho

After the liberation, the Alien Property Custodian of the United States took possession, control, and custody of the real property.

During the year 1946, the property was occupied by the Copra Export Management Company under the custodianship agreement
with United States Alien Property Custodian, and when it vacated, the property was occupied by defendant National Coconut
Corporation.

Sagrada Orden made claim to the property before the Alien Property Custodian of the United States but was denied.

Hence, plaintiff brought an action in court to annul the sale of property of Taiwan Tekkosho, and recover its possession.

The present action is to recover the reasonable rentals from August, 1946, the date when the defendant began to occupy the
premises, to the date it vacated it. The defendant does not contest its liability for the rentals at the rate of P3,000 per month from
February 28, 1949 (the date specified in the judgment in said civil case), but resists the claim therefor prior to this date. It interposes
the defense that it occupied the property in good faith, under no obligation whatsoever to pay rentals for the use and occupation of
the warehouse.

ISSUE:

Whether or not the defendant company be held liable to pay rentals from August 1946 to the date it vacated?

RULING:

NO! If defendant-appellant is liable at all, its obligations, must arise from any of the four sources of obligations, namely, law, contract
or quasi-contract, crime, or negligence. Defendant-appellant is not guilty of any offense at all, because it entered the premises and
occupied it with the permission of the entity which had the legal control and administration thereof, the Alien Property Administration.
Neither was there any negligence on its part.

There was also no privity between the Alien Property Custodian and the Taiwan Tekkosho, which had secured the possession of the
property from the plaintiff-appellee by the use of duress, such that the Alien Property Custodian or its permittee (defendant-appellant)
may be held responsible for the supposed illegality of the occupation of the property by the said Taiwan Tekkosho.

The Alien Property Administration had the control and administration of the property not as successor to the interests of the enemy
holder of the title, the Taiwan Tekkosho. Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a trustee of then
Government of the United States, in its own right, to the exclusion of, and against the claim or title of, the enemy owner. From August,
1946, when defendant-appellant took possession, to the late of judgment on February 28, 1949, Alien Property Administration had
the absolute control of the property as trustee of the Government of the United States, with power to dispose of it by sale or otherwise,
as though it were the absolute owner. Therefore, even if defendant appellant were liable to the Alien Property Administration for
rentals, these would not accrue to the benefit of the plaintiff-appellee, the owner, but to the United States Government.

METROBANK VS. ROSALES

FACTS:

In 2000, respondent Ana Grace Rosales, an owner of a travel agency, and her mother Yo Yuk To opened a Joint Peso Account with
Metrobank. In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retiree’s
visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings account.

On 31 July 2003, petitioner issued a "Hold Out" order against respondents’ accounts. On 3 Sept 2003, petitioner filed a criminal case
for Estafa through False Pretences, Misrepresentation, Deceit and Use of Falsified Documents against the respondent. It was alleged
that the respondents are the one responsible for the unauthorized withdrawal fo $75,000 from Liu Chiu Fang’s account. Petitioner
alleged that on 5 Feb 2003, it received from the PLRA a Withdrawal Clearance for the account of Liu Chiu Fang, that in the afternoon
of the same day, respondents went to inform the branch head Gutierrez that Liu Chiu Fang was going to withdraw her deposits in
cash. Gutierrez told respondents to come back the following day for the bank did not have enough dollars. On 6 Feb, respondents
accompanied an unidentified impostor to the bank with enabled them to withdraw Liu Chiu Fang’s dollar deposit.

On 3 Mar 2003, respondents opened a Joint Dollar Account with petitioner bank with an initial deposit of $14,000. The bank later
discovered that the serial numbers of the dollar notes deposited by respondents were the same as those withdrawn by the impostor.

On 10 Sept 2004, respondents filed before the RTC of Manila a Complaint for Breach of Obligation and Contract with Damages,
against petitioner. Respondents alleged that they attempted several times to withdraw their deposits but were unable to because
petitioner had placed their accounts under "Hold Out" status.
Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application and Agreement for Deposit
Account. It posits that the said clause applies to any and all kinds of obligation as it does not distinguish between obligations arising
ex contractu or ex delictu.65 Petitioner also contends that the fraud committed by respondent Rosales was clearly established by
evidence;66 thus, it was justified in issuing the "Hold-Out" order.67 Petitioner likewise denies that its employees were negligent in
releasing the dollars.68 It claims that it was the deception employed by respondent Rosales that caused petitioner’s employees to
release Liu Chiu Fang’s funds to the impostor.

No explanation, however, was given by petitioner as to why it issued the "Hold Out" order. Petitioner alleged that respondents have
no cause of action because it has a valid reason for issuing the "Hold Out" order. It averred that due to the fraudulent scheme of
respondent Rosales, it was compelled to reimburse Liu Chiu Fang the amount of US$75,000.0050 and to file a criminal complaint for
Estafa against respondent Rosales.

ISSUE:
Whether or not Metrobank breached its contract with respondents by issuing a hold-out clause.

RULING:

YES! The "Hold Out" clause does not apply to the instant case. The “Hold Out” Clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit, law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this
is not enough reason for petitioner to issue a “Hold Out” order as the case is still pending and no final judgment of conviction has
been rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued the “Hold Out” order, the
criminal complaint had not been filed. Thus, considering that respondent Rosales is not liable under any of the five sources of
obligation, there was no legal basis for petitioner to issue the “Hold Out” order.

SALUDAGA VS. FEU

FACTS:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro
Rosete (Rosete), one of the security guards on duty at the school premises.

Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide
students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party
Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide
security services within its premises to indemnify them for whatever would be adjudged in favor of petitioner.

RTC: FEU and its President was ordered to pay jointly and severally Saludaga damages. Galaxy and its President was ordered to
indemnify jointly and severally FEU for such amount.

CA: Dismissed, ruling that: a) the incident was a fortuitous event; b) that respondents are not liable for damages for the injury suffered
by the petitioner from the hands of their own security guard in violation of their built-in contractual obligation to petitioner, being their
law student at the time, to provide him with a safe and secure educational environment; c) that Rosete, who shot petitioner, was not
FEU’s employee by virtue of the contract for security services between Galaxy and FEU, notwithstanding the fact that petitioner, not
being a party to it, is not bound by the same under the principle of relativity of contracts; and, d) FEU exercised due diligence in
selecting Galaxy as the agency which would provide security services within the respondent FEU.

In his appeal, petitioner sued respondents for damages based on the alleged breach of student-school contract for a safe learning
environment. Respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen
nor avoided the accident caused by Rosete as he was not their employee; and that they complied with their obligation to ensure a
safe learning environment for their students by having exercised due diligence in selecting the security services of Galaxy.

Issue #1:
Whether or not there is a contractual obligation between Saludaga and FEU.

Held #1: YES.

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was created a contractual
obligation between the two parties. On petitioner’s part, he was obliged to comply with the rules and regulations of the school. On the
other hand, respondent FEU, as a learning institution is mandated to impart knowledge and equip its students with the necessary
skills to pursue higher education or a profession. At the same time, it is obliged to ensure and take adequate steps to maintain peace
and order within the campus.

Issue #2:
Whether or not FEU is guilty of culpa contractual.

Held #2: YES.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima
facie, a corresponding right of relief.

Here, petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises,
there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its
students. Also, respondents failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated
in the Security Service Agreement. No evidence as to the qualifications of Rosete as security guard was presented. Respondents
also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the
qualifications required in the Security Service Agreement.

