Obligations and Contracts Case Updates 2005 2014 2

TABLE OF
CONTENTS OBLIGATIONS AND CONTRACTS
OBLIGATIONS
GENERAL PROVISIONS
Ernesto Uypitching, et al. v. Ernesto Quiamco...................................................................................10
Lourdes Dela Cruz v. Court of Appeals..............................................................................................10
Department of Health v. HTMC Engineers Co...................................................................................10
International Finance Corporation v. Imperial Textile Mills, Inc.....................................................11
Sebastian Siga-An v. Alicia Villanueva................................................................................................11
Makati Stock Exchange, Inc., et al. v. Miguel V. Campos, substituted By Julia Ortigas Vda. De
Campos....................................................................................................................................................12
Spouses Patricio and Myrna Bernales v. Heirs Of Julian Sambaan..................................................12
Vitarich Corporation v. Chona Losin...................................................................................................13
CBK Power Company Limited vs. Commissioner of Internal Revenue..........................................13
NATURE AND EFFECT OF OBLIGATIONS
Cortes v. Court of Appeals....................................................................................................................13
Winifreda Ursal v. Court of Appeals, The Rural Bank of Larena (Siquijor), Inc. and Spouses
Jesus Moneset and Cristita Moneset.....................................................................................................14
Prudential Bank v. Chonney Lim.........................................................................................................14
YHT Realty Corporation, Erlinda Lainez and Anicia Payam v. Court of Appeals and Maurice
Mcloughlin..............................................................................................................................................14
Schimtz Transport and Brokerage Corporation v. Transport Venture Inc......................................15
Lapreciosisima Cagungun, et. al. v. Planters Development Bank....................................................15
Radio Communication of the Philippines vs. Alfonso Verchez, et al...............................................15
Crisostomo Alcaraz v. Court of Appeals.............................................................................................16
Metropolitan Bank and Trust Company vs. Renato D. Cabilzo.......................................................16
Ma. Elizabeth Kind and Mary Ann King v. Megaworld Properties and Holdings, Inc.................16
Autocorp Group v. Intra Strata Assurance Corporation...................................................................16
J Plus Asia Development Corporation v. Utility Assurance Corporation.......................................17
Polo S. Pantaleon v. American Express International, Inc.................................................................18
Sps. Guanio v. Makati Shangri-La Hotel.............................................................................................18
Marques v. Far East Bank......................................................................................................................18
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Philippine Realty and Holding Corp. v. Ley Const. and Dev. Corp................................................19
Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General Insurance Co., Inc.......19
Carlo F. Sunga v.Virjen Shipping Corporation, Nissho Odyssey Ship Management Pte. Ltd.,
And/Or Capt. Angel Zambrano...........................................................................................................20
DIFFERENT KINDS OF OBLIGATIONS
PURE AND CONDITIONAL OBLIGATIONS
Sacobia Hills Development Corporation vs. Allan Ty.......................................................................20
Carrascoso v. Court of Appeals............................................................................................................21
Spouses William And Jeanette Yao v. Carlomagno B. Matela..........................................................21
Spouses Jaime Benos And Marina Benos v. Spouses Gregorio Lawilao And Janice Gail Lawilao
................................................................................................................................................................... 21
Darrel Cordero, et al. vs. F.S. Management and Development Corporation..................................22
Yamamoto v. Nishino Leather Industries, Inc....................................................................................22
Spouses Jose T. Valenzuela and Gloria Valenzuela v. Kalayaan Development & Industrial
Corporation.............................................................................................................................................22
Solar Harvest, Inc. v. Davao Corrugated Carton Corporation..........................................................23
Republic v. Holy Trinity Realty Development Corporation.............................................................24
Subic Bay Metropolitan Authority v. Court of Appeals....................................................................24
Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc....................................................24
JOINT AND SOLIDARY OBLIGATIONS
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation..................................25
Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al..............................................25
Philippine Commercial International Bank v. CA..............................................................................25
Crystal v. Bank of the Philippine Islands.............................................................................................26
The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc.,................................................26
Alba v. Yupangco...................................................................................................................................26
Sps. Rodolfo Berot v. Felipe Siapno......................................................................................................27
Trade and Investment Development Corp. of the Philippines v. Asia Paces Corp........................27
Olongapo City, V. Subic Water And Sewerage Co., Inc.,..................................................................27
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TABLE OF
OBLIGATIONS WITH A PENAL CLAUSE
First Fil-Sin Lending Corporation v. Gloria D. Padillo......................................................................28
Filinvest Land, Inc. vs. Hon. Court of Appeals, Philippine American General Insurance
Company and Pacific Equipment Corporation...................................................................................28
Development Bank of the Philippines v. Family Foods Manufacturing Co. Ltd., and Spouses
Julianco and Catalina Centeno..............................................................................................................28
Ileana Dr. Macalinao v. Bank of the Philippine Islands.....................................................................29
EXTINGUISHMENT OF OBLIGATIONS
PAYMENT OR PERFORMANCE
Jaime Biana v. George Gimenez............................................................................................................29
G & M (Phil.), Inc. vs. Willie Batomalaque..........................................................................................29
Abacus Securities Corporation v. Ruben U. Ampil............................................................................30
Almeda v. Bathala Marketing Industries, Inc.....................................................................................30
ASJ Corporation v. Evangelista............................................................................................................30
Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc..........................................................31
Dao Heng Bank, Inc. (Now Banco De Oro Universal Bank) v. Laigo..............................................31
Royal Cargo Corporation v. DFS Sports Unlimited, Inc....................................................................32
Allandale Sportsline, Inc. v. The Good Development Corporation.................................................32
Annabelle Dela Peña and Adrian Villareal v. The Court of Appeals and Rural Bank of Bolinao,
Inc............................................................................................................................................................. 32
D.B.T. Mar-Bay Construction, Incorporated v. Ricaredo Panes et al...............................................33
Rockville Excel International Exim Corporation v. Spouses Oligario Culla and Bernardita
Miranda....................................................................................................................................................33
Premiere Development Bank v. Central Surety & Insurance Company, Inc..................................33
Cecilleville Realty and Service Corporation v. Acuña.......................................................................34
DBT Mar-Bay Construction, Inc. vs. Panes..........................................................................................34
Manuel Go Cinco and Araceli S. Go Cinco v. Court Of Appeals, Ester Servacio and Maasin
Traders Lending Corporation...............................................................................................................35
Land Bank of the Philippines vs. Alfredo Ong...................................................................................35
Republic v. Thi Thu Thuy T. De Guzman............................................................................................35
Dalton vs. FGR Realty and Development Corp..................................................................................36
Elizabeth Del Carmen v. Sps. Sabordo.................................................................................................36
Erlinda Gajudo, Fernando Gajudo, Jr., Estelita Gajudo, Baltazar Gajudo And Danilo Arahan
Chua v. Traders Royal Bank..................................................................................................................36
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TABLE OF
Luzon Development Bank v. Enriquez................................................................................................37
Telengtan Brothers & Sons, Inc. v. United States Lines, Inc. and the Court of Appeals................37
Simplicio A. Palanca v. Ulyssis Guides................................................................................................37
LOSS OF THE THING DUE
Ayala Construction and Development Corporation v. Philippine Commercial International

Bank..........................................................................................................................................................38
Raymundo S. De Leon vs. Benita T. Ong.............................................................................................38
CONDONATION OR REMISSION OF THE DEBT
Ruben Reyna V. COA.............................................................................................................................38
CONFUSION OR MERGER OF RIGHTS
Cecilleville Realty and Service Corporation vs. Spouses Tito Acuña and Ofelia B. Acuña...........39
Sps. Dominador R. Narvaez and Lilia W. Narvaez vs. Sps. Rose Ogas Alciso and Antonio Alciso
................................................................................................................................................................... 39
COMPENSATION
Mavest (USA) Inc. and Mavest Manila Liaison Office vs. Sampaguita Garment Corporation.....39
Manuel B. Aloria v. Estrellita B. Clemente..........................................................................................40
Premiere Development Bank v. Flores.................................................................................................40
Soriano v. People....................................................................................................................................40
United Planters Sugar Milling Co., Inc., (UPSUMCO) vs. Court of Appeals, et al.........................41
Lao v. Special Plans, Inc.........................................................................................................................41
Traders Royal Bank vs. Norberto Castañares and Milagros Castañares.........................................42
Cesar V. Areza and Lolita B. Areza v. Express Savings Bank, Inc....................................................42
Mondragon Personal Sales, Inc. v. Victoriano S. Sola, Jr...................................................................42
NOVATION
Philippine Savings Bank v. Sps. Rodelfo Malanac Jr..........................................................................43
Isaisas F. Fabrigas and Marcelina R. Fabrigas v. San Francisco del Monte, Inc..............................43
Sps. Francisco and Ruby Reyes v. BPI Family Savings Bank, Inc., And Magdalena L. Lometillo,
in her capacity as Ex-Officio Provincial Sheriff for Iloilo...................................................................44
Gammon Philippines, Inc. v. Metro Rail Transit Development Corporation.................................44
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TABLE OF
Ek Lee Steel Works Corporation v. Manila Castor Oil Corporation................................................45
Sueno v. Land Bank of the Philippines................................................................................................45
S.C. Megaworld Construction And Development Corporation v. Parado......................................45
Foundation Specialists, Inc., vs. Betonval Ready Concrete, Inc. and Stronghold Insurance Co.,
Inc............................................................................................................................................................. 46
Carolina Hernandez-Nievera v. Wilfredo Hernandez.......................................................................47
Sime Darby Pilipinas, Inc. v. Goodyear Philippines, Inc...................................................................47
Heirs of Servando Franco v. Sps. Gonzales.........................................................................................47
Roberto R. David vs. Eduardo C. David..............................................................................................48
First United Constructors Corporation vs. Bayanihan Automotiv..................................................48
CONTRACTS
GENERAL PROVISIONS
Asian Construction and Development Corporation v. Tulabut......................................................48
Tanay Recreation Center and Development Corp. v. Catalina Matienzo Fausto and Anunciacion
Fausto Pacunayen...................................................................................................................................49
Litonjua v. Litonjua................................................................................................................................49
Bortikey v. AFP Retirement and Separation Benefits System...........................................................49
GF Equity, Inc. vs. Arturo Valenzona..................................................................................................50
Sunace International vs. NLRC.............................................................................................................51
Greater Metropolitan Manila Solid Waste Management Committee v. Jancom Environmental

Corporation.............................................................................................................................................51
Roxas v. Zuzuarregui, Jr........................................................................................................................51
Bonifacio Nakpil v. Manila Towers Development Corp....................................................................52
Xavierville III Homeowners Association, Inc., v. Xavierville Ii Homeowners Association, Inc.,. 52
William Golangco Construction Corporation v. Philippine Commercial International Bank......53
Spouses Anthony and Percita Oco v. Victor Limbaring....................................................................53
Rolando Limpo v. Court of Appeals....................................................................................................53
Caltex (Philippines), Inc., v. PNOC Shipping and Transport Corporation.....................................54
Mr. & Mrs. George R. Tan v. G.V.T Engineering Services, Acting through its Owner/Manager
Gerino V. Tactaquin...............................................................................................................................54
William Ong Genato vs. Benjamin Bayhon et al.................................................................................54
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TABLE OF
Vicenta Cantemprate et al. vs. CRS Realty Development Corporation et al...................................54
National Power Corporation vs. Premier Shipping Lines, Inc..........................................................55
Patricia Halagueña et al. vs. Philippine Airlines Incorporated.........................................................55
Sta. Lucia Realty & Development, Inc. vs. SPOUSES Francisco & Emelia Buenaventura.............55
Sps. Isagani Castro and Diosdada Castro v. Angelina De Leon Tan, et. al.,..................................56
Narvaez vs. Alciso..................................................................................................................................56
Herald Black Dacasin vs.Sharon Del Mundo Dacasin.......................................................................56
PNCC Skyway Traffic Management and Security Division Workers Organization (PSTMSDWO)
vs. PNCC Skyway Corporation............................................................................................................57
Heirs of Mario Pacres, vs. Heirs of Cecilia Ygoña..............................................................................57
Heirs of Fausto C. Ignacio v. Home Bankers Savings and Trust Company....................................57
Spouses Ignacio F. Juico and Alice P. Juico v. China Banking Corporation....................................58
Sps. Benjamin Mamaril v. The Boy Scout of the Philippines.............................................................58
Star Two (SPV-AMC), Inc. v. Paper City Corporation of the Philippines.......................................58
Land Bank of the Philippines vs. Heirs of Spouses Jorja Rigor-Soriano and Magin Soriano........59
Rodolfo G. Cruz and Esperanza Ibias v. Atty. Delfin Gruspe...........................................................59
Philippine National Bank vs. Spouses Enrique Manalo and Rosalinda Jacinto, et al....................59
ESSENTIAL REQUISITES OF CONTRACTS
Spouses Azaro M. Zulueta and Perla Sucayan-Zulueta v. Jose Wong, et al....................................59
Paulo Ballesteros v. Rolando Abion.....................................................................................................60
Estate of Orlando Llenado et al. vs. Eduardo Llenado et al..............................................................60
CONSENT
Dandoy v. Tongson................................................................................................................................60
Navotas Industrial Corporation V. Cruz, et al....................................................................................61
Epifania Dela Cruz, substituted by Laureana V. Alberto v. Sps. Eduardo C. Sison and Eufemia S.
Sison.........................................................................................................................................................61
Perpetua vda. de Ape v. Court of Appeals and Genorosa Cawit Vda. De Lumayno....................62
Reynaldo Villanueva vs. Philippine National Bank...........................................................................62
Gaudencio Valerio et. al v. Vicenta Refresca et. al..............................................................................62
Heirs of Cayetano Pangan vs. Spouses Rogelio Perreras and Priscilla Perreras.............................62
Cornelia Baladad vs. Sergio A. Rublico and Spouses Laureano F. Yupano....................................63
Francisco Landicho et al. vs. Felix Sia..................................................................................................63
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TABLE OF
XYST Corp. v. DMC Urban Properties Development Inc..................................................................63
Gloria Ocampo and Teresita Tan v. Land Bank of the Philippines et al..........................................64
Government Service Insurance System vs. Abraham Lopez............................................................64
Sps. Ramon Lequin and Virginia Lequin vs. Sps. Raymundo Vizconde and Salome Lequin
Vizconde..................................................................................................................................................65
Spouses Exequiel Lopez and Eusebia Lopez v. Spouses Eduardo Lopez and Marcelina Lopez..65
Heirs Of Dr. Mario S. Intac v. Court of Appeals.................................................................................65
Korean Air Co., Ltd. V. Yuson..............................................................................................................66
Doña Rosana Realty and Development Corporation vs. Molave Development Corporation......66
Jocelyn M. Toledo vs. Marilou M. Hyden............................................................................................66
ECE Realty and Development Inc. v. Rachel G. Mandap..................................................................67
OBJECT OF CONTRACTS
Atty. Pedro M. Ferrer vs. Spouses Alfredo Diaz and Imelda Diaz...................................................67
CAUSE OF CONTRACTS
J.L.T. Agro Inc. v. Balansag....................................................................................................................68
Alvarez v. PICOP Resources.................................................................................................................68
FORM OF CONTRACTS
Manuel Mallari and Millie Mallari v. Rebecca Alsol..........................................................................69
Serafin Naranja et al. vs. Court of Appeals........................................................................................69
REFORMATION OF INSTRUMENTS
Benny Go v. Eliodoro Bacaron..............................................................................................................69
INTERPRETATION OF CONTRACTS
Holy Cross of Davao College, Inc. vs. Holy Cross of Davao Faculty Union – Kampi...................70
Agas vs. Sabico........................................................................................................................................70
Berman Memorial Park, Inc. and Luisa Chong v. Francisco Cheng.................................................70
Rosalina Tagle v. Court of Appeals, Fast International Corporation and/or Kuo Tung Yu Huang
................................................................................................................................................................... 71
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TABLE OF
Martha R. Horrigan v. Troika Commercial, Inc..................................................................................71
Aurelio P. Alonzo and Teresita A. Sison v. Jaime and Perlita San Juan..........................................71
Vicente Go v. Pura Kalaw, Inc..............................................................................................................72
Sps. Alvaro v. Sps. Returban.................................................................................................................72
Ayala Inc. v. Ray Burton Corp..............................................................................................................72
Laureano T. Angeles v. Philippine National Railways (PNR) And Rodolfo Flores.......................73
Elenita Ishida and Continent Japan Co., Inc. v. Antusa de Mesa-Magno, Firmo de Mesa et.al....73
Heirs of the Deceased Carmen Cruz-Zamora v. Multiwood International, Inc..............................73
Antipolo Properties v. Nuyda..............................................................................................................74
Adriatico Consortium, Inc., et al. vs. Land Bank of the Philippines................................................74
Manila International Airport Authority v. Avia Filipinas International, Inc.,................................74
RESCISSIBLE CONTRACTS
Oliverio Laperal and Filipinas Golf & Country Club, Inc. v. Solid Homes, Inc..............................75
C-J Yulo & Sons, Inc. v. Roman Catholic Bishop of San Pablo, Inc..................................................75
Spouses Felipe and Leticia Cannu v. Spouses Gil And Fernandina Galang and National Home
Mortgage Finance Corporation.............................................................................................................75
Bienvenido M. Casino Jr. v. Court of Appeals....................................................................................76
Pryce Corporation (Formerly Pryce Properties Corporation), v. Philippine Amusement And

Gaming Corporation..............................................................................................................................76
Coastal Pacific Trading Inc., v. Southern Rolling Mills, Co., Inc. et al.............................................77
Pan Pacific Industrial Sales Co., v. Court of Appeals.........................................................................77
Laurencio Ramel, et.al. v. Daniel Aquino and Guadaluper Abalahin.............................................77
Union Bank of the Philippines v. Sps. Ong.........................................................................................77
Philippine Leisure and Retirement Authority v. Court of Appeals.................................................78
Uniwide Holdings, Inc. v. Jandecs Transportation Co., Inc..............................................................78
Bonrostro v. Luna...................................................................................................................................79
Armand O. Raquel-Santos and Annalissa Mallari v. Court of Appeals and Finvest Securities Co.,
Inc............................................................................................................................................................. 79
Heirs of Sofia Quirong v. Development Bank of the Philippines.....................................................79
“G” Holdings, Inc., v. National Mines and Allied Workers Union Local 103 (NAMAWU)........80
VOIDABLE CONTRACTS
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TABLE OF
Jorge Gonzales v. Climax Mining Ltd..................................................................................................80
Felicitas Asycong and Teresa Polan v. Court of Appeals and Moller Lending Investor...............80
Development Bank of the Philippines and Privatization and Management Office v. CA............80
Barceliza P. Capistrano vs. Darryl Limcuando and Fe S. Sumiran...................................................81
Hernania “Lani” Lopez vs. Gloria Umale-Cosme..............................................................................81
First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities, Inc......................82
ECE Realty And Development Inc. v. Rachel G. Mandap.................................................................82
UNENFORCEABLE CONTRACTS
Spouses Mario and Elizabeth Torcuator v. Spouses Remigio and Gloria Bernabe and Spouses
Diosdado and Lourdes Salvador..........................................................................................................82
Banco Filipino Savings v. Diaz..............................................................................................................83
Lina Peñalber vs. Quirino Ramos et al.................................................................................................83
Orduña, et al. v. Fuentebella, et al........................................................................................................83
Municipality of Hagonoy, Bulacan vs. Dumdum, Jr..........................................................................84
Rogelio Dantis, v. Julio Maghinang, Jr.................................................................................................84
VOID OR INEXISTENT
Menchavez vs. Teves..............................................................................................................................84
Department of Health v. C.V. Canchela & Associates, Architects (CVCAA), in Association With
MCS Engineers Co., and A.O. Mansueto IV – Electrical Engineering Services, and Luis Alina,
Sheriff IV, RTC, Manila..........................................................................................................................85
The Manila Banking Corporation v. Edmundo S. Silverio and The Court of Appeals,.................85
La’o v. Republic of the Philippines and the Government Service Insurance System.....................86
Potenciano Ramirez v. Ma. Cecilia Ramirez........................................................................................86
Joaquin Villegas and Emma M. Villegas v. Rural Bank of Tanjay Inc.............................................86
Land Bank of the Philippines v. Eduardo M. Cacayuran.................................................................87
Queensland-Tokyo Commodities, Inc. vs. George.............................................................................87
Anuel O. Fuentes and Leticia L. Fuentes vs. Conrado G. Roca.........................................................87
Domingo Gonzalo vs. John Tarnate, Jr.................................................................................................87
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CASE DOCTRINES OBLIGATIONS AND CONTRACTS
OBLIGATIONS
CHAPTER 1. GENERAL PROVISIONS
Ernesto Uypitching, et al. v. Ernesto Quiamco

GR No. 146322, December 6, 2006
Corona, J.
ISSUE: Can an obligation to pay damages arise from an abuse of a right which is exercised to
the prejudice or injury of another person as when a corporation seized a motorcycle with the
assistance of policemen without a search warrant or order?
DOCTRINE: A blatant disregard for the lawful procedure for the enforcement of its right, to the
prejudice of respondent violated the law as well as public morals, and transgressed the proper
norms of human relations. Article 19, also known as the “principle of abuse of right,” prescribes
that a person should not use his right unjustly or contrary to honesty and good faith, otherwise he
opens himself to liability. There is an abuse of right when it is exercised solely to prejudice or
injure another. The exercise of a right must be in accordance with the purpose for which it was
established and must not be excessive or unduly harsh; there must be no intention to harm
another. Otherwise, liability for damages to the injured party will attach.
Lourdes Dela Cruz v. Court of Appeals

G.R No. 139442, December 6, 2006
Velasco, Jr. J.:
ISSUE: Can a person under a contract of lease possess such land by tolerance even after the
expiration of the contract of lease and after a demand to vacate.
DOCTRINE: Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. Thus, initially petitioner as lessee is the legal
possessor of the subject lot by virtue of a contract of lease. When fire destroyed her house, the
Reyeses considered the lease terminated. It has been held that a person who occupies the land of
another at the latter’s tolerance or permission, without any contract between them, is necessarily
bound by an implied promise that he will vacate upon demand, failing which a summary action
for ejectment is the proper remedy against them.
Department of Health v. HTMC Engineers Co.

G.R. No. 146120. January 27, 2006
Chico-Nazario, J.
ISSUE: Can a perfected contract be renounced unilaterally?
DOCTRINE: No. A contract properly executed between parties continues to be the law between
said parties and should be complied with in good faith. There being a perfected contract, DOH
cannot revoke or renounce the same without the consent of the other party. Just as nobody can be
forced to enter into a contract, in the same manner, once a contract is entered into, no party can
renounce it unilaterally or without the consent of the other. It is a general principle of law that no
one may be permitted to change his mind or disavow and go back upon his own acts, or to
proceed contrary thereto, to the prejudice of the other party. As no revision to the
original agreement was ever arrived at, the terms of the original contract shall continue to govern
over both the HTMC and the DOH with respect to the infrastructure projects as if no
amendments were ever initiated. In the absence of a new perfected contract between HTMC and
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DOH, both parties shall continue to be bound by the stipulations of the original contract and all
its natural effects.
International Finance Corporation v. Imperial Textile Mills, Inc.
G.R. No. 160324; November 15, 2005
Panganiban, J.:
ISSUES:
(1) What is the nature of the contract entered into between the parties denominated as Guarantee
Agreement?
(2) Under Suretyship, what are the obligations of the parties under the contract?
DOCTRINES:
(1) The terms of a contract govern the rights and obligations of the contracting parties. When
the obligor undertakes to be "jointly and severally" liable, it means that the obligation is
solidary. If solidary liability was instituted to "guarantee" a principal obligation, the law deems
the contract to be one of suretyship.
The creditor in the present Petition was able to show convincingly that, although denominated as
a "Guarantee Agreement," the Contract was actually a surety. Notwithstanding the use of the
words "guarantee" and "guarantor," the subject Contract was indeed a surety, because its terms
were clear and left no doubt as to the intention of the parties.
The obligations of the guarantors are meticulously expressed in the following provision:
"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and

unconditionally guarantee, as primary obligors and not as sureties merely, the due and
punctual payment of the principal of, and interest and commitment charge on, the Loan,
and the principal of, and interest on, the Notes, whether at stated maturity or upon
prematuring, all as set forth in the Loan Agreement and in the Notes."
The Agreement uses "guarantee" and "guarantors," prompting ITM to base its argument on those
words. This Court is not convinced that the use of the two words limits the Contract to a mere
guaranty. The specific stipulations in the Contract show otherwise.
(2) While referring to ITM as a guarantor, the Agreement specifically stated that the corporation
was "jointly and severally" liable. To put emphasis on the nature of that liability, the Contract
further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only
one thing: that at bottom, and to all legal intents and purposes, it was a surety.
Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter’s
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC
and could not be deemed merely secondarily liable.
Sebastian Siga-An v. Alicia Villanueva

G.R. No. 173227, January 20, 2009
Chico-Nazario J.:
ISSUE: Whether solutio indebiti applies to situations wherein there was a wrongful payment of
interest?
DOCTRINE: Yes. Under Article 1960 of the Civil Code, if the borrower of loan pays interest
when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio
indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti.
Said provision 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. In such a case, a
creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the
creditor who then has the right to demand the return of payment made by mistake, and the person
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who has no right to receive such payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself
unjustly at the expense of another. The principle of solutio indebiti applies where (1) a payment
is made when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment; and (2) the payment is made through mistake, and not through
liberality or some other cause. We have held that the principle of solutio indebiti applies in case
of erroneous payment of undue interest.
Makati Stock Exchange, Inc., et al. v. Miguel V. Campos, substituted By Julia Ortigas Vda.
De Campos
G.R. No. 138814, April 16, 2009
Chico-Nazario, J.:
ISSUE: Whether the claim of a right or an obligation may be made even without identifying its
source.
DOCTRINE: No. Right and obligation are legal terms with specific legal meaning. A right is a
claim or title to an interest in anything whatsoever that is enforceable by law. An obligation is
defined in the Civil Code as a juridical necessity to give, to do or not to do. For every right
enjoyed by any person, there is a corresponding obligation on the part of another person to
respect such right. Thus, Justice J.B.L. Reyes offers the definition given by Arias Ramos as a
more complete definition:
An obligation is a juridical relation whereby a person (called the creditor) may
demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.
Therefore, an obligation imposed on a person, and the corresponding right granted to another,
must be rooted in at least one of these five sources. The mere assertion of a right and claim of an
obligation in an initiatory pleading, whether a Complaint or Petition, without identifying the
basis or source thereof, is merely a conclusion of fact and law. A pleading should state the
ultimate facts essential to the rights of action or defense asserted, as distinguished from mere
conclusions of fact or conclusions of law. Thus, a Complaint or Petition filed by a person
claiming a right to the Office of the President of this Republic, but without stating the source of
his purported right, cannot be said to have sufficiently stated a cause of action. Also, a person
claiming to be the owner of a parcel of land cannot merely state that he has a right to the
ownership thereof, but must likewise assert in the Complaint either a mode of acquisition of
ownership or at least a certificate of title in his name.
Spouses Patricio and Myrna Bernales v. Heirs Of Julian Sambaan

G.R. No. 163271, January 15, 2010
Del Castillo, J.:
ISSUE: Whether title to the subject parcel of land was transferred by virtue of a forged deed of
absolute sale allegedly executed by the late Julian and Guillerma Sambaan in favor of Myrna
Bernales and her husband.
DOCTRINE: No. With the presentation of the forged deed, even if accompanied by the owner’s
duplicate certificate of title, the registered owner did not thereby lose his title, and neither does
the assignee in the forged deed acquire any right or title to the said property. The valid execution
of the Deed of Absolute Sale will convey and transfer ownership in favor of appellants title
based on the rule that by the contract of sale one of the contracting parties obligates himself to
transfer ownership of and to deliver a determinate thing, and the other to pay therefor a sum
certain in money or its equivalent. The fact that the assailed Deed was not signed by Julian and
the signatures of Julian and Guillerma were forged per findings of the NBI Senior Document
Examiner, it can therefore be inferred that the subsequent issuance of Transfer Certificate of
58
Title No. T-14204 has no basis at all since ownership was not conveyed to appellants by reason
of the forged Deed.
Vitarich Corporation v. Chona Losin

G.R. No. 181560, November 15, 2010
Mendoza, J.:
ISSUE: Whether Vitarich should be held liable for the conduct of its employee, Dericto, in
taking out dressed chickens from the bodega of Vitarich and receiving the same but charging it
as Charge Sales Invoice against its client, Losin.
DOCTRINE: No. Pursuant to Article 2180 of the Civil Code, that vicarious liability attaches
only to an employer when the tortuous conduct of the employee relates to, or is in the course of,
his employment. The question to ask should be whether at the time of the damage or injury, the
employee is engaged in the affairs or concerns of the employer or, independently, in that of his
own? Vitarich incurred no liability when Directo’s conduct, act or omission went beyond the
range of his employment.
CBK Power Company Limited vs. Commissioner of Internal Revenue

