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REPUBLIC OF THE PHILIPPINES

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES


COLLEGE OF LAW

OBLIGATIONS AND CONTRACT


DOCTRINES AND CASE DIGEST

Alonzo, Eymarie Julia A.


Lantin, John Lester C.
Pagaduan, Mark Irvin
JD 1-3

Atty. Reynaldo Flores


Obligations and Contracts: Doctrines and Case Digests

DOCTRINES

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I. OBLIGATIONS
1. DEFINITION ART. 1156
2. REQUISITES OF A VALID OBLIGATION
a) REQUISITES OF PRESTATION
3. SOURCES OF OBLIGATIONS ART. 1157
a) LAW
i. ARTS. 1158, 448, 636 AND 2014 OF THE CIVIL CODE; ART. 199 OF FAMILY
CODE

Cases:

PELAYO V. LAURON
[G.R No. L-4089; 12 Phil 453; 12 January 1909]

Torres, J.:

According to the Article 1089 of the Spanish Civil Code, and currently Article 1157, Obligations
arise from: Law, Contracts, Quasi-contracts, and Illicit acts and omissions or by those in which
any kind of fault or negligence occurs(Delicts and Quasi-delicts). And that Obligations arising
from law are not presumed. Those expressly determined by the code or special laws, etc., are the
only demandable ones. (Article 1158). The rendering of medical assistance in case of illness is
comprised among the mutual obligations to which the spouses are bound by way of mutual
support.

Spouses are mutually bound to support each other, and when either of them by reason of illness
should be in need of medical assistance, the other is under the unavoidable obligation to furnish
the necessary services of a physician in order that health may be restored, and he or she may be
freed from the sickness by which life is jeopardized; the party bound to furnish such support is
therefore liable for all expenses, including the fees of the medical expert for his professional
services.

DELA CRUZ V. NORTHERN THEATRICAL ENTERPRISE INC.


[GR. No. 7089; 50 O.G. 4225; 31 August 1954]
Montemayor, J.:

Although it may be said that it would be in the interest of the employer to give legal help to and
defend its employee in order to show that the latter was not guilty of any crime either
deliberately or through negligence, because should the employee be found criminally liable and
he was found insolvent, the employer will be subsidiarily liable. However, the court is unable to
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say and hold that the giving of legal assistance to its employees is a legal obligation, as it does
not count with the sanction of man-made laws.

b) CONTRACTS
i. ARTS. 1159 AND 1305
c) QUASI-CONTRACTS
i. DEFINITION ART.2142
ii. NEGOTIORUM GESTIO - ARTS. 2144 TO 2153
iii. SOLUTIO INDEBITI ARTS. 2154 TO 2163
iv. OTHER QUASI-CONTRACTS ARTS. 2164 TO 2175
v. SOLUTIO INDEBITI VS. NATURAL OBLIGATIONS (ARTS. 1423 TO 1430)
d) DELICTS
i. ART. 100 OF THE REVISED PENAL CODE
ii. ART. 2177
e) QUASI-DELICT
i. ARTS. 2176
ii. VICARIOUS LIABILITY - ART. 2180 OF THE CIVIL CODE AND ARTS. 218,
219 AND 236 OF THE FAMILY CODE
iii. ART. 33

Cases:

PADUA V. ROBLES
[GR No. L-40486; 66 SCRA 485; 29 August 1975]

Castro, J.:

Civil liability coexists with criminal responsibility. In negligence cases the offended party (or his
heirs) has the option between an action for enforcement of civil liability based on culpa criminal
under article 100 of the Revised Penal Code and an action for recovery of damages based on
culpa aquiliana under article 2177 of the Civil Code. The action for enforcement of civil liability
based on culpa criminal section 1 of Rule 111 of the Rules of Court deems simultaneously
instituted with the criminal action, unless expressly waived or reserved for a separate
application by the offended party. Article 2177 of the Civil Code, however, precludes recovery of
damages twice for the same negligent act or omission.

In the present case, the Court finds it immaterial that the Paduas chose, in the first instance, an
action for recovery of damages based on culpa aquiliana which action proved ineffectual. The
Court also takes note of the absence of any inconsistency between the aforementioned action
prior availed of by the Paduas and their subsequent application for enforcement of civil liability
arising from the offense committed by Punzalan and consequently, for exaction of Robles'
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subsidiary responsibility. Allowance of the latter application involves no violation of the
proscription against double recovery of damages for the same negligent act or omission. It was
stated that the writ of execution for the judgment on the civil case was left unsatisfied.

SINGSON V. BPI
[GR. No. L-24837; 23 SCRA 1117; 27 June 1968]

Concepcion, C.J.:

The court repeatedly held that the existence of a contract between the parties does not bar the
commission of a tort by the one against the order and the consequent recovery thereof.

Stating the case of Air France v. Carrascoso, the tort on the air carriers part, for, although the
relation between the carrier and passenger is contractual both in origin and nature the act
breaks the contract may also be a tort.

MALIPOL v. TAN
[GR. No. L-27730; 55 SCRA 1117; 21 January 1974]

Zaldivar, J.:

The defendants had 15 days from the receipt of the summons to file their answer to the court.
However the complaint was referred to the defendants lawyer only on the eleventh day. The late
lawyer Atty. Chavez still had 4 days to file the answer. Also, given that defendant Lim knows of
her obligation to pay for the damages done by her employee, being subsidiarily liable, but still
took her the lapse of ten days before she took the complaint to her lawyer.

LIBI v. IAC
[GR. No. 70890; 214 SCRA 2002; 18 September 1992]

Regalado, J.:

The diligence of a good father of a family required by law in a parent and child relationship
consists, to a large extent of the instruction and supervision of the child. Subsidiary liability of
parents for damages committed by their minor children imposed by Article 2180 of the New Civil
Code covers obligations arising from both quasi-delictsand criminal offenses.

In the present case, the petitioners are gravely remiss in their duties in not diligently supervising
the activities of their son, despite his immaturity and minority, so much that it was only at the
time of Wendells death that they allegedly discovered that he was a CANU agent and that his
fathers gun was missing from the safety deposit box.
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MADEJA v. CARO
[GR No. L-51183; 214 SCRA 2002; 21 December 1983]

Abad Santos, J.:

According to the Supreme Court, the rule that applies in this case is the Section 2, Rule 111 of
the Rules of Court for Independent Civil Action that in civil action entirely separate and
distinct from the criminal actions may be brought by the injured party during the pendency of the
criminal case in relation to Article 33 of the Civil Code that In cases of defamation, fraud,
and physical injuries a civil action for damages entirely separate from the criminal action may
be brought by the injured part and that Such civil action shall proceed independently of the
criminal prosecution It also noted that civil action for damages which it allows to be
instituted is ex-delicto. Another is that the term Physical Injuries in Article 33 of the Civil code is
to be taken in the generic sense as it includes consummated, frustrated, and attempted homicide.
Stating the case of Carandang v. Santiago, it must be understood to mean bodily injury and not
the crime of Physical Injuries.

In the light of the foregoing circumstances of the case, it is apparent that the civil action against
private respondent may proceed independently from the criminal case.

MARCIA v. CA
[GR. No. L-34529; 120 SCRA 193; 27 January 1983]

Relova, J.:

The Section 2 of the Rule 111 merely refers to the institution of an independent civil action
without waiting for the filing or termination of the criminal action and requires only
preponderance of evidence to prosper and not proof of beyond reasonable doubt as required for
conviction in criminal cases. However, an acquittal based on the finding that the facts upon
which civil liability did not eist, bars the filing of an independent civil action if it is based on the
crime. Also, Article 33which prescribes that in cases of defamation, fraud and physical injuries
the offended parties may bring a civil action separate and distinct from the criminal action.
Stating Tan v. Standard Vacuum Oil Company:

"the acquittal of the accused from the criminal charge will not necessarily extinguish the civil
liability unless the court declares in the judgment that the fact from which the civil liability might
arise did not exist. Where the court states 'that the evidence throws no light on the cause of fire
and that it was an unfortunate accident for which the accused cannot be held responsible,' this
declaration fits well into the exception of the rule which exempts the accused, from civil
liability.
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CASUPARAN v. LAROYA
[GR. No. 145391; 388 SCRA 28; 26 August 2002]

Carpio, J.:

Under Section 1 of the present Rule 111, the independent civil action in Articles 32, 33, 34 and
2176 of the Civil Code is not deemed instituted with the criminal action but may be filed
separately by the offended party even without reservation. The commencement of the criminal
action does not suspend the prosecution of the independent civil action under these articles of
the Civil Code. Also, the accused can file a civil action for quasi-delict for the same act or
omission he is accused of in the criminal case. This is expressly allowed in paragraph 6, Section
1 of the present Rule 111 which states that the counterclaim of the accused may be litigated in a
separate civil action. This is only fair for two reasons. First, the accused is prohibited from
setting up any counterclaim in the civil aspect that is deemed instituted in the criminal case. The
accused is therefore forced to litigate separately his counterclaim against the offended party. If
the accused does not file a separate civil action for quasi-delict, the prescriptive period may set
in since the period continues to run until the civil action for quasi-delict is filed. Second, the
accused, who is presumed innocent, has a right to invoke Article 2177 of the Civil Code, in the
same way that the offended party can avail of this remedy which is independent of the criminal
action. To disallow the accused from filing a separate civil action for quasi-delict, while refusing
to recognize his counterclaim in the criminal case, is to deny him due process of law, access to
the courts, and equal protection of the law.