Issue #3:
Whether or not the presence of force majeure may absolve FEU from liability.

Held #3: NO.

In order for force majeure to be considered, respondents must show that no negligence or misconduct was committed that may have
occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One’s negligence may have concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one
from liability. When the effect is found to be partly the result of a person’s participation – whether by active intervention, neglect or
failure to act – the whole occurrence is humanized and removed from the rules applicable to acts of God.

Issue #4:
Whether or not the petitioner is entitled to indemnification for damages.

Held #4: YES. Petitioner is entitled to actual damages, moral damages, temperate damages, attorney’s fees, and litigation expenses.
The petitioner is not entitled to exemplary damages.

Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages.
Accordingly, for breach of contract due to negligence in providing a safe learning environment, FEU is liable to petitioner for damages.
It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual
basis of the damages and its causal connection to defendant’s acts.

Petitioner spent expenses for his hospitalization and medical expenses. Since the case involved an obligation arising from a contract
and not a loan or forbearance of money, the proper rate of legal interest is 6% per annum of the amount demanded. The interest
shall continue to run from the filing of the complaint until the finality of the Decision. After the decision becomes final and executory,
the applicable rate shall be 12% per annum until its satisfaction. Also, transportation expenses and those incurred in the hiring of a
personal assistant while recuperating were not however supported by receipts. In the absence thereof, no actual damages may be
awarded.

Nonetheless, Art. 2224 of the Civil Code states that temperate damages may be recovered where it has been shown that the claimant
suffered some pecuniary loss but the amount thereof cannot be proved with certainty.

SC awarded petitioner moral damages for the “physical suffering, mental anguish, fright, serious anxiety, and moral shock resulting
from the shooting incident”. SC stressed that the moral damages are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer.

Attorney’s fees and litigation expenses were also reasonable in view of Art. 2208 of Civil Code.

However, the award of exemplary damages is deleted considering the absence of proof that the respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.

Issue #5:
Whether or not the FEU President himself is vicariously liable.

Held: NO.
FEU President cannot be held liable for damages under Art. 2180 of CC because respondents are not employers of Rosete. The
latter was employed by Galaxy. The instructions issued by respondents’ Security Consultant to Galaxy and its security guards are
ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency.
They cannot be construed as the element of control as to treat respondents as the employers of Rosete. Where the security agency
recruits, hires and assigns the works of its watchmen or security guards to a client, the employer of such guards or watchmen is such
agency, and not the client, since the latter has no hand in selecting the security guards. Thus, the duty to observe the diligence of a
good father of a family cannot be demanded from the said client.

Issue #6:
Whether or not Galaxy and its President were liable for damages.

Held #6: YES.

For the acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latter’s
breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-
mentioned amounts awarded to petitioner.

Also, unlike the FEU President, SC deemed Galaxy President to be solidarily liable with Galaxy for being grossly negligent in directing
the affairs of the security agency. It was the Galaxy President who assured petitioner that his medical expenses will be shouldered
by Galaxy, but said representations were not fulfilled because they presumed that petitioner and his family were no longer interested
in filing a formal complaint against them.

PEOPLE’S CAR VS. COMMANDO SECURITY

FACTS:

FACTS:
People’s Car entered into a contract with Commando Security to safeguard and protect the business premises of the plaintiff from
theft, pilferage, robbery, vandalism, and all other unlawful acts of any person/s prejudicial to the interest of the plaintiff.

On April 5, 1970, around 1:00am, defendant’s security guard on duty at plaintiff’s premises, without any authority, consent, approval,
or orders of the plaintiff and/or defendant brought out the compound of the plaintiff a car belonging to its customer and drove said car
to a place or places unknown, abandoning his post and while driving the car lost control of it causing it to fall into a ditch.

As a result, the car of plaintiff’s customer, which had been left with plaintiff for servicing and maintenance, suffered extensive damage
besides the car rental value for a car that plaintiff had to rent and make available to its customer, Joseph Luy, to enable him to pursue
his business and occupation.

Plaintiff instituted a claim against defendant for the actual damages it incurred due to the unlawful act of defendant’s personnel citing
paragraph 5 of the contract wherein defendant accepts sole responsibility for the acts done during their watch hours.

Defendant claimed that they may be liable but its liability is limited under paragraph 4 of the contract which provides that its liability
shall not exceed P1,000 per guard post for loss or damage through the negligence of its guards during the watch hours provided that
it is reported within 24 hours of the incident.
·
ISSUE: Whether or not the defendant is obliged to indemnify the plaintiff for the entire costs as result of the incident

HELD: Yes. Plaintiff was in law liable to its customer for the damages caused the customer’s car, which had been entrusted into its
custody. Plaintiff therefore was in law justified in making good such damages and relying in turn on defendant to honor its contract
and indemnify it for such undisputed damages, which had been caused directly by the unlawful and wrongful acts of defendant’s
security guard in breach of their contract.

Plaintiff in law could not tell its customer that under the Guard Service Contract it was not liable for the damage but the defendant
since the customer could not hold defendant to account for the damages as he had no privity of contract with defendant.

CRUZ VS. TUAZON AND CO.

FACTS:

As requested by the Deudors, the family of Telesforo Deudor who laid claim in question on the strength of an informacion posesoria,
Cruz made permanent improvements on the said land having an area of more or less 20 quinones.

The improvements were valued at P30,400 and for which he incurred expenses amounting to P7,781.74

In 1952, Tuason & Co. availed of Cruz’ services as an intermediary with the Deudors, to work for the amicable settlement in a civil
case. The said case involved 50 quiones of land, of which the 20 quiones of land mentioned formed part.

A compromise agreement between the Deudors and Tuason & Co. was entered into on 1963 which was approved by court.

Cruz alleged that Tuason & Co. promised to convey him the 3,000 sq. meters of land occupied by him which was part of the 20
quiones of land within 10 years from the date of signing of the compromise agreement between the Deudors and the latter as
consideration of his services. The said land was not conveyed to him by Tuason & Co.

Cruz further alleged that Tuason & Co. was unjustly enriched at his expense since they enjoyed the benefits of the improvements he
made on the land acquired by the latter.

The trial court dismissed the case on the ground that there was no cause of action. Hence, this appeal.

ISSUE:
Whether or not a presumed quasi-contract be emerged as against one part when the subject matter thereof is already covered by a
contract with another party.

RULING:

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as against one party when
the subject mater thereof is already covered by an existing contract with another party. Predicated on the principle that no one should
be allowed to unjustly enrich himself at the expense of another, Article 2124 creates the legal fiction of a quasi-contract precisely
because of the absence of any actual agreement between the parties concerned.

Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract with a third party, his cause of action
should be against the latter, who in turn may, if there is any ground therefor, seek relief against the party benefited. It is essential that
the act by which the defendant is benefited must have been voluntary and unilateral on the part of the plaintiff. As one distinguished
civilian puts it, "The act is voluntary. because the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is
unilateral, because it arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. The
reason why the law creates a juridical relations and imposes certain obligation is to prevent a situation where a person is able to
benefit or take advantage of such lawful, voluntary and unilateral acts at the expense of said actor."
In the case at bar, since appellant has a clearer and more direct recourse against the Deudors with whom he had entered into an
agreement regarding the improvements and expenditures made by him on the land of appellees. It Cannot be said, in the sense
contemplated in Article 2142, that appellees have been enriched at the expense of appellant.