G.R. Nos. 198729-30 January 15, 2014
Sereno, C.J.:
ISSUE: Whether the principle of solutio indebiti applies in a claim for the issuance of a tax
credit certificate representing the latter's alleged unutilized input taxes on local purchases of
goods and services attributable to effectively zero-rated sales to National Power Corporation
(NPC) for the second and third quarters of 2005.
DOCTRINE: No. Devoid of merit is the applicability of the principle of solutio indebiti to the
present case. According to this principle, 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. In that
situation, a creditor-debtor relationship is created under a quasi-contract, whereby the payor
becomes the creditor who then has the right to demand the return of payment made by mistake,
and the person who has no right to receive the payment becomes obligated to return it. The
quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich oneself
unjustly at the expense of another .There is solutio indebiti when: (1) Payment is made when
there exists no binding relation between the payor, who has no duty to pay, and the person who
received the payment; and (2) Payment is made through mistake, and not through liberality or
some other cause. Though the principle of solutio indebiti may be applicable to some instances
of claims for a refund, the elements thereof are wanting in this case. First, there exists a binding
relation between petitioner and the CIR, the former being a taxpayer obligated to pay VAT.
Second, the payment of input tax was not made through mistake, since petitioner was legally
obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is
solely based on the distinctive nature of the VAT system. At the time of payment of the input
VAT, the amount paid was correct and proper.
CHAPTER 2. NATURE AND EFFECT OF OBLIGATIONS
Cortes v. Court of Appeals

GR No. 126083. July 12, 2006
Ynares-Santiago, J.
58
ISSUES: What is the effect if both parties incur in delay in a reciprocal obligation?
DOCTRINE: Considering that both parties were in delay and that their obligation was
reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the
Corporation therefore gave rise to a compensatio morae or default on the part of both parties
because neither has completed their part in their reciprocal obligation. This mutual delay of the
parties cancels out the effects of default such that it is as if no one is guilty of delay.
Winifreda Ursal v. Court of Appeals, The Rural Bank of Larena (Siquijor), Inc. and
Spouses Jesus Moneset and Cristita Moneset
GR No. 142411. October 14, 2005
Austria-Martinez, J.:
ISSUE: Is the vendor liable for damages in reciprocal obligations?
DOCTRINE: Where the vendee in the contract to sell also took possession of the property, the
subsequent mortgage constituted by the owner over said property in favor of another person was
valid since the vendee retained absolute ownership over the property. At most, the vendee in the
contract to sell was entitled only to damages pursuant to Art. 1169 of the Civil Code on
reciprocal obligations.
Prudential Bank v. Chonney Lim

G.R. No. 136371 November 11, 2005
Tinga, J.:
ISSUE: Whether the failure of the bank’s employees to credit the deposit to respondent’s
savings account constitutes actionable negligence in law.
DOCTRINE: Article 1172 of the Civil Code ordains that responsibility arising from negligence
in the performance of an obligation is demandable. The failure of the bank’s employees to credit
the amount of P34,000.00 to respondent’s savings account, resulting as it did in the dishonor of
respondent’s checks, constitutes actionable negligence in law.
From another perspective, the negligence of the bank constitutes a breach of duty to its client. It
is worthy of note that the banking industry is impressed with public interest. As such, it must
observe a high degree of diligence and observe lofty standards of integrity and performance. By
the nature of its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with them.
YHT Realty Corporation, Erlinda Lainez and Anicia Payam v. Court of Appeals and
Maurice Mcloughlin
G.R. No. 126780. February 17, 2005
Tinga, J.:
ISSUE: When will the hotelkeepers/innkeepers liable for the effects of their guests?
DOCTRINE: Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest whereby the responsibility of
the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall
be void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely
to apply to situations such as that presented in this case. The hotel business like the common
carrier's business is imbued with public interest. Catering to the public, hotelkeepers are bound to
58
provide not only lodging for hotel guests and security to their persons and belongings. The twin
duty constitutes the essence of the business. The law in turn does not allow such duty to the
public to be negated or diluted by any contrary stipulation in so-called "undertakings" that
ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature.
In an early case it was ruled that to hold hotelkeepers or innkeeper liable for the effects of their
guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It
is enough that such effects are within the hotel or inn. With greater reason should the liability of
the hotelkeeper be enforced when the missing items are taken without the guest's knowledge and
consent from a safety deposit box provided by the hotel itself, as in this case.
Schimtz Transport and Brokerage Corporation v. Transport Venture Inc.

G.R. No. 150255, April 22, 2005
Carpio-Morales J:
ISSUE: How must the liability of the common carrier, on one hand, and an independent
contractor, on the other hand, be described?
DOCTRINE: It would be solidary. A contractual obligation can be breached by tort and when
the same act or omission causes the injury, one resulting in culpa contractual and the other in
culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may
arise even under a contract, where tort is that which breaches the contract. Stated differently,
when an act which constitutes a breach of contract would have itself constituted the source of a
quasi-delictual liability had no contract existed between the parties, the contract can be said to
have been breached by tort, thereby allowing the rules on tort to apply.
As for Black Sea, its duty as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received for transportation until they
were delivered actually or constructively to consignee Little Giant.
Parties to a contract of carriage may, however, agree upon a definition of delivery that extends
the services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the
shipment provides that delivery be made “to the port of discharge or so near thereto as she may
safely get, always afloat.” The delivery of the goods to the consignee was not from “pier to pier”
but from the shipside of “M/V Alexander Saveliev” and into barges, for which reason the
consignee contracted the services of petitioner. Since Black Sea had constructively delivered the
cargoes to Little Giant, through petitioner, it had discharged its duty. In fine, no liability may
thus attach to Black Sea.
Lapreciosisima Cagungun, et. al. v. Planters Development Bank

GR No. 158674. October 17, 2005
Chico-Nazario, J.:
ISSUE: What is the degree of diligence required in the performance of an obligation?
DOCTRINE: The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Article 1172 of the New Civil Code states that the
degree of diligence required of an obligor is that prescribed by law or contract, and absent such
stipulation then the diligence of a family. In every case, the depositor expects the bank to treat
his account with utmost fidelity, whether such accounts consists only of a few hundred pesos or
of millions of pesos.
Radio Communication of the Philippines vs. Alfonso Verchez, et al.

G.R. No. 164349. January 31, 2006
Carpio Morales, J.:
58
ISSUE: Must a causal connection between the delay of the respondent in the performance of its
duty and the injury suffered by the plaintiffs be proved in culpa contractual?
DOCTRINE: No. In culpa contractual, the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. The law,
recognizing the obligatory force of contracts, will not permit a party to be set free from liability
for any kind of misperformance of the contractual undertaking or a contravention of the tenor
thereof. A breach upon the contract confers upon the injured party a valid cause for recovering
that which may have been lost or suffered.
Crisostomo Alcaraz v. Court of Appeals

G.R. No. 152202. July 28, 2006
Puno, J.:
ISSUE: Is a credit card holder liable to pay the interests and surcharges imposed by the bank for
non-payment of his obligations absent any stipulation for such payment?
DOCTRINE: No. Absence of any proof that the terms and conditions of the credit card use has
been shown to its client, and failure to by respondent to show that an application form or
document prior to the issuance of the credit card has been submitted or signed by the same, the
client should not be condemned to pay the interest and charges provided under its terms and
conditions.
Metropolitan Bank and Trust Company vs. Renato D. Cabilzo

GR No. 154469. December 6, 2006
Chico-Nazario, J:
ISSUE: Can a Banking Institution Who Relied To Another Bank’s indorsement of a check evade
liability by failing to detect alterations made in a check.
DOCTRINE: No. The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. The appropriate
degree of diligence required of a bank must be a high degree of diligence, if not the utmost
diligence. In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions.
Ma. Elizabeth Kind and Mary Ann King v. Megaworld Properties and Holdings, Inc.
G.R. No. 162895. August 16, 2006
Quisumbing, J.:
ISSUE: Is refund a remedy in case there is a defect in the object of the obligation?
DOCTRINE: There is nothing on record to show that the original structure was unstable. One
who alleges a fact has the burden of proving it. Aside from the pictures and videos of the cracked
perimeter fence, petitioners did not present any other evidence. These pictures and videos are
insufficient to show that the townhouse’s foundation was structurally defective. The cracks
could be merely superficial. Other than that, the presumption is that there was no irregularity
regarding the approval of the building plan. Moreover, respondent presented an affidavit of a
structural engineer attesting that the cracks and leaks on the perimeter fence do not affect the
structural integrity of the townhouse. Absent any showing that the townhouse structure was
unstable and unsafe for habitation, petitioners are not entitled to a refund.
Autocorp Group v. Intra Strata Assurance Corporation
58
G.R. No. 166662, 556 SCRA 250
ISSUES:
(1) Is demand necessary to make an obligation become due and demandable?
(2) Are defenses against the Bureau of Customs completely available against ISAC, since the
right of the latter to seek indemnity from petitioner depends on the right of the BOC to proceed
against the bonds?
DOCTRINE:
(1) Demand, whether judicial or extrajudicial, is not required before an obligation becomes due
and demandable-a demand is only necessary in order to put an obligor in a due and demandable
obligation in delay, which in turn is for the purpose of making the obligor liable for interests or
damages for the period of delay.
(2) ISAC’s right to seek indemnity from petitioners does not constitute subrogation under the
Civil Code, considering that there has been no payment yet by ISAC to the BOC. There are
indeed cases in the aforementioned Article 2071 of the Civil Code wherein the guarantor or
surety, even before having paid, may proceed against the principal debtor, but in all these cases,
Article 2071 of the Civil Code merely grants the guarantor or surety an action “to obtain release
from the guaranty, or to demand a security that shall protect him from any proceedings by the
creditor and from the danger of insolvency of the debtor.” The benefit of subrogation, an
extinctive subjective novation by a change of creditor, which “transfers to the person subrogated,
the credit and all the rights thereto appertaining, either against the debtor or against third
persons,” is granted by the Article 2067 of the Civil Code only to the “guarantor (or surety) who
pays.”
ISAC cannot be said to have stepped into the shoes of the BOC, because the BOC still retains
said rights until it is paid. ISAC’s right to file Civil Case No. 95-1584 is based on the express
provision of the Indemnity Agreements making petitioners liable to ISAC at the very moment
ISAC’s bonds become due and demandable for the liability of Autocorp Group to the BOC,
without need for actual payment by ISAC to the BOC. But it is still correct to say that all the
defenses available to petitioners against the BOC can likewise be invoked against ISAC because
the latter’s contractual right to proceed against petitioners only arises when the Autocorp Group
becomes liable to the BOC for non-compliance with its undertakings. Indeed, the arguments and
evidence petitioners can present against the BOC to prove that Autocorp Group’s liability to the
BOC is not yet due and demandable would also establish that petitioners’ liability to ISAC under
the Indemnity Agreements has not yet arisen.
J Plus Asia Development Corporation v. Utility Assurance Corporation

G.R. No. 199650, 700 SCRA 134
ISSUE: Can delay take place even if the obligation to perform or complete the project was not
yet demandable because the agreed completion date is yet to come?
DOCTRINE: Default or mora on the part of the debtor is the delay in the fulfillment of the
prestation by reason of a cause imputable to the former. It is the non-fulfillment of an obligation
with respect to time.
In this jurisdiction, the following requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.
Since the parties contemplated delay in the completion of the entire project as can be seen in the
Construction Agreement, the CA concluded that the failure of the contractor to catch up with
schedule of work activities did not constitute delay giving rise to the contractor’s liability for
damages.
58
Article 1374 of the Civil Code requires that the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly. Here, the work schedule approved by petitioner was intended, not only to serve as
its basis for the payment of monthly progress billings, but also for evaluation of the progress of
work by the contractor. Article 13.01 (g) (iii) of the Construction Agreement provides that the
contractor shall be deemed in default if, among others, it had delayed without justifiable cause
the completion of the project "by more than thirty (30) calendar days based on official work
schedule duly approved by the OWNER."
Where a party to a building construction contract fails to comply with the duty imposed by the
terms of the contract, a breach results for which an action may be maintained to recover the
damages sustained thereby, and of course, a breach occurs where the contractor inexcusably fails
to perform substantially in accordance with the terms of the contract.
Polo S. Pantaleon v. American Express International, Inc.

G.R. No. 174269, May 8, 2009
Tinga, J.:
ISSUE: Whether delay by itself gives rise to moral damages.
DOCTRINE: No. It should be emphasized that the reason why petitioner is entitled to damages
is not simply because respondent incurred delay, but because the delay, for which culpability lies
under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which
moral damages are remunerative. Moral damages do not avail to soothe the plaints of the simply
impatient, so this decision should not be cause for relief for those who time the length of their
credit card transactions with a stopwatch. The somewhat unusual attending circumstances to the
purchase at Coster – that there was a deadline for the completion of that purchase by petitioner
before any delay would redound to the injury of his several traveling companions – gave rise to
the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation
sustained by the petitioner, as concluded by the RTC. Those circumstances are fairly unusual,
and should not give rise to a general entitlement for damages under a more mundane set of facts.
Sps. Guanio v. Makati Shangri-La Hotel

GR No. 190601, February 7, 2011
ISSUE: Whether the doctrine of proximate cause is applicable to a breach of contract.
DOCTRINE: No. The Court finds that since petitioners’ complaint arose from a contract, the
doctrine of proximate cause finds no application to it, the latter applicable only to actions for
quasi-delicts, not in actions involving breach of contract. Breach of contract is defined as the
failure without legal reason to comply with the terms of a contract. The appellate court, and even
the trial court, observed that petitioners were remiss in their obligation to inform respondent of
the change in the expected number of guests. Petitioners’ failure to discharge such obligation
thus excused respondent from liability for “any damage or inconvenience” occasioned thereby.
What applies in the present case is Article 1170 of the Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.
In culpa contractual the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for recovering that which may
58
have been lost or suffered. The remedy serves to preserve the interests of the promissee that may
include his “expectation interest,” which is his interest in having the benefit of his bargain by
being put in as good a position as he would have been in had the contract been performed, or his
“reliance interest,” which is his interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in had the contract not been
made; or his “restitution interest,” which is his interest in having restored to him any benefit
that he has conferred on the other party.
Marques v. Far East Bank

G.R. No. 171379; January 10, 2011
ISSUE: Whether FEBTC is estopped from claiming that the insurance premium in the contract
has been paid, making it liable for damages.
DOCTRINE: Yes. In estoppel, a party creating an appearance of fact, which is false, is bound
by that appearance as against another person who acted in good faith on it. In Santiago Syjuco,
Inc. v. Castro, the Court stated that “estoppel may arise from silence as well as from words.”
‘Estoppel by silence’ arises where a person, who by force of circumstances is obliged to another
to speak, refrains from doing so and thereby induces the other to believe in the existence of a
state of facts in reliance on which he acts to his prejudice.
As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article
1172 in relation to Article 2176 of the Civil Code which states “whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the damage
done.” Indisputably, had the insurance premium been paid, through the automatic debit
arrangement with FEBTC, Maxilite’s fire loss claim would have been approved.
Mondragon Leisure and Resorts Corporation v. Court of Appeals et al.

G.R. No. 154188, June 15, 2005
Quisumbing, J.:
ISSUE: In 1997, the Asian Financial crisis occurred. Is this a fortuitous event contemplated
under Article 1174 such that a debtor cannot be held in default under a loan agreement?
DOCTRINE: No. To exempt the obligor from liability for a breach of an obligation by reason
of a fortuitous event, the following requisites must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor. The following are excepted from the
rule: (1) when the law expressly so specifies; (2) when it is otherwise declared by the parties; and
(3) when the nature of the obligation requires the assumption of risks. Every business venture
involves risks. Risks are not unforeseeable; they are inherent in business. Hence, a corporation
that enters into a loan agreement, being aware of the economic environment at the time it entered
into such agreement, can be declared in default despite events such as the Asian financial crisis.
It is not a fortuitous event so as to exonerate a party from its obligation.
Philippine Realty and Holding Corp. v. Ley Const. and Dev. Corp.
G. R. No. 165548, June 13, 2011
ISSUE: Whether there is a fortuitous event that will exempt the obligor from liability for the
breach of an obligation.
DOCTRINE: Yes. Under Article 1174 of the Civil Code, to exempt the obligor from liability
for a breach of an obligation due to an "act of God" or force majeure, the following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the
event must be either unforeseeable or unavoidable; (c) the event must be such as to render it
58
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be
free from any participation in, or aggravation of the injury to the creditor. The shortage in
supplies and cement may be characterized as force majeure. In the present case, hardware stores
did not have enough cement available in their supplies or stocks at the time of the construction in
the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall
under force majeure. Since LCDC could not possibly continue constructing the building under
the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes
aforementioned.
Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General Insurance Co., Inc.
G.R. No. 189563; April 7, 2014
Sereno, CJ:
ISSUE: Whether the delay started to run from the time it demanded the fulfillment of
respondent’s obligation under the suretyship contract.
DOCTRINE: Yes. As to the issue of when interest must accrue, the Civil Code is explicit in
stating that it accrues from the time judicial or extrajudicial demand is made on the surety. This
ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled
rule that where there has been an extra-judicial demand before an action for performance was
filed, interest on the amount due begins to run, not from the date of the filing of the complaint,
but from the date of that extra-judicial demand.60 Considering that respondent failed to pay its
obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the
extrajudicial demand of petitioner was sent on 5 June 2000,61 we agree with the latter that
interest must start to run from the time petitioner sent its first demand letter (5 June 2000),
because the obligation was already due and demandable at that time.
Carlo F. Sunga v.Virjen Shipping Corporation, Nissho Odyssey Ship Management Pte.
Ltd., And/Or Capt. Angel Zambrano
Gr no. 198640; April 23, 2014
Brion, J.:
ISSUE: Whether Sunga’s injury was a result of an accident.
DOCTRINE: Yes. In Jarco Marketing Corporation, et al., v. Court of Appeals, SC ruled that an
accident pertains to an unforeseen event in which no fault or negligence attaches to the
defendant. It is "a fortuitous circumstance, event or happening; an event happening without any
human agency, or if happening wholly or partly through human agency, an event which under
the circumstances is unusual or unexpected by the person to whom it happens." In the present
case, Sunga did not incur the injury while solely performing his regular duties; an intervening
event transpired which brought upon the injury. To repeat, the two other oilers who were
supposed to help carry the weight of the 200-kilogram globe valve lost their grasp of the globe
valve. As a result, Sunga’s back snapped when the entire weight of the item fell upon him. The
sheer weight of the item is designed not to be carried by just one person, but as was observed,
meant to be undertaken by several men and expectedly greatly overwhelmed the physical limits
of an average person. Notably, this incident cannot be considered as foreseeable, nor can it be
reasonably anticipated. Sunga’s duty as a fitter involved changing the valve, not to routinely
carry a 200-kilogram globe valve singlehandedly. The loss of his fellow workers’ group was also
unforeseen in so far as Sunga was concerned.
CHAPTER 3. DIFFERENT KINDS OF OBLIGATIONS
SECTION 1. PURE AND CONDITIONAL OBLIGATIONS
58
Sacobia Hills Development Corporation vs. Allan Ty

G.R. No. 165889. September 20, 2005
Ynares-Santiago, J.:
ISSUE: Can a non-existent obligation be the subject of rescission?
DOCTRINE: No. Ty did not pay the full purchase price which is his obligation under the
contract to sell, therefore, it cannot be said that Sacobia breached its obligation. No obligations
arose on its part because respondent’s non-fulfillment of the suspensive condition rendered the
contract to sell ineffective and unperfected. Indeed, there can be no rescission under Article 1191
of the Civil Code because until the happening of the condition, i.e. full payment of the contract
price, Sacobia’s obligation to deliver the title and object of the sale is not yet extant. A non-
existent obligation cannot be subject of rescission. Article 1191 speaks of obligations already
existing, which may be rescinded in case one of the obligors fails to comply with what is
incumbent upon him.
Carrascoso v. Court of Appeals

G.R. No. 123672. December 14, 2005
Carpio Morales, J.:

ISSUE: May the partially unpaid seller rescind the sale for failure of the buyer to pay the
balance of the purchase price of the property in the manner and within the period agreed upon?

DOCTRINE: Yes. Reciprocal obligations are those which arise from the same cause, and in
which each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed simultaneously such that
the performance of one is conditioned upon the simultaneous fulfillment of the other. The right
of rescission of a party to an obligation under Article 1191 of the New Civil Code is predicated
on a breach of faith by the other party who violates the reciprocity between them.
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership
of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in
money or its equivalent The non-payment of the price by the buyer is a resolutory condition
which extinguishes the transaction that for a time existed, and discharges the obligations created
thereunder. Such failure to pay the price in the manner prescribed by the contract of sale entitles
the unpaid seller to sue for collection or to rescind the contract.
Spouses William And Jeanette Yao v. Carlomagno B. Matela

G.R. No. 167767. August 29, 2006
ISSUE: May a court annul a contract on the ground that its object is a disastrous deal or an
unwise investment? What is the role of the court in determining the liability of the contracting
parties who are both guilty of violating the terms therein?
DOCTRINE: The well-entrenched doctrine is that the law does not relieve a party from the
effects of an unwise, foolish or disastrous contract, entered into with full awareness of what he
was doing and entered into and carried out in good faith. Such a contract will not be discarded
even if there was a mistake of law or fact. Courts have no jurisdiction to look into the wisdom of
the contract entered into by and between the parties or to render a decision different therefrom.
They have no power to relieve parties from obligation voluntarily assumed, simply because their
contracts turned out to be disastrous deals or unwise investments. However, in situations such as
58
the one discussed above, where it cannot be conclusively determined which of the parties first
violated the contract, equity calls and justice demands that we apply the solution provided in
Article 1192 of the Civil Code.
Spouses Jaime Benos And Marina Benos v. Spouses Gregorio Lawilao And Janice Gail
Lawilao
G.R. No. 172259, December 5, 2006
ISSUE: In reciprocal obligations in a pacto de retro sale, is the vendee precluded to pay even
after the date agreed upon due to a cross-claim found in the answer?
DOCTRINE: Yes. While the vendors did not rescind the Pacto de Retro Sale through a notarial
act, they nevertheless rescinded the same in their Answer with Counterclaim. Even a cross-claim
found in the Answer could constitute a judicial demand for rescission that satisfies the
requirement of the law. The counterclaim of the vendors in their answer satisfied the requisites
for the judicial rescission of the subject Pacto de Retro Sale
Darrel Cordero, et al. vs. F.S. Management and Development Corporation

G.R. No. 167213. October 31, 2006
Carpio Morales, J.:
ISSUE: May the contract be rescinded in case of failure of a party to comply with its obligations
under a contract, such as the obligation to pay the down payment of the purchase price in a
contract to sell?
DOCTRINE: No. A contract to sell is not a contract of sale. Article 1191 applies only in
reciprocal contracts. A contract to sell is not a reciprocal contract. Under a contract to sell, the
seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price.
The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach
of contract but merely an event that prevents the seller from conveying title to the purchaser. The
non-payment of the purchase price renders the contract to sell ineffective and without force and
effect. Nevertheless, while rescission does not apply in this case, petitioners may cancel the
contract to sell, their obligation not having arisen.
Yamamoto v. Nishino Leather Industries, Inc.

G.R. No. 150283, 551 SCRA 447
ISSUE: Will an offer to a stockholder to that he could take out the Machinery in the corporation
if he wanted to so, provided that the value of said machines would be deducted from his capital
contribution, give rise to an obligation to the corporation to deliver said properties to the prior?
DOCTRINE: Without acceptance, a mere offer produces no obligation. Thus, under Article
1181 of the Civil Code, "in conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition." In the case at bar, there is no showing of compliance with the
condition for allowing Yamamoto to take the machineries and equipment, namely, his agreement
to the deduction of their value from his capital contribution due him in the buy-out of his
interests in the corporation. Yamamoto’s allegation that he agreed to the condition remained just
that, no proof thereof having been presented.
58
The machineries and equipment, which comprised Yamamoto’s investment in NLII, thus
remained part of the capital property of the corporation.
Spouses Jose T. Valenzuela and Gloria Valenzuela v. Kalayaan Development & Industrial
Corporation
G.R. No. 163244, June 22, 2009
Peralta, J.:
ISSUE: Whether there can be a rescission of contract if a positive suspensive condition under a
contract to sell has not been complied with.
DOCTRINE: No. Under a contract to sell, the seller retains title to the thing to be sold until the
purchaser fully pays the agreed purchase price. The full payment is a positive suspensive
condition, the non-fulfillment of which is not a breach of contract, but merely an event that
prevents the seller from conveying title to the purchaser. The non-payment of the purchase price
renders the contract to sell ineffective and without force and effect.
Since the obligation of respondent did not arise because of the failure of petitioners to fully pay
the purchase price, Article 1191 of the Civil Code would have no application.
The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to
the obligation of the petitioners to sell and deliver the title to the property, rendered the contract
to sell ineffective and without force and effect. The parties stand as if the conditional obligation
had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an
obligation already extant. There can be no rescission of an obligation that is still non-existing,
the suspensive condition not having happened.
Solar Harvest, Inc. v. Davao Corrugated Carton Corporation

G.R. No. 176868 July 26, 2010
Nachura, J.:
ISSUE: Whether petitioner failed to establish a cause of action for rescission it being shown that
respondent did not commit any breach of its contractual obligation.
DOCTRINE: Yes, in reciprocal obligations, as in a contract of sale, the general rule is that no
demand is generally necessary because, once a party fulfills his obligation and the other party
does not fulfill his, the latter automatically incurs in delay. But when different dates for
performance of the obligations are fixed the other party would incur in delay only from the
moment the other party demands fulfillment of the former’s obligation. Evident from the records
and even from the allegations in the complaint was the lack of demand by petitioner upon
respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only
alleged that petitioner made a “follow-up” upon respondent, which, however, would not qualify
as a demand for the fulfillment of the obligation. Petitioner’s witness also testified that they
made a follow-up of the boxes, but not a demand. Without a previous demand for the fulfillment
of the obligation, petitioner would not have a cause of action for rescission against respondent as
the latter would not yet be considered in breach of its contractual obligation.
International Hotel Corporation, v. Francisco Joaquin, Jr. and Rafael Suarez

G.R. No. 158361. April 10, 2013
Bersamin, J.:
ISSUES:
(1) Will the absence of intent on the part of the obligor to pre-empt the fulfillment of the
condition warrant the application of Art. 1186?
(2) Will substantial compliance warrant the application of Art. 1234?
DOCTRINE:
58
(1) No. This provision refers to the constructive fulfillment of a suspensive condition, whose
application calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment
of the condition, and (b) the actual prevention of the fulfillment. Since the debtor had no intent to
prevent the fulfillment of the condition, Art. 1186 cannot be applied.
(2) Generally, yes. Art. 1234 applies only when an obligor admits breaching the contract after
honestly and faithfully performing all the material elements thereof except for some technical
aspects that cause no serious harm to the obligee. However, if incomplete performance amounts
to a material breach of the contract, the same shall no longer be applicable.
In order that there may be substantial performance of an obligation, there must have been an
attempt in good faith to perform, without any willful or intentional departure therefrom. The
deviation from the obligation must be slight, and the omission or defect must be technical and
unimportant, and must not pervade the whole or be so material that the object which the parties
intended to accomplish in a particular manner is not attained. The non-performance of a material
part of a contract will prevent the performance from amounting to a substantial compliance.
Conversely, the principle of substantial performance is inappropriate when the incomplete

performance constitutes a material breach of the contract. A contractual breach is material if it
will adversely affect the nature of the obligation that the obligor promised to deliver, the benefits
that the obligee expects to receive after full compliance, and the extent that the non-performance
defeated the purposes of the contract.
Republic v. Holy Trinity Realty Development Corporation

G.R. No. 172410, 551 SCRA 303
ISSUE: Will the effects of the fulfillment of a condition retroact to the date of the constitution of
the obligation?
DOCTRINE: The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. Hence, when HTRDC
complied with the given conditions, as determined by the RTC in its Order dated April 21, 2003,
the effects of the constructive delivery retroacted to the actual date of the deposit of the amount
in the expropriation account of DPWH.
Subic Bay Metropolitan Authority v. Court of Appeals

G.R. No. 192885, July 4, 2012.
ISSUE: Whether SBMA is entitled to receive service fees pursuant to the contract despite
failing to render the services required from them?
.
DOCTRINE: No. Reciprocal obligations are those which arise from the same cause, and in
which each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed simultaneously such that
the performance of one is conditioned upon the simultaneous fulfillment of the other. For one
party to demand the performance of the obligation of the other party, the former must also
perform its own obligation. Accordingly, petitioner, not having provided the services that would
require the payment of service fees as stipulated in the Lease Development Agreement, is not
entitled to collect the same.
The records show that petitioner did not actually provide most of the services enumerated in the
Lease and Development Agreement and that the obligation involved in the agreement was
reciprocal in nature; therefore, private respondent's obligation to pay was dependent upon
petitioner's performance of its reciprocal duty to provide the agreed service, and since petitioner
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failed to perform its part of the deal, it cannot exact compliance from private respondent of its
duty to pay.
Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.