RAFAEL TRUCKING CORPORATION v. People


[GR. No. 129029; 329SCRA 600; 02 April 2000]

Pardo, J.:

In negligence cases, the aggrieved party has the choice between (1) an action to enforce civil
liability arising from crime under Article 100 of the Revised Penal Code; and (2) a separate
action for quasi delict under Article 2176 of the Civil Code of the Philippines. Once the choice is
made, the injured party can not avail himself of any other remedy because he may not recover
damages twice for the same negligent act or omission of the accused. This is the rule against
double recovery.

Under the law, this vicarious liability of the employer is founded on at least two specific
provisions of law. The first is expressed in Article 2176 in relation to Article 2180 of the Civil
Code, which would allow an action predicated on quasi-delict to be instituted by the injured
party against the employer for an act or omission of the employee and would need only a
preponderance of evidence to prevail. The liability of the employer for the negligent conduct of

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the subordinate is direct and primary, subject to the defense of due diligence in the selection and
supervision of the employee. The second, expressed in Article 103 of the Revised Penal Code,
provides that an employer may be held civilly liable(subsidiarily) for a felony committed by his
employee in the discharge of his duty. This liability attaches when the employee is convicted of a
crime done in the performance of his work and is found to be insolvent that renders him unable
to properly respond to the civil liability adjudged.

Also, pursuant to the provision of Rule 111, Section 1, paragraph 3 of the 1985 Rules of
Criminal Procedure, when private respondents, as complainants in the criminal action, reserved
the right to file the separate civil action, they waived other available civil actions predicated on
the same act or omission of the accused-driver.

FERNANDO v. CA
[GR. No. 92087; 208 SCRA 714; 08 May 1992]

Medialdea, J.:

Negligence has been defined as the failure to observe for the protection of the ineterst of another
person in the degree of care, precaution, and vigilance which the circumstances justify demand,
whereby such other person suffers injury. A person who by his omission causes damage to
another, there being negligence is obliged to pay for the damage done. Stating the case of Picart
v. Smith, the court stated that the test by which the existence of negligence in a particular case
may be stated as: Did the defendant in doing the alleged negligent act use that reasonable care
and caution which an ordinary prudent person would have used in the same situation? If not,
then he is guilty of negligence.

To be entitled for damages for an injury resulting from negligence of another, a claimant must
establish the relation between the omission and the damage. He must prove under Article 2179
of the Civil Code, that the defendants negligence was the immediate and proximate cause of his
injury. Proximate cause has been defined as that cause, which, in natural and continuous
sequence unbroken by any efficient intervening cause, produces the injury, and without which the
result would not have occurred. Where the resulting injury was the product of the negligence of
both parties, there exist a difficulty to discern which acts shall be considered the proximate
cause of the accident. The court, stating the case of Taylor v. Manila Electric Railroad and Light
Co. provided a guideline for a judicious assessment of the situation: Distinction must be made
between the accident and the injury between the event itself, without which there could have
been no accident, and those acts of the victim not entering into it, independent of it but
contributing to his own proper hurt.

MMTC v. CA
[G.R. No. 104408; 223 SCRA 521; 21 June 1993]
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Regalado, J.:

Due diligence in the selection and supervision of its employees is more often honored in the
breach than in the observance.

According to Article 2176 and 2177, in relation to Article 2180, of the Civil Code provisions on
quasi-delicts as all the elements thereof are present, to wit: (1) damages suffered by the plaintiff,
(2) fault or negligence of the defendant or some other person for whose act he must respond, and
(3) the connection of cause and effect between fault or negligence of the defendant and the
damages incurred by plaintiff. The pertinent parts of which provides that employers shall be
liable for damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or industry. The
responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage. This arises by
virtue of a presumption juristantum of negligence on the part of the persons made responsible
under the article, derived from their failure to exercise due care and vigilance over the acts of
subordinates to prevent them from causing damage. Negligence is imputed to them by law, unless
they prove the contrary. It should be borne in mind that the legal obligation of employers to
observe due diligence in the selection and supervision of employees is not to be considered as an
empty play of words or a mere formalism, as appears to be the fashion of the times, since the
non-observance thereof actually becomes the basis of their vicarious liability under Article 2180.

Due diligence in the supervision of employees includes formulation of rules and regulations for
the guidance of employees and the issuance of proper instructions intended for the protection of
the public persons with whom the employer has relations through his or its employees. It also
includes disciplinary measures in cases of breach of the employee to the regulations.

PEOPLE V. SENDAYDIEGO
[GR. No. L-33254; 81SCRA 120; 20 January 1978]

Aquino, J.:

The civil action for the civil liability is deemed impliedly instituted with the criminal action in
the absence of express waiver or its reservation in a separate action. When the action is for the
recovery of money and the defendant dies before final judgment in the Court of First Instance, it
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shall be dismissed to be prosecuted in the manner especially provided in the Rule of Court. The
implication is that if the defendant dies after a money judgment had been rendered against him
by the Court of First Instance, the action survives him. In some instances an accountable public
officer may still be civilly liable for the funds improperly disbursed although he has no criminal
liability.

PEOPLE v. BAYOTAS
[G.R. No. 102007; 236 SCRA 255; 02 September 1994]

Romero, J.:

In the Sendaydiego case, although Article 30 was not applied in the final determination of the
civil liability there was a reopening of the criminal case to determine his civil liability. The court
reiterated that upon death of the accused pending the appeal of his conviction the criminal
action is extinguished in as much as there is no longer a defendant to stand as the accused; the
civil action instituted therein for recovery of civil liability ex delicto is ipso facto extinguished
grounded as it is on the criminal.

Also the court emphasized that the claim for civil liability survives notwithstanding the death of
accused if the same may also be predicated in a source of obligation other than delict. And if the
civil liability survives in accordance with the aforementioned, an action for recovery therefor
may be pursued but only by way of filing a separate civil action.

VDA. DE PAMAN v. SENERIS


[G.R. No. L-37632; 115 SCRA 709; 30 July 1982]

Guerrero, J.:

According the Section 1, Rule 111 of the Rules of Court when a criminal action is instituted the
civil action for recovery of civil liability arising from the offense charged is impliedly instituted
with the criminal action, unless the offended party expressly waives the civil action or reserves
his right to institute it separately. It means that the civil action may be tried and prosecuted,
with all the ancillary processes provided by law.

VILLEGAS v. CA
[G.R. No. 82562; 271 SCRA 148; 11 April 1997]

Romero, J.:

As the court held in the case of People v. Bayotas: the survival of the civil liability depends on
whether the same can be predicated on sources of obligations other than delict The claim for
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civil liability is also extinguished together with the criminal action if it were solely based
thereon, i.e civil liability ex delicto. The claim for civil liability survives notwithstanding the
death of accused if the same may also be predicated in a source of obligation other than delict.
And if the civil liability survives in accordance with the aforementioned, an action for recovery
therefor may be pursued but only by way of filing a separate civil action.

HEIRS OF THE LATE TEODORO GUARING, JR. v. CA


[G.R. No. 108395; 269 SCRA 283; 07 March 1997]

Mendoza, J.:

The present action was instituted pursuant to Art. 2176 of the Civil Code, which provides:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.

It is now settled that the acquittal of the accused, even if based on a finding that he is not guilty,
does not carry with it the extinction of the civil liability based on quasi delict. Even if damages
are sought on the basis of crime and not quasi delict, the acquittal of the bus driver will not bar
recovery of damages if the acquittal was based not on a finding that he was not guilty but only
on reasonable doubt.

In the present case, the acquittal of the bus driver was because of the RTC entertaining
reasonable doubt to his guilt. The appellate court erred in skipping the review of the evidence in
this case and based its decision on the findings of the trial court in the criminal case. By doing
this, the appellate court disregarded the fact that this case had been instituted independently of
the criminal case and that petitioners herein took no part in the criminal prosecution.

AGUILAR, Sr. v. COMMERCIAL SAVINGS BANK


[G.R. No. 128705; 36 SCRA 395; 29 June 2001]

Quisumbing, J.:

The Supreme Court stated the past ruling from the case of BA Finance Corporation v. CA that
the registered owner of any vehicle, even if not for public service, is primarily responsible to
third persons for any damages it caused. Also, the court held in the case of Erezo v. Jepte that
the rationale for holding the registered owner of a vehicle to be directly liable is that registration
is required not to make said registration the operative act by which ownership in vehicle is
transferred but to permit the use and operation of the vehicle upon any public highway. The
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main aim of the motor vehicle registration is to identify the owner in case any damage or injury
is caused by the vehicle on public highways, responsibility therefor can be fixed on a definite
individual, the registered owner.