GUTIERREZ-HERMANOS VS. ORENSE

FACTS:

On and before Februaru 14, 1907, Engracio Orense had been the owner of a parcel of land in Guinobatan, Albay.

On February 14, 1907, Jose Duran, a nephew of Orense, sold the property for P1,500 to Gutierrez Hermanos, with Orense’s
knowledge and consent, executed before a notary a public instrument. The said public instrument contained a provision giving Duran
the right to repurchase it for the same price within a period of four years from the date of the said instrument.

Orense continued occupying the land by virtue of a contract of lease.

After the lapse of four years, Gutierrez asked Orense to deliver the property to the company and to pay rentals for the use of the
property.

Orense refused to do so. He claimed that the sale was void because it was done without his authority and that he did not authorize
his nephew to enter into such contract.

During trial, Orense was presented as witness of the defense. He states that the sale was done with his knowledge and consent.
Because of such testimony, it was ascertained that he did give his nephew, Duran, authority to convey the land. Duran was acquitted
of criminal charges and the company demanded that Orense execute the proper deed of conveyance of the property.

ISSUE:
Whether or not Orense is bound by Duran’s act of selling the former’s property.

HELD:

YES! It was proven during trial that he gave his consent to the sale. Such act of Orense impliedly conferred to Duran the power of
agency. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the scope of his jurisdiction.

The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged to be invalid, null and
void under the provisions, of paragraph 5 of section 335 of the Code of Civil Procedure, because the authority which Orense may
have given to Duran to make the said contract of sale is not shown to have been in writing and signed by Orense, but the record
discloses satisfactory and conclusive proof that the defendant Orense gave his consent to the contract of sale executed in a public
instrument by his nephew Jose Duran. Such consent was proven in a criminal action by the sworn testimony of the principal and
presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the defendant made no
objection. Therefore the principal is bound to abide by the consequences of his agency as though it had actually been given in writing.

The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed that he had given his
consent to the sale of his property, meet the requirements of the law and legally excuse the lack of written authority, and, as they are
a full ratification of the acts executed by his nephew Jose Duran, they produce the effects of an express power of agency.

ADILLE VS. CA

FACTS:

The property in dispute was originally owned by Felisa Alzul who got married twice. Her child in the first marriage was petitioner
Rustico Adile and her children in the second marriage were respondents Emetria Asejo et al.

During her lifetime, Felisa Alzul sodl the property in pacto de retro with a three-year repurchase period. Felisa died before she could
repurchase the property.

During the redemption period, Rustico Adille repurchased the property by himself alone at his own expense, and after that, he
executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother Felisa. Consequently, he
was able to secure title in his name alone.

His half-siblings, herein respondents, filed a case for partition and accounting claiming that Rustico was only a trustee on an implied
trust when he redeemed the property, and thus, he cannot claim exclusive ownership of the entire property.

ISSUE:

Whether or not a co-owner may acquire exclusive ownership over the property held in common.

Whether or nor Rustico had constituted himself a negotiorum gestor

HELD: No. The right to repurchase may be exercised by a co-owner with respect to his share alone. Although Rustico Adille redeemed
the property in its entirety, shouldering the expenses did not make him the owner of all of it.
Yes. The petitioner, in taking over the property, did so on behalf of his co-heirs, in which event, he had constituted himself a
negotiorum gestor under Art 2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty of fraud, and must act as
trustee, the respondents being the beneficiaries, pursuant to Art 1456.

ANDRES VS. MANTRUST

FACTS:

Andres, using the business name “Irene’s Wearing Apparel” was engaged in the manufacture of ladies garments, children’s wear,
men’s apparel and linens for local and foreign buyers. Among its foreign buyers was Facts of the United States.

Sometime in August 1980, Facts instructed the First National State Bank (FNSB) of New Jersey to transfer $10,000 to Irene’s Wearing
Apparel via Philippine National Bank (PNB) Sta. Cruz, Manila branch. FNSB instructed Manufacturers Hanover and Trust Corporation
(Mantrust) to effect the transfer by charging the amount to the account of FNSB with private respondent.

After Mantrust effected the transfer, the payment was not effected immediately because the payee designated in the telex was only
“Wearing Apparel.” Private respondent sent PNB another telex stating that the payment was to be made to “Irene’s Wearing Apparel.”

On August 28, 1980, petitioner received the remittance of $10,000.

After learning about the delay, Facets informed FNSB about the situation. Facts, unaware that petitioner had already received the
remittance, informed private respondent and amended its instruction y asking it to effect the payment to Philippine Commercial and
Industrial Bank (PCIB) instead of PNB.

Private respondent, also unaware that petitioner had already received the remittance, instructed PCIB to pay $10,000 to petitioner.
Hence, petitioner received another $10,000 which was charged again to the account of Facets with FNSB.

FNSB discovered that private respondent had made a duplication of remittance. Private respondent asked petitioner to return the
second remittance of $10,000 but the latter refused to do so contending that the doctrine of solution indebiti does not apply because
there was negligence on the part of the respondents and that they were not unjustly enriched since Facets still has a balance of
$49,324.

ISSUE: Whether or not the private respondent has the right to recover the second $10,000 remittance it had delivered to petitioner

HELD: Yes. Art 2154 of the New Civil Code is applicable. For this article to apply, the following requisites must concur: 1) that he who
paid was not under obligation to do so; and 2) that payment was made by reason of an essential mistake of fact.

There was a mistake, not negligence, in the second remittance. It was evident by the fact that both remittances have the same
reference invoice number.

PUYAT AND SONS VS. MANILA

FACTS:

Plaintiff Gonzalo Puyat & Sons Inc is engaged in the business of manufacturing and selling all kinds of furniture.

Acting pursuant to an ordinance, the defendant City Treasurer of Manila assessed from plaintiff retail dealer’s tax the sales of furniture
manufactured and sold by it and its factory site.

All assessments were paid by plaintiff without protest in the erroneous belief that it was liable thereof not knowing that pursuant to an
ordinance, it is exempt from the payment of taxes being a manufacturer of various kinds of furniture.

After learning about the ordinance, plaintiff filed with defendant City Treasurer of Manila a formal request for refund of the retail
dealer’s taxes unduly paid.

The City Treasurer, however, denied the said request for refund. The City of Manila, in refusing to pay the refund, contends that the
taxes in question were voluntarily paid by petitioner company and since, in this jurisdiction, in order that a legal basis arise for claim
of refund of taxes erroneously assessed, payment thereof must be made under protest, and this being a condition sine qua non, and
no protest having been made, — verbally or in writing, thereby indicating that the payment was voluntary.

Petitioner on the other hand avers that the payments could not have been voluntary. At most, they were paid “mistakenly and in good
faith” and “without protest in the erroneous belief that it was liable thereof.” Voluntariness is incompatible with protest and mistake. It
submits that this is a simple case of “solutio indebiti”.

ISSUE: Whether or not the amounts paid by plaintiff-appelle without protest were refundable

HELD: Yes. The plaintiff was actually exempted from paying the tax assessed, hence, it was clearly an error or mistake which makes
it fall under Art 2154 of solution indebiti. Art 2154 provides that if something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.

Alongside with this, Art 2156 is also applicable which states that if the payer was in doubt whether the debt was due, he may recover
if he proves that it was not due. Plaintiff had duly proved that taxes were not lawfully due. Therefore, there is no doubt that the
provisions of solution indebiti apply in this case.