G.R. No. 188288. January 16, 2012.
ISSUE: Whether annulment in Art 1390 is the same as rescission under Art. 1191.
DOCTRINE: No. Annulment and rescission are two inconsistent remedies. In resolution, all the
elements to make the contract valid are present; in annulment, one of the essential elements to a
formation of a contract, which is consent, is absent. In resolution, the defect is in the
consummation stage of the contract when the parties are in the process of performing their
respective obligations; in annulment, the defect is already present at the time of the negotiation
and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under
Article 1191, there was implied admission of the validity of the subject contracts, forfeiting their
right to demand their annulment. A party cannot rely on the contract and claim rights or
obligations under it and at the same time impugn its existence or validity. Indeed, litigants are
enjoined from taking inconsistent positions.
The right to rescind a contract for non-performance of its stipulations is not absolute. The general
rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for
such substantial and fundamental violations as would defeat the very object of the parties in
making the agreement. Whether a breach is substantial is largely determined by the attendant
circumstances.
Under Article 1192, in case both parties have committed a breach of the obligation, the liability
of the first infractor shall be equitably tempered by the courts. If it cannot be determined which
of the parties first violated the contract, the same shall be deemed extinguished, and each shall
bear his own damages.
SECTION 4. JOINT AND SOLIDARY OBLIGATIONS
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation

G.R. No. 147561. June 22, 2006
Panganiban, C.J.
ISSUE: Is a surety’s liability under a performance bond automatically extinguished by the death
of the principal?
DOCTRINE: No. A surety company’s liability under the performance bond it issues is solidary.
The death of the principal obligor does not, as a rule, extinguish the obligation and the solidary
nature of that liability. As a general rule, the death of either the creditor or the debtor does not
extinguish the obligation. Obligations are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of the parties, or the nature of the
obligation. Only obligations that are personal or are identified with the persons themselves are
extinguished by death.
Section 5 of Rule 86 of the Rules of Court expressly allows the prosecution of money claims
arising from a contract against the estate of a deceased debtor. Evidently, those claims are not
actually extinguished. What is extinguished is only the obligee’s action or suit filed before the
court, which is not then acting as a probate court.
The death of the principal debtor will not work to convert, decrease or nullify the substantive
right of the solidary creditor. Evidently, despite the death of the principal debtor, [the obligee]
may still sue petitioner alone, in accordance with the solidary nature of the latter’s liability under
the performance bond.
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Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al.
G.R. No. 151038. January 18, 2012
ISSUE: Whether payment made by one of the solidary debtor is enough to extinguish the
liability of all the co-debtors.
DOCTRINE: According to Article 1217 of the Civil Code, payment made by one of the
solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the
creditor may choose which offer to accept. The debtor who made the payment may claim from
his co-debtors only the share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due however, no interest for the
intervening period may be demanded.
Article 1208 provides for the share of solidary debtors which states that if from the law, or the
nature of the wording of the obligations to which the preceding article refers the contrary does
not appear, the credit of debt shall be presumed to be divided into as many equal shares as there
are creditors or debtors, the credits or debts being considered distinct from one another, subject
to the Rules of Court governing the multiplicity of suits.
Philippine Commercial International Bank v. CA

G.R. No. 121989. January 31, 2006
Tinga, J.:
ISSUE: In the absence of stipulation, how should the debtor (Atlas) satisfy his obligation with
two solidary creditors (PCIB and MCB)?
DOCTRINE: Article 1208 of the Civil Code mandates the equal sharing of creditors in the
payment of debt in the absence of any law or stipulation to the contrary. Thus, Atlas may satisfy
his obligation by giving the payment to the two solidary creditors, as joint payees. Whatever
share a solidary debtor failed to receive is an internal matter to be resolved by the solidary
debtors themselves.
Crystal v. Bank of the Philippine Islands

G.R. No. 172428, 572 SCRA 697
ISSUE: Does a party who bind himself solidarily as ‘guarantor’ only become secondarily liable
to the creditor?
DOCTRINE: A solidary obligation is one in which each of the debtors is liable for the entire
obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation
from any or all of the debtors. A liability is solidary “only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires.” Thus,
when the obligor undertakes to be “jointly and severally” liable, it means that the obligation is
solidary, such as in this case.
If solidary liabilities were instituted to “guarantee” a principal obligation, the law deems the
contract to be one of suretyship; the surety is directly and equally bound with the principal.
The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc.,

G.R. No. 156302, April 7, 2009
Chico-Nazario, J.:
ISSUE: Whether a solidary obligation must be expressly stated to hold a party liable for the
obligation.
DOCTRINE: A solidary or joint and several obligation is one in which each debtor is liable for
the entire obligation, and each creditor is entitled to demand the whole obligation. In a joint
58
obligation, each obligor answers only for a part of the whole liability and to each obligee belongs
only a part of the correlative rights. Well-entrenched is the rule that solidary obligation cannot
lightly be inferred. There is solidary liability only when the obligation expressly so states, when
the law so provides or when the nature of the obligation so requires.
Alba v. Yupangco
G.R. No. 188233
Carpio Morales, J:
ISSUE: Whether the respondent has solidary liability with obligor-corporation despite the
decision of the Labor Arbiter being silent as to the matter.
DOCTRINE: No, there is solidary liability only when the obligation expressly so states, when
the law so provides, or when the nature of the obligation so requires. MAM Realty Development
Corporation v. NLRC on solidary liability of corporate officers in labor disputes, enlightens: A
corporation being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents are not theirs but the direct
accountabilities of the corporation they represent. True solidary liabilities may at times be
incurred but only when exceptional circumstances warrant such as, generally, in the following
cases: 1.When directors and trustees or, in appropriate cases, the officers of a corporation:
(a) vote for or assent to patently unlawful acts of the corporation;(b)act in bad faith or with gross
negligence in directing the corporate affairs.
Asset Builders Corporation v. Stronghold Insurance Company, Incorporated

G.R. No. 187116, October 18, 2010
Mendoza, J.:
ISSUE: Whether a guarantor who binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so is a solidary debtor?
DOCTRINE: Yes, if a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is
called a suretyship. As provided in Article 2047, the surety undertakes to be bound solidarily
with the principal obligor. That undertaking makes a surety agreement an ancillary contract as it
presupposes the existence of a principal contract. Although the contract of a surety is in essence
secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom.
Sps. Rodolfo Berot v. Felipe Siapno

G. R. No. 188944; July 9, 2014
ISSUE: Whether the mortgage may be considered solidary despite the absence of express terms
making the obligation solidary.
DOCTRINE: No. Under Article 1207 of the Civil Code of the Philippines, the general rule is
that when there is a concurrence of two or more debtors under a single obligation, the obligation
is presumed to be joint. The law further provides that to consider the obligation as solidary in
nature, it must expressly be stated as such, or the law or the nature of the obligation itself must
require solidarity. Upon examination of the contents of the real estate mortgage, the Court found
no indication in the plain wordings of the instrument that the debtors had expressly intended to
make their obligation to respondent solidary in nature. Absent from the mortgage are the express
and indubitable terms characterizing the obligation as solidary. Respondent was not able to
prove by a preponderance of evidence that petitioners' obligation to him was solidary. Hence,
applicable to this case is the presumption under the law that the nature of the obligation herein
can only be considered as joint. It is incumbent upon the party alleging otherwise to prove with a
58
preponderance of evidence that petitioners' obligation under the loan contract is indeed solidary
in character.
Trade and Investment Development Corp. of the Philippines v. Asia Paces Corp.
G.R. No. 187403, February 12, 2014
Perlas-Bernabe, J.
ISSUE: Will an extension of payment granted to a third party extinguish the suretyship in which
one the parties is also a principal debtor to said third party?
DOCTRINE: No. The theory behind Article 2079 is that an extension of time given to the
principal debtor by the creditor without the surety’s consent would deprive the surety of his right
to pay the creditor and to be immediately subrogated to the creditor’s remedies against the
principal debtor upon the maturity date. The surety is said to be entitled to protect himself
against the contingency of the principal debtor or the indemnitors becoming insolvent during the
extended period.
Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the
principal debtor without the consent of the guarantor or surety. It will not apply in cases where
the suretyship was entered to insure a debt transaction distinct and separate from the transaction
upon which the extension for payment was made. The two sets of transactions should be treated
separately and distinctly from one another following the civil law principle of relativity of
contracts "which provides that contracts can only bind the parties who entered into it, and it
cannot favor or prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof.
Olongapo City, V. Subic Water And Sewerage Co., Inc.,

G.R. No. 171626, August 06, 2014
ISSUE: Can the Subic Water, who was not a party in the case, still be subjected to a writ of
execution, since it was identified as OCWD’s co-maker and successor-in-interest in the
compromise agreement?
DOCTRINE: No. Solidary liability must be expressly stated; it is not presumed. Art. 1207 of the
Civil Code provides, “There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.”
In Palmares v. Court of Appeals, the Court did not hesitate to rule that although a party to a
promissory note was only labeled as a co-maker, his liability was that of a surety, since the
instrument expressly provided for his joint and several liability with the principal.
The law explicitly states that solidary liability is not presumed and must be expressly provided
for. Not being a surety, Subic Water is not an insurer of OCWD’s obligations under the
compromise agreement. At best, Subic Water was merely a guarantor against whom petitioner
can claim, provided it was first shown that: a) petitioner had already proceeded after the
properties of OCWD, the principal debtor; b) and despite this, the obligation under the
compromise agreement, remains to be not fully satisfied.
SECTION 6. OBLIGATIONS WITH A PENAL CLAUSE
First Fil-Sin Lending Corporation v. Gloria D. Padillo

G.R. No. 160533. January 12, 2005
ISSUE: Whether the penalty charges of 1% per day of delay is unconscionable.
58
DOCTRINE: As regards the penalty charges, the Court agrees with the Court of Appeals in
ruling that the 1% penalty per day of delay is highly unconscionable. Applying Article 1229 of
the Civil Code, courts shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with, or if it is iniquitous or unconscionable.
Filinvest Land, Inc. vs. Hon. Court of Appeals, Philippine American General Insurance
Company and Pacific Equipment Corporation
G.R. No. 138980. September 20, 2005
Chico-Nazario, J.:
ISSUE: Is there a difference between penalty and liquidated damages in cases where there has
been partial or irregular compliance?
DOCTRINE: None. Courts may equitably reduce a stipulated penalty in the contract in two
instances: (1) if the principal obligation has been partly or irregularly complied; and (2) even if
there has been no compliance if the penalty is iniquitous or unconscionable in accordance with
Article 1229 of the Civil Code. In cases where there has been partial or irregular compliance, as
in this case, there will be no substantial difference between a penalty and liquidated damages
insofar as legal results are concerned and that either may be recovered without the necessity of
proving actual damages and both may be reduced when proper.
Development Bank of the Philippines v. Family Foods Manufacturing Co. Ltd., and
Spouses Julianco and Catalina Centeno
G.R. No. 180458; July 30, 2009
Nachura, J.:
ISSUE: Whether the stipulated penalty charge of 8% per annum and interest rates of 18% and
22% per annum are unreasonable, iniquitous and unconscionable.
DOCTRINE: No. Respondents’ own evidence shows that they agreed on the stipulated interest
rates of 18% and 22%, and on the penalty charge of 8%, in each promissory note. It is a basic
principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered
into by them. Parties are free to stipulate terms and conditions that they deem convenient,
provided these are not contrary to law, morals, good customs, public order, or public policy.
There is nothing in the records, and in fact, there is no allegation, showing that respondents were
victims of fraud when they signed the promissory notes. Neither is there a showing that in their
contractual relations with DBP, respondents were at a disadvantage on account of their moral
dependence, mental weakness, tender age or other handicap, which would entitle them to the
vigilant protection of the courts as mandated by Article 24 of the Civil Code.
Ileana Dr. Macalinao v. Bank of the Philippine Islands

G.R. No. 175490, September 17, 2009
Velasco, Jr., J.:

ISSUE: Whether the reduction of interest rate should be upheld since the stipulated rate of
interest was unconscionable and iniquitous, and thus illegal.
DOCTRINE: Yes. The interest rate and penalty charge of 3% per month should be equitably
reduced to 2% per month or 24% per annum. Indeed, in the Terms and Conditions Governing the
Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate.
Nevertheless, it should be noted that this is not the first time that this Court has considered the
interest rate of 36% per annum as excessive and unconscionable. It was held in Chua vs. Timan:
The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be
equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we
had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being
58
contrary to morals, if not against the law. Since the stipulation on the interest rate is void, it is as
if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and
equity demand. Thus, under the circumstances, the Court finds it equitable to reduce the interest
rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at
1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the
prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.
CHAPTER 4. EXTINGUISHMENT OF OBLIGATIONS
SECTION 1. PAYMENT OR PERFORMANCE

A. APPLICATION OF PAYMENTS
B. PAYMENT BY CESSION
C. TENDER OF PAYMENT AND CONSIGNATION
Jaime Biana v. George Gimenez

G.R. No. 132768. September 9, 2005
Garcia, J.:
ISSUE: May redemption be made through tender of postdated checks?
DOCTRINE: Yes. A check may be used for the exercise of the right of redemption, the same
being a right and not an obligation. The tender of a check is sufficient to compel redemption but
it is not in itself a payment that relieves the redemptioner from his liability to pay the redemption
price. Art. 1249 may not be applied.
G & M (Phil.), Inc. vs. Willie Batomalaque

G.R. No. 151849 June 23, 2005
Carpio Morales, J.
ISSUE: Who has the burden of showing with legal certainty that the obligation has been
discharged by payment?
DOCTRINE: Debtor. It is settled that as a general rule, a party who alleges payment as a
defense has the burden of proving it. On repeated occasions, this Court ruled that the debtor has
the burden of showing with legal certainty that the obligation has been discharged by payment.
To discharge means to extinguish an obligation, and in contract law discharge occurs either when
the parties have performed their obligations in the contract, or when an event the conduct of the
parties, or the operation of law releases the parties from performing. Thus, a party who alleges
that an obligation has been extinguished must prove facts or acts giving rise to the extinction.

The fact of underpayment does not shift the burden of evidence to the plaintiff-herein respondent
because partial payment does not extinguish the obligation. Only when the debtor introduces
evidence that the obligation has been extinguished does the burden of evidence shift to the
creditor who is then under a duty of producing evidence to show why payment does not
extinguish the obligation.
Abacus Securities Corporation v. Ruben U. Ampil

Gr. No. 160016. February 27, 2006
Panganiban, CJ.:
ISSUE: What is the duty of the principal for the advance payments made by the broker in
accordance with the former’s instructions?
58
DOCTRINE: Under Article 1236 of the Civil Code, he can demand from the principal what he
has paid, except that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor.
Almeda v. Bathala Marketing Industries, Inc.

G.R. No. 150806, 542 SCRA 470
ISSUE: Can the continuous erosion of the value of the Philippines peso for three to four years
amount to extra-ordinary inflation as contemplated by Article 1250 of the Civil Code?
DOCTRINE: The erosion of the value of the Philippine peso in the past three or four decades,
starting in the mid-sixties, is characteristic of most currencies-while the Supreme Court may take
judicial notice of the decline in the purchasing power of the Philippine currency in the span of
time, such downward trend of the peso cannot be considered as the extraordinary phenomenon
contemplated by Article 1250 of the Civil Code; Absent an official pronouncement or
declaration by competent authorities of the existence of extraordinary inflation during a given
period, the effects of extraordinary inflation are not to be applied.
ASJ Corporation v. Evangelista

G.R. No. 158086, 545 SCRA 300
ISSUE: Was ASJ’s retention of the goods to be delivered on account of Evangelista’s failure to
pay the full amount plus service fees unjustified?
DOCTRINE: To begin with, ASJ’s obligation to deliver the chicks and by-products corresponds
to three dates: the date of hatching, the delivery/pick-up date and the date of respondents’
payment. On several setting reports, respondents made delays on their payments, but petitioners
tolerated such delay. When Evangelista’s accounts accumulated because of their successive
failure to pay on several setting reports, petitioners opted to demand the full settlement of
respondents’ accounts as a condition precedent to the delivery. However, Evangelista was
unable to fully settle their accounts.
Evangelista’s offer to partially satisfy their accounts is not enough to extinguish their
obligation. Under Article 1248 of the Civil Code, the creditor cannot be compelled to accept
partial payments from the debtor, unless there is an express stipulation to that effect. More so,
respondents cannot substitute or apply as their payment the value of the chicks and by-products
they expect to derive because it is necessary that all the debts be for the same kind, generally of a
monetary character. Needless to say, there was no valid application of payment in this case.
Furthermore, it was Evangelista who violated the very essence of reciprocity in contracts,

consequently giving rise to ASJ’s right of retention. This case is clearly one among the species
of non-performance of a reciprocal obligation. Reciprocal obligations are those which arise from
the same cause, wherein each party is a debtor and a creditor of the other, such that the
performance of one is conditioned upon the simultaneous fulfillment of the other-from the
moment one of the parties fulfills his obligation, delay by the other party begins.
Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.

G.R. No. 137884, 550 SCRA 70
ISSUES:
(1) Is possession of the property a sufficient justification to grant the motion to consign the rents
due?
(2) Will a party’s non-compliance to some of the suspensive conditions in an agreement result to
extinguishment of the obligation of the other party?
DOCTRINES:
58
(1) Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior
tender of payment. In order that consignation may be effective, the debtor must show that: (1)
there was a debt due; (2) the consignation of the obligation was made because the creditor to
whom tender of payment had been made refused to accept it or was absent or incapacitated, or
because several persons claimed to be entitled to receive the amount due, or because the title to
the obligation was lost; (3) previous notice of the consignation was given to the person interested
in the performance of the obligation; (4) the amount due was placed at the disposal of the court;
and (5) after the consignation had been made, the person interested was notified thereof. Failure
in any of these requirements is enough ground to render a consignation ineffective.
In the present case, Toyota failed to allege (2) and (3) above, much less prove that any of the
requirements was present. The mere fact that Toyota had been in possession of the property
since July 3, 1998, is not a sufficient justification to grant the motion to consign the rents due.
(2) When a contract is subject to a suspensive condition, its birth or effectivity can take place
only if and when the event which constitutes the condition happens or is fulfilled, and if the
suspensive condition does not take place, the parties would stand as if the conditional obligation
has never existed. Since Toyota was unable to comply with the last two conditions of the
agreement, which were suspensive conditions, Insular Life cannot be compelled to comply with
its obligation to end the present litigation. No right in favor of Toyota arose and no obligation on
the part of Insular Life was created.
Dao Heng Bank, Inc. (Now Banco De Oro Universal Bank) v. Laigo
G.R. No. 173856, 571 SCRA 434
ISSUE: Is a separate written contract necessary to make a dacion en pago binding upon the
parties?
DOCTRINE: Dacion en pago as a mode of extinguishing an existing obligation and partakes of

the nature of sale whereby property is alienated to the creditor in satisfaction of a debt in money.
Dacion en pago is an objective novation of the obligation, hence, common consent of the parties
is required in order to extinguish the obligation. Being likened to that of a contract of sale,
dacion en pago is governed by the law on sales. The partial execution of a contract of sale takes
the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of
consent of the contracting parties, object and cause of the obligation concur and are clearly
established to be present.
Royal Cargo Corporation v. DFS Sports Unlimited, Inc.

G.R. No. 158621, 573 SCRA 414
ISSUE: To whom does the burden of evidence lie in order to prove that payment has been
made?
DOCTRINE: As to the first issue raised, the settled rule is that one who pleads payment has the
burden of proving it. Even where the creditor alleges non-payment, the general rule is that the
onus rests on the debtor to prove payment, rather than on the creditor to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation has been discharged by
payment. Where the debtor introduces some evidence of payment, the burden of going forward
with the evidence – as distinct from the general burden of proof – shifts to the creditor, who is
then under a duty of producing some evidence to show non-payment.

58
Since respondent claims that it had already paid petitioner for the services rendered by the latter,
it follows that the former carries the burden of proving such payment.
Allandale Sportsline, Inc. v. The Good Development Corporation

G.R. No. 164521, 574 SCRA 625
ISSUE: Is tender of payment alone and the other party’s refusal to accept the same sufficient to
discharge the other from their obligation?
DOCTRINE: Tender of payment, without more, produces no effect-it must be followed by a

valid consignation in order to produce the effect of payment and extinguish an obligation.
Consignation has the following mandatory requirements: (1) there was a debt due; (2) the
consignation of the obligation had been made because the creditor to whom tender of payment
was made refused to accept it, or because he was absent or incapacitated, or because several
persons claim to be entitled to receive the amount due, or because the title to the obligation has
been lost; (3) previous notice of the consignation had been given to the person interested in the
performance of the obligation; (4) the amount due was placed at the disposal of the court; and (5)
after the consignation had been made, the person interested was notified thereof.
Petitioners did not allege or prove that after their tender of payment was refused by respondents,
they attempted or pursued consignation of the payment with the proper court. Their tender of
payment not having been followed by a valid consignation, it produced no effect whatsoever,
least of all the extinguishment of the loan obligation. Therefore, the first issue of the validity or
invalidity of their tender of payment is completely moot and academic, for either way the
discussion will go, it will lead to no other conclusion but that, without an accompanying valid
consignation, the tender of payment did not result in the payment and extinguishment of the loan
obligation. The Court cannot take cognizance of such a purely hypothetical issue.
Annabelle Dela Peña and Adrian Villareal v. The Court of Appeals and Rural Bank of
Bolinao, Inc.
G.R. No. 177828, February 13, 2009
Nachura, J.:
ISSUE: Whether the burden of proving the fact of payment lies on the person alleging it.
DOCTRINE: Yes. Jurisprudence is replete with rulings that in civil cases, the party who alleges
a fact has the burden of proving it. Burden of proof is the duty of a party to present evidence of
the facts in issue necessary to prove the truth of his claim or defense by the amount of evidence
required by law. Thus, a party who pleads payment as a defense has the burden of proving that
such payment has, in fact, been made. When the plaintiff alleges nonpayment, still, the general
rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to
prove nonpayment.
D.B.T. Mar-Bay Construction, Incorporated v. Ricaredo Panes et al.

G.R. No. 167232, July 31, 2009
Nachura, J.
ISSUE: Whether an innocent purchaser for value and good faith which, through a dacion en
pago, acquire ownership over the property.
DOCTRINE: Yes. DBT is an innocent purchaser for value and good faith which, through a
dacion en pago duly entered into with B.C. Regalado, acquired ownership over the subject
property, and whose rights must be protected under Section 32 of P.D. No. 1529.
58
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation. It is a special mode of
payment where the debtor offers another thing to the creditor, who accepts it as an equivalent of
the payment of an outstanding debt. In its modern concept, what actually takes place in dacion en
pago is an objective novation of the obligation where the thing offered as an accepted equivalent
of the performance of an obligation is considered as the object of the contract of sale, while the
debt is considered as the purchase price.
It must also be noted that portions of the subject property had already been sold to third persons
who, like DBT, are innocent purchasers in good faith and for value, relying on the certificates of
title shown to them, and who had no knowledge of any defect in the title of the vendor, or of
facts sufficient to induce a reasonably prudent man to inquire into the status of the subject
property.
Rockville Excel International Exim Corporation v. Spouses Oligario Culla and Bernardita
Miranda
G.R. No. 155716, October 2, 2009
Brion, J.
ISSUE: Whether the grant of extensions of the time to pay the loan belied the contention that
they had intended a dacion en pago.
DOCTRINE: Yes. Dacion en pago is the delivery and transmission of ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of an existing obligation.
It is a special mode of payment where the debtor offers another thing to the creditor who accepts
it as equivalent to the payment of an outstanding debt. For dacion en pago to exist, the following
elements must concur: (a) existence of a money obligation; (b) the alienation to the creditor of a
property by the debtor with the consent of the former; and (c) satisfaction of the money
obligation of the debtor.
If the parties had truly intended a dacion en pago transaction to extinguish the Sps.
Culla’s P2,000,000.00 loan and Oligario had sold the property in payment for this debt, it made
no sense for him to continue to ask for extensions of the time to pay the loan. More importantly,
Rockville would not have granted the requested extensions to Oligario if payment through a
dacion en pago had taken place. That Rockville granted the extensions simply belied its
contention that they had intended a dacion en pago.
Thus, we agree with the factual findings of the RTC and the CA that no agreement of sale was
perfected between Rockville and the Sps. Culla. On the contrary, what they denominated as a
Deed of Absolute Sale was in fact an equitable mortgage.
Premiere Development Bank v. Central Surety & Insurance Company, Inc.