4. COMPLIANCE OF PRESTATIONS
a) GENERALLY ART. 19
b) SPECIFICALLY
i. TO GIVE (REAL OBLIGATION) ARTS. 1163 TO 1166
ii. TO DO (PERSONAL OBLIGATION) ART. 1167
iii. NOT TO DO (PERSONAL OBLIGATION) ART. 1168
5. BREACH OF OBLIGATIONS
a) CAUSES: ART. 1170
i. FRAUD
1. ART. 1171 VS. ART. 1338
2. DOLO INCIDENTE VS. DOLO CAUSANTE
ii. NEGLIGENCE
1. ARTS. 1172 AND 1173
2. CULPA CONTRACTUAL VS. CULPA AQUILIANA (OR CULPA
EX-CONTRACTU)
3. FORTUITOUS EVENT ART. 1174
a) REQUISITES OF FORTUITOUS EVENT

CASES:

LASAM v. SMITH
[G.R. No. 19495; 45 Phil 657; 02 February 1924]

Ostrand, J.:

The court agrees with the ruling of the lower court when it found that the defendants liability is
contractual. By entering in the contract of carriage, he bound himself to deliver the plaintiffs
safely and securely to their destination and having failed to do so, he is liable for damages,
except in times when such breach occurred in accordance with the Article 1105 (now Article
1174) which states:
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No one shall be liable for events which could not be foreseen or which, even if foreseen, were
inevitable, with the exception of the cases in which the law expressly provides otherwise and
those in which the obligation itself imposes such liability.

The Supreme Court stated that the expression "events which cannot be foreseen and which
having been foreseen, are inevitable" is synonymous with the term "fortuitous event"
(casofortuito) of which some extraordinary circumstance independent of the will of the obligor,
or of his employees, is one of the essential elements.

SERVANDO v. PHILIPPINE STEAM NAVIGATION CO.


[G.R No. L-36481; 117 SCRA 832; 23 October 1982]

Escolin, J.:

The court agrees with the validity of the provision in the bill of lading, as it is not contrary to
law, morals or public policy. Though the plaintiffs contend that they did not sign it, it was held
that they were bound by the provisions thereof, as previously held in the case of OngYui v. CA.
Also, the questioned provision is a mere iteration of the basic principle of law in Article 1174 of
the Civil Code which pertains to the exemption of the obligor from liability in cases of loss due
to fortuitous events. Quoting the Enciclopedia Juridicada Espanola, the court enumerated the
characteristics of a fortuitous event:

(1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the human will;
(2) it must be impossible to foresee the event which constitutes the 'casofortuito', or if it can
be foreseen, it must be impossible to avoid;
(3) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and
(4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor.

AUSTRIA v. CA
[G.R. No. L-29640; 39 SCRA 527; 10 June 1971]

Reyes, J.B.L., J.:

The Article 1174 of the Civil Code provides for the extinction of liability of the debtors or
obligors in cases of fortuitous events. CasoFortuitowould exempt a person from responsibility of
the loss of an object of an obligation if all of its characteristics are present:

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(1) the event must be independent of the human will (or rather, of the debtor's or
obligor's);
(2) the occurrence must render it impossible for the debtor to fulfill the obligation in
a normal manner; and that
(3) the obligor must be free of participation in or aggravation of the injury to the
creditor.

To be able to be exempted in accordance with the above provision, the court held that it is not
necessary that the persons responsible for the event to be found or punished. It is sufficient to
establish that the enforceable event happened did take place without any concurrent fault on the
debtors part and can be done with preponderance of evidence.

However, to completely free the debtor from the liability by fortuitous event, such debtor must be
free from any contributory fault or negligence.

OVERSEAS BANK OF MANILA v. CA


[G.R. No. L-49353; 105 SCRA 49; 11 June 1981]

Barredo, J.:

The Court takes judicial notice that what enables a bank to pay stipulated interest on money
deposited with it is that through the other aspects of its operation it is able to generate funds to
cover the payment of such interest. Unless a bank can lend money, engage in international
transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in
other banking and financing activities from which it can derive income, it is inconceivable how it
can carry on as a depository obligated to pay stipulated interest.

OVERSEAS BANK OF MANILA v. CA


[G.R. No. L-33582; 113 SCRA 778; 30 March 1982]

Escolin, J.:

The court reiterated the doctrine founded in the case of Overseas Bank of Manila v. CA. The
Court takes notice that what enables a bank to pay stipulated interest on money deposited with it
is that through the other aspects of its operation it is able to generate funds to cover the payment
of such interest. Unless a bank can lend money, engage in international transactions, acquire
foreclosed mortgaged properties or their proceeds and generally engage in other banking and
financing activities from which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest.

VASQUEZ v. CA
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[G.R. No. L-42926; 13 September 1985]

Melencio-Herrera, J.:

The court agrees with the decision of the trial court. To avail of the defense of fortuitous events,
it must be independent of human will, such occurrence must render it impossible for the obligor
to fulfill the obligation in the normal manner, and that the obligor must be free of participation
in, or aggravation of, the injury to the creditor. It must be impossible to foresee, or if it can be
foreseen, must have been impossible to avoid.

SWEET LINES, INC. v. CA


[G.R. No. L-46340; 121 SCRA 769; 28 April 1983]

Melencio-Herrera, J.:

Article 2220 states that moral damages are justly due in breaches of contract where the
defendant acted fraudulently or in bad faith. The court defined bad faith as a breach of a known
duty through some motive or interest or illwill. Self-enrichment or fraternal interest, and not
personal illwill may have been the motive, but it is malice nevertheless.

The court held that there is bad faith when defendants-appellants did not give notice to
plaintiffs- appellees as to the change of schedule of the vessel, while knowing fully well that it
would take no less than fifteen hours to effect the repairs of the damaged engine, defendants-
appellants instead made announcement of assurance that the vessel would leave within a short
period of time, and when plaintiffs-appellees wanted to leave the port and gave up the trip,
defendants-appellants' employees would come and say, 'we are leaving, already and when
defendants-appellants did not offer to refund plaintiffs-appellees' tickets nor provide them with
transportation from Tacloban City to Catbalogan.

JUNTILLA v. FONTANAR
[G.R. No. L-45637; 136 SCRA 625; 31 May 1985]

Gutierrez, J.:

Citing the case of Lasam v. Smith, the court laid down the essential characteristics of fortuitous
event, such as it must be independent of human will, such occurrence must render it impossible
for the obligor to fulfill the obligation in the normal manner, the obligor must be free of
participation in, or aggravation of, the injury to the creditor and it must also be impossible to
foresee or if it can be foreseen, it must be inevitable.

VICTORIAS PLANTERS ASSOCIATION v. VICTORIAS MILLING CO., INC.


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[G.R. No. L-6648; 97 Phil 318; 25 July 1955]

Padilla, J.:

The court stated Fortuitous Event relieves the obligor from fulfilling the contractual obligation
under Article 1174 of the Civil Code. The stipulation regarding the fortuitous events in the
contract and its suspension, should such events happen, only relieves the parties from the
fulfilment of the respective obligations during that time. It doesnt stop the period of the contract.

iii. DELAY
1. ART. 1169
2. KINDS OF DELAY
a) MORA SOLVENDI
i. EX RE
ii. EX PERSONA
b) MORA ACCIPIENDI
i. REQUISITES
c) COMPENSATIO MORAE
iv. CONTRAVENTION OF THE TENOR

CASES:

ARRIETA v. NLRC
[G.R. No. L-15645; 10 SCRA 79; 31 January 1964]

Regala, J.:

According to Article 1170 of the Civil Code, Those who in the performance of their obligation
are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable in damages. In the said provision it stated that in general, every debtor who
fails to fulfill his obligation is liable for damages, not only those who are guilty of fraud,
negligence or delay. The phrase any manner contravene the tenor includes any illicit acts
which impairs the strict and faithful fulfillment of the obligation or every kind of defective
performance.

The liability of the appellant started not alone in the failure or inability to satisfy the conditions
provided by the PNB, but from its willful and deliberate assumption of contractual obligations
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Obligations and Contracts: Doctrines and Case Digests
even as it was aware of the financial incapacity to undertake such. It is evident that NARIC was
knowledgeable of this financial position as it has stated in the transmittal letter that they do not
have sufficient deposit with PNB to cover the required amount.

SPS.GUANIO v. MAKATI SHANGRI-LA HOTEL and RESORT, INC.


[G.R. No.190601; 07 February 2011]

Carpio-Morales, J.:

The court held that since the complaint rose from a contract, the doctrine of proximate cause
cannot be applied. The doctrine of proximate cause is only applicable on actions for quasi-
delicts and not on actions involving breach of contract. And thus the Article 1170 is the
applicable rule in this case. Article 1170 states Those who in the performance of their
obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable in damages. Breach of contract is defined as the failure without legal
reason to comply with the terms of a contract.

Given the respondents vast experience, it is safe to presume that it is not the first time it
encounters events booked exceeding the guaranteed cover. The respondents admitted the three
hotel functions coincided with the petitioners event. The delay in service might have been
avoided or minimized if respondents exercised prescience in scheduling events. The Court also
stated that no less than quality service should be delivered especially in events which possibility
of repetition is close to none.

6. REMEDIES FOR BREACH


a) EXTRA-JUDICIAL (NO COURT ACTION NEEDED)
ARTS. 1526 AND 1592
b) JUDICIAL (COURT ACTION NEEDED)
i. PRINCIPAL REMEDIES
1. ARTS. 1165, 1167, 1168 AND 1191
CASES:
CENTRAL BANK OF THE PHILIPPINES v. CA
[G.R. No. L-45710; 139 SCRA 46; 03 October 1985]

Makasiar, CJ.:

In reciprocal obligations, the obligation or promise of each party is the consideration for that of
the other and when one party has performed or is ready and willing to perform his part of the
contract, the other party who has not performed or is not ready and willing to perform incurs in

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Obligations and Contracts: Doctrines and Case Digests
delay as stated in Article 1169 of the Civil Code.Moreover Article 1191 stated that in reciprocal
obligations, in cases of the obligors should not comply with what is incumbent upon him, the
injured party may choose between the performance of the obligation or the rescission of the
obligation.