Article 2155 of the Civil Code recognizes “error de derecho” as a basis for the quasi-contract of solutio indebiti.

“Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may come within the scope
of the preceding article” (Art. 21555)

There is no gainsaying the fact that the payments made by appellee was due to a mistake in the construction of a doubtful question
of law. The reason underlying similar provisions, as applied to illegal taxation, in the United States, is expressed in the case of
Newport v. Ringo:

“It is too well settled in this state to need the citation of authority that if money be paid through a clear mistake of law or fact, essentially
affecting the rights of the parties, and which in law or conscience was not payable, and should not be retained by the party receiving
it, it may be recovered. Both law and sound morality so dictate. Especially should this be the rule as to illegal taxation. The taxpayer
has no voice in the imposition of the burden. He has the right to presume that the taxing power has been lawfully exercised. He
should not be required to know more than those in authority over him, nor should he suffer loss by complying with what he bona fide
believe to be his duty as a good citizen. Upon the contrary, he should be promoted to its ready performance by refunding to him any
legal exaction paid by him in ignorance of its illegality; and, certainly, in such a case, if be subject to a penalty for nonpayment, his
compliance under belief of its legality, and without awaitinga resort to judicial proceedings should not be regarded in law as so far
voluntary as to affect his right of recovery.”.

“Every person who through an act or performance by another, or any other means, acquires or comes into possession of something
at the expense of the latter without just or legal grounds, shall return the same to him”(Art. 22, Civil Code).

It would seem unedifying for the government, (here the City of Manila), that knowing it has no right at all to collect or to receive money
for alleged taxes paid by mistake, it would be reluctant to return the same. No one should enrich itself unjustly at the expense of
another (Art. 2125, Civil Code)..

Admittedly, plaintiff-appellee paid the tax without protest. Equally admitted is the fact that section 76 of the Charter of Manila provides
that “No court shall entertain any suit assailing the validity of tax assessed under this article until the taxpayer shall have paid, under
protest the taxes assessed against him, xx”.

It should be noted, however, that the article referred to relates to assessment, collection and recovery of real estate taxes only hence
not applicable to the case at bar, which relates to the recovery of retail dealer taxes.

In other words, protest is not necessary for the recovery of retail dealer’s taxes, like the present, because they are not directly imposed
by the charter.

In a recent case, We said: “The appellants argue that the sum the refund of which is sought by the appellee, was not paid under
protest and hence is not refundable. Again, the trial court correctly held that being unauthorized, it is not a tax assessed under the
Charter of the Appellant City of Davao and for that reason, no protest is necessary for a claim or demand for its refund” (Citing the
Medina case, supra; East Asiatic Co., Ltd. v. City of Davao, G.R. No. L-16253, Aug. 21, 1962).

Lastly, being a case of solutio indebiti, protest is not required as a condition sine qua non for its application.

CBK POWER, LTD. VS. CIR

FACTS:

CBK Power is a limited partnership duly organized and existing under the laws of the Philippines, and primarily engaged in the
development and operation of hydro electric power generating plants in Laguna.

In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-Netherlands, Raiffesen Bank, Fortis-Belgium,
and Mizuho Bank for which it remitted interest payments from May 2001 to May 2003. It allegedly withheld final taxes from said
payments based on the following rates: (a) fifteen percent (15%) for Fortis-Belgium, Fortis-Netherlands, and Raiffesen Bank; and (b)
twenty percent (20%) for Industrial Bank of Japan and Mizuho Bank.
However, according to CBK Power, under the relevant tax treaties between the Philippines and the respective countries in which
each of the banks is a resident, the interest income derived by the aforementioned banks are subject only to a preferential tax rate
of 10%

Accordingly, on April 14, 2003, CBK Power filed a claim for refund of its excess final withholding taxes allegedly erroneously withheld
and collected.

Due to CIR’s inaction, CBK Power appealed to CTA Division. The latter partially granted the refund. One of the refunds was disallowed
because of failure on the part of CBK Power to obtain an ITAD ruling with respect to its transactions with Fortis-Netherlands. CTA En
Banc affirmed said decision.

ISSUE:

Whether or not the BIR may add a requirement– prior application for an ITAD ruling – that is not found in the income tax treaties
signed by the Philippines before a taxpayer can avail of preferential tax rates under said treaties.

HELD:

NO. The Court held that the obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000.

Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-
2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in
complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period
under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the BIR
should merely operate to confirm the entitlement of the taxpayer to the relief.

Logically, noncompliance with tax treaties has negative implications on international relations, and unduly discourages foreign
investors. While the consequences sought to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be
remedied through other system management processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those
who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax
treaty relief.

CANGCO VS. MRR

FACTS:

Jose Cangco was an employee of Manila Railroad Company as clerk. He lived in San Mateo which is located upon the line of the
defendant railroad company. He used to travel by trade to the office located in Manila for free. On January 21, 1915, on his way home
by rail and when the train drew up to the station in San Mateo, he rose from his seat, making his exit through the door. When he
stepped off from the train, one or both of his feet came in contact with a sack of watermelons causing him to slip off from under him
and he fell violently on the platform. He rolled and was drawn under the moving car. He was badly crushed and lacerated. He was
hospitalized which resulted to amputation of his hand. He filed the civil suit for damages against defendant in CFI of Manila founding
his action upon the negligence of the employees of defendant in placing the watermelons upon the platform and in leaving them so
placed as to be a menace to the security of passengers alighting from the train. The trial court after having found negligence on the
part of defendant, adjudged saying that plaintiff failed to use due caution in alighting from the coach and was therefore precluded
from recovering, hence this appeal.

ISSUE

Is the negligence of the employees attributable to their employer whether the negligence is based on contractual obligation or on
torts?

HELD

YES. It cannot be doubted that the employees of defendant were guilty of negligence in piling these sacks on the platform in the
manner stated. It necessarily follows that the defendant company is liable for the damage thereby occasioned unless recovery is
barred by the plaintiff’s own contributory negligence. It is to note that the foundation of the legal liability is the contract of carriage.

However Art. 1903 relates only to culpa aquiliana and not to culpa contractual, as the Court cleared on the case of Rakes v. Atlantic
Gulf. It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master from
liability fro the latter’s act. The fundamental distinction between obligation of this character and those which arise from contract, rest
upon the fact that in cases of non-contractual obligations it is the wrongful or negligent act or omission itself which creates the
vinculum juris, whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed by the
parties when entering into the contractual relation.

When the source of obligation upon which plaintiff’s cause of action depends is a negligent act or omission, the burden of proof rest
upon the plaintiff to prove negligence. On the other hand, in contractual undertaking, proof of the contract and of its nonperformance
is suffient prima facie to warrant recovery. The negligence of employee cannot be invoked to relieve the employer from liability as it
will make juridical persons completely immune from damages arising from breach of their contracts. Defendant was therefore liable
for the injury suffered by plaintiff, whether the breach of the duty were to be regarded as constituting culpa aquiliana or contractual.

As Manresa discussed, whether negligence occurs as an incident in the course of the performance of a contractual undertaking or is
itself the source of an extra-contractual obligation, its essential characteristics are identical. There is always an act or omission
productive of damage due to carelessness or inattention on the part of the defendant. The contract of defendant to transport plaintiff
carried with it, by implication, the duty to carry him in safety and to provide safe means of entering and leaving its trains.