G.R. No. 176246, February 13, 2009
Nachura, J.:
ISSUE: Whether the debtor may choose among his obligations in which he may apply his
payment and whether such right may be waived in favor of the creditor.
DOCTRINE: Yes. The debtor’s right to apply payment is not mandatory. This is clear from the
use of the word "may" rather than the word "shall" in the provision which reads: "He who has
various debts of the same kind in favor of one and the same creditor, may declare at the time of
making the payment, to which of the same must be applied."
Indeed, the debtor’s right to apply payment has been considered merely directory, and not
mandatory, following this Court’s earlier pronouncement that "the ordinary acceptation of the
terms ‘may’ and ‘shall’ may be resorted to as guides in ascertaining the mandatory or directory
character of statutory provisions."
58
Article 1252 gives the right to the debtor to choose to which of several obligations to apply a
particular payment that he tenders to the creditor. But likewise granted in the same provision is
the right of the creditor to apply such payment in case the debtor fails to direct its application.
This is obvious in Art. 1252, par. 2, viz.: "If the debtor accepts from the creditor a receipt in
which an application of payment is made, the former cannot complain of the same." It is the
directory nature of this right and the subsidiary right of the creditor to apply payments when the
debtor does not elect to do so that make this right, like any other right, waivable.
A debtor, in making a voluntary payment, may at the time of payment direct an application of it
to whatever account he chooses, unless he has assigned or waived that right. If the debtor does
not do so, the right passes to the creditor, who may make such application as he chooses. But if
neither party has exercised its option, the court will apply the payment according to the justice
and equity of the case, taking into consideration all its circumstances. Verily, the debtor’s right to
apply payment can be waived and even granted to the creditor if the debtor so agrees.
Cecilleville Realty and Service Corporation v. Acuña

G.R. No. 162074; July 13, 2009
Carpio, J.
ISSUE: Whether Cecilleville Realty and Service Corporation is entitled to reimbursement from
the Acuña spouses
DOCTRINE: Yes Cecilleville paid the debt of the Acuña spouses to Prudential as an interested
third party. The second paragraph of Article 1236 of the Civil Code reads: Whoever pays for
another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been
beneficial to the debtor. Even if the Acuña spouses insist that Cecilleville’s payment to
Prudential was without their knowledge or against their will, Article 1302(3) of the Civil Code
states that Cecilleville still has a right to reimbursement, thus: When, even without the
knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter’s share.
DBT Mar-Bay Construction, Inc. vs. Panes

G.R. No. 167232; July 31, 2009
Nachura, J.
ISSUE: Whether DBT, as an innocent purchaser for value and good faith which, through a
dacion en pago duly entered into with B.C. Regalado, acquired ownership over the subject
property.
DOCTRINE: Yes. Dacion en pago is the delivery and transmission of ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a
special mode of payment where the debtor offers another thing to the creditor, who accepts it as
an equivalent of the payment of an outstanding debt. In its modern concept, what actually takes
place in dacion en pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the object of the
contract of sale, while the debt is considered as the purchase price.
It must also be noted that portions of the subject property had already been sold to third persons
who, like DBT, are innocent purchasers in good faith and for value, relying on the certificates of
title shown to them, and who had no knowledge of any defect in the title of the vendor, or of
facts sufficient to induce a reasonably prudent man to inquire into the status of the subject
property. To disregard these circumstances simply on the basis of alleged continuous and adverse
possession of respondents would not only be inimical to the rights of the aforementioned
titleholders, but would ultimately wreak havoc on the stability of the Torrens system of
registration.
58
Manuel Go Cinco and Araceli S. Go Cinco v. Court Of Appeals, Ester Servacio and
Maasin Traders Lending Corporation
G.R. No. 151903, October 9, 2009
Brion, J.:
ISSE: Whether unjust refusal of creditor to accept payment is equivalent to payment.
DOCTRINE: No. Refusal without just cause is not equivalent to payment; to have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires the
companion acts of tender of payment and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., is the
definitive act of offering the creditor what is due him or her, together with the demand that the
creditor accept the same. When a creditor refuses the debtor’s tender of payment, the law allows
the consignation of the thing or the sum due. Tender and consignation have the effect of
payment, as by consignation, the thing due is deposited and placed at the disposal of the judicial
authorities for the creditor to collect.
Land Bank of the Philippines vs. Alfredo Ong

G.R. No. 190755November 24, 2010
Velasco, Jr., J.:
ISSUE: Whether Art. 1236 makes a creditor (Land Bank) bound to accept payment from a third
person having no interest in the fulfillment of the obligation and Whether a third person
(Alfredo) may demand from the debtor (Spouses Sy) what he has paid.
DOCTRINE: No. Land Bank was not bound to accept Alfredo’s payment, since as far as the
former was concerned, he did not have an interest in the payment of the loan of the Spouses Sy.
No. Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo, as a
third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses
Sy, since his interest hinged on Land Bank’s approval of his application, which was denied. As
Alfredo made the payment for his own interest and not on behalf of the Spouses Sy, recourse is
not against the latter. He, thus, made payment not as a debtor but as a prospective mortgagor.
And as Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy,
what he has paid.
Republic v. Thi Thu Thuy T. De Guzman

G.R. No. 175021; June 15, 2011
ISSUE: Is the payment made to a person other than the creditor extinguishes the obligation?
DOCTRINE: No. In general, a payment in order to be effective to discharge an obligation, must

be made to the proper person. Thus, payment must be made to the obligee himself or to an agent
having authority, express or implied, to receive the particular payment. Payment made to one
having apparent authority to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is made to one who by law is
authorized to act for the creditor, it will work a discharge. The receipt of money due on a
judgment by an officer authorized by law to accept it will, therefore, satisfy the debt. The
respondent was able to establish that the LBP check was not received by her or by her authorized
personnel.
Dalton vs. FGR Realty and Development Corp

G.R. No. 172577; January 19, 2011
ISSUE: Whether the consignation made by the plaintiff-appellant was void for failure to give
notice to the defendants-appellees of her intention to so consign her rental payments.
58
DOCTRINE: NO. Compliance with the requisites of a valid consignation is mandatory. Failure
to comply strictly with any of the requisites will render the consignation void. Substantial
compliance is not enough. The requisites of a valid consignation: (1) a debt due; (2) the creditor
to whom tender of payment was made refused without just cause to accept the payment, or the
creditor was absent, unknown or incapacitated, or several persons claimed the same right to
collect, or the title of the obligation was lost; (3) the person interested in the performance of the
obligation was given notice before consignation was made; (4) the amount was placed at the
disposal of the court; and (5) the person interested in the performance of the obligation was given
notice after the consignation was made. The consignation having been made, the interested
parties shall also be notified thereof.
The giving of notice to the persons interested in the performance of the obligation is mandatory.
Failure to notify the persons interested in the performance of the obligation will render the
consignation void. In Ramos v. Sarao, the Court held that, "All interested parties are to be
notified of the consignation. Compliance with [this requisite] is mandatory.
Elizabeth Del Carmen v. Sps. Sabordo

G.R. No. 181723, August 11, 2014
ISSUE: Whether the judicial deposit or consignation of the money was valid and binding to the
parties and produced the effect of payment of the purchase price of the subject lots.
DOCTRINE: NO. Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment, and it generally
requires a prior tender of payment. It should be distinguished from tender of payment which is
the manifestation by the debtor to the creditor of his desire to comply with his obligation, with
the offer of immediate performance. Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from which are derived the
immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt
to make a private settlement before proceeding to the solemnities of consignation. Tender and
consignation, where validly made, produces the effect of payment and extinguishes the
obligation.
It is settled that compliance with the requisites of a valid consignation is mandatory. Failure to
comply strictly with any of the requisites will render the consignation void. One of these
requisites is a valid prior tender of payment.
Erlinda Gajudo, Fernando Gajudo, Jr., Estelita Gajudo, Baltazar Gajudo And Danilo
Arahan Chua v. Traders Royal Bank
G.R. No. 151098. March 21, 2006
Panganiban, C.J.:
ISSUE: What is a means of proving a firm commitment to pay the redemption price on a fixed
period, which is essential in conventional redemption?
DOCTRINE: Other than the Interbank check marked "for deposit" by respondent bank, no other
evidence was presented to establish that petitioners had offered to pay the alleged redemption
price of P40,135.53 on a fixed date. For that matter, petitioners have not shown that they
tendered payment of the balance and/or consigned the payment to the court, in order to fulfill
their part of the purported agreement. These remedies are available to an aggrieved debtor under
Article 1256 of the Civil Code, when the creditor unjustly refuses to accept the payment of an
obligation.
Luzon Development Bank v. Enriquez
58
G.R. No. 168646; January 12, 2011
ISSUE: Whether the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK.
DOCTRINE: The contractual intention determines whether the property subject of the dation
will be considered as the full equivalent of the debt and will therefore serve as full satisfaction
for the debt. "The dation in payment extinguishes the obligation to the extent of the value of the
thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by
agreement, express or implied, or by their silence, consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished."
Telengtan Brothers & Sons, Inc. v. United States Lines, Inc. and the Court of Appeals
Gr. No. 132284. February 28, 2006
Garcia, J.:
ISSUE: When can there be extraordinary inflation or deflation of the currency stipulated so as to
justify the application of payment under Article 1250?
DOCTRINE: Extraordinary inflation or deflation, as the case may be, exists when there is an
unusual increase or decrease in the purchasing power of the Philippine peso which is beyond the
common fluctuation in the value of said currency, and such increase or decrease could not have
been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time
of the establishment of the obligation.
Even if the price index of goods and services may have risen during the intervening period, this
increase, without more, cannot be considered as resulting to "extraordinary inflation" as to justify
the application of Article 1250. The erosion of the value of the Philippine peso in the past three
or four decades, starting in the mid-sixties, is, as the Court observed in Singson vs. Caltex (Phil),
Inc., characteristics of most currencies. And while the Court may take judicial notice of the
decline in the purchasing power of the Philippine currency in that span of time, such downward
trend of the peso cannot be considered as the extraordinary phenomenon contemplated by Article
1250 of the Civil Code. Furthermore, absent an official pronouncement or declaration by
competent authorities of the existence of extraordinary inflation during a given period, as here,
the effects of extraordinary inflation, if that be the case, are not to be applied.
Extraordinary inflation can never be assumed; he who alleges the existence of such phenomenon
must prove the same.
Simplicio A. Palanca v. Ulyssis Guides

G.R. No. 146365. February 28, 2005
Tinga, J.:
ISSUE: What is the effect of acceptance of payment without qualification on the part of the
creditor?
DOCTRINE: Art. 1235 of the Civil Code provides that “When the obligee accepts the
performance, knowing its incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.” Thus, when petitioner accepted
respondent’s installment payments despite the alleged charges incurred by the latter, and without
any showing that he protested the irregularity of such payment, nor demanded the payment of the
alleged charges, respondent’s liability, if any for said charges, is deemed fully satisfied.
58
SECTION 2. LOSS OF THE THING DUE
Ayala Construction and Development Corporation v. Philippine Commercial International

Bank
G.R. No. 153827. April 25, 2006.
Garcia, J.:
ISSUE: In an obligation to give will a party be released from its obligation when the prestation
becomes legally of physically impossible?
DOCTRINE: No. It is a fundamental rule that contracts, once perfected, bind both contracting
parties, and obligations arising therefrom have the force of law between the parties and should be
complied with in good faith. But the law recognizes exceptions to the principle of the obligatory
force of contracts. One exception is laid down in Article 1266 of the Civil Code, which reads:
‘The debtor in obligations to do shall also be released when the prestation becomes legally or
physically impossible without the fault of the obligor.
Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only
to obligations “to do,” and not obligations “to give.” An obligation “to do” includes all kinds of
work or service; while an obligation “to give” is a prestation which consists in the delivery of a
movable or an immovable thing in order to create a real right, or for the use of the recipient, or
for its simple possession, or in order to return it to its owner.
Raymundo S. De Leon vs. Benita T. Ong

G.R. No. 170405, February 2, 2010
Corona, J.:
ISSUE: Whether the respondent a purchaser in good faith.
DOCTRINE: YES. Article 1266 of the Civil Code provides: Article 1266. The debtor in
obligations to do shall be released when the prestation become legally or physically impossible
without the fault of the obligor.
Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became
impossible without her fault, she was released from the said obligation. Moreover, because
petitioner himself willfully prevented the condition vis-à-vis the payment of the remainder of the
purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil
Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith,
she is deemed to have fully complied with the condition of the payment of the remainder of the
purchase price.
SECTION 3. CONDONATION OR REMISSION OF THE DEBT
Ruben Reyna V. COA

G.R. No. 167219; February 8, 2011
ISSUE: Whether the writing off of a loan is considered as condonation which releases a debt by
the creditor.
DOCTRINE: NO. This Court rules that writing-off a loan does not equate to a condonation or
release of a debt by the creditor. Write-off is not one of the legal grounds for extinguishing an
obligation under the Civil Code. It is not a compromise of liability. Neither is it a condonation,
since in condonation gratuity on the part of the obligee and acceptance by the obligor are
58
required. In making the write-off, only the creditor takes action by removing the uncollectible
account from its books even without the approval or participation of the debtor.
SECTION 4. CONFUSION OR MERGER OF RIGHTS
Cecilleville Realty and Service Corporation vs. Spouses Tito Acuña and Ofelia B. Acuña
G.R. No. 162074, July 13, 2009
Carpio, J.
ISSUE: Whether a third-party accommodation mortgagor in a real estate mortgage who paid the
mortgaged debt in favor of the principal mortgagor without his knowledge has the right to
reimburse from the latter.
DOCTRINE: Yes. When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter’s
share.
Cecilleville clearly has an interest in the fulfillment of the obligation because it owns the
properties mortgaged to secure the Acuña spouses’ loan. When an interested party pays the
obligation, he is subrogated in the rights of the creditor. Because of its payment of the Acuña
spouses’ loan, Cecilleville actually steps into the shoes of Prudential and becomes entitled, not
only to recover what it has paid, but also to exercise all the rights which Prudential could have
exercised. There is, in such cases, not a real extinguishment of the obligation, but a change in the
active subject.
Sps. Dominador R. Narvaez and Lilia W. Narvaez vs. Sps. Rose Ogas Alciso and Antonio
Alciso
G.R. No. 165907, July 27, 2009
Carpio, J.
ISSUE: Whether there could be a stipulation in favor of a third person.
DOCTRINE: Yes. In Limitless Potentials, Inc. v. Quilala, the Court laid down the requisites of
a stipulation pour autrui: (1) there is a stipulation in favor of a third person; (2) the stipulation is
a part, not the whole, of the contract; (3) the contracting parties clearly and deliberately
conferred a favor to the third person — the favor is not an incidental benefit; (4) the favor is
unconditional and uncompensated; (5) the third person communicated his or her acceptance of
the favor before its revocation; and (6) the contracting parties do not represent, or are not
authorized by, the third party.
All the requisites are present in the instant case: (1) there is a stipulation in favor of Alciso; (2)
the stipulation is a part, not the whole, of the contract; (3) Bate and the Spouses Narvaez clearly
and deliberately conferred a favor to Alciso; (4) the favor is unconditional and uncompensated;
(5) Alciso communicated her acceptance of the favor before its revocation — she demanded that
a stipulation be included in the 14 August 1981 Deed of Sale of Realty allowing her to
repurchase the property from the Spouses Narvaez, and she informed the Spouses Narvaez that
she wanted to repurchase the property; and (6) Bate and the Spouses Narvaez did not represent,
and were not authorized by, Alciso.
SECTION 5. COMPENSATION
Mavest (USA) Inc. and Mavest Manila Liaison Office vs. Sampaguita Garment
Corporation
G.R. No. 127454. September 21, 2005
Garcia, J.:
58
ISSUE: In compensation, do the rights of creditors or obligations of debtors need to spring from
one and the same contract?
DOCTRINE: No. For compensation to validly take place, the governing Civil Code provisions
require the concurrence of well-defined conditions. At its minimum, compensation presupposes
two persons who, in their own right and as principals, are mutually indebted to each other
respecting equally demandable and liquidated obligations over any of which no retention or
controversy commenced and communicated in due time to the debtor exists. But while
compensation, be it legal or conventional, requires the confluence in the parties of the characters
of mutual debtors and creditors, their rights as such creditors, or their obligations as such
debtors, need not spring from one and the same contract or transaction.
Manuel B. Aloria v. Estrellita B. Clemente

G.R. No. 165644 . February 28, 2006
Carpio Morales, J.:
ISSUE: Can there be compensation for the amount of expenses due to a possessor in bad faith as
against the rentals due from him to the lawful possessor?
DOCTRINE: Yes. The amount of reimbursable or refundable expenses due to a possessor in

bad faith under Articles 443 and 546 can be compensated under Article 1278 which reads:
Compensation shall take place when two persons, in their own right, are creditors and debtors of
each other.
Premiere Development Bank v. Flores
G.R. No. 175339, 574 SCRA 66
ISSUE: Must the principles of compensation or set-off be applied in a case where there is
foreclosure of mortgaged property since foreclosure does not preclude the creditor from filing an
action to recover any deficiency from respondent corporations’ loan?
DOCTRINE: The Court cannot give due course to Premiere Development Bank’s claim of
compensation or set-off on account of the pending Civil Case No. MC03-2202 before the RTC of
Mandaluyong City. For compensation to apply, among other requisites, the two debts must be
liquidated and demandable already.
A distinction must be made between a debt and a mere claim. A debt is an amount actually
ascertained. It is a claim which has been formally passed upon by the courts or quasi-judicial
bodies to which it can in law be submitted and has been declared to be a debt. A claim, on the
other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process
prescribed by law before it develops into what is properly called a debt. Absent, however, any
such categorical admission by an obligor or final adjudication, no legal compensation or off-set
can take place. Unless admitted by a debtor himself, the conclusion that he is in truth indebted to
another cannot be definitely and finally pronounced, no matter how convinced he may be from
the examination of the pertinent records of the validity of that conclusion the indebtedness must
be one that is admitted by the alleged debtor or pronounced by final judgment of a competent
court. At best, what Premiere Development Bank has against respondent corporations is just a
claim, not a debt. At worst, it is a speculative claim.
Soriano v. People
G.R. No. 181692, 703 SCRA 536
ISSUE: Can there be compensation for debt comprising of the debtor’s harvest?
DOCTRINE: Compensation is a mode of extinguishing to the concurrent amount, the debts of

persons who in their own right are creditors and debtors of each other.
58
Article 1279 of the Civil Code provides for the requisites for compensation to take effect:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
Harvest due to petitioner as provided in the contract of loan, the same cannot be considered in
the legal compensation of the debts of the parties since it does not consist in a sum of money,
said share being in the form of harvests.
United Planters Sugar Milling Co., Inc., (UPSUMCO) vs. Court of Appeals, et al.
G.R. No. 126890, April 2, 2009
Tinga, J.:
ISSUE: Whether the absence of a mutual creditor-debtor relation between the parties prevents
them from extinguishing their obligations through compensation.
DOCTRINE: No. It might seem that APT has no right to set-off payments with UPSUMCO for
under Article 1279 (1), it is necessary for compensation that the obligors "be bound principally,
and that he be at the same time a principal creditor of the other." There is, concededly, no mutual
creditor-debtor relation between APT and UPSUMCO. However, we recognize the concept of
conventional compensation, defined as occurring "when the parties agree to compensate their
mutual obligations even if some requisite is lacking, such as that provided in Article 1282." It is
intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their
obligations. Legal compensation takes place by operation of law when all the requisites are
present, as opposed to conventional compensation which takes place when the parties agree to
compensate their mutual obligations even in the absence of some requisites. The only requisites
of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to
compensate, and (2) that they agree to the mutual extinguishment of their credits.
The right of PNB to set-off payments from UPSUMCO arose out of conventional compensation
rather than legal compensation, even though all of the requisites for legal compensation were
present as between those two parties. The determinative factor is the mutual agreement between
PNB and UPSUMCO to set-off payments. Even without an express agreement stipulating
compensation, PNB and UPSUMCO would have been entitled to set-off of payments, as the
legal requisites for compensation under Article 1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and
UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional
compensation, a relationship which does not require the presence of all the requisites under
Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights
under conventional compensation. The absence of the mutual creditor-debtor relation between
the new creditor APT and UPSUMCO cannot negate the conventional compensation.
Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding
obligations of UPSUMCO on the basis of conventional compensation before the condonation
took effect on 3 September 1987.
Lao v. Special Plans, Inc.

G.R. No. 164791
Del Castillo, J.
58
ISSUE: Whether legal compensation shall take place where the parties are mutual creditors and
debtors of each other?
DOCTRINE: No, Article 1279 of the New Civil Code provides that compensation shall take
place when two persons, in their own right, are creditors and debtors of each other. In order for
compensation to be proper, it is necessary that:
1. Each one of the obligors be bound principally and that he be at the same time a principal
2. Both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
3. The two debts are due:
4. The debts are liquidated and demandable;
5. Over neither of them be any retention or controversy, commenced by third parties and
communicated in due time to the debtor.
Petitioners failed to properly discharge their burden to show that the debts are liquidated and
demandable. Consequently, legal compensation is inapplicable.
Traders Royal Bank vs. Norberto Castañares and Milagros Castañares

G.R. No. 172020 December 6, 2010
Villarama, Jr., J.:
ISSUE: Whether petitioner has a right by way of set-off the telegraphic transfer in the sum of
$4,220.00 against the unpaid loan account of private respondents, both being bound as principals
and debtors of each other, the debts consisting of a sum of money and due, liquidated and
demandable, and are not claimed by a third person.
DOCTRINE: Yes. Agreements for compensation of debts or any obligations when the parties
are mutually creditors and debtors are allowed under Art. 1282 of the Civil Code even though
not all the legal requisites for legal compensation are present. Voluntary or conventional
compensation is not limited to obligations which are not yet due. The only requirements for
conventional compensation are (1) that each of the parties can fully dispose of the credit he seeks
to compensate, and (2) that they agree to the extinguishment of their mutual credits.
Consequently, no error was committed by the trial court in holding that petitioner validly
applied, by way of compensation, the $4,220.00 telegraphic transfer remitted by respondents’
foreign client through the petitioner.
Cesar V. Areza and Lolita B. Areza v. Express Savings Bank, Inc.

G.R. No. 176697, September 10, 2014
ISSUE: Whether the Bank can set-off the amount it paid to Equitable-PCI Bank with petitioner’s
savings account.
DOCTRINE: No. Under Art. 1278 of the New Civil Code, compensation shall take place when
two persons, in their own right, are creditors and debtors of each other. And the requisites for
legal compensation are:
Art. 1279. In order that compensation may be proper, it is necessary:
(1)That each one of the obligors be bound principally, and that he be at the same time a principal
(2)That both debts consist in a sum of money, or if the things due are consumable, they be of the
(3)That the two debts be due;
(4)That they be liquidated and demandable;
(5)That over neither of them there be any retention or controversy, commenced by third persons
It is well-settled that the relationship of the depositors and the Bank or similar institution is that
of creditor-debtor. Article 1980 of the New Civil Code provides that fixed, savings and current
58
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loans. The bank is the debtor and the depositor is the creditor. The depositor
lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.33cralawred
Mondragon Personal Sales, Inc. v. Victoriano S. Sola, Jr.

G.R. No. 174882. January 21, 2013
Peralta, J.:
ISSUE: Is petitioner's act of withholding respondent's service fees and thereafter applying them
as partial payment to the obligation of respondent's wife with petitioner unlawful?
DOCTRINE: No. Petitioner’s act of withholding respondent's service fees/commissions and

applying them to the latter's outstanding obligation with the former is merely an
acknowledgment of the legal compensation that occurred by operation of law between the
parties. Compensation is a mode of extinguishing to the concurrent amount the obligations of
persons who in their own right and as principals are reciprocally debtors and creditors of each
other. Legal compensation takes place by operation of law when all the requisites are present, as
opposed to conventional compensation which takes place when the parties agree to compensate
their mutual obligations even in the absence of some requisites.
Legal compensation requires the concurrence of the following conditions:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
SECTION 6. NOVATION
Philippine Savings Bank v. Sps. Rodelfo Malanac Jr.

G.R. No. 145441, April 26, 2005
Ynares-Santiago J:
ISSUE: Is moral damages proper in case a bank misrepresents that they would accept a request
of a party and then does an act that is legal under the circumstances?
DOCTRINE: Yes. While the bank had the legal basis to withhold the release of the mortgaged
properties, nevertheless, it was not forthright and was lacking in candor in dealing with
Mañalac. In accepting the PCIB Check, the bank knew fully well that the payment was
conditioned on its commitment to release the specified properties. At the first instance, the bank
should not have accepted the check or returned the same had it intended beforehand not to honor
the request of Mañalac. In accepting the check and applying the proceeds thereof to the loan
accounts of Mañalac and Galicia, the former were led to believe that the bank was favorably
acting on their request. In justifying the award of moral damages, the Court of Appeals correctly
observed that “there is the unjustified refusal of the appellant bank to make a definite
commitment while profiting from the proceeds of the check by applying it to the principal and
the interest of the Galicias and plaintiff-appellants.”
Isaisas F. Fabrigas and Marcelina R. Fabrigas v. San Francisco del Monte, Inc.
G.R. No. 152346. November 25, 2005
58
Tinga, J.:

ISSUE: Is there a novation when at first, there is a contract to sell which was rescinded but
subsequently a second contract to sell was created to replace the first contract?
DOCTRINE: Novation, in its broad concept, may either be extinctive or modificatory. It is

extinctive when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the extent it
remains compatible with the amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real), or by substituting the person of the
debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under
this mode, novation would have dual functions—one to extinguish an existing obligation, the
other to substitute a new one in its place—requiring a conflux of four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation.

Notwithstanding the improper rescission, the facts of the case show that Contract to Sell No.
2482-V was subsequently novated by Contract to Sell No. 2491-V. The execution of Contract to
Sell No. 2491-V accompanied an upward change in the contract price, which constitutes a change
in the object or principal conditions of the contract. In entering into Contract to Sell No. 2491-
V, the parties were impelled by causes different from those obtaining under Contract to Sell No.
2482-V. On the part of petitioners, they agreed to the terms and conditions of Contract to Sell
No. 2491-Vnot only to acquire ownership over the subject property but also to avoid the
consequences of their default under Contract No. 2482-V. On Del Monte’s end, the upward
change in price was the consideration for entering into Contract to Sell No. 2491-V.

In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be
on every point incompatible with each other. The test of incompatibility is Whether the two
obligations can stand together, each one having its independent existence. If they cannot, they
are incompatible and the latter obligation novates the first. The execution of Contract to Sell No.
2491-V created new obligations in lieu of those under Contract to Sell No. 2482-V, which are
already considered extinguished upon the execution of the second contract. The two contracts do
not have independent existence for to hold otherwise would present an absurd situation where the
parties would be liable under each contract having only one subject matter.
Sps. Francisco and Ruby Reyes v. BPI Family Savings Bank, Inc., And Magdalena L.
Lometillo, in her capacity as Ex-Officio Provincial Sheriff for Iloilo
G.R. Nos. 149840-41. March 31, 2006
Corona, J.:
ISSUE: Does novation result when the creditor reconstructs the loan and changes it terms and
the debtor issues a promissory note for the same?
DOCTRINE: No there is no novation. Novation is the extinguishment of an obligation by the

substitution or change of the obligation by a subsequent one which terminates the first, either by
changing the object or principal conditions, or by substituting the person of the debtor, or
subrogating a third person in the rights of the creditor.
The cancellation of the old obligation by the new one is a necessary element of novation which
may be effected either expressly or impliedly. While there is really no hard and fast rule to
determine what might constitute sufficient change resulting in novation, the touchstone,
however, is irreconcilable incompatibility between the old and the new obligations. The novation
of a contract cannot be presumed. In the absence of an express agreement, novation takes place
only when the old and the new obligations are incompatible on every point.
Gammon Philippines, Inc. v. Metro Rail Transit Development Corporation
58
G.R. No. 144792. January 31, 2006

Tinga, J.
ISSUE: Is there a novation when a subsequent agreement is entered into by the parties changing
the agreed price in the previous contract?
DOCTRINE: No. Novation cannot be presumed. The animus novandi, whether partial or total,
must appear by the express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken. Thus, in order than an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the
old and the new obligations be on every point incompatible with each other.
Ek Lee Steel Works Corporation v. Manila Castor Oil Corporation

G.R. No. 119033, 557 SCRA 339
ISSUES:
(1) Does an agreement setting forth a new period for the completion of an already delayed
obligation amount to novation of the previous obligation?
(2) Does failure of one party to comply with his part in a reciprocal obligation amount to delay?
DOCTRINE:
(1) The Court finds no novation of the previous agreements between the parties. On the contrary,
it expressly recognized the parties’ reciprocal obligations. Thus, while the 16 May 1988 letter did
not extinguish the parties’ obligations under their previous contracts, it however modified the
manner of payment from the system of progress billings to a specific schedule of payments
(2) Petitioner failed to comply with its undertaking to complete the whole project on 15 June
1988. Consequently, respondent’s obligation to pay the P200,000 did not arise. Respondent
could not be considered in delay when it failed to pay petitioner at that time. According to the
last paragraph of Article 1169 of the Civil Code, “[i]n reciprocal obligations, neither party incurs
in delay if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the
other begins.
Sueno v. Land Bank of the Philippines

G.R. No. 174711, 565 SCRA 611
ISSUE: Is there a valid novation entered by parties for the extension of the redemption period?