In the present case, since the Island Savings Bank was in default in not fulfilling the reciprocal
obligation under the loan agreement, Tolentino may choose between specific performance or
rescission with damages in either case. However, since the bank was forbidden by the Monetary
Board to do further business, the court cannot grant the petition of Tolentino for specific
performance. Rescission is the only remedy left. The court ruled that the rescission should only
be on the part of the amount of Php63,000.00 as it is the default of the bank as the Php
17,000.00 was already given to Tolentino. Tolentinos execution of the promissory note gave rise
to his obligation to pay the Php17,000.00 when it became due.

AYSON-SIMON v. ADAMOS
[G.R. No. L-39378; 131 SCRA 439; 28 August 1984]

Melencio-Herrera, J.:

The rule when the injured party can only choose between fulfilment and rescission of the
obligation, and cannot have both, applies only to obligations which its fulfilment is possible.
Article 1191 allows the injured party to seek rescission even after seeking for its fulfilment
provided that the fulfilment of the obligation is deemed impossible.

GABOYA v. CUI
[G.R. No. L-19614; 38 SCRA 85; 27 March 1971]

Reyes, J.B.L., J.:

The argument of the appellants invoking Article 571 has not convinced the court. According to
them, Article 445 to 456 of the Civil Code pertaining to industrial accession by modification on
the principal land, such accession is limited to either to buildings erected on the land of another,
or buildings constructed by the owner of the land with materials owner by someone else.
Moreover, Article 445 stated has established the basic rule of industrial accession and
prescribes: "Whatever is built, planted or sown on the land of another, and the improvements or
repairs made thereon, belong to the owner of the land subject to the provisions of the following
articles." While Article 449 stated that: "He who builds, plants or sows in bad faith on the land
of another, loses what is built, planted or sown without right to indemnity. There is none in the
provision of the civil code which particularly expresses the present case: a landowner building
on their own lot with their own materials.

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Obligations and Contracts: Doctrines and Case Digests

UNIVERSAL FOOD CORP. v. CA


[G.R. No. L-29155; 33 SCRA 1; 13 May 1970]

Castro, J.:

According to the Article 1191 of the Civil Code, The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him
and that 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. Though rescission of a
contract will not be permitted for a slight or casual breach and only for such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement.

ROMAN v. CA
[G.R. No. 77425; 137 SCRA 563; 19 June 1991]

Regalado, J.:

Under Article 764 of the Civil Code an action for the revocation of a donation must be brought
within four (4) years from the non-compliance of the conditions of the donation. Article 732 of
the Civil Code provides that donations inter vivos shall be governed by the general provisions on
contracts and obligations in all that is not determined in Title III, Book III on donations. The
Title III does not have an explicit provision on the matter of a donation with a resolutory
condition and which is subject to an express provision that the same shall be considered ipso
facto revoked upon the breach of said resolutory condition imposed in the deed therefor. When a
deed of donation expressly provides for automatic revocation and reversion of the property
donated, the rules on contract and the general rules on prescription should apply, and not
Article 764 of the Civil Code. Moreover, the court reiterated the doctrine that a judicial action is
proper only when there is absence of a special provision granting the power of cancellation. The
validity of such a stipulation in the deed of donation providing for the automatic reversion of the
donated property to the donor upon non-compliance of the condition was upheld in the recent
case of De Luna, et al. vs. Abrigo, et al where the Supreme Court held that such stipulation is in
the nature of an agreement granting a party the right to rescind a contract unilaterally in case of
breach, without need of going to court, and that, upon the happening of the resolutory condition
or non-compliance with the conditions of the contract, the donation is automatically revoked
without need of a judicial declaration to that effect.

SONGCUAN V. IAC
[G.R. No. 75096; 191 SCRA 28; 29 October 1990]

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Obligations and Contracts: Doctrines and Case Digests
Medialdea, J.:

Article 1191 is not applicable in the present case. The obligation is not reciprocal, because to
define reciprocal obligations, the obligation of one is a resolutory condition of the obligation of
the other, the non-fulfillment of which entitles the other party to rescind the contract.

In the present case, there are two and distinct obligations which is independent of the other:
Songcuans obligation is to reconvey the property and Alviars is to lease the premises to the
former. Both is not dependent of the other.

SANCHO v. LIZARRAGA
[G.R. No. L-33580; 55 Phil 601; 06 February 1931]

Romualdez, J.:

The provision of Article 1124 is not applicable in the present case as it pertains to resolutions of
obligations in general. However, Articles 1681 and 1682 refers to contract partnerships.

In the present case, though the defendant failed to pay for the whole amount he had bound
himself to pay, the plaintiff may still not acquire the right to demand rescission. The defendant
may have indebted himself to the partnership with interest and damages but rescission under
Article 1124 cannot be invoked. It is a well settled rule that special provisions prevail over
general ones.

CALTEX PHILIPPINES, INC. v. IAC


[G.R. No. 74730; 176 SCRA 741; 25 August 1989]

Medialdea, J.:

For non-payment of a note secured by mortgage, the creditor has a single cause of action
against the debtor. This single cause of action consists in the recovery of the credit with
execution of the security. In other words, the creditor in his action may make two demands, the
payment of the debt and the foreclosure of his mortgage. But both demands arise from the same
cause, the non-payment of the debt, and, for that reason, they constitute a single cause of action.
Though the debt and the mortgage constitute separate agreements, the latter is subsidiary to the
former, and both refer to one and the same obligation.

SURIA v. IAC
[G.R. No. 73893; 151 SCRA 661; 30 June 1987]

Gutierrez, J.:
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Obligations and Contracts: Doctrines and Case Digests

Art. 1383 of the Civil Code provides: The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal means to obtain reparation
for the same. Also, According to Article 1458, by the contract of sale, the vendor obligates
himself to transfer the ownership of and to deliver a determinate thing to the buyer, who in turn,
is obligated to pay a price certain in money or its equivalent.

ii.
SUBSIDIARY REMEDIES
1. ART. 1177
iii. ANCILLARY REMEDIES
1. ATTACHMENT, REPLEVIN, GARNISHMENT, RECEIVERSHIP,
EXAMINATION OF DEBTOR, ETC.
7. KINDS OF OBLIGATION
a) PURE AND CONDITIONAL
i. KINDS OF CONDITION

LIEBENOW v. PHILIPPINE VEGETABLE OIL COMPANY


[G.R No. 13463; 39 Phil 60; 09 November 1918]

Street, J.:

According to the Article 1308, then Article 1256 provides that the validity and performance of a
contract cannot be left to the will of one of the contracting parties. The promise to provide bonus
creates a legal obligation binding upon the promisor. This kind of promise is not nugatory, under
Article 1182, then 1115, as embodying a condition dependent exclusively upon the will of the
obligor. Also, under Article 1349, then Article 1273, The fact that the quantity is not
determinate shall notbe an obstacle to the existence of the contract

In the present case, the uncertainty of the amount of the bonus does not bar the validity of the
contract. Moreover, the promise is absolute and unconditional. It is not conditioned upon
satisfactory service nor to the duration of the service nor upon the profits earned. These may
operate upon the minds of the board of directors, but these are unconnected to legal right of the
plaintiff to receive something as a bonus.

TRILLANA v. QUEZON COLLEGE


[G.R. No. L-5003; 93 Phil 383; 27 June 1953]

Paras, J.:

According to the then Article 1115, and now the Article 1182, of the Civil Code, When the
fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation
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Obligations and Contracts: Doctrines and Case Digests
shall be void.If it depends upon chance or upon the will of a third person, the obligation shall
take effect in conformity with the provisions of thisCode.

In the present case, the proposal of Damasa Crisostomo to pay the value of the subscription after
she has harvested fish is a condition obviously dependent upon her sole will. It is facultative in
nature, which according to the above stated provision is void.

TIBLE v. AQUINO
[G.R. No. L-28967; 65 SCRA 207; 22 July 1975]

Esguerra, J.:

Article 1115, or presently the Article 1182, of the Civil Code states that When the fulfillment of
the condition depends upon the sole will of the debtor, the conditional obligation shall be
void...

In the present case, the condition for the payment of the amounts shown in the promissory notes
was clearly dependent upon Tibles operation of the forest concession that he acquired from
Aquino. It is undoubtedly a void conditional obligation, since its fulfilment is made to depend on
the exclusive will of the debtor, which is Tible and on whether or not he will operate the timber
concession.

PATENTE v. OMEGA
[G.R. No. L-4433; 93 Phil 218; 29 May 1953]

Pablo, J.:

Article 1115 of the old Civil Code states that When the fulfilment of the condition depends on
the will of the debtor, the conditional obligation shall be null and void... Also Article 1128 of
the same code provides that if the obligation does not indicate the term, but its nature and
circumstances , it is deduced that iti is intended to be granted to the debtor, the court shall
determine the duration of that debt.

In the present case, the promissory note does not express the period within which the debt must
be paid.. It was left to the discretion of the debtor as to when to pay his debt. In applying the
Article 1128 of the old civil code, it is the court who shall determine the period. As stated by the
Supreme Court, it is unfair to leave it at the exclusive discretion of the debtor.

CENTRAL PHILIPPINE UNIVERSITY v. CA


[G.R. No. 112127; 246 SCRA 511; 17 July 1995]

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Obligations and Contracts: Doctrines and Case Digests
Bellosillo, J.