Contributory negligence on the part of petitioner as invoked by defendant is untenable. In determining the question of contributory
negligence in performing such act- that is to say, whether the passenger acted prudently or recklessly- age, sex, and physical
condition of the passenger are circumstances necessarily affecting the safety of the passenger, and should be considered. It is to be
noted that the place was perfectly familiar to plaintiff as it was his daily routine.

Our conclusion is there is slightly underway characterized by imprudence and therefore was not guilty of contributory negligence.
The decision of the trial court is REVERSED.

GUTIERREX VS. GUTIERREZ

FACTS:

On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each other on a
bridge. The truck was driven by the chauffeur Abelardo Velasco, and was owned by saturnine Cortez. The automobile was being
operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio’s father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was not in the car, but the mother, together with several other members of the
Gutierrez family were accommodated therein.

The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured right leg which required medical
attendance for a considerable period of time.

ISSUE: Whether or not both the driver of the truck and automobile are liable for damages and indemnification due to their negligence.
What are the legal obligations of the defendants?

HELD: Bonifacio Gutierrez’s obligation arises from culpa aquiliana. On the other hand, Saturnino Cortez’s and his chauffeur Abelardo
Velasco’s obligation rise from culpa contractual.

The youth Bonifacio was na incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on approaching the
bridge and the truck, he lost his head and so contributed by his negligence to the accident. The guaranty given by the father at the
time the son was granted a license to operate motor vehicles made the father responsible for the acts of his son. Based on these
facts, pursuant to the provisions of Art. 1903 of the Civil Code, the father alone and not the minor or the mother would be liable for
the damages caused by the minor.

The liability of Saturnino Cortez, the owner of the truck, and his chauffeur Abelardo Velasco rests on a different basis, namely, that
of contract.

HSBC VS. SPS. BROQUEZA

FACTS:

Petitioners Gerong and Broqueza are employees of Hongkong and Shanghai Banking Corporation (HSBC). They are also members
of respondent Hongkong Shanghai Banking Corporation, Ltd. Staff Retirement Plan.
In October 1990, petitioner Broqueza obtained a car loan in the amount of Php 175,000.00. In December 1991, she again applied
and was granted an appliance loan in the amount of Php 24,000.00.
In 1993, a labor dispute arose between HSBC and its employees. Majority of HSBCs employees were terminated, among whom are
petitioners Editha Broqueza and Fe Gerong.

ISSUE:

Whether or not the claim was premature as the loan obligations have not yet matured

RULING:

No. The Court affirms the findings of the lower courts that there is no date of payment indicated in the Promissory Notes. The RTC
is correct in ruling that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to demand immediate payment.

Article 1179 of the Civil Code applies: Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once. The spouses Broquezas obligation to pay HSBCL-SRP is a pure
obligation. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broquezas salary is of no moment.
Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce e a pure obligation.

PAY VS. PALANCA

FACTS:

George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3, 1963. The claim of the petitioner is based on a
promissory note dated January 30, 1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to
pay George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per annum.
Pay filed a petition to the trial court praying that respondent Segundina, the surviving spouse of the late Justo Palanca, be appointed
as administratrix of a residential dwelling at Taft Avenue, Manila, in the name of Justo Palanca, and assessed at P41,800.00. The
idea is that once said property is brought under administration, George Pay, as creditor, can file his claim against the administratrix.

The lower court dismissed the petition due to the following:

1) Segundina refuses to be appointed as administratrix;
2) the property sought to be administered no longer belonged to the debtor, the late Justo Palanca; and
3) the rights of Pay had already prescribed considering that Pay himself admitted expressly that he was relying on the wording "upon
demand."; thus the 10-yr prescriptive period applies and has, by the time of the filing of the petition, lapsed.

Furthermore, when the “lower court inquired whether any cash payment has been received by either of the signers of this promissory
note from the Estate of the late Carlos Palanca. Petitioner informed that he does not insist on this provision but that petitioner is only
claiming on his right under the promissory note.”

The promissory note, dated January 30, 1952, is worded thus: " `For value received from time to time since 1947, we [jointly and
severally promise to] pay to Mr. [George Pay] at his office at the China Banking Corporation the sum of (P26,900.00), with interest
thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of the late Don
Carlos Palanca or upon demand'. . . .

As stated, this promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca."

Pay appealed to the SC, assailing the correctness of the rulings of the lower court as to the effect of the refusal of the surviving
spouse of the late Justo Palanca to be appointed as administratrix, as to the property sought to be administered no longer belonging
to the debtor, the late Justo Palanca, and as to the rights of petitioner-creditor having already prescribed.

ISSUE:
Whether a creditor is barred by prescription in his attempt to collect on a promissory note executed more than 15 years earlier with
the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon demand (the basis for the
action being the latter alternative)

HELD: Yes

From the manner in which the promissory note was executed, it would appear that petitioner was hopeful that the satisfaction of his
credit could he realized either through the debtor sued receiving cash payment from the estate of the late Carlos Palanca
presumptively as one of the heirs, or, as expressed therein, "upon demand." There is nothing in the record that would indicate whether
or not the first alternative was fulfilled. What is undeniable is that on August 26, 1967, more than 15 years after the execution of the
promissory note on January 30, 1952, this petition was filed. The defense interposed was prescription. Its merit is rather obvious.

Article 1179 of the Civil Code provides: "Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once." This used to be Article 1113 of the Spanish Civil Code of 1889.
As far back as Floriano v. Delgado, 5 a 1908 decision, it has been applied according to its express language.

The obligation being due and demandable, it would appear that the filing of the suit after 15 years was much too late. For again,
according to the Civil Code, which is based on Section 43 of Act No. 190, the prescriptive period for a written contract is that of 10
years. This is another instance where this Court has consistently adhered to the express language of the applicable norm. There is
no necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the petition to fail just because
the surviving spouse refuses to be made administratrix, or just because the estate was left with no other property.

ISSUE

Whether or not a promissory note to be paid “upon demand” is immediately due and demandable.

RULING

YES. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once (Art. 1179 of the New Civil Code). The obligation being due and demandable in this case, it would
appear that the filing of the suit after fifteen years was much too late.

SMITH BELL VS. SOTELO MATTI

FACTS:

In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts whereby the former obligated
itself to sell, and the latter to purchase from it/two steel tanks, for P21,000, the same to be shipped from New York and delivered at
Manila "within three or four months;" two expellers at the price of P25,000 each, which were to be shipped from San Francisco in the
month of September, 1918, or as soon as possible; and two electric motors at P2,000 each, as to the delivery of which stipulation
was made, couched in these words: "Approximate delivery within ninety days.-This is not guaranteed."

The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on the 27th of
February, 1919.

The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to receive them and
to pay the prices stipulated.
The plaintiff brought suit against the defendant based on four separate causes of action, alleging, that it immediately notified the
defendant of the arrival of the goods, and asked instructions from him as to the delivery thereof, and that the defendant refused to
receive any of them and to pay their price. The plaintiff, further, alleged that the expellers and the motors were in good condition.