DOCTRINE: The elements of novation clearly do not exist in the instant case. While it is true
that there is a previous valid obligation (i.e., the obligation of LBP to honor Sueno’s right to
redeem the subject property within a period of one year), such obligation expired at the same
time as the redemption period on 6 March 2001. There is, however, no clear agreement between
the parties to a new contract, again imposing upon LBP the obligation of honoring Sueno’s right
to redeem the subject properties within an extended period of six months. Without a new
contract, the old contract cannot be considered extinguished.
The condition of LBP for the extension of the redemption period for the subject properties was
plain and simple, that Sueno pay an initial amount of P115,000.00 for the extension of the
redemption period. Sueno tendered a check for P50,000.00 in partial payment of the amount
demanded by LBP. By accepting the check payment, LBP merely accepted partial compliance
of Sueno with its demand, but it does not mean that LBP had conceded to the extension of the
redemption period for such reduced amount. In fact, LBP promptly sent Sueno a letter dated 6
March 2001, which was duly received by the latter, explicitly and consistently requiring payment
of the full amount of P115,000.00 for the extension of the redemption period. It is without doubt
that LBP was still expecting Sueno to pay the balance of P65,000.00. Hence, not until full
58
payment of the amount it demanded, for LBP had not yet agreed to extend the period for
redemption of the subject properties.
The consent of LBP to an extension of the period to redeem is subject to the suspensive
condition that Sueno shall pay the initial amount of P115,000.00 in full. With Sueno’s failure to
remit the balance of P65,000.00 to LBP, then there is non-perfection of a new contract.
Novation is never presumed, and the animus novandi, whether totally or partially, must appear
by express agreement of the parties, or by their acts that are too clear and unmistakable.
S.C. Megaworld Construction And Development Corporation v. Parado

G.R. No. 183804, 705 SCRA 584
ISSUE: Can there be a valid novation even without the consent of the creditor?
DOCTRINE: Novation is a mode of extinguishing an obligation by changing its objects or

principal obligations, by substituting a new debtor in place of the old one, or by subrogating a
third person to the rights of the creditor. It is "the substitution of a new contract, debt, or
obligation for an existing one between the same or different parties." Article 1293 of the Civil
Code defines novation as which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but not without
the consent of the creditor. Payment by the new debtor gives him rights mentioned in Articles
1236 and 1237.
Thus, in order to change the person of the debtor, the former debtor must be expressly released
from the obligation, and the third person or new debtor must assume the former’s place in the
contractual relation. Article 1293 speaks of substitution of the debtor, which may either be in the
form of expromision or delegacion, as seems to be the case here. In both cases, the old debtor
must be released from the obligation, otherwise, there is no valid novation.
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from—and may even be
made without the knowledge of—the debtor, since it consists of a third person’s assumption of
the obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary.
Both modes of substitution by the debtor require the consent of the creditor.
Foundation Specialists, Inc., vs. Betonval Ready Concrete, Inc. and Stronghold Insurance
Co., Inc.
G.R. No. 170674 August 24, 2009
Corona, J.
ISSUE: Whether extinctive novation can be presumed.
DOCTRINE: No. Novation is one of the modes of extinguishing an obligation. 21 It is done by
the substitution or change of the obligation by a subsequent one which extinguishes the first,
either by changing the object or principal conditions, or by substituting the person of the debtor,
or by subrogating a third person in the rights of the creditor. Novation may:
Either be extinctive or modificatory, much being dependent on the nature of the change and the
intention of the parties. Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate
their intent to dissolve the old obligation as the moving consideration for the emergence of the
new one. Implied novation necessitates that the incompatibility between the old and new
obligation be total on every point such that the old obligation is completely superseded by the
new one. The test of incompatibility is whether they can stand together, each one having an
58
independent existence; if they cannot and are irreconcilable, the subsequent obligation would
also extinguish the first.
There can be no other conclusion but that Betonval had reduced the imposable interest rate from
30% to 24% p.a. and this reduced interest rate was accepted, albeit impliedly, by FSI when it
proposed a new schedule of payments and, in fact, actually made payments to Betonval with
24% p.a. interest. By its own actions, therefore, FSI is estopped from questioning the imposable
rate of interest.
Salazar v. J.Y. Brothers Marketing Corporation

G.R. No. 171998, October 20, 2010
Peralta, J.:
ISSUE: Whether acceptance of a new check in replacement of the previous one is a novation?
DOCTRINE: No, the obligation to pay a sum of money is not novated by an instrument that
expressly recognizes the old, changes only the terms of payment, adds other obligations not
incompatible with the old ones or the new contract merely supplements the old one. In the instant
case, there was no express agreement that BA Finance's acceptance of the SBTC check will
discharge Nyco from liability. Neither is there incompatibility because both checks were given
precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As
novation speaks of two distinct obligations, such is inapplicable to this case.
Lourdes Azarcon vs. People of the Philippines and Marcos Gonzales

G.R. No. 185906. June 29, 2010
Carpio Morales, J.:
ISSUE: Whether petitioner’s obligations under the various checks had been released, superseded
and novated by her husband’s assumption of her liabilities?
DOCTRINE: No. The novation which petitioner suggests as having taken place, whereby
Manuel was supposed to assume her obligations as debtor, is neither express nor implied. There
is no showing of Marcosa explicitly agreeing to such a substitution, nor of any act of her from
which an inference may be drawn that she had agreed to absolve petitioner from her financial
obligations and to instead hold Manuel fully accountable.
Carolina Hernandez-Nievera v. Wilfredo Hernandez

GR No. 171165; February 14, 2011
ISSUE: Whether the Memorandum of Agreement to deliver option money and agree to a more
flexible term by agreeing instead to receive shares of stock resulted to novation of PMRDC’s
integral obligations.
DOCTRINE: Yes. There are two ways which could indicate, in fine, the presence of novation
and thereby produce the effect of extinguishing an obligation by another which substitutes the
same. The first is when novation has been explicitly stated and declared in unequivocal terms.
The second is when the old and the new obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible, and the latter obligation novates
the first.
Sime Darby Pilipinas, Inc. v. Goodyear Philippines, Inc.

GR No. 182148; June 8, 2011
ISSUE: Whether the lessee can assign the lease without the consent of the lessor.
58
DOCTRINE: NO. In an assignment of a lease, there is a novation by the substitution of the

person of one of the parties – the lessee. The personality of the lessee, who dissociates from the
lease, disappears. Thereafter, a new juridical relation arises between the two persons who remain
– the lessor and the assignee who is converted into the new lessee. The objective of the law in
prohibiting the assignment of the lease without the lessor’s consent is to protect the owner or
lessor of the leased property.
Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old

obligation is terminated by the creation of a new obligation that takes the place of the former; it
is merely modificatory when the old obligation subsists to the extent it remains compatible with
the amendatory agreement. An extinctive novation results either by changing the object or
principal conditions (objective or real), or by substituting the person of the debtor or subrogating
a third person in the rights of the creditor (subjective or personal).
Heirs of Servando Franco v. Sps. Gonzales

G.R. 159709; June 27, 2012
ISSUE: Whether irreconcilable incompatibility between the old and the new obligation is
essential for a valid novation to be effected.
DOCTRINE: YES. For a valid novation to take place, there must be, therefore: (a) a previous
valid obligation; (b) an agreement of the parties to make a new contract; (c) an extinguishment of
the old contract; and (d) a valid new contract. In short, the new obligation extinguishes the prior
agreement only when the substitution is unequivocally declared, or the old and the new
obligations are incompatible on every point. A compromise of a final judgment operates as a
novation of the judgment obligation upon compliance with either of these two conditions.A
novation arises when there is a substitution of an obligation by a subsequent one that
extinguishes the first, either by changing the object or the principal conditions, or by substituting
the person of the debtor, or by subrogating a third person in the rights of the creditor.
Roberto R. David vs. Eduardo C. David

G.R. No. 162365 January 15, 2014
Bersamin, J.
ISSUE: Whether there was novation of the Deed of Sale with assumption of mortgage when the
parties executed a memorandum of Agreement for the sale of the subject house and lot and,
thereafter sold the said property to third persons.
DOCTRINE: No. The issue of novation involves a question of fact, as it necessarily requires the
factual determination of the existence of the various requisites of novation, namely: (a) there
must be a previous valid obligation; (b) the parties concerned must agree to a new contract; (c)
the old contract must be extinguished; and (d) there must be a valid new contract. With both the
RTC and the CA concluding that the MOA was consistent with the deed of sale, novation
whereby the deed of sale was extinguished did not occur.
First United Constructors Corporation vs. Bayanihan Automotiv

G.R. No. 164985 January 15, 2014
Bersamin, J.
ISSUE: Whether legal compensation was proper in the case when the petitioners’ expenses for
the repair of the dump truck being already established and determined with certainty by the
lower courts.
DOCTRINE: Yes. A debt is liquidated when its existence and amount are determined.
Accordingly, an unliquidated claim set up as a counterclaim by a defendant can be set off against
the plaintiff’s claim from the moment it is liquidated by judgment. Article 1290 of the Civil
Code provides that when all the requisites mentioned in Article 1279 of the Civil Code are
58
present, compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount. With petitioners’ expenses for the repair of the dump truck being already
established and determined with certainty by the lower courts, it follows that legal compensation
could take place because all the requirements were present.
CONTRACTS
CHAPTER 1. GENERAL PROVISIONS
Asian Construction and Development Corporation v. Tulabut

G.R. No. 161904. April 26, 2005
Callejo, Sr., J.
ISSUE: May the principle of estoppel be applied in determining whether the obligation
contemplated in the contract had already been completed?
DOCTRINE: Yes. The application of the principle of estoppel is proper and timely in heading
off plaintiff’s shrewd efforts at renouncing his previous acts to the prejudice of parties who had
dealt with him honestly and in good faith t is provided, as one of the conclusive presumptions
under Rule 131, Section 3(a), of the Rules of Court that, “Whenever a party has, by his own
declaration, act or omission, intentionally and deliberately led another to believe a particular
thing to be true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it.” Hence, when the appellant corporation
manifested its approval in the purchase orders and progress billings it cannot, thereafter, refute
such act or renege on the effects of the same to the prejudice of the appellee who merely relied
on it.
The terms and conditions of the contract between the petitioner and the respondent
unequivocally expressed in the purchase orders and progress billings must govern the contractual
relation of the parties, for these serve as the terms of the agreement, which are binding and
conclusive between them. When the words of the contract are clear and readily understandable,
there is no room for construction. The contract is the law between the parties.
Tanay Recreation Center and Development Corp. v. Catalina Matienzo Fausto and
Anunciacion Fausto Pacunayen
GR No. 140182. April 12, 2005
ISSUE: Is the rule of transmissibility of rights and obligations applicable in a lease contract
entered into by the decedent?
DOCTRINE: A lease contract is not essentially personal in character. Applying Article 1311 of
the New Civil Code, the rights and obligations are transmissible to the heirs. The general rule is
that heirs are bound by contracts entered into by their predecessors-in-interest except when the
rights and obligations arising therefrom are not transmissible by: (1) their nature; (2) stipulation;
or (3) provision of law. Whatever rights and obligations the decedent had over the property,
including his obligation under the lease contract, were transmitted to his heirs by way of
succession, a mode of acquiring the property, rights and obligation of the decedent to the extent
of the value of the inheritance of the heirs.
Litonjua v. Litonjua
G.R. Nos. 166299-300. December 13, 2005
58
Garcia, J.:
ISSUE: Can an actionable document create a demandable right in favor of a person who filed a
suit for specific performance and accounting in a joint venture/partnership arrangement
(innominate contract)?
DOCTRINE: No. A complaint for delivery and accounting of partnership property based on
such void or legally non-existent actionable document is dismissible for failure to state of action.
Whether the actionable document creates a partnership, joint venture, or whatever, is a legal
matter. What us determinative for purposes of sufficiency of one’s allegations, is whether the
actionable document bears out an actionable contract – be it a partnership a joint venture or
whatever or some innominate contract (Article 1307, New Civil Code). It may be noted that one
kind of innominate contract is what is known as du utfacias (I give that you may do).
Bortikey v. AFP Retirement and Separation Benefits System

G.R. No. 146708. December 13, 2005
Corona, J.:
ISSUE: Given a statement in a contract to sell that, “In case of failure on the part of the BUYER
to pay the amortization due on the specified maturity date, the Buyer shall be given a seven-day
grace period xxx. However, in the event that the BUYER fails to pay within the seven-day grace
period, he shall be charged a penalty of 24% per annum to be reckoned from the first day of
default”, may the buyer say that the 24% annual interest stipulated in the contract was contrary to
law and public morals?
DOCTRINE: No. Basic is the principle that contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided these are not contrary to
law, morals, good customs, public order or public policy (Article 1306, New Civil Code).
Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith (Article 1159, New Civil Code).Petitioner was free to
decide on the manner of payment, either in cash or installment. Since he opted to purchase the
land on installment basis, he consented to the imposition of interest on the contract price. He
cannot now unilaterally withdraw from it by disavowing the obligation created by the stipulation
in the contract. Therefore, the stipulated 24% annual interest on the price of the parcel of land
purchased by petitioner from respondent on installment basis is hereby declared valid and
binding.
GF Equity, Inc. vs. Arturo Valenzona

G.R. No. 156841 June 30, 2005
Carpio-Morales, J.
ISSUE: What is the principle of mutuality of contracts?
DOCTRINE: Mutuality is one of the characteristics of a contract, its validity or performance or

compliance of which cannot be left to the will of only one of the parties. This is enshrined
in Article 1308 of the New Civil Code, which states “The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.” The stated legal
provision is a virtual reproduction of Article 1256 of the old Civil Code but it was so phrased as
to emphasize the principle that the contract must bind both parties. This, of course is based
firstly, on the principle that obligations arising from contracts have the force of law between the
contracting parties and secondly, that there must be mutuality between the parties based on
their essential equality to which is repugnant to have one party bound by the contract leaving the
other free therefrom. Its ultimate purpose is to render void a contract containing a condition,
which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties.
58
The ultimate purpose of the mutuality principle is thus to nullify a contract containing a

condition which makes its fulfillment or pre-termination dependent
exclusively upon the uncontrolled will of one of the contracting parties. Not all contracts though
which vest to one party their determination of validity or compliance or the right to terminate the
same are void for being violative of the mutuality principle. Jurisprudence is replete with
instances of cases where this Court upheld the legality of contracts, which left their fulfillment or
implementation to the will of either of the parties. In these cases, however, there was a finding
of the presence of essential equality of the parties to the contracts, thus preventing the
perpetration of injustice on the weaker party.
G.R. No. 140182. April 12, 2005
GR No. 140182. April 12, 2005
Sunace International vs. NLRC

G.R. No. 161757. January 25, 2006
Carpio Morales, J.
ISSUE: Can an employment contract extension bind a company who has not consented thereto?
DOCTRINE: No. There being no substantial proof that Sunace knew of and consented to be
bound under the 2-year employment contract extension, it cannot be said to be privy thereto. As
such, it and its “owner” cannot be held solidarily liable for any of Divina’s claims arising from
the 2-year employment extension. Art. 1311 provides that contracts take effect only between the
parties, their assigns, and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law.
58
Greater Metropolitan Manila Solid Waste Management Committee v. Jancom

Environmental Corporation
GR No. 163663. June 30, 2006
Carpio Morales, J.:
ISSUE: Can a party revoke a perfected contract without the consent of the other?
DOCTRINE: No. From the moment of perfection, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage, and law. The contract has
the force of law between the parties and they are expected to abide in good faith by their
respective contractual commitments, not weasel out of them. Just as nobody can be forced to
enter into a contract, in the same manner, once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other.
Roxas v. Zuzuarregui, Jr.

G.R. No. 152072, January 31, 2006
Chico-Nazario, J.:
ISSUE: In the contract, the petitioners offered to be the legal representatives of the petitioner in
the expropriation proceeding. In return, contingency fees shall be paid. Is there a valid and
binding contract between the parties?
DOCTRINE: Under Article 1318 of the Civil Code, there are three essential requisites which
must concur in order to give rise to a binding contract: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and (3) cause of the obligation which is
established.
All these requisites were present in the execution of the Letter-Agreement.
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The Zuzuarreguis, in entering into the Letter-
Agreement, fully gave their consent thereto. In fact, it was them (the Zuzuarreguis) who sent the
said letter to Attys. Roxas and Pastor, for the purpose of confirming all the matters which they
had agreed upon previously. There is absolutely no evidence to show that anybody was forced
into entering into the Letter-Agreement. Verily, its existence, due execution and contents were
admitted by the Zuzuarreguis themselves.
The second requisite is the object certain. The objects in this case are twofold. One is the money
that will go to the Zuzuarreguis (P17.00 per square meter), and two, the money that will go to
Attys. Roxas and Pastor (any and all amount in excess of P17.00 per square meter). There was
certainty as to the amount that will go to the Zuzuarreguis, and there was likewise certainty as to
what amount will go to Attys. Roxas and Pastor.
The cause is the legal service that was provided by Attys. Roxas and Pastor. In general, cause is
the why of the contract or the essential reason which moves the contracting parties to enter into
the contract.
Bonifacio Nakpil v. Manila Towers Development Corp.

GR No. 160867. September 20, 2006
Callejo, Sr., J.:
ISSUE: What is a breach of contract? What is the extent of liability of an obligor who performed
a breach of contract?
DOCTRINE: Breach of contract is the failure without legal reason to comply with the terms of
a contract. It is also defined as the failure, without legal excuse, to perform any promise which
58
forms the whole or part of the contract. There is no factual and legal basis for any award for
damages to respondent.
In contracts, the obligor who acted in good faith is liable for damages that are the material and
probable consequence of the breach of the obligation and which the parties have foreseen or
could have reasonably foreseen at the time the obligation was contracted. In case of fraud, bad
faith, malice or wanton attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.
Xavierville III Homeowners Association, Inc., v. Xavierville Ii Homeowners Association,

Inc.,
G.R. No. 170092. December 6, 2006
Carpio Morales, J.:
ISSUE: What is the legal effect of entering into a compromise agreement?
DOCTRINE: Under Article 1306 of the Civil Code, contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. Thus, a compromise
agreement whereby the parties make reciprocal concessions to resolve their differences to
thereby put an end to litigation is binding on the contracting parties and is expressly
acknowledged as a juridical agreement between them. To have the force of res judicata,
however, the compromise agreement must be approved by final order of the court.
William Golangco Construction Corporation v. Philippine Commercial International Bank

G.R. No. 142830. March 24, 2006
Corona, J.:
ISSUE: Is the construction company liable for defects that occurred after the lapse of the one-
year defects liability period stipulated in the contract?
DOCTRINE: No, the construction company is not liable for defects that occurred after the lapse
of the one-year defects liability period stipulated in the contract. The autonomous nature of
contracts is enunciated in Article 1306 of the Civil Code. Obligations arising from contracts have
the force of law between the parties and should be complied with in good faith. In characterizing
the contract as having the force of law between the parties, the law stresses the obligatory nature
of a binding and valid agreement.
The provision in the construction contract providing for a defects liability period was not shown
as contrary to law, morals, good customs, pubic order or public policy. By the nature of the
obligation in such contract, the provision limiting liability for defects and fixing specific
guaranty periods was not only fair and equitable; it was also necessary. The Court cannot
countenance an interpretation that undermines a contractual stipulation freely and validly agreed
upon. The courts will not relieve a party from the effects of an unwise or unfavorable contract
freely entered into.
Spouses Anthony and Percita Oco v. Victor Limbaring

G.R. No. 161298. January 31, 2006
Panganiban, C.J.:
ISSUE: Can a person who did not take part in a contract show that he has a real interest affected
by its performance or annulment?
58
DOCTRINE: Yes. As a rule, the parties to a contract are the real parties in interest in an action
upon it. Only the contracting parties are bound by the stipulations in the contract; they are the
ones who would benefit from and could violate it. Thus, one who is not a party to a contract, and
for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do so,
even if the contract performed by the contracting parties would incidentally inure to one’s
benefit.
As an exception, parties who have not taken part in a contract may show that they have a real
interest affected by its performance or annulment. In other words, those who are not principally
or subsidiarily obligated in a contract, in which they had no intervention, may show their
detriment that could result from it. Contracts pour autrui are covered by this exception. In this
latter instance, the law requires that the “contracting parties must have clearly and deliberately
conferred a favor upon a third person.” A “mere incidental benefit is not enough.”
Rolando Limpo v. Court of Appeals

G.R. No. 144732, February 13, 2006
Azcuna, J.:
ISSUE: Whether a Compromise Agreement binds a person who did not take part in its
execution.
DOCTRINE: No. It is settled that a compromise agreement cannot bind persons who are not
parties to it.3This rule is based on Article 1311(1) of the Civil Code which provides that
"contracts take effect only between the parties, their assigns and heirs x x x." The sound reason
for the exclusion of non-parties to an agreement is the absence of a vinculum or juridical tie
which is the efficient cause for the establishment of an obligation. In the Compromise
Agreement that was presented to the trial court, there is no question that only the spouses Uy and
the Bank were parties. Limpo did not participate in its execution and there was no reference to
him in any of its provisions. He cannot be bound by the Compromise Agreement.
Caltex (Philippines), Inc., v. PNOC Shipping and Transport Corporation

G.R. No. 150711. August 10, 2006
Carpio, J.:
ISSUE: May a creditor file a case for rescission or execution against a third party who has
assumed the obligations of the debtor?
DOCTRINE: Article 1313 of the Civil Code provides that “[c]reditors are protected in cases of
contracts intended to defraud them.” Further, Article 1381 of the Civil Code provides that
contracts entered into in fraud of creditors may be rescinded when the creditors cannot in any
manner collect the claims due them. Article 1381 applies to contracts where the creditors are not
parties, for such contracts are usually made without their knowledge. Thus, a creditor who is not
a party to a contract can sue to rescind the contract to prevent fraud upon him. Or, the same
creditor can instead choose to enforce the contract if a specific provision in the contract allows
him to collect his claim, and thus protect him from fraud.
Mr. & Mrs. George R. Tan v. G.V.T Engineering Services, Acting through its
Owner/Manager Gerino V. Tactaquin
G.R. No. 153057. August 7, 2006
ISSUE: May an obligor be held liable for damages in case of breach of contract?
DOCTRINE: Article 1313 of the Civil Code provides that “creditors are protected in cases of
contracts intended to defraud them.” Further, Article 1381 of the Civil Code provides that
58
contracts entered into in fraud of creditors may be rescinded when the creditors cannot in any
manner collect the claims due them. Article 1381 applies to contracts where the creditors are not
parties, for such contracts are usually made without their knowledge. Thus, a creditor who is not
a party to a contract can sue to rescind the contract to prevent fraud upon him. Or, the same
creditor can instead choose to enforce the contract if a specific provision in the contract allows
him to collect his claim, and thus protect him from fraud.
William Ong Genato vs. Benjamin Bayhon et al.

G.R. No. 171035 August 24, 2009
Puno, C.J.:
ISSUE: Whether a party’s contractual rights and obligation are transmissible to the successors.
DOCTRINE: Yes. The rule is a consequence of the progressive "depersonalization" of

patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history
of these institutions. From the Roman concept of a relation from person to person, the obligation
has evolved into a relation from patrimony to patrimony, with the persons occupying only a
representative position, barring those rare cases where the obligation is strictly personal, i.e., is
contracted intuitu personae, in consideration of its performance by a specific person and by no
other. The transition is marked by the disappearance of the imprisonment for debt.
The loan in this case was contracted by respondent. He died while the case was pending before
the Court of Appeals. While he may no longer be compelled to pay the loan, the debt subsists
against his estate. No property or portion of the inheritance may be transmitted to his heirs unless
the debt has first been satisfied.
Vicenta Cantemprate et al. vs. CRS Realty Development Corporation et al.

G.R. No. 171399, May 8, 2009
Tinga, J.:
ISSUE: Whether rescission of a contract gives rise to mutual restitution.
DOCTRINE: Rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever he may be obliged to
restore. Rescission abrogates the contract from its inception and requires a mutual restitution of
the benefits received.
National Power Corporation vs. Premier Shipping Lines, Inc.

G.R No. 179103; September 17, 2009
ISSUE: Whether the terms contained in the contract are the law between the parties.
DOCTRINE: Yes. It is basic that a contract is the law between the parties, and the stipulations
therein -- provided that they are not contrary to law, morals, good customs, public order or public
policy -- shall be binding as between the parties. In contractual relations, the law allows the
parties much leeway and considers their agreement to be the law between them. This is because
"courts cannot follow one every step of his life and extricate him from bad bargains x xx relieve
him from one-sided contracts, or annul the effects of foolish acts. The Courts are obliged to give
effect to the agreement and enforce the contract to the letter.
In the case at bar, the parties entered into a contract for the hauling and delivery of wood poles.
By reason of a change in one of the delivery points, they executed a supplemental contract that
embodied said change. The terms and conditions were clear. In both contracts, the parties
voluntarily and freely affixed their signatures thereto without objection. Thus, the terms
contained therein are the law between them.
Patricia Halagueña et al. vs. Philippine Airlines Incorporated
58
G.R. No. 172013. October 2, 2009

Ynares-Santiago, J.,
ISSUE: Whether the principle of autonomy of contracts is absolute.
DOCTRINE: No. The principle of party autonomy in contracts is not, however, an absolute
principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish
such stipulations as they may deem convenient, “provided they are not contrary to law, morals,
good customs, public order or public policy.” Thus, counter-balancing the principle of autonomy
of contracting parties is the equally general rule that provisions of applicable law, especially
provisions relating to matters affected with public policy, are deemed written into the contract.
Put a little differently, the governing principle is that parties may not contract away applicable
provisions of law especially peremptory provisions dealing with matters heavily impressed with
public interest. The law relating to labor and employment is clearly such an area and parties are
not at liberty to insulate themselves and their relationships from the impact of labor laws and
regulations by simply contracting with each other.
Sta. Lucia Realty & Development, Inc. vs. SPOUSES Francisco & Emelia Buenaventura
G.R. No. 177113. October 2, 2009
Ynares-Santiago, J.
ISSUE: Whether rights and obligations arising from a contract may be transmitted.
DOCTRINE: Yes. Article 1311 of the New Civil Code states that, “contracts take effect only
between the parties, their assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision of
law.” In this case, the rights and obligations between petitioner and Alfonso are
transmissible. There was no mention of a contractual stipulation or provision of law that makes
the rights and obligations under the original sales contract for Lot 3, Block 4, Phase II
intransmissible. Hence, Alfonso can transfer her ownership over the said lot to respondents and
petitioner is bound to honor its corresponding obligations to the transferee or new lot owner in its
subdivision project.
Having transferred all rights and obligations over Lot 3, Block 4, and Phase II to respondents,
Alfonso could no longer be considered as an indispensable party. Contrary to petitioner’s claim,
Alfonso no longer has an interest on the subject matter or the present controversy, having already
sold her rights and interests on Lot 3, Block 4, Phase II to herein respondents.
Sps. Isagani Castro and Diosdada Castro v. Angelina De Leon Tan, et. al.,
G.R. No. 168940; November 24, 2009
Del Castillo, J.
ISSUE: Whether freedom of contract is absolute.
DOCTRINE: No. Freedom of contract is not absolute. The same is understood to be subject to
reasonable legislative regulation aimed at the promotion of public health, morals, safety and
welfare. One such legislative regulation is found in Article 1306 of the Civil Code which allows
the contracting parties to "establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order or
public policy." To reiterate, we fully agree with the Court of Appeals in holding that the
compounded interest rate of 5% per month, is iniquitous and unconscionable. Being a void
stipulation, it is deemed inexistent from the beginning. The debt is to be considered without the
stipulation of the iniquitous and unconscionable interest rate.
Narvaez vs. Alciso

G.R. No. 165907; July 27, 2009
Carpio, J.
58
ISSUE: Whether the spouses Narvaez were right in claiming that Alciso did not communicate
her acceptance of the favor contained in the stipulation pour autrui, thus, she could not
repurchase the property.
DOCTRINE: No. Article 1311, paragraph 2, of the Civil Code states the rule on stipulations
pour autrui: If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a third person. All the
requisites are present in the instant case: (1) there is a stipulation in favor of Alciso; (2) the
stipulation is a part, not the whole, of the contract; (3) Bate and the Spouses Narvaez clearly and
deliberately conferred a favor to Alciso; (4) the favor is unconditional and uncompensated; (5)
Alciso communicated her acceptance of the favor before its revocation — she demanded that a
stipulation be included in the 14 August 1981 Deed of Sale of Realty allowing her to repurchase
the property from the Spouses Narvaez, and she informed the Spouses Narvaez that she wanted
to repurchase the property; and (6) Bate and the Spouses Narvaez did not represent, and were not
authorized by, Alciso.
The RTC stated that: Rose Alciso communicated her acceptance of such favorable stipulation
when she went to see defendant Lillia [sic] Narvaez in their house.
Herald Black Dacasin vs.Sharon Del Mundo Dacasin

G.R. No. 168785, February 05, 2010
Carpio, J.:
ISSUE: Whether the Agreement, the object of which was to establish a post-divorce joint
custody regime between respondent and petitioner over their child under seven years old
contravenes Philippine law.
DOCTRINE: YES. In this jurisdiction, parties to a contract are free to stipulate the terms of
agreement subject to the minimum ban on stipulations contrary to law, morals, good customs,
public order, or public policy. Otherwise, the contract is denied legal existence, deemed
“inexistent and void from the beginning.”
PNCC Skyway Traffic Management and Security Division Workers Organization

(PSTMSDWO) vs. PNCC Skyway Corporation
G.R. No. 171231, February 17, 2010
Peralta, J.
ISSUE: Whether the rule that a contract freely entered into between the parties should be
respected since a contract is the law between the parties is absolute.
DOCTRINE: No. There are certain exceptions to the rule, specifically Article 1306 of the Civil
Code, which provides: “The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.”
Moreover, the relations between capital and labor are not merely contractual. "They are so
impressed with public interest that labor contracts must yield to the common good." The
supremacy of the law over contracts is explained by the fact that labor contracts are not ordinary
contracts; they are imbued with public interest and therefore are subject to the police power of
the state. However, it should not be taken to mean that provisions agreed upon in the CBA are
absolutely beyond the ambit of judicial review and nullification. If the provisions in the CBA run
contrary to law, public morals, or public policy, such provisions may very well be voided.
Heirs of Mario Pacres, vs. Heirs of Cecilia Ygoña
58
G.R. No. 174719. May 5, 2010.