When a donation imposes a burden equivalent to the amount of the donation, the donation is
onerous. Under Article 1181 of the Civil Code, on 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. When a person donates land to
another on the condition that the latter would build upon the land a school, the condition
imposed was not a condition precedent or a suspensive condition but a resolutory one. If
there was no compliance with the condition, the donation may now be revoked and all rights
which the donee may have acquired under it shall be deemed lost and extinguished.

The CA based their decision on the general rule provided in the Art. 1197 of the Civil Code
applies, which provides that the courts may fix the duration thereof because the fulfillment of
the obligation itself cannot be demanded until after the court has fixed the period for
compliance therewith and such period has arrived.

According to the Supreme Court, however, the general rule cannot be applied in the present
case. For the span of fifty (50) years the petitioner was given a time to comply with tghe
conditions of the donation. However, the petitioners were still unable to create a medical
college in the parcel of land donated by the late Don Ramon Lopez. As the SC stated:
Petitioner has slept on its obligation for an unreasonable length of time.. Thus it is only
fair that the donation be deemed ineffective and revoked in favor of the herein private
respondents.

i. EFFECTS OF CONDITION

LAFORTEZA v. MACHUCA
[G.R. No. 137552; 333 SCRA 643; 16 June 2000]

Gonzaga-Reyes, J.:

Failure to comply with condition imposed upon the perfection of the contract results in the
failure of a contract, while the failure to comply with condition imposed on the performance of
an obligation only gives the other party the option either to refuse to proceed with the sale or to
waive the condition. According to Article 1545, Where the obligation of either party to a
contract of sale is subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the condition. If the other party has
promised that the condition should happen or be performed, such first mentioned party may also
treat the non-performance of the condition as a breach of warranty...

CALERO v. CARRION
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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. L-13246; 107 Phil 549; 30 March 1960]

Barrera, J.:

According to Article 1197 If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the duration
thereof. The courts shall also fix the duration of the period when it depends upon the will of the
debtor. In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them.

Extrajudicial demand is not essential for the creation of the cause of action to have the period
fixed. It exists by operation of law from the moment such an agreement subject to an
undetermined period is entered into, whether the period depends upon the will of the debtor
alone, or of the parties themselves, or where from the nature and the circumstances of the
obligation it can be inferred that a period was intended.

BORROMEO v. CA
[G.R. No. L-22962; 47 SCRA 65; 28 September 1972]

Fernando, J.:

According to the Article 1370, It is a fundamental principle in the interpretation of contracts


that while ordinarily the literal sense of the words employed is to be followed, such is not the
case where they "appear to be contrary to the evident intention of the contracting parties," which
intention shall prevail. The rule is that a lawful promise made for a lawful consideration is
not invalid merely because an unlawful promise was made at the same time and for the same
consideration, and this rule applies, although the invalidity is due to violation of a statutory
provision, unless the statute expressly or by necessary implication declares the entire contract
void.

GREGORIO ARANETA, INC. v. PHILIPPINE SUGAR ESTATE DEVELOPMENT CO.


[G.R. No. 22558; 20 SCRA 330; 31 May 1967]

Reyes, J.B.L., J.:

Article 1197 of the Civil Code is applicable in cases where the period is not stipulated in the
contract. Moreover, this provision clearly stated that periods cannot be set arbitrarily and that
the periods to be determined by the court shall be probable that the parties must have
contemplated such period. For the court to proceed into determining the period within which the
obligation must be complied with, it must be included in the complaint.
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Obligations and Contracts: Doctrines and Case Digests

In the present case, the deed of sale expressly stated that the contract with respondent Philippine
Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time
within which to comply with its obligation to construct and complete the streets." The contract so
provided that there was a period fixed, a "reasonable time;" and all that the court should have
done was to determine if that reasonable time had already elapsed when suit was filed if it had
passed, then the court should declare that petitioner had breached the contract, as averred in the
complaint, and fix the resulting damages.

Moreover, should it be said that there was no fixed time in the complaint not having sought that
the Court should set a period, the court could not proceed to do so unless the complaint in as
first amended. And granted that this is within the power to be determined by the court, the
amended decision is still untenable as no basis is stated to support the conclusion that the period
should be set at two years after finality of the judgment. The trial Court appears to have pulled
the two-year period set in its decision out of thin air, since no circumstances are mentioned to
support it.

CHAVES v. GONZALES
[G.R. No. L-27454; 32 SCRA 547; 30 April 1970]

Reyes, J.B.L., J.:

Where the time for compliance had expired and there was breach of contract by non-
performance, it was academic for the plaintiff to have first petitioned the court to fix a period for
the performance of the contract before filing his complaint.

However in the present case, they intended that the defendant was to finish it at some future time
although such time was not specified and that such time had passed without the work having
been accomplished. the defendant admitted himself that he returned the typewriter cannibalized
and unrepaired, which is clearly a breach of his obligation. Defendant cannot invoke Article
1197 of the Civil Code for he virtually admitted non-performance by returning the typewriter
that he was obliged to repair in a non-working condition, with essential parts missing. The fixing
of a period would thus be a mere formality and would serve no purpose than to delay.

RADIOWEALTH FINANCE COMPANY vs. DEL ROSARIO


[G.R. No. 138739. 335 SCRA 288 July 6, 2000.]

PANGANIBAN, J:

OBLIGATIONS: WITH A PERIOD: WHEN COURTS MAY NOT FIXED PERIOD:


CONTEMPORANOUS INTENT: Respondents theorize that the action for immediate
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Obligations and Contracts: Doctrines and Case Digests
enforcement of their obligation is premature because its fulfillment is dependent on the sole will
of the debtor. Hence, they consider that the proper court should first fix a period for payment,
pursuant to Articles 1180 and 1197 of the Civil Code.

This contention is untenable. The act of leaving blank the due date of the first installment did not
necessarily mean that the debtors were allowed to pay as and when they could. If this was the
intention of the parties, they should have so indicated in the Promissory Note.
However, it did not reflect any such intention.

Verily, the contemporaneous and subsequent acts of the parties manifest their intention and
knowledge that the monthly installments would be due and demandable each month. In this case,
the conclusion that the installments had already became due and demandable is bolstered by the
fact that respondents started paying installments on the Promissory Note, even if the checks were
dishonored by their drawee bank. We are convinced neither by their avowals that the obligation
had not yet matured nor by their claim that a period for payment should be fixed by a court.

BUCCAT vs. DISPO


[G.R. No. L-44338; April 15, 1988]

Sarmiento, J:

OBLIGATIONS: WITH A PERIOD: WHEN THE RIGHT OF ACTION FOR THE FIXING OF
THE PERIOD OF LEASE ACCRUED: We hold that it was only in November 1972 that the
cause of action for the fixing of the period of lease accrued. This is as it should be because prior
to that, the validity of the second contract of lease was being challenged. The case for unlawful
detainer filed by the plaintiff-appellee became in fact a case questioning the validity of the
second contract on the grounds that the said contract was simulated and that there was no
consideration. The plaintiff-appellee could not have been expected to file an action for the fixing
of the period of the lease before the Court of Appeals promulgated its decision because she was
not yet aware that the said paragraph of the second contract was a provision that called for an
indefinite period. For the reason that the very existence, and subsequently, the interpretation of
the second contract of lease, particularly par. 3 thereof, were put in issue in the unlawful
detainer case, the court trying the case was required to interpret the provisions of, and
consequently, rule on the validity of the said contract. This was precisely what the trial court's
decision which was affirmed by the Court of Appeals, in fact, resolved. And in conformity with
the suggestion of the said court, the plaintiff-appellee filed the present case. The remedy or the
cause of action for the filing of a case for the fixing of a period in the contract, therefore, only
accrued when the court finally declared the second contract valid but that the provision as to the
period was indefinite and hence, an action for the fixing of the period of the contract had to be
filed. Furthermore, should the plaintiff-appellee have opted to file a case for the fixing of the
period of the lease contract before the termination of the unlawful detainer case, the latter case
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Obligations and Contracts: Doctrines and Case Digests
would have been rendered moot and academic and the plaintiff-appellee would have inevitably
and unwittingly ratified the second contract. No person in his right mind would have done such.