In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co., Inc., denied the plaintiff's
allegations as to the shipment of these goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's
refusal to receive them and pay their price, and the good condition of the expellers and the motors, alleging as special defense that
Mr. Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil Refining and By-products Co., Inc., which
fact was known to the plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks had arrived, the motors
and the expellers having arrived incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege that, as
a consequence of the plaintiff's delay in making delivery of the goods, which the intervenor intended to use in the manufacture of
cocoanut oil, the intervenor suffered damages in the sums of P116,783.91 for the nondelivery of the tanks, and twenty-one thousand
two hundred and fifty pesos (P21,250) on account of the expeliers and the motors not having arrived in due time.

The case having been tried, the court below absolved the defendants from the complaint insofar/as the tanks and the electric motors
were concerned, but rendered judgment against them, ordering them to "receive the aforesaid expeliers and pay the plaintiff the sum
of P50,000, the price of the said goods, with legal interest thereon from July 26, 1919, and costs."

Both parties appeal from this judgment, each assigning several errors in the findings of the lower court.

Issue:
Whether Smith Bell incurred delay in the delivery of goods to Sotelo

Held:

No, it did not incur delay.

From the record it appears that these contracts were executed at the time of the world war when there existed connection with the
tanks and "Priority Certificate, subject to the United -States Government requirements," with respect to the motors. At the time of the
execution of the contracts, the parties were not unmindful of the contingency of the United States Government not allowing the export
of the goods, nor of the fact that the other foreseen circumstances therein stated might prevent it.

Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties attempted to fix is so
uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to Manila or not. If that is the case, as
we think it is, the obligation must be regarded as conditional.

When the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon
the will of third persons who could in no way be compelled to fulfill .the condition. In cases like this, which are not expressly provided
for, but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if he
has done all that was in his power, even if the condition has not been fulfilled in reality.

In connection with this obligation to deliver, occurring in a contract of sale like those in question, the rule in North America is that
when the time of delivery is not fixed in the contract, time is regarded unessential.

When the contract provides for delivery 'as soon as possible' the seller is entitled to a reasonable time, in view of all the circumstances,
such as the necessities of manufacture, or of putting the goods in condition for delivery. The term does not mean immediately or that
the seller must stop all his other work and devote himself to that particular order. But the seller must nevertheless act with all
reasonable diligence or without unreasonable delay. It has been held that a requirement that the shipment of goods should be the
'earliest possible' must be construed as meaning that the goods should be sent as soon as the seller could possibly send them, and
that it signified rather more than that the goods should be sent within a reasonable time.

"The question as to what is a reasonable time for the delivery of the goods by the seller is to be determined by the circumstances
attending the particular transaction, such as the character of the goods, and the purpose for which they are intended, the ability of
the seller to produce the goods if they are to be manufactured, the facilities available for transportation, and the distance the goods
must be carried, and the usual course of business in the particular trade." (35 Cyc., 181-184.)

The record shows, as we have stated, that the plaintiff did all within its power to have the machinery arrive at Manila as soon as
possible, and immediately upon its arrival it notified the purchaser of the fact and offered to deliver it to him. Taking these
circumstances into account, we hold that the said machinery was brought to Manila by the plaintiff within a reasonable time.

Therefore, the plaintiff has not been guilty of any delay in the fulfillment of its obligation, and, consequently, it could not have incurred
any of the liabilities mentioned by the intervenor in its counterclaim or set-off.

CHAVEZ VS. GONZALES

FACTS:

July 1963, Rosendo Chavez, plaintiff, brought his typewriter to Fructuoso Gonzales, defendant, a typewriter repairman for the cleaning
and servicing of the said typewriter. Three months later, the plaintiff paid P6.00 to the defendant for the purchase of spare parts.
Because of the delay of the repair the plaintiff decided to recover the typewriter from the defendant which was wrapped like a package.
When he opened and examined it, the interior cover and some parts and screws were missing. October 29, 1963 the plaintiff sent a
letter to the defendant for the return of the missing parts, the interior cover and the sum of P6.00. The following day, the defendant
returned to the plaintiff only some of the missing parts, the interior cover and the P6.00.
August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, that cost him a total of P89.85. A year later,
the plaintiff filed an action before the City Court of Manila, demanding from the defendant the payment for total of P1,190.00 for
damages including attorney’s fees. The defendant made no denials.

The repair invoice shows that the missing parts had a total value of P31.10 only.

Wherefore, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the costs of suit.

Chaves appealed, because it only awarded the value of the missing parts of the typewriter, instead of the whole cost of labor and
materials that went into the repair of the machine. It is clear that the defendant-appellee contravened the tenor of his obligation
because not only did he not repair the typewriter but returned it “in shambles”.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendant-appellee to pay,
as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of the complaint.
Costs in all instances against appellee Fructuoso Gonzales.

Issue:

Whether or not the defendant is liable for the total cost of repair.

Held:

Yes. For such contravention, he is liable under Article 1167 of the Civil Code. For the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this case should be the cost of the labor or service expended in the repair of
the typewriter.

ssue:
Whether a period must be set by the court first before one could sue for a breach
Held:
No, one could sue for a breach even without asking the court to set a period within which to perform the obligation.
The inferences derivable from these findings of fact are that Chaves and Gonzales had a perfected contract for cleaning and servicing
a typewriter; that they intended that Gonzales was to finish it at some future time although such time was not specified; and that such
time had passed without the work having been accomplished, for Gonzales returned the typewriter cannibalized and unrepaired,
which in itself is a breach of his obligation, without demanding that he should be given more time to finish the job, or compensation
for the work he had already done. The time for compliance having evidently expired, and there being a breach of contract by non-
performance, it was academic for Chaves to have first petitioned the court to fix a period for the performance of the contract before
filing his complaint in this case. Gonzales cannot invoke Article 1197 of the Civil Code for he virtually admitted non-performance by
returning the typewriter that he was obliged to repair in a nonworking condition, with essential parts missing. The fixing of a period
would thus be a mere formality and would serve no purpose than to delay (cf. Tiglao, et al. v. Manila Railroad Co., 98 Phil. 181).

It is clear that the Gonzales contravened the tenor of his obligation because he not only did not repair the typewriter but returned it
“in shambles”, according to the appealed decision. For such contravention, as Chaves contends, he is liable under Article 1167 of
the Civil Code, for the cost of executing the obligation in a proper manner. The cost of the execution of the obligation in this case
should be the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75 because the
obligation or contract was to repair it.

ENCARNACION VS. BALDOMAR

FACTS:

Vicente Singson Encarnacion his house to Jacinto Baldomar and her son, Lefrado Fernando, upon a month-to-month basis. On
March 16, 1945, and on April 7, of the same year, plaintiff Singson Encarnacion notified defendants, the said mother and son, to
vacate the house above-mentioned on or before April 15, 1945, because plaintiff needed it for his offices as a result of the destruction
of the building where said plaintiff had said offices before. Despite this demand, defendants insisted on continuing their occupancy.
When the original action was lodged with the Municipal Court of Manila, defendants were in arrears in the payment of the rental
corresponding to said month. That rental was paid prior to the hearing of the case in the municipal court, as a consequence of which
said court entered judgment for restitution and payment of rentals at the rate of P35 a month from May 1, 1945, until defendants
completely vacate the premises.

The defendants argue that the contract which they had celebrated with plaintiff since the beginning authorized them to continue
occupying the house indefinitely.

CFI ruled in favor of the plaintiff.