Del Castillo, J.:
ISSUE: Whether third parties may sue for the enforcement of the supposed obligations arising
from said contracts pursuant to stipulation pour autri.
DOCTRINE: NO. Under Article 1311 of the Civil Code, contracts take effect only between the
parties, their assigns and heirs (subject to exceptions not applicable here). Thus, only a party to
the contract can maintain an action to enforce the obligations arising under said contract. It is
true that third parties may seek enforcement of a contract under the second paragraph of Article
1311, which provides that “if a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment.” This refers to stipulations pour autrui, or stipulations for
the benefit of third parties. However, the written contracts of sale in this case contain no such
stipulation in favor of the petitioners.
Heirs of Fausto C. Ignacio v. Home Bankers Savings and Trust Company

G.R. No. 177783. January 23, 2013
Villarama Jr., J.
ISSUE: When is a contract deemed perfected?
DOCTRINE: Contracts that are consensual in nature, like a contract of sale, are perfected upon
mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon
the subject matter, consideration, and terms of payment, a contract is produced. The offer must
be certain. To convert the offer into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance
of any sort from the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer. Consequently, when something
is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the terms of the offer annuls the
offer.
Spouses Ignacio F. Juico and Alice P. Juico v. China Banking Corporation

G.R. No. 187678. April 10, 2013
Villarama, Jr., J.:
ISSUE: Whether the interest rates imposed by virtue of escalation clause in the promissory notes
upon them by respondent violate the principle of mutuality of contracts?
DIOCTRINE: Escalation clauses refer to stipulations allowing an increase in the interest rate
agreed upon by the contracting parties. This Court has long recognized that there is nothing
inherently wrong with escalation clauses which are valid stipulations in commercial contracts to
maintain fiscal stability and to retain the value of money in long term contracts. Hence, such
stipulations are not void per se.
Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to assent to an
important modification in the agreement" is void. A stipulation of such nature violates the
principle of mutuality of contracts. Thus, this Court has previously nullified the unilateral
determination and imposition by creditor banks of increases in the rate of interest provided in
loan contracts.
58
There is no indication that petitioners were coerced into agreeing with the foregoing provisions
of the promissory notes. In fact, petitioner Ignacio, a physician engaged in the medical supply
business, admitted having understood his obligations before signing them. At no time did
petitioners protest the new rates imposed on their loan even when their property was foreclosed
by respondent.
This notwithstanding, we hold that the escalation clause is still void because it grants respondent
the power to impose an increased rate of interest without a written notice to petitioners and their
written consent. Respondent’s monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the total debt should have been provided by
the respondent to enable petitioners to make an informed decision. An appropriate form must
also be signed by the petitioners to indicate their conformity to the new rates. Compliance with
these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided
impositions do not have the force of law between the parties, because such impositions are not
based on the parties’ essential equality.
Sps. Benjamin Mamaril v. The Boy Scout of the Philippines

G.R. No. 179382. January 14, 2013
Perlas-Bernabe, J.
ISSUE: When can a third person benefit from a stipulation pour autrui?
DOCTRINE: The following requisites must concur: (1) There is a stipulation in favor of a third
person; (2) The stipulation is a part, not the whole, of the contract; (3) The contracting parties
clearly and deliberately conferred a favor to the third person - the favor is not merely incidental;
(4) The favor is unconditional and uncompensated; (5) The third person communicated his or her
acceptance of the favor before its revocation; and (6) The contracting parties do not represent, or
are not authorized, by the third party.22 However, none of the foregoing elements obtains in this
case.
Star Two (SPV-AMC), Inc. v. Paper City Corporation of the Philippines

GR No. 169211. March 6, 2013
Perez, J.
ISSUE: Whether the machineries should be included in the foreclosure of the real estate
mortgage?
DOCTRINE: Yes. Repeatedly, the parties stipulated that the properties mortgaged by Paper
City to RCBC are various parcels of land including the buildings and existing improvements
thereon as well as the machineries and equipment, which as stated in the granting clause of the
original mortgage, are "more particularly described and listed that is to say, the real and personal
properties listed in Annexes 'A' and 'B' . . . of which the [Paper City] is the lawful and registered
owner." Significantly, Annexes "A" and "B" are itemized listings of the buildings, machineries
and equipment typed single spaced in twenty-seven pages of the document made part of the
records. As held in Gateway Electronics Corp. v. Land Bank of the Philippines, the rule in this
jurisdiction is that the contracting parties may establish any agreement, term, and condition they
may deem advisable, provided they are not contrary to law, morals or public policy. The right to
enter into lawful contracts constitutes one of the liberties guaranteed by the Constitution.
Land Bank of the Philippines vs. Heirs of Spouses Jorja Rigor-Soriano and Magin Soriano
G.R. No. 178312. January 30, 2013
Bersamin, J:
ISSUE: When is a compromise valid?
58
DOCTRINE: The validity of a compromise is dependent upon its compliance with the requisites
and principles of contracts dictated by law. Also, the terms and conditions of a compromise must
not be contrary to law, morals, good customs, public policy and public order.
Rodolfo G. Cruz and Esperanza Ibias v. Atty. Delfin Gruspe

GR No. 191431. March 13, 2013
Brion, J.
ISSUE: Is a joint affidavit considered a contract and binding upon the parties?
DOCTRINE: Yes. Contracts are obligatory no matter what their forms may be, whenever the
essential requisites for their validity are present. In determining whether a document is an
affidavit or a contract, the Court looks beyond the title of the document, since the denomination
or title given by the parties in their document is not conclusive of the nature of its contents. In the
construction or interpretation of an instrument, the intention of the parties is primordial and is to
be pursued. If the terms of the document are clear and leave no doubt on the intention of the
contracting parties, the literal meaning of its stipulations shall control. If the words appear to be
contrary to the parties' evident intention, the latter shall prevail over the former. A simple reading
of the terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations
characteristic of a contract.
Philippine National Bank vs. Spouses Enrique Manalo and Rosalinda Jacinto, et al.
G.R. No. 174433; February 24, 2014
Bersamin, J.
ISSUE: Whether the credit agreement which stipulated that the loan would be subjected to
interest at a rate "determined by the Bank to be its prime rate plus applicable spread, prevailing
at the current month" contravened the principle of mutuality of contracts.
DOCTRINE: Yes. The unilateral determination and imposition of the increased rates is
violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, which
provides that ‘[t]he contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.’ A perusal of the Promissory Note will readily show that the
increase or decrease of interest rates hinges solely on the discretion of petitioner. It does not
require the conformity of the maker before a new interest rate could be enforced. Any contract
which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result, thus partaking of the nature of a contract of adhesion, is void. Any
stipulation regarding the validity or compliance of the contract left solely to the will of one of the
parties is likewise invalid.
CHAPTER 2. ESSENTIAL REQUISITES OF CONTRACTS
Spouses Azaro M. Zulueta and Perla Sucayan-Zulueta v. Jose Wong, et al.

G.R. No. 153514, June 8, 2005
Callejo, Sr., J.:
ISSUE: What is the distinction between failure to pay the consideration and lack of
consideration? What is the status of a deed of sale where the purchase price has been paid but in
fact has never been paid?
DOCTRINE: Failure to pay the consideration results in a right to demand the fulfillment or
cancellation of the obligation under an existing contract, while lack of consideration prevents the
existence of a valid contract. Where there was no price or consideration for the sale and in fact
58
had not received any consideration for the said sale, it is null and void ab initio for lack of
consideration.
Paulo Ballesteros v. Rolando Abion

G.R. No. 143361. February 9, 2006
Corona, J.:
ISSUE: May a contract, the object of which was already transferred to a third person at the time
it was entered, be validated and remain enforceable if one of the party thereto has no knowledge
of the fact of its transfer?
DOCTRINE: No. Under Arts. 1318 and 1409 (3) of the Civil Code, contracts the cause or
object of which did not exist at the time of the transaction are inexistent and void ab initio.
The good faith of a party in entering into a contract is immaterial in determining whether it is
valid or not. Good faith, not being an essential element of a contract, has no bearing on its
validity. No amount of good faith can validate an agreement which is otherwise void. A contract
which the law denounces as void is necessarily no contract at all and no effort or act of the
parties to create one can bring about a change in its legal status.
Estate of Orlando Llenado et al. vs. Eduardo Llenado et al.

G.R. No. 145736. March 4, 2009.
Ynares-Santiago, J.
ISSUE: Whether the heirs are bound by the contracts entered into by their predecessors in
interest.
DOCTRINE: Yes. Under Article 1311 of the Civil Code, the heirs are bound by the contracts
entered into by their predecessors-in-interest except when the rights and obligations therein are
not transmissible by their nature, by stipulation or by provision of law. A contract of lease is,
therefore, generally transmissible to the heirs of the lessor or lessee. It involves a property right
and, as such, the death of a party does not excuse non-performance of the contract. The rights
and obligations pass to the heirs of the deceased and the heir of the deceased lessor is bound to
respect the period of the lease. The same principle applies to the option to renew the lease. As a
general rule, covenants to renew a lease are not personal but will run with the land.
Consequently, the successors-in-interest of the lessee are entitled to the benefits, while that of the
lessor are burdened with the duties and obligations, which said covenants conferred and imposed
on the original parties.
SECTION 1. CONSENT
Dandoy v. Tongson
G.R. No. 144652 December 16, 2005
Austria-Martinez, J.
ISSUE: May a contract to transfer rights be null and void for failure to obtain the consent of the
government?
DOCTRINE: Yes. Section 29 of the Commonwealth Act 141 or the Public Land Act provides in
part: “After the cultivation of the land has been begun, the purchaser, with the approval of the
Secretary of Agriculture and Commerce, may convey or encumber his rights to any person,
corporation, or association legally qualified under this Act to purchase agricultural public lands,
provided such conveyance or encumbrance does not affect any right or interest of the
Government in the land: And provided, further, That the transferor is not delinquent in the
payment of any installment due and payable. Any sale and encumbrance made without the
previous approval of the Secretary of Agriculture and Commerce shall be null and void and shall
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produce the effect of annulling the acquisition and reverting the property and all rights thereto to
the State, and all payments on the purchase price theretofore made to the Government shall be
forfeited.
Said provision contemplates a sale and encumbrance that a purchaser may desire to make during
the pendency of his application and before his compliance with the requirements of the law. The
reason for the prior approval is obvious. Since the application is still pending consideration and
the rights of the applicant have not yet been determined, he cannot make any transfer that may
affect the land without the approval of the Government. Such approval is necessary to protect the
interest of the Government. Thus, the law allows an applicant after the cultivation of the land has
been begun to convey or encumber his rights to any person provided such conveyance or
encumbrance does not affect any right or interest of the Government on the land. And to
safeguard such right or interest previous approval of the Secretary is required.
Given that the "Transfer of Sales Rights" from which respondents base their capacity to enter
into the contracts is null and void, respondents have no legal justification whatsoever to enter
into these agricultural leasehold contracts, thus rendering the contracts invalid.
Navotas Industrial Corporation V. Cruz, et al.

G.R. No. 159212. September 12, 2005
Callejo, Sr., J.:
ISSUE: Is there a valid option contract in a lease agreement providing for an option to buy
property but without stating the period for its exercise?
DOCTRINE: No. An option contract is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions, the power to decide Whether to enter
into a principal contract.
Epifania Dela Cruz, substituted by Laureana V. Alberto v. Sps. Eduardo C. Sison and
Eufemia S. Sison
G.R. No. 163770. February 17, 2005
ISSUE: Whether the person assailing that either he is unable to read, or the contract is in a
language not understood by him or that there has been fraud or mistake in the contract executed
must prove the facts claimed by him in determining whether Article 1332 applies – the person
asserting the contract has fulfilled his duty to explain the terms of the contract to the other party?
DOCTRINE: ART. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former.
The contradictory statements do not establish the fact that Epifania was unable to read and
understand the English language. There being no evidence adduced to support her bare
allegations, thus, Epifania failed to satisfactorily establish her inability to read and understand
the English language. It is well settled that a party who alleges a fact has the burden of proving
it. Consequently, the provisions of Article 1332 does not apply.
Perpetua vda. de Ape v. Court of Appeals and Genorosa Cawit Vda. De Lumayno
GR No. 133638. April 15, 2005
Chico-Nazario, J.:
58
ISSUE: Whether a person enforcing a contract of sale has the burden of proving that the terms of
the agreement were fully explained to the other party, who was an illiterate?
DOCTRINE: As a general rule, he who alleges fraud or mistake in a transaction must

substantiate his allegation as the presumption is that a person takes ordinary care for his concerns
and that private dealings have been entered into fairly and regularly. The exception to this rule is
provided for under Article 1332 of the Civil Code which provides that “[w]hen one of the parties
is unable to read, or if the contract is in a language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former.
Reynaldo Villanueva vs. Philippine National Bank

G.R. No. 154493. December 6, 2006
ISSUE: What is the effect of making a qualified acceptance of an offer?
DOCTRINE: A qualified acceptance, or one that involves a new proposal, constitutes a counter-
offer and a rejection of the original offer (Art. 1319, id.). Consequently, when something is
desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the terms of the offer annuls the
offer.
Gaudencio Valerio et. al v. Vicenta Refresca et. al.

G.R. No. 163687. March 28, 2006
Puno, J.:
ISSUE: Whether a Deed of Sale with no monetary consideration involved may be considered as
an absolutely simulated or fictitious contract which produces no legal effect.
DOCTRINE: Article 1345 of the Civil Code provides that the simulation of a contract may
either be absolute or relative. In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. The main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended to produce legal
effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated
or fictitious contract is void, and the parties may recover from each other what they may have
given under the contract. However, if the parties state a false cause in the contract to conceal
their real agreement, the contract is relatively simulated and the parties are still bound by their
real agreement. Hence, where the essential requisites of a contract are present and the simulation
refers only to the content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest.
Heirs of Cayetano Pangan vs. Spouses Rogelio Perreras and Priscilla Perreras
G.R. No. 157374 August 27, 2009
Brion, J.
ISSUE: Whether there was a perfected contract of sale of one of the co-owners of his share
despite the no consent of the other owners to such sale.
DOCTRINE: Yes. There was a perfected contract between the parties since all the essential
requisites of a contract were present.
Article 1318 of the Civil Code declares that no contract exists unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation established. Since the object of the parties’ agreement
involves properties co-owned by Consuelo and her children, the petitioners-heirs insist that their
58
approval of the sale initiated by their mother, Consuelo, was essential to its perfection.
Accordingly, their refusal amounted to the absence of the required element of consent.
That a thing is sold without the consent of all the co-owners does not invalidate the sale or render
it void. Article 493 of the Civil Code 8 recognizes the absolute right of a co-owner to freely
dispose of his pro indiviso share as well as the fruits and other benefits arising from that share,
independently of the other co-owners. Thus, when Consuelo agreed to sell to the respondents the
subject properties, what she in fact sold was her undivided interest that, as quantified by the
RTC, consisted of one-half interest, representing her conjugal share, and one-sixth interest,
representing her hereditary share.
Cornelia Baladad vs. Sergio A. Rublico and Spouses Laureano F. Yupano

G.R. No. 160743 August 4, 2009
Nachura, J.
ISSUE: Whether a contract of absolute sale in an Extrajudicial Settlement of Estate with

Absolute Sale executed by parties through their attorney-in-fact was valid.
DOCTRINE: Yes. While contained in one document, the two are severable and each can stand
on its own. Hence, for its validity, each must comply with the requisites prescribed in Article
1318 of the Civil Code, namely (1) consent of the contracting parties; (2) object certain, which is
the subject matter of the contract; and (3) cause of the obligation which is established.
And, most important of all is the fact that the subject deed is, on its face, unambiguous. When the
terms of a contract are lawful, clear and unambiguous, facial challenge cannot be allowed. We
should not go beyond the provisions of a clear and unambiguous contract to determine the intent
of the parties thereto, because we will run the risk of substituting our own interpretation for the
true intent of the parties.
It is immaterial that Cornelia’s signature does not appear on the Extrajudicial Settlement of
Estate with Absolute Sale. A contract of sale is perfected the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the price. 29 The fact that it was
Cornelia herself who brought Atty. Francisco to Corazon’s house to notarize the deed shows that
she had previously given her consent to the sale of the two lots in her favor. Her subsequent act
of exercising dominion over the subject properties further strengthens this assumption.
Francisco Landicho et al. vs. Felix Sia

G.R. No. 169472. January 20, 2009.
Puno C.J.:
ISSUE: Whether old age and illiteracy incapacitates a person to execute a contract.
DOCTRINE: No. The petitioners also failed to support their claim that the Aragons took
advantage of Francisco’s old age and illiteracy and employed fraudulent schemes in order to
deceive him into signing the Kasulatan. It has been held that “[a] person is not incapacitated to
contract merely because of advanced years or by reason of physical infirmities. It is only when
such age or infirmities impair the mental faculties to such extent as to prevent one from properly,
intelligently, and fairly protecting her property rights, is she considered incapacitated.”
XYST Corp. v. DMC Urban Properties Development Inc.

G.R. No. 171968; July 31, 2009
Quisumbing, J.
ISSUE: Whether there exists a perfected contract of sale between the parties despite the terms,
conditions and amendments which the offeror tried to impose upon the other.
58
DOCTRINE: No. By introducing amendments to the contract, XYST presented a counter-offer

to which DMC did not agree. Clearly, there was only an offer and a counter-offer that did not
sum up to any final arrangement containing the elements of a contract. No meeting of the minds
was established. The rule on the concurrence of the offer and its acceptance did not apply
because other matters or details–in addition to the subject matter and the consideration–would
still be stipulated and agreed upon by the parties. Therefore, since the element of consent is
absent, there is no contract to speak of. Where the parties merely exchanged offers and counter-
offers, no agreement or contract is perfected.
Gloria Ocampo and Teresita Tan v. Land Bank of the Philippines et al.
G.R. No. 164968; July 3, 2009
Peralta, J.
ISSUE: Whether the deceit employed must be serious.
DOCTRINE: Yes. Verily, fraud refers to all kinds of deception -- whether through insidious
machination, manipulation, concealment or misrepresentation -- that would lead an ordinarily
prudent person into error after taking the circumstances into account. The deceit employed must
be serious. It must be sufficient to impress or lead an ordinarily prudent person into error, taking
into account the circumstances of each case. Unfortunately, Ocampo was unable to establish
clearly and precisely how the Land Bank committed the alleged fraud. She failed to convince Us
that she was deceived, through misrepresentations and/or insidious actions, into signing a blank
form for use as security to her previous loan.
Granting, for the sake of argument, that appellant bank did not apprise the appellees of the real
nature of the real estate mortgage, such stratagem, deceit or misrepresentations employed by
defendant bank are facts constitutive of fraud which is defined in Article 1338 of the Civil Code
as that insidious words or machinations of one of the contracting parties, by which the other is
induced to enter into a contract which without them, he would not have agreed to. When fraud is
employed to obtain the consent of the other party to enter into a contract, the resulting contract is
merely a voidable contract that is a valid and subsisting contract until annulled or set aside by a
competent court. It must be remembered that an action to declare a contract null and void on the
ground of fraud must be instituted within four years from the date of discovery of fraud. In this
case, it is presumed that the appellees must have discovered the alleged fraud since 1991 at the
time when the real estate mortgage was registered with the Register of Deeds of Lingayen,
Pangasinan. The appellees cannot now feign ignorance about the execution of the real estate
mortgage.
Government Service Insurance System vs. Abraham Lopez

G.R. No. 165568; July 13, 2009
Carpio, J.:

ISSUE: Whether when there is merely an offer by one party without acceptance by the other,
there is no contract of sale.
DOCTRINE: Yes. In the present case, the parties never got past the negotiation stage. Nothing
shows that the parties had agreed on any final arrangement containing the essential elements of a
contract of sale, namely, (1) consent or the meeting of the minds of the parties; (2) object or
subject matter of the contract ; and (3) price or consideration of the sale. The 2 August 1988
letter of the GSIS cannot be classified as a perfected contract of sale which binds the parties.
The letter was in reply to Lopez’s offer to repurchase the property. Both the trial and appellate
courts found that Lopez’s offer to repurchase the property was subject to the approval of the
Board of Trustees of the GSIS, as explicitly stated in the 2 August 1988 GSIS’ letter. No such
approval appears in the records. When there is merely an offer by one party without acceptance
by the other, there is no contract of sale. Since there was no acceptance by GSIS, which can
validly act only through its Board of Trustees, of Lopez’s offer to repurchase the property, there
was no perfected contract of sale.
58
Sps. Ramon Lequin and Virginia Lequin vs. Sps. Raymundo Vizconde and Salome Lequin
Vizconde
G.R. No. 177710. October 12, 2009
Velasco, Jr., J.:
ISSUE: Whether when consent is given through fraud would make the contract voidable.
DOCTRINE: Yes. Article (Art.) 1330 of the Civil Code provides that when consent is given
through fraud, the contract is voidable.
Tolentino defines fraud as “every kind of deception whether in the form of insidious
machinations, manipulations, concealments or misrepresentations, for the purpose of leading
another party into error and thus execute a particular act.” Fraud has a “determining influence”
on the consent of the prejudiced party, as he is misled by a false appearance of facts, thereby
producing error on his part in deciding Whether to agree to the offer.
One form of fraud is misrepresentation through insidious words or machinations. Under Art.

1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which without them he would
not have agreed to. Insidious words or machinations constituting deceit are those that ensnare,
entrap, trick, or mislead the other party who was induced to give consent which he or she would
not otherwise have given.
Deceit is also present when one party, by means of concealing or omitting to state material facts,
with intent to deceive, obtains consent of the other party without which, consent could not have
been given. Art. 1339 of the Civil Code is explicit that failure to disclose facts when there is a
duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud.
Spouses Exequiel Lopez and Eusebia Lopez v. Spouses Eduardo Lopez and Marcelina
Lopez
G.R. No. 161925; November 25, 2009
Nachura, J.
ISSUE: Whether where the essential requisites of a contract are present and the simulation refers
only to the content or terms of the contract, the agreement is absolutely binding and enforceable
between the parties and their successors in interest.
DOCTRINE: Yes. Simulation takes place when the parties do not really want the contract they
have executed to produce the legal effects expressed by its wordings. Article 1345 of the Civil
Code provides that the simulation of a contract may either be absolute or relative. In absolute
simulation, there is a colorable contract but it has no substance as the parties have no intention to
be bound by it. The main characteristic of an absolute simulation is that the apparent contract is
not really desired or intended to produce legal effect or in any way alter the juridical situation of
the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract. However, if the parties
state a false cause in the contract to conceal their real agreement, the contract is relatively
simulated and the parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the content or terms of the
contract, the agreement is absolutely binding and enforceable between the parties and their
successors in interest.
Heirs Of Dr. Mario S. Intac v. Court of Appeals

G.R. No. 173211; October 11, 2012
58
ISSUE: Whether the deed of sale executed by Ireneo and Salvacion was absolutely simulated for
lack of consideration and cause and, therefore, void.
DOCTRINE: NO. Article 1345 provides that simulation of a contract may be absolute or
relative. The former takes place when the parties do not intend to be bound at all; the latter, when
the parties conceal their true agreement.
While Article 1346 states that an absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for any purpose contrary
to law, morals, good customs, public order or public policy binds the parties to their real
agreement. If the parties state a false cause in the contract to conceal their real agreement, the
contract is only relatively simulated and the parties are still bound by their real agreement.
Hence, where the essential requisites of a contract are present and the simulation refers only to
the content or terms of the contract, the agreement is absolutely binding and enforceable between
the parties and their successors in interest. In absolute simulation, there is a colorable contract
but it has no substance as the parties have no intention to be bound by it. The main characteristic
of an absolute simulation is that the apparent contract is not really desired or intended to produce
legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from each other what they
may have given under the contract."
Korean Air Co., Ltd. V. Yuson

G.R. No. 170369
Carpio, J.
ISSUE: Whether the offer of MNLSM Management is equivalent to an offering of said early
retirement program to its staff was certain.
DOCTRINE: No, the offer must be definite, complete and intentional. There is an ‘offer’ in the
context of Article 1319 only if the contract can come into existence by the mere acceptance of
the offeree, without any further act on the part of the offeror. Hence, the ‘offer’ must be definite,
complete and intentional. In the present case, the offer is not certain since (1) the 21 August 2001
memorandum clearly states that, “MNLSM Management, on its discretion, is hereby offering the
said early retirement program to its staff.
Doña Rosana Realty and Development Corporation vs. Molave Development Corporation
G.R. No. 180523; March 26, 2010
Abad, J.
ISSUE: Whether consent of the buyer is vitiated when the President of buyer-corporation
executed a document acknowledging the receipt of PhP 1.3 million as consideration for the
cancellation of its contract to sell by reason of the actuation of the seller’s lawyer that the check
would not be released without such document.
DOCTRINE: No, the President of buyer-corporation asserted that she signed the above receipt
because seller’s lawyer would not have released the check to her. But this is not a valid ground
for claiming that consent is vitiated. If she did not want to agree to the cancellation, she had no
business signing the receipt and accepting the check. She could very well have stood her ground
and pressed for complete performance of the contract to sell. Having received the P1.3 million,
the buyer-corporation’s remaining remedy was to pursue a claim for the balance of P1 million
that it paid the seller upon the execution of the contract to sell.
Jocelyn M. Toledo vs. Marilou M. Hyden

G.R. No. 172139 December 8, 2010
Del Castillo, J.:
58
ISSUE: Whether the "Acknowledgment of Debt" is an inexistent contract rendering it void from
the very beginning pursuant to Article 1409 of the New Civil Code.
DOCTRINE: No, the "Acknowledgment of Debt" is valid and binding contract. Even if there
was indeed such threat made by Marilou, the same is not considered as that kind of threat that
would vitiate consent. Article 1335 of the New Civil Code is very specific on this matter. It
provides: " Art. 1335. There is violence when in order to wrest consent, serious or irresistible
force is employed. x xxx A threat to enforce one’s claim through competent authority, if the
claim is just or legal, does not vitiate consent.
Here, it is uncontested that petitioner had in fact signed the "Acknowledgment of Debt" in April
1998 and two of her subordinates served as witnesses to its execution, knowing fully well the
nature of the contract she was entering into. Next, petitioner issued five checks in favor of
respondent representing renewal payment of her loans amounting to P290,000.00. In June 1998,
she asked to recall Check No. 0010761 in the amount of P30,000.00 and replaced the same with
six checks, in staggered amounts. All these are indicia that Jocelyn treated the "Acknowledgment
of Debt" as a valid and binding contract.
ECE Realty and Development Inc. v. Rachel G. Mandap

G.R. No. 196182, September 01, 2014
ISSUE: Whether fraud attended the perfection of the contract which should be a ground to
invalidate the contract.
DOCTRINE: YES. Article 1338 of the Civil Code provides that “[t]here is fraud when through
insidious words or machinations of one of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have agreed to.” In addition, under Article
1390 of the same Code, a contract is voidable or annullable “where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud.”
Jurisprudence has shown that in order to constitute fraud that provides basis to annul contracts, it
must fulfill two conditions. First, the fraud must be dolo causante or it must be fraud in obtaining
the consent of the party. This is referred to as causal fraud. The deceit must be serious. Second,
the fraud must be proven by clear and convincing evidence and not merely by a preponderance
thereof. insofar as the present case is concerned, the Court agrees that the misrepresentation
made by petitioner in its advertisements does not constitute causal fraud which would have been
a valid basis in annulling the Contract to Sell between petitioner and respondent.
SECTION 2. OBJECT OF CONTRACTS
Atty. Pedro M. Ferrer vs. Spouses Alfredo Diaz and Imelda Diaz
G.R. No. 165300. April 23, 2010
Del Castillo, J.:
ISSUE: Whether a waiver of hereditary rights in favor of another executed by a future heir while
the parents are still living valid.
DOCTRINE: No. Pursuant to the second paragraph of Article 1347 of the Civil Code, no
contract may be entered into upon a future inheritance except in cases expressly authorized by
law. For the inheritance to be considered “future,” the succession must not have been opened at
the time of the contract. A contract may be classified as a contract upon future inheritance,
prohibited under the second paragraph of Article 1347, where the following requisites concur:
(1) That the succession has not yet been opened; (2) That the object of the contract forms part of
the inheritance; and, (3) That the promissor has, with respect to the object, an expectancy of a
right which is purely hereditary in nature.
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SECTION 3. CAUSE OF CONTRACTS
J.L.T. Agro Inc. v. Balansag

G.R. No. 141882. March 11, 2005
Tinga, J.:
ISSUE: What will be the effect on the contract if it was entered into without cause or with
unlawful cause?
DOCTRINE: Article 1318 of the New Civil Code enumerates the requisites of a valid contract,
namely: (1) consent of the contracting parties; (2) object certain which is the subject matter of
the contract; and (3) Cause of the obligation which is established.
Thus, Article 1352 declares that contracts without cause, or with unlawful cause produce no
effect whatsoever. Those contracts lack an essential element and they are not only voidable but
void or inexistent pursuant to Article 1409, paragraph (2). The absence of the usual recital of
consideration in a transaction which normally should be supported by a consideration such as the
assignment made by Don Julian of all nineteen (19) lots he still had at the time, coupled with the
fact that the assignee is a corporation of which Don Julian himself was also the President and
Director, forecloses the application of the presumption of existence of consideration established
by law.
Alvarez v. PICOP Resources