DAGUHOY ENTERPRISES, INC. vs. PONCE


[G.R. No. L-6515. October 18, 1954.]
Montemayor, J:

OBLIGATION AND CONTRACTS; LOANS; OBLIGATION WITH APERIOD; PURE


OBLIGATION. Although the original loan, including its increased amount, was payable
within six years, and so did not become due and payable until the expiration thereof, the debtor
lost the benefit of the period by reason of her failure to give and register the security agreed
upon in the form of the two deeds of mortgage; and so the obligation became pure and without
any condition. Consequently, the loan became due and immediately demandable

OBLIGATION AND CONTRACTS; LOANS;DEPOSIT OF THE AMOUNT OF THE LOAN IN


ANOTHER ACTION IS NOT EQUIVALENT TO PAYMENT; DEBTOR IS NOT RELIEVED
FROM PAYMENT OF INTEREST. The deposit made by the debtor, in another action separate
and different from the present, in favor of the creditor, though eventually would be given to the
latter, did not relieve the debtor from the payment of interest from the time of the deposit because
it did not amount to the payment of the loan.

c) ALTERNATIVE AND FACULTATIVE ARTS. 1199 TO 1206


d) JOINT AND SOLIDARY ARTS. 1207 TO 1222

PHILIPPINE NATIONAL BANK vs. ASUNCION


[G.R. No. L-46095; November 23, 1977]

Makasiar, J:

JOINT AND SOLIDARILY OBLIGATIONS: Article 1216 of the New Civil Code gives the
creditor the right to "proceed against anyone of the solidary debtors or some or all of them
simultaneously."
The choice is undoubtedly left to the solidary creditor to determine against whom he will enforce
collection. In case of the death of one of the solidary debtors, he (the creditor) may, if he so
chooses, proceed against the surviving solidary debtors without necessity of filing a claim in the
estate of the deceased debtors. It is not mandatory for him to have the case dismissed as against
the surviving debtors and file its claim against the estate of the deceased solidary debtor, as was
made apparent in the aforequoted decision. For to require the creditor to proceed against the
estate, making it a condition precedent for any collection action against the surviving debtors to
prosper, would deprive him of his substantive rights provided by Article 1216 of the New Civil
Code.
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Obligations and Contracts: Doctrines and Case Digests

INCHAUSTI & CO. vs. YULO,


[G.R. No. 7721; March 25, 1914]

Arrellano. J:

CONJOINT AND SOLIDARY OBLIGATIONS; ACTION BY THE CREDITOR AGAINST ANY


OF THE DEBTORS; EFFECTS OF A SUBSEQUENT INSTRUMENT. When the obligation is
a solidary one, the creditor may bring his action in toto against any of the debtors obligated in
solidum and although the creditor may have, by means of a subsequent instrument, covenanted
with some of the solidary debtors different periods of payment and different conditions, not on
this account may it be understood that the solidarity stipulated in the previous instrument has
been broken.

e) DIVISIBLE AND INDIVISIBLE ARTS. 1223 TO 1225


f) WITH A PENAL CLAUSE ARTS. 1226 TO 1230

MAKATI DEVELOPMENT CORPORATION vs. EMPIRE INSURANCE CO.


[G.R. No. L-21780. June 30, 1967.]

CIVIL LAW; OBLIGATIONS AND CONTRACTS; PENAL CLAUSE, MITIGATION OF.


Where a contract of sale of real property imposes a "special condition" upon the vendee to
construct a house thereon and complete at least 50% of such construction within two years
otherwise the surety bond of P12,000.00 would be forfeited in favor of the vendor, such "special
condition" is in reality an obligation with a penal clause, and the obligor's liability may be
mitigated pursuant to Article 1229 of the Civil Code, considering that such penalty is intended
not to indemnify the vendor for any damage it might suffer as a result of a breach of contract,
but rather to compel performance and thus encourage home building among lot owners in the
Urdaneta Village.

CIVIL LAW; OBLIGATIONS AND CONTRACTS; PRIVITY OF CONTACT; PARTIAL


PERFORMANCE BY THIRD PERSON. Where the vendee in the case at bar has sold the lot
to a third person who, before the expiration of the stipulated period of two years, had fenced the
premises with a stone wall, stocked building materials therein within said period, and had
completed, although belatedly, very much more than the 50% stipulated, there was a partial
performance of the obligation within the meaning of Art. 1229 of the Civil Code and the ruling
in the case of Gen. Ins. & Surety Corp. vs. Republic, L-13873, January 31, 1963, where there
was no partial performance, cannot be invoked as authority for the forfeiture of the full amount
of the bond. Indeed the stipulation in this case to commence the construction and complete at
least 50% of the vendee's house within two years cannot be construed as imposing a strictly
personal obligation on him. To adopt such a construction would be to limit his right to dispose of
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Obligations and Contracts: Doctrines and Case Digests
the lot. There is nothing in the deed of sale restricting his right to sell the lot at least within the
two-year period, and we think it plain that a reading of such a limitation on one of the rights of
ownership must rest on more explicit language in the contract. It cannot be left to mere
inference.

COMMERCIAL CREDIT CORPORATION OF CAGAYAN DE ORO, petitioner, vs. THE


COURT OF APPEALS
[G.R. No. 78315; January 2, 1989]

Gangayco,J:

MODIFICATION OF COMPROMISE JUDGMENT UNDER ARTICLE 1229 OF THE N.C.C.


NOT APPLICABLE TO A FINAL AND EXECUTORY JUDGMENT. Article 1229 of the Civil
Code applies only to obligations or contract, subject of a litigation, the condition being that the
same has been partly or irregularly complied with by the debtor. The provision also applies even
if there has been no performance, as long as the penalty is iniquituous or unconscionable. It
cannot apply to a final and executory judgment. When the parties entered into the said
compromise agreement and submitted the same for the approval of the trial court, its terms and
conditions must be the primordial consideration why the parties voluntarily entered into the
same. The trial court approved it because it is lawful, and is not against public policy or morals.
Even the respondent Court of Appeals upheld the validity of the said compromise agreement.
Hence, the respondent court has no authority to reduce the penalty and attorney's fees therein
stipulated which is the law between the parties and is res judicata.

RADIOWEALTH FINANCE COMPANY vs. DEL ROSARIO,


[G.R. No. 138739. 335 SCRA 288 July 6, 2000.]
PANGANIBAN, J:

OBLIGATIONS: WITH A PENALTY: Where a contract of sale of real property imposes a


"special condition" upon the vendee to construct a house thereon and complete at least 50% of
such construction within two years otherwise the surety bond of P12,000.00 would be forfeited in
favor of the vendor, such "special condition" is in reality an obligation with a penal clause, and
the obligor's liability may be mitigated pursuant to Article 1229 of the Civil Code, considering
that such penalty is intended not to indemnify the vendor for any damage it might suffer as a
result of a breach of contract, but rather to compel performance and thus encourage home
building among lot owners in the Urdaneta Village

8. EXTINGUISHMENT OF OBLIGATIONS
A. MODES ART. 1231

TEJUCO vs . E. R. SQUIBB & SON


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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. L-11052; April 30, 1958]

PARAS, J:

OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS; MODES.


Upon the other hand, Article 1231 of the Civil Code is to the effect that ". . . other causes of
extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in this Code." On the matter of prescription,
the applicable provision is Article 1129 of the Civil Code which states that "actions prescribe by
mere lapse of time fixed by law." This necessarily leads us to Article 1147 of the Civil Code
which requires that an action for defamation must be filed within one year. The broad term
"defamation" in the absence of any other specific provisions, includes libel.

SAURA IMPORT & EXPORT CO., INC. vs. DEVELOPMENT BANK OF THE
PHILIPPINES
[G.R. No. L-24968; April 27, 1972]

MAKALINTAL, J:

CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; PERFECTION UPON


ACCEPTANCE OF PROMISE TO DELIVER SOMETHING BY WAY OF SIMPLE LOAN; ART.
1954 OF THE CIVIL CODE. Where the application of Saura Inc. for a loan of P500,000.00
was approved by resolution of the defendant, and the corresponding mortgage executed and
registered, there is undoubtedly offer and acceptance and We hold that there was indeed a
perfected consensual contract as recognized in Article 1954 of the Civil Code.

EXTINGUISHMENT OF OBLIGATION BY MUTUAL DESISTANCE; IN INSTANT CASE.


When RFC turned down the request of Saura Inc., the negotiations which had been going on for
the implementation of the agreement reached an impasse. Saura Inc., obviously was in no
position to comply with RFC's conditions. So instead of doing so and insisting that the loan be
released as agreed upon, Saura Inc., asked that the mortgage be cancelled, which was done on
June 15, 1955. The action thus taken by both parties was in the nature of mutual desistance
what Manresa terms "mutuo disenso" which is a mode of extinguishing obligations. It is a
concept that derives from the principle that since mutual agreement by the parties can create a
contract, mutual disagreement by the parties can cause its extinguishment.

B. PAYMENT OR PERFORMANCE ART. 1232


I. CHARACTERISTICS
1. INTEGRITY OF PAYMENT ART. 1233
A. EXCEPTIONS ARTS. 1234 AND 1235
2. IDENTITY OF PAYMENT ART. 1244
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Obligations and Contracts: Doctrines and Case Digests
A. EXCEPTION ART. 1245
3. INDIVISIBILITY OF PAYMENT ART. 1248
A. EXCEPTION ART. 1245
II. WHO CAN MAKE PAYMENT ARTS. 1236 TO 1239

GONZAGA vs. GARCIA


[G.R. No. 8254;March 3, 1914]

TRENT,J:

VENDOR AND PURCHASER; EXECUTION SALE OF RIGHT TO REPURCHASE;


SUBSEQUENT SALE BY EXECUTION PURCHASER. A judgment creditor purchased the
right to repurchase under a pacto de retro sale of land of his judgment debtor, at an execution
sale. The period for redemption of the interest thus sold under execution expired without the
judgment debtor's having exercised his right of redemption. The latter did, however, tender the
repurchase price under the pacto de retro contract to the vendee, who accepted it, at the same
time canceling the annotation of the said contract in the property registry. Petitioner's claim of
ownership of the land, based on a subsequent purchase from the judgment creditor, was invalid,
as the latter did not acquire the fee by the repurchase of the land under the pacto de retro
contract by the judgment debtor. Article 1158 of the Civil Code is not applicable to this case for
the reason that the judgment creditor was not a debtor of the pacto de retro vendee. Having
acquired the right to repurchase, the exercise of this right was optional with him.