ISSUE:
W/N the lease contract was for an indefinite period of time hence would entitle the defendants the occupancy of the property in
question as long as they pay rentals

HELD:

NO. The Court of First Instance gave more credit to plaintiff’s witness, Vicente Singson Encarnacion, jr., who testified that the lease
had always and since the beginning been upon a month-to-month basis. The court added in its decision that this defense which was
put up by defendant’s answer, for which reason the Court considered it as indicative of an eleventh-hour theory. We think that the
Court of First Instance was right in so declaring. Furthermore, carried to its logical conclusion, the defense thus set up by defendant
Lefrado Fernando would leave to the sole and exclusive will of one of the contracting parties (defendants in this case) the validity and
fulfillment of the contract of lease, within the meaning of article 1256 of the Civil Code, since the continuance and fulfillment of the
contract would then depend solely and exclusively upon their free and uncontrolled choice between continuing paying the rentals or
not, completely depriving the owner of all say in the matter. If this defense were to be allowed, so long as defendants elected to
continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although
the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the
contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the aforesaid article of the Civil
Code.

ELEIZEGUI VS. MANILA LAW TENNIS CLUB

FACTS:

Eleizegui v. The Manila Lawn Tennis Club

G.R. No. 967 May 19, 1903

Facts:

A contract of lease was executed on January 25, 1980 over a piece of land owned by the plaintiffs Eleizegui (Lessor) to the Manila
Lawn Tennis Club, an English association (represented by Mr. Williamson) for a fixed consideration of P25 per month and accordingly,
to last at the will of the lessee. Under the contract, the lessee can make improvements deemed desirable for the comfort and
amusement of its members. It appeared that the plaintiffs terminated the lease right on the first month. The defendant is in the belief
that there can be no other mode of terminating the lease than by its own will, as what they believe has been stipulated.

As a result the plaintiff filed a case for unlawful detainer for the restitution of the land claiming that article 1569 of the Civil Code
provided that a lessor may judicially dispossess the lessee upon the expiration of the conventional term or of the legal term; the
conventional term — that is, the one agreed upon by the parties; the legal term, in defect of the conventional, fixed for leases by
articles 1577 and 1581. The Plaintiffs argued that the duration of the lease depends upon the will of the lessor on the basis of Art.
1581 which provides that, "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."

The lower court ruled in favor of the Plaintiffs on the basis of Article 1581 of the Civil Code, the law which was in force at the time the
contract was entered into. It is of the opinion that the contract of lease was terminated by the notice given by the plaintiff. The judgment
was entered upon the theory of the expiration of a legal term which does not exist, as the case requires that a term be fixed by the
courts under the provisions of article 1128 with respect to obligations which, as is the present, are terminable at the will of the obligee.

ISSUE: a) Whether or not the parties have agreed upon the duration of the lease
b) Whether or not the lease depends upon the will of the lessee

RULING:

a) YES, the parties have agreed upon a term hence Art. 1581 is inapplicable.

The legal term cannot be applied under Art 1581 as it appears that there was actually an agreement between the parties as to the
duration of the lease, albeit implied that the lease is to be dependent upon the will of the lessee. It would be absurd to accept the
argument of the plaintiff that the contract was terminated at its notice, given this implication.

Interestingly, the contract should not be understood as one stipulated as a life tenancy, and still less as a perpetual lease since the
terms of the contract express nothing to this effect, even if they implied this idea. If the lease could last during such time as the lessee
might see fit, because it has been so stipulated by the lessor, it would last, first, as long as the will of the lessee — that is, all his life;
second, during all the time that he may have succession, inasmuch as he who contracts does so for himself and his heirs. (Art. 1257
of the Civil Code.) The lease in question does not fall within any of the cases in which the rights and obligations arising from a contract
can not be transmitted to heirs, either by its nature, by agreement, or by provision of law. Moreover, being a lease, then it must be
for a determinate period. (Art. 1543.) By its very nature it must be temporary, just as by reason of its nature, an emphyteusis must be
perpetual, or for an unlimited period. (Art. 1608.)

B) The duration of the lease does not depend solely upon the will of the Lessee (defendant).

It cannot be concluded that the termination of the contract is to be left completely at the will of the lessee simply because it has been
stipulated that its duration is to be left to his will.

The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of obligations with a term it has
supplied the deficiency of the former law with respect to the "duration of the term when it has been left to the will of the debtor," and
provides that in this case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down by the authorities,
there is always a creditor who is entitled to demand the performance, and a debtor upon whom rests the obligation to perform the
undertaking. In bilateral contracts the contracting parties are mutually creditors and debtors. Thus, in this contract of lease, the lessee
is the creditor with respect to the rights enumerated in article 1554, and is the debtor with respect to the obligations imposed by
articles 1555 and 1561. The term within which performance of the latter obligation is due is what has been left to the will of the debtor.
This term it is which must be fixed by the courts.

The only action which can be maintained under the terms of the contract is that by which it is sought to obtain from the judge the
determination of this period, and not the unlawful detainer action which has been brought — an action which presupposes the
expiration of the term and makes it the duty of the judge to simply decree an eviction. To maintain the latter action it is sufficient to
show the expiration of the term of the contract, whether conventional or legal; in order to decree the relief to be granted in the former
action it is necessary for the judge to look into the character and conditions of the mutual undertakings with a view to supplying the
lacking element of a time at which the lease is to expire.

The lower court’s judgement is erroneous and therefore reversed and the case was remanded with directions to enter a judgment of
dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club.

PHILBANKING VS. LUI SHE

FACTS:

Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land in Manila. The deceased
Wong had been a long-time lessee of a portion of the property.

On September 22, 1957 Justina Santos became the owner of the entire property as her sister died with no other heir.

“In grateful acknowledgment of the personal services of the lessee to her”, Justina executed several contracts in favor of Wong – first
a contract of lease for 50 years; later a contract giving Wong the option to buy the leased premises conditioned on his obtaining
Filipino citizenship; then two other contracts extending the lease to 99 years and option to purchase for 50 years.

Justina in two wills she later executed urged her legatees to respect the contracts but in a codicil of later date, claiming that the
various contracts were made by her because of machinations and inducements practiced by him, she now directed her executor to
secure the annulment of the contracts.

On November 18 the present action was filed in the Court of First Instance of Manila seeking to nullify the contracts on the ground of
fraud, misrepresentation, inequitable conduct, undue influence and abuse of confidence and trust, among others.

In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by the parties.

Paragraph 5 of the lease contract states that “The lessee may at any time withdraw from this agreement.”

Petitioner claims that this stipulation offends article 1308 of the Civil Code which provides that “the contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.”

ISSUE:

W/N the insertion of a resolutory condition permitting the cancellation of a contract makes the fulfillment of the contract dependent
upon the will of the parties hence void

HELD:

We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. Uy Tieng Piao.1 We said
in that case:

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service
of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen,
does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the
privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as
much in the fulfillment of the contract as any other act which may have been the subject of agreement. Indeed, the cancellation of a
contract in accordance with conditions agreed upon beforehand is fulfillment.2

And so it was held in Melencio v. Dy Tiao Lay 3 that a “provision in a lease contract that the lessee, at any time before he erected
any building on the land, might rescind the lease, can hardly be regarded as a violation of article 1256 [now art. 1308] of the Civil
Code.”