G.R. No. 162243 December 3, 2009
ISSUE: Whether in onerous contracts the cause is understood to be, for each contracting party,
the prestation or promise of a thing or service by the other.
DOCTRINE: Yes. According to Article 1350 of the Civil Code, "(i)n onerous contracts the
cause is understood to be, for each contracting party, the prestation or promise of a thing or
service by the other." Private investments for one’s businesses, while indeed eventually
beneficial to the country and deserving to be given incentives, are still principally and
predominantly for the benefit of the investors. Thus, the "mutual" contract considerations by
both parties to this alleged contract would be both for the benefit of one of the parties thereto,
BBLCI, which is not obligated by the 1969 Document to surrender a share in its proceeds any
more than it is already required by its TLA and by the tax laws.
PICOP’s argument that its investments can be considered as contract consideration derogates the
rule that "a license or a permit is not a contract between the sovereignty and the licensee or
permittee, and is not a property in the constitutional sense, as to which the constitutional
proscription against the impairment of contracts may extend." All licensees obviously put up
investments, whether they are as small as a tricycle unit or as big as those put up by multi-
billion-peso corporations. To construe these investments as contract considerations would be to
abandon the foregoing rule, which would mean that the State would be bound to all licensees,
and lose its power to revoke or amend these licenses when public interest so dictates.
The power to issue licenses springs from the State’s police power, known as "the most essential,
insistent and least limitable of powers, extending as it does to all the great public
needs." Businesses affecting the public interest, such as the operation of public utilities and those
involving the exploitation of natural resources, are mandated by law to acquire licenses. This is
58
so in order that the State can regulate their operations and thereby protect the public interest.
Thus, while these licenses come in the form of "agreements," e.g., "Timber License
Agreements," they cannot be considered contracts under the non-impairment clause.
CHAPTER 3. FORM OF CONTRACTS
Manuel Mallari and Millie Mallari v. Rebecca Alsol

G.R. No. 150866. March 6, 2006
Carpio, J.:
ISSUE: Will a defect in the notarization of a private document nullify the transaction of the
parties indicated therein?
DOCTRINE: Notarization converts a private document into a public document. However, the
non-appearance of the parties before the notary public who notarized the document does not
necessarily nullify nor render the parties’ transaction void ab initio.
Serafin Naranja et al. vs. Court of Appeals

G.R. No. 160132. April 17, 2009.
Nachura J.:
ISSUE: Whether a contract of sale should follow a particular form.
DOCTRINE: No. The Court does not agree with petitioners’ contention that a deed of sale must
contain a technical description of the subject property in order to be valid. Petitioners anchor
their theory on Section 127 of Act No. 496, which provides a sample form of a deed of sale that
includes, in particular, a technical description of the subject property. To be valid, a contract of
sale need not contain a technical description of the subject property. Contracts of sale of real
property have no prescribed form for their validity; they follow the general rule on contracts that
they may be entered into in whatever form, provided all the essential requisites for their validity
are present. The requisites of a valid contract of sale under Article 1458 of the Civil Code are:
(1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in
money or its equivalent.
CHAPTER 4. REFORMATION OF INSTRUMENTS
Benny Go v. Eliodoro Bacaron

GR No. 159048. October 11, 2005
Panganiban, J.:
ISSUE: What is the proper remedy of the parties when they failed to express their true intentions
in the contract?
DOCTRINE: Ultimately, it is the intention of the parties that determines whether a contract is

one of sale or of mortgage. In the present case, one of the parties to the contract raises as an issue
the fact that their true intention or agreement is not reflected in the instrument. Under Article
1605 of the New Civil Code, the supposed vendor may ask for the reformation of the instrument,
should the case be among those mentioned in Articles 1602 and 1604. Because respondent has
more than sufficiently established that the assailed Contract is in fact an equitable mortgage
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rather than an absolute sale, he is allowed to avail himself of the remedy of reformation of
contracts as provided in Article 1359 of the New Civil Code.
CHAPTER 5. INTERPRETATION OF CONTRACTS
Holy Cross of Davao College, Inc. vs. Holy Cross of Davao Faculty Union – Kampi
G.R. No. 156098 June 27, 2005
Sandoval-Gutierrez, J.
ISSUE: How are non-ambiguous contracts to be interpreted?
DOCTRINE: Contracts, which are not ambiguous are to be interpreted according to their literal
meaning and not beyond their obvious intendment. When the provisions of a CBA state that
academic teaching personnel as recipient of a scholarship grant are entitled to a leave of absence
with a grant-in-aid equivalent to their monthly salary and allowance, provided such grant is to
promote their professional growth or to enhance their studies in institutions of higher learning.
Such provisions need no interpretation for they are clear.
In Mactan Workers Union vs. Aboitiz, the court held that "the terms and conditions of a
collective bargaining contract constitute the law between the parties. Those who are entitled to
its benefits can invoke its provisions. In the event that an obligation therein imposed is not
fulfilled, the aggrieved party has the right to go to court for redress."
Agas vs. Sabico

G.R. No. 156447. April 26, 2005
Callejo, Sr., J.
ISSUE: May the Court declare a deed of sale to be a deed of absolute mortgage, taking into
consideration the circumstances attendant in a certain case?
DOCTRINE: Yes. In determining the nature of a contract, courts are not bound by the title or
name given by the parties. The decisive factor in evaluating such agreement is the intention of
the parties, as shown not necessarily by the terminology used in the contract but by their conduct,
words, actions and deeds prior to, during and immediately after executing the agreement. As
such, therefore, documentary and parol evidence may be submitted and admitted to prove such
intention. If both parties offer a conflicting interpretation of a contract or several contracts, then
judicial determination of the intention of the parties’ intention is inevitable.
A contract may be embodied in two or more separate writings, in which event the writings
should be read and interpreted together in such a way as to eliminate seeming inconsistencies
and render the parties’ intention effectual. In construing a written contract, the reason behind and
the circumstances surrounding its execution are of paramount importance to place the interpreter
in the situation occupied by the parties concerned at the time the writing was
executed. Construction of the terms of a contract, which would amount to impairment or loss of
right, is not favored. Conservation and preservation, not waiver, abandonment or forfeiture of a
right, is the rule. In case of doubts in contracts, the same should be settled in favor of the greatest
reciprocity of interests. Moreover, such doubts must be resolved against the person who drafted
the deed and who is responsible for the ambiguities in the deed.
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Further, the notary public who notarized the said deed merely asked the respondent if the latter
knew the contents of the deed of absolute sale, and the respondent purportedly replied in the
affirmative. The notary public never even bothered to explain to the respondent the nature and
the rights and obligations of the parties under the deed, as mandated by Article 1332 of the New
Civil Code
Berman Memorial Park, Inc. and Luisa Chong v. Francisco Cheng

G.R. No. 154630. May 6, 2005
Callejo, Sr., J.:
ISSUE: Do the stipulations embodied in an agreement reflect the true agreement of the parties?
DOCTRINE: Yes. Article 1370 of the New Civil Code provides that if the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of
its stipulation shall control. No amount of extrinsic aids are required and no further extraneous
sources are necessary in order to ascertain the parties’ intent, determinable as it is, from the
contract itself. The records are clear that the respondent understood the nature of the contract he
entered into.
If, indeed, the agreement were not the true intention of the parties, the party should file a
corresponding action for reformation of the contract.
The hornbook rule on interpretation of contracts gives primacy to the intention of the parties,
which is the law among them. Ultimately, their intention is to be deciphered not from the
unilateral post facto assertions of one of the parties, but from the language used in the contract.
And when the terms of the agreement, as expressed in such language, are clear, they are to be
understood literally, just as they appear on the face of the contract.
Rosalina Tagle v. Court of Appeals, Fast International Corporation and/or Kuo Tung Yu
Huang
G. R. No. 148235. August 11, 2005
Carpio Morales, J.:
ISSUE: Can a widow who filed a claim for death benefits be entitled to the additional labor
insurance she is entitled to as provided for in her deceased husband’s employment contract on
compensation and benefits which explicitly states that “Benefits . . . include compensation
for . . . death in accordance with social insurance laws and other pertinent provisions of the
Taiwan Labor Law. . . Additional Labor Insurance shall be provided to the Fisherman with a
limit of NT$300,000.00 per person (or its equivalent) for accident insurance covering fisherman
regardless of whether accident occurs within and/or beyond work hours”?
DOCTRINE: No. Death is defined as “loss of life resulting from injury or sickness. Death
could be a result of accident, but accident does not necessarily result to death. Compensation
benefits for illness, death, accident which does not result to death, and partial or
total disability are treated separately and differently in the 3-paragraph provision of Article II,
Section 10 of the employment contract. The said provision in the employment contract being
clear and unambiguous, its literal meaning controls (Article 1370, New Civil Code). To uphold
petitioner’s claim for additional insurance for accident, assuming that one for the purpose was
secured, after receiving insurance benefits for death arising from accident, would violate the
clear provision of Article II, Section 10 of the employment contract, the law between the parties.
And it would trifle with the Release, Waiver and Quitclaim, another contract between the parties,
barring petitioner from claiming other or additional benefits arising from petitioner’s husband’s
death-basis of the release of the insurance proceeds to her.
Martha R. Horrigan v. Troika Commercial, Inc.

G.R. No. 148411. November 29, 2005
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Sandoval-Gutierrez, J.:
ISSUE: Who bears the responsibility for causing obscurities in a contract?
DOCTRINE: The party who draws up the contract, in which obscure words or phrases appear,
bears the responsibility for causing the ambiguity or obscurity, and hence, these must be
construed against him. In this case, it was petitioner’s spouse who prepared the sub-lease
contract in question. Consequently, the ambiguity must be construed against herein petitioner as
she is presumed to have
Aurelio P. Alonzo and Teresita A. Sison v. Jaime and Perlita San Juan
G.R. No. 137549. February 11, 2005
Chico-Nazario, J.:
ISSUE: How conflicting stipulations in a compromise agreement must be interpreted?
DOCTRINE: Article 1374 of the Civil Code requires that the various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may result from all
of them taken jointly.
In this case, we find it was error on the part of the trial court to have interpreted the compromise
agreement in the manner it has done so.
Applying the rule that the various stipulations of a contract should be taken together, the trial
court should have interpreted paragraph 10, in relation to paragraphs 11 and 12. If we were to
follow the interpretation of the trial court, the respondents would only have to default in the
payment of their obligation and the contract would be rendered null and void to their benefit and
advantage leaving the petitioners without any recourse at all. This surely was not what was
envisioned when the parties entered into the compromise. The Court itself would not have
approved the same for being contrary to law, morals and public policy. Certainly, to sustain the
interpretation of the trial court would be to sanction an absurdity as it would go against the very
rationale of entering into a Compromise Agreement, i.e., to put an end to litigation. If we were
to follow the argument of the trial court to its logical conclusion, then it would mean that the
parties would have to go back to square one and re-litigate what they had already put to rest
when they entered into the subject Compromise Agreement
Vicente Go v. Pura Kalaw, Inc.

G.R. No. 131408. July 31, 2006
Sandoval-Gutierrez, J.
ISSUE: How should agreements in a contract be interpreted?
DOCTRINE: Article 1370 of the Civil Code governs the interpretation of the terms of
agreement in a written contract. Simply put, the literal meaning of the stipulations shall control
the intention of the parties, to be deciphered not from the unilateral post facto assertions of one
of the parties, but from the language used in the contract. The language is to be understood
literally, just as it so appears in the contract.
Sps. Alvaro v. Sps. Returban

G.R. No. 166183. January 20, 2006
ISSUE: Is the nomenclature used by the parties decisive in the interpretation of a contract?
DOCTRINE: No. The nomenclature used by the contracting parties to describe a contract does
not determine its nature. The decisive factor is the intention of the parties to the contract – as
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shown by their conduct, words, actions and deeds – prior to, during and after executing the
agreement.
Ayala Inc. v. Ray Burton Corp

GR No. 163075. January 23, 2006.
Sandoval-Gutierrez, J.:
ISSUE: Is the name given by the parties to a contract conclusive?
DOCTRINE: No. The real nature of a contract may be determined from the express terms of the
written agreement and from the contemporaneous and subsequent acts of the contracting parties.
In the construction or interpretation of an instrument, the intention of the parties is primordial
and is to be pursued. If the terms of the contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulations shall control. If the words appear
to be contrary to the evident intention of the parties, the latter shall prevail over the former. The
denomination or title given by the parties in their contract is not conclusive of the nature of its
contents.
San Diego v. Evangelista

G.R. No. 163680. January 24, 2006
Carpio Morales, J.
ISSUE: What is the effect if the terms of the contract are clear?
DOCTRINE: Paragraph No. 1 of the contract relied upon by petitioner is clearly worded. It
provides that “an agricultural leasehold relation iscreatedon a farm lot which is a portion of a
parcel of land” covered by a transfer certificate of title consisting of three hectares, clearly
referring to respondent’s father’s TCT No. 98.728 (M) containing three hectares. Art. 1370 of the
New Civil Code which provides that if the terms of the contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
Laureano T. Angeles v. Philippine National Railways (PNR) And Rodolfo Flores

G.R. No. 150128. August 31, 2006
Garcia, J.:
ISSUE: What is the probative value of the acts of a contracting party if there is doubt as to the
language used in the contract or as to the intention of such party in entering into the said
contract?
DOCTRINE: Article 1374 of the Civil Code provides that the various stipulations of a contract
shall be read and interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly. In fine, the real intention of the parties is primarily to be
determined from the language used and gathered from the whole instrument.
Article 1371 of the Civil Code provides that to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. In other words, in case of
doubt, resort may be made to the situation, surroundings, and relations of the parties.
Elenita Ishida and Continent Japan Co., Inc. v. Antusa de Mesa-Magno, Firmo de Mesa
et.al.
G. R. No. 136260. July 28, 2006
Garcia, J.:
ISSUE: Is a declaration of nullity of a contract warranted where the parties executed an

addendum to a Deed of Sale with Mortgage excluding certain properties within the area of the
real properties subject of the sale?
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DOCTRINE: To warrant a declaration of nullity of the contract, the doubts or obscurities must

be cast upon the principal object of the contract (which in this case are three parcels of land) in
such a way that the true intention of the parties cannot be known. (Par. 2, Art. 1378 of the Civil
Code)
Such confusion merely led to the failure of the parties to express in the contract the true intention
of their agreement, the proper remedy of which is reformation of the contact under Chapter 4,
Title 2, Book IV (Obligations and Contracts) of the Civil Code.
Heirs of the Deceased Carmen Cruz-Zamora v. Multiwood International, Inc.

G.R. No. 146428. January 19, 2009.
Leonardo-De Castro, J.:
ISSUE: Whether clear and explicit terms in contracts warrant court interpretation.
DOCTRINE: No. When the terms of the agreement are clear and explicit, such that they do not
justify an attempt to read into them any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract. It is only in instances when
the language of a contract is ambiguous or obscure that courts ought to apply certain established
rules of construction in order to ascertain the supposed intent of the parties. However, these rules
will not be used to make a new contract for the parties or to rewrite the old one, even if the
contract is inequitable or harsh. They are applied by the court merely to resolve doubts and
ambiguities within the framework of the agreement.
Antipolo Properties v. Nuyda

G.R. No. 171832; October 12, 2009
ISSUE: Whether contemporaneous and subsequent acts shall be principally considered in

knowing the intention of the contracting parties.
DOCTRINE: Yes. Petitioner moreover unequivocally obligated itself to extend the said benefits
to respondent. Rudimentary is the principle that a contract is the law between the contracting
parties. Further, when the language of the contract is clear and plain or readily understandable by
any ordinary reader, there is absolutely no room for interpretation or construction and the literal
meaning of its stipulations shall control. The Court then fully agrees with the CA’s declaration
that the contract "leaves no other recourse for the courts than to enforce the contractual
stipulations therein, in the exact manner agreed upon and written.
Adriatico Consortium, Inc., et al. vs. Land Bank of the Philippines

G.R. No. 187838; December 23, 2009
Velasco, Jr., J.
ISSUE: Whether the literal meaning of a contract’s stipulations shall control if the terms are
clear and leave no doubt upon the intention of the contracting parties.
DOCTRINE: Yes. The cardinal rule in the interpretation of contracts is embodied in the first
paragraph of Article 1370 of the Civil Code: “[i]f the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control.”
In the case at bar, the word “action” should be defined according to its plain and ordinary
meaning, i.e., as the process of doing something; conduct or behavior; a thing done. It is not
limited to actions before a court or a judicial proceeding. Therefore, the only logical conclusion
that can be derived from the use of the word “action” in Sec. 5 of the agreement is that the
parties intentionally used it in its plain and ordinary sense and did not limit it to mean any
specific legal term. Moreover, a compromise agreement compromises not only those objects
definitely stated in it, but also those, which by necessary implication, should be deemed to have
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been included in it. Ergo, the term “action” includes the sale of the receivables as a necessary
implication. Furthermore, Sec. 5 of the Partial Compromise Agreement speaks of cooperation
between the parties to determine the person or persons ultimately liable. It states, “x x x until it is
finally adjudged and determined who are the parties liable thereto; toward this end, the parties
herein agree to cooperate with each other in order for respondent Land Bank of the Philippines to
recover the same as against the person/s liable thereon.”
In other words, the parties agreed to cooperate and collaborate with each other in order to
determine the person or persons who are ultimately liable. By selling the receivables, Land Bank
did not cooperate with petitioners.
Manila International Airport Authority v. Avia Filipinas International, Inc.,

G.R. No. 180168; February 27 2012
ISSUE: Whether the stipulations of the contract, in case of doubt, should be read in its entirety?
DOCTRINE: Yes. Article 1374 of the Civil Code clearly provides that “the various stipulations
of a contract shall be interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly.” Indeed, in construing a contract, the provisions thereof
should not be read in isolation, but in relation to each other and in their entirety so as to render
them effective, having in mind the intention of the parties and the purpose to be achieved. 7 In
other words, the stipulations in a contract and other contract documents should be interpreted
together with the end in view of giving effect to all.
CHAPTER 6. RESCISSIBLE CONTRACTS
Oliverio Laperal and Filipinas Golf & Country Club, Inc. v. Solid Homes, Inc.
G.R. No. 130913. June 21, 2005
Garcia, J.:
ISSUE: Is mutual restitution under Article 1385 proper where one party successfully rescinds a
contract under Article 1191?
DOCTRINE: Yes. The right to rescind under Article 1191 of the Civil Code carries with it the
corresponding obligation for restitution. It is not correct to say that mutual restitution under
Article 1385 applies only if the rescission is made under the instances enumerated in Article
1381. Mutual restitution is required in cases involving rescission under Article 1191. Rescission
creates the obligation to return the object of the contract. It is so required to bring back the
parties to their original situation prior to the inception of the contract.
C-J Yulo & Sons, Inc. v. Roman Catholic Bishop of San Pablo, Inc.
G.R. No. 133705. March 31, 2005
Garcia, J.:
ISSUE: What should be the nature of the breach of contract before a rescission may be allowed?
DOCTRINE: The violations of the conditions of the donation committed by the donee were
merely casual breaches of the conditions of the donation and did not detract from the purpose by
which the donation was made, i.e., for the establishment of a home for the aged and the infirm.
In order for a contract which imposes a reciprocal obligation, which is the onerous donation in
this case wherein the donor is obligated to donate a 41,117 square meter property in Canlubang,
Calamba, Laguna on which property the donee is obligated to establish a home for the aged and
the infirm (Exhibit C), may be rescinded per Article 1191 of the New Civil Code, the breach of
the conditions thereof must be substantial as to defeat the purpose for which the contract was
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perfected The right to rescind the contract for non-performance of one of its stipulations is not
absolute.
The general rule is that rescission of a contract will not be permitted for a slight or casual breach,
but only for such substantial and fundamental breach as would defeat the very object of the
parties in making the agreement. The question of whether a breach of a contract is substantial
depends upon the attendant circumstances.
Spouses Felipe and Leticia Cannu v. Spouses Gil And Fernandina Galang and National
Home Mortgage Finance Corporation
G.R. No. 139523. May 26, 2005
Chico-Nazario, J.:
ISSUE: Does failure to pay the balance of the purchase price constitute a substantial breach of
the obligation?
DOCTRINE: Yes. Settled is the rule that rescission or, more accurately, resolution, of a party
to an obligation under Article 1191 is predicated on a breach of faith by the other party that
violates the reciprocity between them. Rescission will not be permitted for a slight or casual
breach of the contract. Rescission may be had only for such breaches that are substantial and
fundamental as to defeat the object of the parties in making the agreement. The question of
whether a breach of contract is substantial depends upon the attending circumstances and not
merely on the percentage of the amount not paid.
Bienvenido M. Casino Jr. v. Court of Appeals

G.R. No. 133803. September 16, 2005
Garcia, J.:
ISSUE: May a party who deems the contract violated consider it resolved or rescinded, and act
accordingly, without previous court action?
HELD: Yes but he proceeds at his own risk. It is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other’s breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize its own
damages.
Pryce Corporation (Formerly Pryce Properties Corporation), v. Philippine Amusement

And Gaming Corporation
G.R. No. 157480. May 6, 2005
Panganiban, J.:
ISSUE: Is there a difference between the terms “termination” and “rescission”?
DOCTRINE: Yes. The term “rescission” is found in 1) Article 1191 of the Civil Code, the
general provision on rescission of reciprocal obligations; 2) Article 1659, which authorizes
rescission as an alternative remedy, insofar as the rights and obligations of the lessor and the
lessee in contracts of lease are concerned; and 3) Article 1380 with regard to the rescission of
contracts.
There is a distinction in law between cancellation of a contract and its rescission. To rescind is to
declare a contract void in its inception and to put an end to it as though it never were. It is not
merely to terminate it and release parties from further obligations to each other but to abrogate it
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from the beginning and restore the parties to relative positions which they would have occupied
had no contract ever been made.
Rescission has likewise been defined as the “unmaking of a contract, or its undoing from the
beginning, and not merely its termination.” Rescission may be effected by both parties by mutual
agreement; or unilaterally by one of them declaring a rescission of contract without the consent
of the other, if a legally sufficient ground exists or if a decree of rescission is applied for before
the courts. On the other hand, termination refers to an “end in time or existence; a close,
cessation or conclusion.” With respect to a lease or contract, it means an ending, usually before
the end of the anticipated term of such lease or contract, that may be effected by mutual
agreement or by one party exercising one of its remedies as a consequence of the default of the
other.
Thus, mutual restitution is required in a rescission (or resolution), in order to bring back the
parties to their original situation prior to the inception of the contract.
In contrast, the parties in a case of termination are not restored to their original situation; neither
is the contract treated as if it never existed. Prior to its termination, the parties are obliged to
comply with their contractual obligations. Only after the contract has been cancelled will they be
released from their obligations.
Coastal Pacific Trading Inc., v. Southern Rolling Mills, Co., Inc. et al.
G.R. No. 118692. July 28, 2006
Panganiban, CJ:
ISSUE: Whether respondent consortium banks disposed of VISCO’s assets in fraud of the
creditors?
DOCTRINE: Yes. Director owe loyalty and fidelity to the corporation they serve and to its
creditors. When these directors sit on the board as representatives of shareholders who are also
major creditors, they cannot be allowed to use their offices to secure undue advantage for those
shareholders, in fraud of other creditors who do not have similar representation in the board of
directors.
Pan Pacific Industrial Sales Co., v. Court of Appeals

G.R. No. 125283. February 10, 2006
Tinga, J:
ISSUE: Whether rescission can be availed of when one party denies the existence of a contract.
DOCTRINE: A non-existent contract need not be cancelled. In asking for "rescission," under
Article 1191 of the Civil Code provides that the "power to rescind," really means to resolve or
cancel, is implied in reciprocal obligations "in case one of the obligors should not comply with
what is incumbent upon him." When a party asks for the resolution or cancellation of a contract
it is implied that he recognizes its existence.
Laurencio Ramel, et.al. v. Daniel Aquino and Guadaluper Abalahin

G.R. No. 133208. July 31, 2006
Puno, J.:
ISSUE: When a party fails to pay the mortgage obligation, is the other party entitled to a
rescission of the contract?
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DOCTRINE: Violation of an agreement gives entitles the other party to rescind the contract
under Art. 1191 of the Civil Code. Non-payment of the mortgage obligation assumed by
petitioners in this case constitute substantial, not merely casual and slight breach, that entitles the
respondents to rescind the contract.
Union Bank of the Philippines v. Sps. Ong

G.R. No. 152347. June 21, 2006
Garcia, J.:
ISSUE: Does mere fact of injury to the creditor mean that a contract is rescissible for having
been entered into to defraud the creditor?
DOCTRINE: No. Contracts in fraud of creditors are those executed with the intention to
prejudice the rights of creditors. They should not be confused with those entered into without
such mal-intent, even if, as a direct consequence thereof, the creditor may suffer some damage.
In determining whether a certain conveying contract is fraudulent, what comes to mind first is
the question of whether the conveyance was a bona fide transaction or a trick and contrivance to
defeat creditors. To creditors seeking contract rescission on the ground of fraudulent conveyance
rest the onus of proving by competent evidence the existence of such fraudulent intent on the part
of the debtor, albeit they may fall back on the disputable presumptions, if proper, established
under Article 1387 of the Code.
The existence of fraud or the intent to defraud creditors cannot plausibly be presumed from the
fact that the price paid for a piece of real estate is perceived to be slightly lower, if that really be
the case, than its market value. To be sure, it is logical, even expected, for contracting minds,
each having an interest to protect, to negotiate on the price and other conditions before closing a
sale of a valuable piece of land. The negotiating areas could cover various items. The purchase
price, while undeniably an important consideration, is doubtless only one of them.
It may be stressed that, when the validity of sales contract is in issue, two veritable presumptions
are relevant: first, that there was sufficient consideration of the contract; and, second, that it was
the result of a fair and regular private transaction. If shown to hold, these presumptions
infer prima facie the transaction's validity, except that it must yield to the evidence
adduced which the party disputing such presumptive validity has the burden of overcoming.
Parenthetically, the rescissory action to set aside contracts in fraud of creditors is accion
pauliana, essentially a subsidiary remedy accorded under Article 1383 of the Civil Code which
the party suffering damage can avail of only when he has no other legal means to obtain
reparation for the same. In net effect, the provision applies only when the creditor cannot recover
in any other manner what is due him.
For a contract to be rescinded for being in fraud of creditors, both contracting parties must be
shown to have acted maliciously so as to prejudice the creditors who were prevented from
collecting their claims.
Philippine Leisure and Retirement Authority v. Court of Appeals

G.R. No. 156303, 541 SCRA 85
ISSUE: May a party be allowed to unilaterally rescind a contract absent any provision in the
contract providing for a right to rescind?
DOCTRINE: The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
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The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.
Therefore, even if a provision providing for a right to rescind is not in agreement, a party may
still rescind a contract should one obligor fail to comply with its obligations.
Uniwide Holdings, Inc. v. Jandecs Transportation Co., Inc.