SISON vs. BALGOS


[G.R. No. 10305; September 5, 1916]

ARELLANO, CJ:

OBLIGATIONS; PAYMENT; WHO CAN MAKE THE PAYMENT. Any person, whether he has
an interest or not in the fulfillment of the obligation, and whether the debtor knows approves it
or is not aware thereof, can make the payment. (Civil Code, art. 1158.)

III. TO WHOM CAN PAYMENT BE MADE ARTS. 1240 TO 1243


IV. PAYMENT OF DEBTS IN MONEY ART. 1249
1. SEC. 1 OF RA 529 (EFFECTIVITY: 16 JUNE 1950), AS AMENDED BY RA 4100
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Obligations and Contracts: Doctrines and Case Digests
2. SEC. 1 AND 2 OF RA 8183 (11 JUNE 1996)

BUENAVENTURA vs. COURT OF APPEALS


[G.R. No. L-43830; January 22, 1990]

FERNAN, J:

UNIFORM CURRENCY ACT (REPUBLIC ACT NO. 529); GENERAL RULE ON PAYMENT OF
OBLIGATION IN CURRENCY OTHER THAN THE PHILIPPINE CURRENCY; EXCEPTION.
An agreement to pay an obligation in a currency other than Philippine currency is null and
void as contrary to public policy, what the law specifically prohibits is payment in currency
other than legal tender but does not defeat a creditor's claim for payment. A contrary rule would
allow a person to profit or enrich himself inequitably at another's expense. With regard to
obligations incurred prior to the effectivity of Republic Act No. 529 requiring payment in a
particular kind of coin or currency other than Philippine currency, it is specifically provided that
the same shall be discharged in Philippine currency measured at the prevailing rate of exchange
at the time the obligation was incurred except in case of a loan made in a foreign currency
stipulated to be payable in the same currency in which case the rate of exchange prevailing at
the stipulated date of payment shall prevail. In the case before Us, petitioners' obligation was
incurred after the enactment of Republic Act No. 529, as amended. As held in Kalalo vs. Luz
(supra) and as correctly relied upon by respondent appellate court, the rate of exchange should
be that prevailing at the time of payment.

3. LEGAL TENDER SECS. 31 AND 32 OF PD72 (11 NOVEMBER 1972)


A. COINS CIRCULAR NO. 537

V. PAYMENT IN MERCANTILE DOCUMENT 2ND PARAGRAPH OF ART. 1249

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. vs. SENERIS


[G.R. No. L-41764; December 19, 1980]

CONCEPCION, JR., J:

OBLICON: PAYMENT IN MERCANTILE. It is a well-known and accepted practice in the


business sector that a Cashier's Check is deemed as cash. Moreover, since the said check had
been certified by the drawee bank, by the certification, the funds represented by the check are
transferred from the credit of the maker to that of the payee or holder, and for all intents and
purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in
such situation. Where a check is certified by the bank on which it is drawn, the certification is
equivalent to acceptance. Said certification "implies that the check is drawn upon sufficient
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Obligations and Contracts: Doctrines and Case Digests
funds in the hands of the drawee, that they have been set apart for its satisfaction, and that
they shall be so applied whenever the check is presented for payment. It is an understanding
that the check is good then, and shall continue to be good, and this agreement is as binding on
the bank as its notes in circulation, a certificate of deposit payable to the order of the
depositor, or any other obligation it can assume.

TIBAJIA, JR. vs. COURT OF APPEALS


[G.R. No. 100290; June 4, 1993]

PADILLA, J:

CIVIL LAW; EXTINGUISHMENT OF OBLIGATIONS; PAYMENT OR PERFORMANCE;


LEGAL TENDER; CASHIER'S CHECK IS NOT LEGAL TENDER. In the recent cases of
Philippine Airlines, Inc. vs. Court of Appeals and Roman Catholic Bishop of Malolos, Inc. vs.
Intermediate Appellate Court, this Court held that "A check, whether a manager's check or
ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor." The ruling in these two
(2) cases merely applies the statutory provisions which lay down the rule that a check is not
legal tender and that a creditor may validly refuse payment by check, whether it be a manager's,
cashier's or personal check. Petitioners erroneously rely on one of the dissenting opinions in the
Philippine Airlines case to support their cause. The dissenting opinion however does not in any
way support the contention that a check is legal tender but, on the contrary, states that "If the
PAL checks in question had not been encashed by Sheriff Reyes, there would be no payment by
the PAL and, consequently, no discharge or satisfaction of its judgment obligation." Moreover,
the circumstances in the Philippine Airlines case are quite different from those in the case at bar
for in that case the checks issued by the judgment debtor were made payable to the sheriff,
Emilio Z. Reyes, who encashed the checks but failed to deliver the proceeds of said encashment
to the judgment creditor. In the more recent case of Fortunado vs. Court of Appeals, this Court
stressed that, "We are not, by this decision, sanctioning the use of a check for the payment of
obligations over the objection of the creditor."

FORTUNADO vs. COURT OF APPEALS


[G.R. No. 78556. April 25, 1991.]

CRUZ, J.:

CIVIL LAW; EXTINGUISHMENT OF OBLIGATIONS; PAYMENT OR PERFORMANCE;


LEGAL TENDER; CASHIER'S CHECK IS NOT LEGAL TENDER. In the recent cases of
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Obligations and Contracts: Doctrines and Case Digests
Philippine Airlines, Inc. vs. Court of Appeals and Roman Catholic Bishop of Malolos, Inc. vs.
Intermediate Appellate Court, this Court held that "A check, whether a manager's check or
ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor." The ruling in these two
(2) cases merely applies the statutory provisions which lay down the rule that a check is not
legal tender and that a creditor may validly refuse payment by check, whether it be a manager's,
cashier's or personal check. Petitioners erroneously rely on one of the dissenting opinions in the
Philippine Airlines case to support their cause. The dissenting opinion however does not in any
way support the contention that a check is legal tender but, on the contrary, states that "If the
PAL checks in question had not been encashed by Sheriff Reyes, there would be no payment by
the PAL and, consequently, no discharge or satisfaction of its judgment obligation." Moreover,
the circumstances in the Philippine Airlines case are quite different from those in the case at bar
for in that case the checks issued by the judgment debtor were made payable to the sheriff,
Emilio Z. Reyes, who encashed the checks but failed to deliver the proceeds of said encashment
to the judgment creditor. In the more recent case of Fortunado vs. Court of Appeals, this Court
stressed that, "We are not, by this decision, sanctioning the use of a check for the payment of
obligations over the objection of the creditor."

CO vs. PHILIPPINE NATIONAL BANK


[G.R. No. L-51767; June 29, 1982]
BARREDO, J:

TENDER OF CHECK SUFFICIENT TO COMPEL REDEMPTION BUT IS NOT IN ITSELF A


PAYMENT. We are not, by this decision, sanctioning the use of a check for the payment of
obligations over the objection of the creditor. What we are saying is that 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 is not in itself a payment that relieves the
redemptioner from his liability to pay the redemption price. In other words, while we hold that
the private respondents properly exercised their right of redemption, they remain liable, of
course, for the payment of the redemption price.

NATIONAL MARKETING CORPORATION vs. FEDERATION OF UNITED


NAMARCO DISTRIBUTORS, INC.
[G.R. No. L-22578; January 31, 1973]

ANTONIO, J:

CIVIL LAW; OBLIGATIONS AND CONTRACTS; PAYMENT; MERE DELIVERY OF


NEGOTIABLE DOCUMENTS DOES NOT CONSTITUTE PAYMENT. The mere delivery by
FEDERATION of the domestic letters of credit to NAMARCO did not operate to discharge the
debt of FEDERATION. As shown by the appealed judgment, NAMARCO accepted the three
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Obligations and Contracts: Doctrines and Case Digests
letters of credit "to insure the payment of those goods by the FEDERATION . . ." They were
given therefore as mere guarantee for the payment of the merchandise. The delivery of
promissory notes payable to order, or bills of exchange or drafts or other mercantile document
shall produce the effect of payment only when realized, or when by the fault of the creditor, the
privileges inherent in their negotiable character have been impaired

VI. EXTRA-ORDINARY INFLATION OR DEFLATION OF THE CURRENCY ART.


1250

FILIPINO PIPE AND FOUNDRY CORPORATION vs. NATIONAL WATERWORKS


AND SEWERAGE AUTHORITY
[G.R. No. L-43446; May 3, 1988]

GRIO-AQUINO, J:

CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTRA-ORDINARY INFLATION, DEFINED.


Extraordinary inflation exists when "there is a decrease or increase in the purchasing power
of the Philippine currency which is unusual or beyond the common fluctuation in the value of
said currency, and such decrease or increase could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation.

MOBIL OIL PHILIPPINES, INC. vs. COURT OF APPEALS


[G.R. No. 58122. December 29, 1989.]
PARAS, J:

CIVIL LAW; OBLIGATION AND CONTRACTS; VALUE OF THE CURRENCY AT THE TIME
OF THE ESTABLISHMENT OF THE OBLIGATION; MAY NOT BE APPLIED WITHOUT A
PROPER DECLARATION OF THE EXISTENCE OF EXTRAORDINARY INFLATION OR
DEFLATION. On the second issue for adjustment claims, private respondent has no basis in
contract or in law. Parenthetically, the principle We laid down in the case of Commissioner of
Public Highways vs. Burgos (96 SCRA 831) can be applied here, to wit: ". . . an agreement is
needed for the effects of an extraordinary inflation to be taken into account to alter the value of
the currency at the time of the establishment of the obligation which, as a rule, is always the
determinative element, to be varied by agreement that would find reason only in the supervention
of extraordinary inflation or deflation." (pp. 837-838 emphasis supplied) Moreover, in his
concurring opinion in the same case, Justice Claudio Teehankee stated: "I concur in the result
with the observation that the statements in the main opinion re the applicability or non-
applicability of Article 1250 of the Civil Code should be taken as obiter dicta, since said article
may not be invoked nor applied without a proper declaration of extraordinary inflation or
deflation of currency by the competent authorities. In the case at bar, the obligation of the
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Obligations and Contracts: Doctrines and Case Digests
petitioner, if any, is based on law since the same calls for the application of the Civil Code
provisions on damages. Moreover, there has been no official pronouncement or declaration of
the existence of extraordinary inflation or deflation.