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of mutuality, because of a difference
in factual setting. In that case, the lessees argued that they could occupy the premises as long as they paid the rent. This is of course
untenable, for as this Court said, “If this defense were to be allowed, so long as defendants elected to continue the lease by continuing
the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner should desire the lease
to continue the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of
stopping payment of the rentals.” Here, in contrast, the right of the lessee to continue the lease or to terminate it is so circumscribed
by the term of the contract that it cannot be said that the continuance of the lease depends upon his will. At any rate, even if no term
had been fixed in the agreement, this case would at most justify the fixing of a period5 but not the annulment of the contract.

LIM VS. PEOPLE

FACTS:

Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa. Appeal was taken to the then Court of Appeals which affirmed
the decision of the lower court but modified the penalty. The appellant is a businesswoman.

The appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the
appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could
sell the tobacco. This agreement was made in the presence of plaintiff’s sister, Salud G. Bantug.
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso, of Gapan, Nueva Ecija, six hundred fifteen kilos of
leaf tobacco to be sold at P1.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50)
will be given to... her as soon as it was sold.'

Of the total value of P799.50,... the appellant had paid to Ayroso only P240.00, and this was paid on three different times.

Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by
her sister, Saiud Bantug.

Issues:

whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the
complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for... the crime charged.

Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New Civil Code does not apply"

Ruling:

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon
as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed 'of. Hence, Article
1197 of... the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not
apply.

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it
was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A") constituted her as an
agent with... the obligation to return the tobacco if the same was not sold.

ARANETA INC. VS. PHILIPPINE SUGAR ESTATES

J.M. Tuason & Co., Inc. is the owner of a big tract of land si-tuated in Quezon City, otherwise known as the Sta. Mesa Heights
Subdivision,... On July 28, 1950, through Gregorio

Araneta, Inc., it (Tuason & Co.) sold a portion thereof... to Philippine Sugar Estates Development Co., Ltd.

The parties stipulated... that the buyer will -

"Build on the said parcel of land the Sto Domingo Church and Convent;"... while the seller for its part will -

"Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a block surrounded by streets on
all four sides; and the street on the NE side shall be named 'Sto. Domingo Avenue';"

The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo Church and Convent, but the
seller, Gregorio Araneta, Inc., which began constructing the streets, is unable to finish the construction of the street... in the Northeast
side (named Sto. Domingo Avenue) 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;... hence, on May 7, 1958, Philippine Sugar Estates

Development Co., Ltd. filed its complaint against J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc., in the above stated court of first
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.

Gregorio Araneta, Inc. answered the complaint,... setting up the principal defense that the action was premature since its obligation
to construct the streets in question was without a... definite period which needs to be fixed first by the court in a proper suit for that
purpose before a complaint for specific performance will prosper.

the lower court... dismissed plaintiff's complaint (in a decision dated May 31, 1960), upholding the defenses interposed by defendant
Gregorio Araneta, Inc.

the lower court, after finding that "the proven facts precisely warrants the fixing of such a period", issued an order granting plaintiff's
motion for reconsideration and amending the dispositve portion of the decision of May 31, 1960,... judgment is hereby rendered giving
defendant Gregorio Araneta, Inc., a period of Two (2) Years from notice hereof, within which to comply with its obligation under the
contract,... the appellate court declared that the fixing of a period was within the pleadings and that there was no true change of
theory after the submission of the case for decision since defendant-appellant Gregorio Araneta, Inc. itself... squarely placed said
issue by alleging in paragraph 7 of the affirmative defenses contained in its answer

Issues:

whether or not the... parties agreed that the petitioner should have reasonable time to perform its part of the bargain.

Ruling:

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 pe-riod 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 com ply
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, as averred in the complaint, and fix the resulting damages. On the other hand, if the reasonable
time had not... yet elapsed, the court perforce was bound to dismiss the action for being premature.

But in no case can it be logically held that under the plea above quoted, the intervention of the court to fix the period for performance
was warranted, for Article 1197 is... precisely predicated on the absence of any period fixed by the parties.

the decision appealed from is re-versed, and the time for the performance of the obligations of petitioner Gregorio Araneta, Inc. is
hereby fixed at the date that all the squatters on affected areas are finally evicted... therefrom.

MILLARE VS. HERNANDO

Facts:
A five-year Contract of Lease was executed between Millare as lessor and the Spouses Co as lessee. They agreed on a monthly
rental rate of P350 of the “People’s Restaurant” until May 31, 1980.
During the last week of May 1980, Millare informed the Co spouses that they could continue leasing the property so long as they
were amenable to paying P1,200 a month. The Spouses Co counter-offered with P700 a month. At this point, Millare allegedly stated
that the amount of monthly rentals could be resolved at a later time since “the matter is simple among us”, which alleged remark was
supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed, prompting them to continue occupying
the subject premises and to forego their search for a substitute place to rent. In contrast, the lessor flatly denied ever having
considered, much less offered, a renewal of the Contract of Lease.
On July 22 and 28, 1980, Millare sent demand letters requesting them to vacate as she had no intention of renewing the Contract of
Lease, which had expired. The spouses Co signified their intention to deposit the P700 monthly rental in court, in view of Mrs. Millare’s
refusal to accept their counter-offer.
As the parties were filing suits against each other in court, the trial judge rendered a “Judgment by Default” dated 26 November 1980
ordering the renewal of the lease contract for a term of 5 years counted from the expiration date of the original lease contract, and
fixing monthly rentals thereunder at P700.00 a month, payable in arrears.

Issue:
Whether the court may order the renewal of the Contract of Lease for another five-year term at P700 a month

Held:
No, it cannot order the renewal of the Contract of Lease.
The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the “Judgment by Default” by which he ordered the
renewal of the lease for another term of five years and fixed monthly rentals thereunder at P700.00 a month. Article 1197 of the Civil
Code provides as follows:
“If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may, under the circumstances, have been probably contemplated by the
parties. Once fixed by the courts, the period cannot be changed by them.” (Italics supplied.)

The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period of five years,
which had expired. It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty of
agreeing upon the period of the renewal contract. The second paragraph of Article 1197 is equally clearly inapplicable since the
duration of the renewal period was not left to the will of the lessee alone, but rather to the will of both the lessor and the lessee. Most
importantly, Article 1197 applies only where a contract of lease clearly exists. Here, the contract was not renewed at all, there was in
fact no contract at all the period of which could have been fixed.

Article 1670 of the Civil Code reads thus:

“If at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence of the lessor and
unless a notice to the contrary by either party has previously been given. It is understood that there is an implied new lease, not for
the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall
be revived.” (Italics supplied.)

The parties do not pretend that the continued occupancy of the leased premises after 31 May 1980, the date of expiration of the
contract, was with the acquiescence of the lessor. The implied new lease could not possibly have a period of five years, but rather
would have been a month-to-month lease since the rentals (under the original contract) were payable on a monthly basis. At the
latest, an implied new lease (had one arisen) would have expired as of the end of July 1980 in view of the written demands served
by the petitioner upon the private respondents to vacate the previously leased premises,

It follows that the respondent judge’s decision requiring renewal of the lease has no basis in law or in fact. Save in the limited and
exceptional situations envisaged in Articles 1197 and 1670 of the Civil Code, which do not obtain here, courts have no authority to
prescribe the terms and conditions of a contract for the parties. As pointed out by Mr. Justice J.B.L. Reyes in Republic vs. Philippine
Long Distance Telephone, Co.,

“[P]arties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions
of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision
of the statute, a contract may be annulled if tainted by violence, intimidation or undue influence (Article 1306, 1336, 1337, Civil Code
of the Philippines).