G.R. No. 168522, 541 SCRA 158
ISSUE: Does mere failure of a party in a reciprocal obligation to deliver his end of the contract
warrant the other party to rescind the contract even if the latter has already delivered his part of
said obligation?
DOCTRINE: The right of rescission is implied in every reciprocal obligation where one party
fails to perform what is incumbent upon him while the other is willing and ready to comply.
Certainly, petitioner's failure to deliver the units on the commencement date of the lease on
October 1, 1997 gave respondent the right to rescind the contract after the latter had already paid
the contract price in full.
Furthermore, respondent's right to rescind the contract cannot be prevented by the fact that
petitioner had the option to substitute the stalls. Even if petitioner had that option, it did not,
however, mean that it could insist on the continuance of the contract by forcing respondent to
accept the substitution. Neither did it mean that its previous default had been obliterated
completely by the exercise of that option.
Bonrostro v. Luna
G.R. No. 172346, 702 SCRA 1
ISSUE: Whether the failure of spouses Bonrostro to pay the installments of P300,000.00 on
April 30, 1993 and P330,000.00 on July 31, 1993 is a substantial breach of their obligation under
the contract as to warrant the rescission of the same.
DOCTRINE: The defendants’ delay in the payment of the two installments is not so substantial
as to warrant rescission of contract. Although, the defendant failed to pay the two installments in
due time, she was able to communicate with the plaintiffs through letters requesting for an
extension of two months within which to pay the installments. In fact, on November 24, 1993
defendant informed Atty. Arlene Carbon that she was ready to pay the installments and the
money is ready for pick-up. However, plaintiff did not bother to get or pick-up the money
without any valid reason. It would be very prejudicial on the part of the defendant if the contract
to sell be rescinded considering that she made a downpayment of P200,000.00 and made partial
amortization to the Bliss Development Corporation. In fact, the defendant testified that she is
willing and ready to pay the balance including the interest on November 24, 1993.
The Court is of the opinion that the delay in the payment of the balance of the purchase price of
the house and lot is not so substantial as to warrant the rescission of the contract to sell. The
question of whether a breach of contract is substantial depends upon the attendant circumstance.
Armand O. Raquel-Santos and Annalissa Mallari v. Court of Appeals and Finvest

Securities Co., Inc.
G.R. No. 174986 July 7, 2009
Nachura, J.:
ISSUE: Whether rescission of a contract gives rise to mutual restitution.
58
DOCTRINE: Yes. Rescission creates the obligation to return the object of the contract. To
rescind is to declare a contract void at its inception and to put an end to it as though it never was.
Rescission does not merely terminate the contract and release the parties from further obligations
to each other, but abrogates it from the beginning and restores the parties to their relative
positions as if no contract has been made.
Heirs of Sofia Quirong v. Development Bank of the Philippines

G.R. No. 173441 December 3, 2009
Abad, J.
ISSUE: Whether the action to claim rescission must be commenced within four years.
DOCTRINE: Yes. The next question that needs to be resolved is the applicable period of
prescription. The DBP claims that it should be four years as provided under Article 1389 of the
Civil Code.16 Article 1389 provides that "the action to claim rescission must be commenced
within four years." The Quirong heirs, on the other hand, claim that it should be 10 years as
provided under Article 1144 which states that actions "upon a written contract" must be brought
"within 10 years from the date the right of action accrues."
Now, was the action of the Quirong heirs "for rescission" or "upon a written contract"? There is
no question that their action was for rescission, since their complaint in Civil Case CV-98-
02399-D asked for the rescission of the contract of sale between Sofia Quirong, their
predecessor, and the DBP and the reimbursement of the price of P78,000.00 that Sofia Quirong
paid the bank plus damages. The prescriptive period for rescission is four years.
Here, the Quirong heirs alleged in their complaint that they were entitled to the rescission of the
contract of sale of the lot between the DBP and Sofia Quirong because the decision in Civil Case
D-7159 deprived her heirs of nearly the whole of that lot. But what was the status of that contract
at the time of the filing of the action for rescission? Apparently, that contract of sale had already
been fully performed when Sofia Quirong paid the full price for the lot and when, in exchange,
the DBP executed the deed of absolute sale in her favor. There was a turnover of control of the
property from DBP to Sofia Quirong since she assumed under their contract, "the ejectment of
squatters and/or occupants" on the lot, at her own expense.
“G” Holdings, Inc., v. National Mines and Allied Workers Union Local 103 (NAMAWU)
G.R. No. 160236; October 16, 2009
Nachura, J.:
ISSUE: Whether there is presumption of fraud in an involuntary alienation
DOCTRINE: No. We also cannot agree that the presumption of fraud in Article 1387 of the
Civil Code relative to property conveyances, when there was already a judgment rendered or a
writ of attachment issued, authorizes piercing the veil of corporate identity in this case. We find
that Article 1387 finds less application to an involuntary alienation such as the foreclosure of
mortgage made before any final judgment of a court. We thus hold that when the alienation is
involuntary, and the foreclosure is not fraudulent because the mortgage deed has been previously
executed in accordance with formalities of law, and the foreclosure is resorted to in order to
liquidate a bona fide debt, it is not the alienation by onerous title contemplated in Article 1387 of
the Civil Code wherein fraud is presumed.
CHAPTER 7. VOIDABLE CONTRACTS
Jorge Gonzales v. Climax Mining Ltd.

G.R. No. 161957. February 28, 2005
58
Tinga, J.:
ISSUE: Who determines the validity of contracts?
DOCTRINE: The question if whether a contract is void or voidable contracts is a judicial

question. It may, in some instances, involve questions of fact especially with regard to the
determination of the circumstances of the execution of the contracts. But the resolution of the
validity or voidness of the contracts remains a legal or judicial question as it requires the exercise
of judicial function. It requires the ascertainment of what laws are applicable to the dispute, the
interpretation and application of those laws, and the rendering of a judgment based thereon. It is
essentially judicial.
Felicitas Asycong and Teresa Polan v. Court of Appeals and Moller Lending Investor
GR No. 153758. February 22, 2006
Carpio, J.:
ISSUE: What is the effect of a voidable contract where the consent is vitiated by intimidation?
DOCTRINE: Contracts where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud are voidable. These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification.
Development Bank of the Philippines and Privatization and Management Office v. CA

G.R. No. 138703. June 30, 2006
Azcuna, J.:
ISSUE: What is “undue influence”? When may it be considered to exist? Can the fact that a
party had no “choice” but to sign a contract may be interpreted that the other party exerted undue
influence.
DOCTRINE: There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter f reasonable freedom of choice. The following
circumstances shall be considered: the confidential, family, spiritual and other relations between
the parties or the fact that the person alleged to have been unduly influenced was suffering from
mental weakness, or was ignorant or in financial distress.
For undue influence to be present, the influence exerted must have so overpowered or subjugated
the mind of a contracting party as to destroy the latter’s free agency, making such party express
the will of another rather than its own. The alleged lingering financial woes of a debtor per se
cannot be equated with the presence of undue influence.
Yes. The law grants an aggrieved party the right to obtain the annulment of a contract on account
of factors such as mistake, violence, intimidation, undue influence and fraud which vitiate
consent. However, the fact that respondents were “forced” to sign the promissory notes and
mortgage contracts in order to have respondents’ original loans restructured and to prevent the
foreclosure of their properties does not amount to vitiated consent. The financial condition of
respondents may have motivated them to contract with DBP, but undue influence cannot be
attributed to DBP simply because the latter had lent money. While respondents were purportedly
financially distressed, there is no clear showing that those acting on their behalf had been
deprived of their free agency when they executed the promissory notes representing respondents’
refinanced obligations to DBP.
Barceliza P. Capistrano vs. Darryl Limcuando and Fe S. Sumiran

G.R. No. 152413 February 13, 2009
Leonardo-De Castro, J.
ISSUE: Whether the person who caused fraud can annul the contract.
58
DOCTRINE: No. We simply cannot uphold petitioner’s contention that the deed of sale she
executed in favor of respondents should be declared null and void on the basis of the previous
deed of sale with right of repurchase petitioner executed in favor the spouses Zuasola and
Subida. Ostensibly, when petitioner sold the subject property to herein respondents, she no
longer had any right to do so for having previously sold the same property to other vendees.
However, it is elementary that he who comes to court must do so with clean hands. Being the
vendor in both sales, petitioner knew perfectly well that when she offered the subject property
for sale to respondents she had already previously sold it to the spouses Zuasola and Subida. It is
undeniable then that petitioner fraudulently obtained the consent of respondents in the execution
of the assailed deed of sale. She even admits her conviction of the crime of estafa for the
deception she perpetrated on respondents by virtue of the double sale.
Certainly, petitioner’s action for annulment of the subject deed should be dismissed based on
Article 1397 of the Civil Code which provides that the person who employed fraud cannot base
his action for the annulment of contracts upon such flaw of the contract, thus:
Art. 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the contract.
One who has caused the ground to annul a contract such as fraud is precluded from seeking the
annulment of the said contract.
Hernania “Lani” Lopez vs. Gloria Umale-Cosme

G.R. No. 171891. February 24, 2009.
Puno, C.J.:
ISSUE: Whether the oral agreement has force and effect of law between the parties as in the
case of a contract.
DOCTRINE: It is well-settled that where a contract of lease is verbal and on a monthly basis,
the lease is one with a definite period which expires after the last day of any given thirty-day
period. In the recent case of Wee v. De Castro, 562 SCRA 695 (2008), where the lease contract
between the parties did not stipulate a fixed period.
First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities, Inc.
G.R. No. 179505; December 4, 2009
ISSUE: Whether contracts where consent is given through fraud are void.
DOCTRINE: No. These circumstances surrounding the questioned transaction fit in with what
Article 1390 of the Civil Code contemplates as voidable contracts, viz: Art. 1390. The following
contracts are voidable or annullable, even though there may have been no damage to the
contracting parties: xxxx (2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud. Thus, contracts where consent is given through fraud, are
voidable or annullable. These are not void ab initio since voidable or annullable contracts are
existent, valid, and binding, although they can be annulled because of want of capacity or the
vitiated consent of one of the parties. However, before such annulment, they are considered
effective and obligatory between parties.
ECE Realty And Development Inc. v. Rachel G. Mandap

G.R. No. 196182, September 01, 2014
ISSUE: Whether the false representations made were ratified by the signature of the respondent.
58
DOCTRINE: Yes. Respondent's act of affixing her signature to the said Contract, after having
acquired knowledge of the property's actual location, can be construed as an implied ratification
thereof. Ratification of a voidable contract under Article 1393 of the Civil Code may be effected
expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the
reason which renders the contract voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily implies an intention to waive his right.
CHAPTER 8. UNENFORCEABLE CONTRACTS
Spouses Mario and Elizabeth Torcuator v. Spouses Remigio and Gloria Bernabe and
Spouses Diosdado and Lourdes Salvador
G.R. No. 134219. June 08, 2005
Tinga, J.:
ISSUE: What is the purpose of the Statute of Frauds?
Doctrine: The term "Statute of Frauds" is descriptive of statutes which require certain classes of
contracts, such as agreements for the sale of real property, to be in writing. It does not deprive
the parties the right to contract with respect to the matters therein involved, but merely regulates
the formalities of the contract necessary to render it enforceable. The purpose of the statute is to
prevent fraud and perjury in the enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be
evidenced by a writing signed by the party to be charged. The written note or memorandum, as
contemplated by Article 1403 of the Civil Code, should embody the essentials of the contract.
Banco Filipino Savings v. Diaz

G.R. No. 153134. June 27, 2006
Callejo, Sr., J.:
ISSUE: Can the obligor(s) withdraw the amount previously consigned with the regional trial
court after a higher court (court of appeals) has declared the consignment as invalid?
DOCTRINE: Yes. Before the consignation has been accepted by the creditor or judicially
declared as properly made, the debtor is still the owner of the thing or amount deposited, and,
therefore, the other parties liable for the obligation have no right to oppose his withdrawal of
such thing or amount. The debtor merely uses his right, and unless the law expressly limits that
use of his right, it cannot be prevented by the objections of anyone. Our law grants to the debtor
the right to withdraw, without any limitation, and we should not read a non-existing limitation
into the law. Although the other parties liable for the obligation would have been benefited if the
consignation had been allowed to become effective, before that moment they have not acquired
such an interest as would give them a right to oppose the exercise of the right of the debtor to
withdraw the consignation.
Thus, under Article 1260 of the Civil Code, the debtor may withdraw, as a matter of right, the
thing or amount deposited on consignation in the following instances:
(1) Before the creditor has accepted the consignation; or
(2) Before a judicial declaration that the consignation has been properly made.
Lina Peñalber vs. Quirino Ramos et al.
58
G.R. No. 178645. January 30, 2009.

Chico-Nazario J.:
ISSUE: Whether statute of frauds deprive the parties of the right to contract with respect to the
matters therein involved.
DOCTRINE: We subscribe to the ruling of the RTC in its Order dated 17 July 2000 that said
spouses were deemed to have waived their objection to the parol evidence as they failed to
timely object when petitioner testified on the said verbal agreement. The requirement in Article
1443 that the express trust concerning an immovable or an interest therein be in writing is merely
for purposes of proof, not for the validity of the trust agreement. Therefore, the said article is in
the nature of a statute of frauds. The term statute of frauds is descriptive of statutes which require
certain classes of contracts to be in writing. The statute does not deprive the parties of the right to
contract with respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. The effect of non-compliance is simply that no action
can be proved unless the requirement is complied with. Oral evidence of the contract will be
excluded upon timely objection. But if the parties to the action, during the trial, make no
objection to the admissibility of the oral evidence to support the contract covered by the statute,
and thereby permit such contract to be proved orally, it will be just as binding upon the parties as
if it had been reduced to writing.
Orduña, et al. v. Fuentebella, et al.

G.R. No. 176841 June 29, 2010
Velasco, Jr., J.
ISSUE: Whether the Statute of Frauds is inapplicable to partially executed contracts.
DOCTRINE: Yes. Statute of Frauds expressed in Article 1403, par. (2),of the Civil Code
applies only to executory contracts, i.e., those where no performance has yet been made. Stated a
bit differently, the legal consequence of non-compliance with the Statute does not come into play
where the contract in question is completed, executed, or partially consummated. The Statute of
Frauds, in context, provides that a contract for the sale of real property or of an interest therein
shall be unenforceable unless the sale or some note or memorandum thereof is in writing and
subscribed by the party or his agent. However, where the verbal contract of sale has
been partially executed through the partial payments made by one party duly received by the
vendor, as in the present case, the contract is taken out of the scope of the Statute.
Municipality of Hagonoy, Bulacan vs. Dumdum, Jr.

G.R. No. 168289; March 22, 2010
Peralta, J.
ISSUE: Whether the court can declare a reciprocal contract unenforceable under the Statute of
Frauds if there is an allegation where one of the parties performed his obligation?
DOCTRINE: No, it has been obligee's consistent stand, since the inception of the instant case
that she has entered into a contract with the obligors. As far as she is concerned, she has already
performed her part of the obligation under the agreement by undertaking the delivery of the 21
motor vehicles contracted for by the obligor in the name of petitioner municipality. This claim is
well substantiated — at least for the initial purpose of setting out a valid cause of action against
the obligors — by copies of the bills of lading attached to the complaint, naming petitioner
municipality as consignee of the shipment. Obligors have not at any time expressly denied this
allegation and, hence, the same is binding on the trial court for the purpose of ruling on the
motion to dismiss. In other words, since there exists an indication by way of allegation that there
has been performance of the obligation on the part of the obligee, the case is excluded from the
coverage of the rule on dismissals based on unenforceability under the statute of frauds, and
either party may then enforce its claims against the other.
58
Rogelio Dantis, v. Julio Maghinang, Jr.

G.R. No. 191696. April 10, 2013
Mendoza, J.:
ISSUE: Is the Statute of Frauds applicable in the absence of a perfected contract?
DOCTRINE: No. The application of the Statute of Frauds presupposes the existence of a
perfected contract. In the absence thereof, there is no basis for the application of the Statute of
Frauds.
CHAPTER 9. VOID OR INEXISTENT CONTRACTS
Menchavez vs. Teves

G.R. No. 153201. January 26, 2005
Panganiban, J.
ISSUES:
(1) May parties to a void contract be declared to be in pari delicto by the Court?
(2) May parties to a void contract be entitled to damages?
DOCTRINE:
(1) Yes. Void are all contracts in which the cause, object or purpose is contrary to law, public
order or public policy. It is deemed legally nonexistent and produces no legal effect. As a
general rule, courts leave parties to such a contract as they are, because they are in pari delicto or
equally at fault. Neither party is entitled to legal protection. To this rule, however, there are
exceptions that permit the return of that which may have been given under a void contract. One
of the exceptions is found in Article 1412 of the Civil Code.
In this case, the defendants ought to have known that they cannot lease what does not belong to
them for as a matter of fact, they themselves are still applying for a lease of the subject fishpond
(which, under the 1987 Constitution, belongs to the State) under litigation from the government.
On the other hand, Teves, being fully aware that defendants were not yet the owners, had
assumed the risks and under the principle of “VOLENTI NON FIT INJURIA NEQUES
DOLUS” - He who voluntarily assumes a risk, does not suffer damages thereby. As a
consequence, when plaintiff leased the fishpond area from defendants- who were mere holders or
possessors thereof, he took the risk that it may turn out later that his application for lease may not
be approved. “IN PARI DELICTO NON ORITOR ACTIO” (Where both are at fault, no one can
found a claim).
(2) No. Article 1412 of the Civil Code merely allows innocent parties to recover what they have
given without any obligation to comply with their prestation. No damages may be recovered on
the basis of a void contract; being nonexistent, the agreement produces no juridical tie between
the parties involved. Since there is no contract, the injured party may only recover through other
sources of obligations such as a law or a quasi-contract.
Department of Health v. C.V. Canchela & Associates, Architects (CVCAA), in Association

With MCS Engineers Co., and A.O. Mansueto IV – Electrical Engineering Services, and
Luis Alina, Sheriff IV, RTC, Manila
G.R. Nos. 151373-74. November 17, 2005
Carpio-Morales, J.:
ISSUE: Is the Sole Arbitrator’s Decision may nullified on the light that it did not comply with
requirements of the law?
58
DOCTRINE: An inquiry into the fundamental issue of nullity of the Agreements is then
warranted to determine if petitioner duly observed the constitutional prescription for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures, or uses of public funds and properties.
The Agreements, it bears noting, expressly stated that payments arising therefrom shall be
"subject to the usual accounting and auditing rules and regulations. Being government contracts,
they are governed and regulated by special laws, failure to comply with which renders them
void.
The illegality of the subject Agreements proceeds, it bears emphasis, from an express declaration
or prohibition by law, not from any intrinsic illegality. As such, the Agreements are not illegal
per se and the party claiming thereunder may recover what had been paid or delivered.
The Manila Banking Corporation v. Edmundo S. Silverio and The Court of Appeals,
G.R. No. 132887. August 11, 2005
Chico-Nazario, J.:
ISSUE: Is the contract void if badges of fraud and simulation permeate the whole transaction?
DOCTRINE: Yes. An absolutely simulated contract, under Article 1346 of the Civil Code, is
void. It takes place when the parties do not intend to be bound at all. The characteristic of
simulation is the fact that the apparent contract is not really desired or intended to produce legal
effects or in any way alter the juridical situation of the parties. Thus, where a person, in order to
place his property beyond the reach of his creditors, simulates a transfer of it to another, he does
not really intend to divest himself of his title and control of the property; hence, the deed of
transfer is but a sham. Lacking, therefore, in a fictitious and simulated contract is consent which
is essential to a valid and enforceable contract.
Such failure is a clear badge of simulation that renders the whole transaction void pursuant to
Article 1409 of the Civil Code. When a contract is void, the right to set-up its nullity or non-
existence is available to third persons whose interests are directly affected thereby.
The remedy of accion pauliana is available when the subject matter is a conveyance, otherwise
valid¸ undertaken in fraud of creditors. Such a contract is governed by the rules on rescission
which prescribe, under Art. 1383 of the Civil Code, that such action can be instituted only when
the party suffering damage has no other legal means to obtain reparation for the same.
A void or inexistent contract is one which has no force and effect from the very beginning, as if
it had never been entered into; it produces no effect whatsoever either against or in favor of
anyone. Rescissible contracts, on the other hand, are not void ab initio, and the principle, “quod
nullum est nullum producit effectum,” in void and inexistent contracts is inapplicable. Until set
aside in an appropriate action, rescissible contracts are respected as being legally valid, binding
and in force.
Absolute simulation implies that there is no existing contract, no real act executed; while
fraudulent alienation means that there is a true and existing transfer or contract. The former can
be attacked by any creditor, including one subsequent to the contract; while the latter can be
assailed only by the creditors before the alienation. In absolute simulation, the insolvency of the
debtor making the simulated transfer is not a prerequisite to the nullity of the contract; while in
fraudulent alienation, the action to rescind, or accion pauliana, requires that the creditor cannot
recover in any other manner what is due him. Finally, the action to declare a contract absolutely
simulated does not prescribe (Articles 1409 and 1410); while the accion pauliana to rescind a
fraudulent alienation prescribes in four years (Article 1389).
La’o v. Republic of the Philippines and the Government Service Insurance System
GR No. 166183. January 23, 2006
Corona, J.:
58
ISSUE: Is a contract entered into in violation of the Anti-Graft and Corrupt Practices act void?
DOCTRINE: Yes. Art. 1409 of the Civil Code provides, among others, that those expressly
prohibited or declared void by law are inexistent and void from the beginning.
The foregoing clearly shows that the second contract caused undue injury to the government,
gave petitioner unwarranted benefits and was grossly disadvantageous to the government. The
act of entering into the contract was a corrupt practice and was therefore unlawful. It was a
contract expressly prohibited by RA 3019. As a result, it was null and void from the beginning
under Art. 1409(7) of the Civil Code.
Potenciano Ramirez v. Ma. Cecilia Ramirez

G.R. No. 165088. March 17, 2006
Azcuna, J.:
ISSUE: What is the difference between Article 1411 and Article 1412 with respect to the in pari
delicto rule?
DOCTRINE: Article 1412 of the Civil Code refers to a situation where the cause of the contract
is unlawful or forbidden but does not constitute a violation of the criminal laws. Under Article
1411, it must be shown that the nullity of the contract proceeds from an illegal cause or object,
and the act of executing said contract constitutes a criminal offense. Object and cause are two
separate elements of a donation and the illegality of either element gives rise to the application of
the doctrine of pari delicto. Object is the subject matter of the donation, while cause is the
essential reason which moves the parties to enter into the transaction.
Joaquin Villegas and Emma M. Villegas v. Rural Bank of Tanjay Inc.

G.R. No. 161407; June 5, 2009
Nachura, J.
ISSUE: Whether parties who are in pari delicto can obtain relief from the court.
DOCTRINE: Even assuming both parties were guilty of the violation, it does not always follow
that both parties, being in pari delicto, should be left where they are. We recognized as an
exception a situation when courts must interfere and grant relief to one of the parties because
public policy requires their intervention, even if it will result in a benefit derived by a plaintiff
who is in equal guilt with defendant.
Land Bank of the Philippines v. Eduardo M. Cacayuran

G.R. No. 191667. April 17, 2013
Perlas-Bernabe J.
ISSUE: May a public plaza be the subject of a private redevelopment plan?
DOCTRINE: Article 1409(1) of the Civil Code provides that a contract whose purpose is
contrary to law, morals, good customs, public order or public policy is considered void and as
such, creates no rights or obligations or any juridical relations. Consequently, given the unlawful
purpose behind the Subject Loans which is to fund the commercialization of the Agoo Plaza
pursuant to the Redevelopment Plan, they are considered as ultra vires in the primary sense thus,
rendering them void and in effect, non-binding on the Municipality.
Queensland-Tokyo Commodities, Inc. vs. George

G.R. No. 172727; September 8, 2010
Nachura, J.
ISSUE: Whether respondent may recover in a void contract.
58
DOCTRINE: Yes, it is settled that a void contract is equivalent to nothing; it produces no civil
effect. It does not create, modify, or extinguish a juridical relation. Parties to a void agreement
cannot expect the aid of the law; the courts leave them as they are, because they are deemed in
pari delicto or in equal fault. This rule, however, is not absolute. Article 1412 of the Civil Code
provides an exception, and permits the return of that which may have been given under a void
contract. The evidence on record established that petitioners indeed permitted an unlicensed
trader and salesman, like Mendoza, to handle respondent’s account. On the other hand, the
record is bereft of proof that respondent had knowledge that the person handling his account was
not a licensed trader. Respondent can, therefore, recover the amount he had given under the
contract.
Anuel O. Fuentes and Leticia L. Fuentes vs. Conrado G. Roca

G.R. No. 178902. April 21, 2010
Abad J.
ISSUE: Whether the action for the declaration of nullity of the sale to the spouses already
prescribed.
DOCTRINE: NO. Under the provisions of the Civil Code governing contracts, a void or
inexistent contract has no force and effect from the very beginning. And this rule applies to
contracts that are declared void by positive provision of law, as in the case of a sale of conjugal
property without the other spouse’s written consent. A void contract is equivalent to nothing and
is absolutely wanting in civil effects. It cannot be validated either by ratification or prescription.
But, although a void contract has no legal effects even if no action is taken to set it aside, when
any of its terms have been performed, an action to declare its inexistence is necessary to allow
restitution of what has been given under it. This action, according to Article 1410 of the Civil
Code does not prescribe.
Domingo Gonzalo vs. John Tarnate, Jr.

G.R. No. 160600; January 15, 2014
Bersamin, J.
ISSUE: Whether the respondent may recover even though both parties are in pari delicto.
DOCTRINE: Yes. According to Article 1412 (1) of the Civil Code, the guilty parties to an
illegal contract cannot recover from one another and are not entitled to an affirmative relief
because they are in pari delicto or in equal fault. The doctrine of in pari delicto is a universal
doctrine that holds that no action arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its violation; and where the parties are
in pari delicto, no affirmative relief of any kind will be given to one against the other.
Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An accepted
exception arises when its application contravenes well-established public policy. In this
jurisdiction, public policy has been defined as "that principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be injurious to the public or
against the public good."
58

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TABLE OF

CONTENTS OBLIGATIONS AND CONTRACTS

Ernesto Uypitching, et al. v. Ernesto Quiamco...................................................................................10

Lourdes Dela Cruz v. Court of Appeals..............................................................................................10

Department of Health v. HTMC Engineers Co...................................................................................10

International Finance Corporation v. Imperial Textile Mills, Inc.....................................................11

Sebastian Siga-An v. Alicia Villanueva................................................................................................11

Spouses Patricio and Myrna Bernales v. Heirs Of Julian Sambaan..................................................12

Vitarich Corporation v. Chona Losin...................................................................................................13

CBK Power Company Limited vs. Commissioner of Internal Revenue..........................................13

NATURE AND EFFECT OF OBLIGATIONS

Cortes v. Court of Appeals....................................................................................................................13

Prudential Bank v. Chonney Lim.........................................................................................................14

Schimtz Transport and Brokerage Corporation v. Transport Venture Inc......................................15

Lapreciosisima Cagungun, et. al. v. Planters Development Bank....................................................15

Radio Communication of the Philippines vs. Alfonso Verchez, et al...............................................15

Crisostomo Alcaraz v. Court of Appeals.............................................................................................16

Metropolitan Bank and Trust Company vs. Renato D. Cabilzo.......................................................16

Autocorp Group v. Intra Strata Assurance Corporation...................................................................16

J Plus Asia Development Corporation v. Utility Assurance Corporation.......................................17

Polo S. Pantaleon v. American Express International, Inc.................................................................18

Sps. Guanio v. Makati Shangri-La Hotel.............................................................................................18

Marques v. Far East Bank......................................................................................................................18

DIFFERENT KINDS OF OBLIGATIONS

PURE AND CONDITIONAL OBLIGATIONS

Sacobia Hills Development Corporation vs. Allan Ty.......................................................................20

Carrascoso v. Court of Appeals............................................................................................................21

Spouses William And Jeanette Yao v. Carlomagno B. Matela..........................................................21

Darrel Cordero, et al. vs. F.S. Management and Development Corporation..................................22

Yamamoto v. Nishino Leather Industries, Inc....................................................................................22

Solar Harvest, Inc. v. Davao Corrugated Carton Corporation..........................................................23

Republic v. Holy Trinity Realty Development Corporation.............................................................24

Subic Bay Metropolitan Authority v. Court of Appeals....................................................................24

Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc....................................................24

JOINT AND SOLIDARY OBLIGATIONS

Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation..................................25

Philippine Commercial International Bank v. CA..............................................................................25

Crystal v. Bank of the Philippine Islands.............................................................................................26

The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc.,................................................26

Sps. Rodolfo Berot v. Felipe Siapno......................................................................................................27

Olongapo City, V. Subic Water And Sewerage Co., Inc.,..................................................................27

OBLIGATIONS WITH A PENAL CLAUSE

First Fil-Sin Lending Corporation v. Gloria D. Padillo......................................................................28

Ileana Dr. Macalinao v. Bank of the Philippine Islands.....................................................................29

Jaime Biana v. George Gimenez............................................................................................................29

G & M (Phil.), Inc. vs. Willie Batomalaque..........................................................................................29

Abacus Securities Corporation v. Ruben U. Ampil............................................................................30

Almeda v. Bathala Marketing Industries, Inc.....................................................................................30

ASJ Corporation v. Evangelista............................................................................................................30

Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc..........................................................31

Royal Cargo Corporation v. DFS Sports Unlimited, Inc....................................................................32

Allandale Sportsline, Inc. v. The Good Development Corporation.................................................32

D.B.T. Mar-Bay Construction, Incorporated v. Ricaredo Panes et al...............................................33

Premiere Development Bank v. Central Surety & Insurance Company, Inc..................................33

Cecilleville Realty and Service Corporation v. Acuña.......................................................................34

DBT Mar-Bay Construction, Inc. vs. Panes..........................................................................................34

Land Bank of the Philippines vs. Alfredo Ong...................................................................................35

Republic v. Thi Thu Thuy T. De Guzman............................................................................................35

Dalton vs. FGR Realty and Development Corp..................................................................................36

Elizabeth Del Carmen v. Sps. Sabordo.................................................................................................36

Simplicio A. Palanca v. Ulyssis Guides................................................................................................37

LOSS OF THE THING DUE

Ayala Construction and Development Corporation v. Philippine Commercial International