2. WHEN ARTICLE 1250 DOES NOT APPLY (OBLIGATIONS, NOT CONTRACTUAL):

VELASCO, vs. MANILA ELECTRIC CO., ET AL.,


[G.R. No. L-18390. December 20, 1971.]
REYES, JBL;

CIVIL LAW; OBLIGATIONS; PAYMENT; ARTICLE 1250 APPLIES TO CONTRACTUAL


OBLIGATIONS, NOT TO TORTS AS IN CASE AT BAR. It can be seen from the employment
of the words "extraordinary inflation or deflation of the currency stipulated" that the legal rule
envisages contractual obligations where a specific currency is selected by the parties as the
medium of payment; hence it is inapplicable to obligations arising from tort and not from
contract, as in the case at bar, besides there being no showing that the factual assumption of the
article has come into existence.

COMMISSIONER OF PUBLIC HIGHWAYS vs. BURGOS


[G.R. No. L-36706; March 31, 1980]
DE CASTRO, J:

CIVIL LAW; OBLIGATIONS; PAYMENT; WHEN ARTICLE 1250 DOES NOT APPLY. Article
1250 of the New Civil Code seems to be the only provision in our statutes which provides for
payment of an obligation in an amount different from what has been agreed upon by the parties
because of the supervention of extra-ordinary inflation or deflation. "ART. 1250. In case extra-
ordinary inflation or deflation of the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary." It is clear that the foregoing provision applies only to
cases where a contract or agreement is involved. It does not apply where the obligation to pay
arises from law, independent of contract. The taking of private property by the Government in
the exercise of its power of view in the case of Velasco vs. Manila Electric Co., et al., L-19390,
December 29, 1971.

ST. PAUL FIRE & MARINE INSURANCE CO. vs. MACONDRAY & CO., INC.
[G.R. No. L-27796; March 25, 1976]

ANTONIO, J:

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Obligations and Contracts: Doctrines and Case Digests
VALIDITY OF LIMITATION OF CARRIER'S LIABILITY. The limitation of the carrier's
liability is sanctioned by the freedom of the contracting parties to established such stipulations,
clauses, terms, or conditions as they may deem convenient, provide they are not contrary to law,
morals, good customs and public policy. A stipulation fixing or limiting the sum that may be
recovered from the carrier on the loss or deterioration of the goods is valid provide it is (a)
reasonable and just under the circumstances, and (b) has been fairly and freely agreed upon.

VII. FORMS OF PAYMENT


1. APPLICATION OF PAYMENT ARTS. 1252 TO 1254

REPARATIONS COMMISSION vs. UNIVERSAL DEEP-SEA FISHING


CORPORATION
[G.R. Nos. L-21901 and L-21996; June 27, 1978]

CONCEPTION, J:

OBLIGATIONS AND CONTRACTS; APPLICABILITY OF ARTICLES 1252 TO 1254 OF THE


NEW CIVIL CODE. The rules contained in Articles 1252 to 1254 of the Civil Code apply to a
person owing several debts of the same kind to a single creditor. They cannot be made
applicable to a person whose obligation as a mere surety is both contingent and singular, which
in this case is the full and faithful compliance with the terms of the contract of conditional
purchase and sale of reparations goods. The obligation included the payment, not only of the
first installment in the amount of P53,643.00, but also of the ten (10) equal yearly installments of
P56,597.20 per annum. The amount of P10,000.00 was, indeed, deducted from the amount of
P53,643.00, but then the first of the ten (10) equal yearly installments had also accrued; hence,
no error was committed in holding the surety company to the full extent of its undertaking.

MAGDALENA ESTATES, INC. vs. RODRIGUEZ


[G.R. No. L-18411; December 17, 1966]
REGALA, J:

OBLIGATIONS; APPLICATION OF PAYMENT; ARTS. 1252 AND 1254, CIVIL CODE,


INTERPRETED; ART. 1253, C.C., MERELY DIRECTORY AND NOT MANDATORY. The
rules contained in Arts. 1252 and 1254 of the Civil Code applies to a person owing several debts
of the same kind of a single creditor. They cannot be made applicable to a person whose
obligation as a mere surety is both contingent and singular; his liability is confined to such
obligation, and he is entitled to have all payments made applied exclusively to said application
and to no other. Besides Art. 1253 of the Civil Code is merely directory, and not mandatory

THE BACHRACH GARAGE AND TAXICAB CO. (INC.) vs. VICENTE GOLINGCO
[G.R. No. 13761; July 12, 1919]
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Obligations and Contracts: Doctrines and Case Digests
AVANCEA, J.:

PAYMENT; IMPUTATION. He who owes several debts of the same kind to a single creditor
may declare, at the time of making a payment, to which of them it is to be applied. (Article 1172
Civil Code.) If, in making use of this right, the defendant applied the payment of P7,000 to a
debt, he cannot claim that it be applied to another debt.

THE COMMONWEALTH OF THE PHILIPPINES vs . THE FAR EASTERN SURETY &


INSURANCE COMPANY
[G.R. No. L-979; April 13, 1949]

BENGZON, J:

SURETYSHIP; SOLIDARY LIABILITY; APPLICATION OF PAYMENT. "Where in a bond the


debtor and surety have bound themselves solidarily, but limiting the liability of the surety to a
lesser amount than that due from the principal debtor, any such payment as the latter may have
made on account of such obligation must be applied first to the unsecured portion of the debt,
for, as regards the principal debtor, the obligation is more onerous as to the amount not
secured." (Hongkong & Shanghai Banking Corporation vs. Aldanese, 48 Phil., 990.)

2. PAYMENT BY CESSION (ART. 1255) VS. DATION IN PAYMENT/DACION EN


PAGO (ART. 1245)
A. KINDS OF PAYMENT BY CESSION
B. DATION IN PAYMENT AND PAYMENT BY CESSION DISTINGUISHED
3. TENDER OF PAYMENT AND CONSIGNATION - ARTS. 1256 TO 1261
A. SPECIAL REQUISITES OF CONSIGNATION

DALTON vs. FGR REALTY AND DEVELOPMENT CORPORATION


[G.R. No. 172577; January 19, 2011]

CARPIO, J.:

OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; PAYMENTS; FORMS OF


PAYMENT; TENDER OF PAYMENT AND CONSIGNATION; SPECIAL REQUISITES OF
CONSIGNATION. In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc. , the Court
enumerated 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

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Obligations and Contracts: Doctrines and Case Digests
court; and (5) the person interested in the performance of the obligation was given notice after
the consignation was made.

B. WHEN TENDER NOT NECESSARY 2ND PARAGRAPH OF ART. 1256


C. LOSS OF THE THING DUE ARTS. 1262 TO 1269
I. DEFINITION ART. 1189 (2)
II. LOSS IN OBLIGATION TO DO ART. 1266
III. THEORY OF IMPREVISIBILITY (FRUSTRATION OF ENTERPRISE) ART. 1267

OCCEA vs. JABSON


[G.R. No. L-44349; October 29, 1976]

TEEHANKEE, J:

OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; LOSS OF THE THING DUE;


THEORY OF IMREVISIBILITY. While respondent court correctly cited in its decision the
Code Commission's report giving the rationale for Article 1267 of the Civil Code, to wit: "The
general rule is that impossibility of performance releases the obligor. However, it is submitted
that when the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the court should be authorized to release the obligor in whole or in part. The intention of
the parties should govern and if it appears that the service turns out to be so difficult as have
been beyond their contemplation, it would be doing violence to that intention to hold the obligor
still responsible. . . .," it misapplied the same to respondent's complaint.

IV. WHO BEARS THE RISK OF LOSS ARTS. 1262, 1269, 1189
1. SEE ALSO ARTS. 1504, 1655, 1717 AND 1191
D. CONDONATION OR REMISSION OF DEBT ARTS. 1270 TO 1274
E. CONFUSION OR MERGER ARTS. 1275 TO 1277
F. COMPENSATION ARTS. 1278 TO 1290
I. KINDS OF COMPENSATION
II. REQUISITES FOR LEGAL COMPENSATION ART. 1279
III. WHEN COMPENSATION NOT PROPER ART. 1287 AND 1288

FRANCIA vs. INTERMEDIATE APPELLATE COURT


[G.R. No. 67649; June 28, 1988]

GUITERREZ, JR;

OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; COMPENSATION; WHEN


COMPENSATION NOT PROPER. We have consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have against the government. A person cannot
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Obligations and Contracts: Doctrines and Case Digests
refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit against
the government.

G. NOVATION ARTS. 1291 TO 1304


I. KINDS: EXTINCTIVE AND MODIFICATORY
1. EXTINCTIVE
A. REQUISITES OF EXTINCTIVE NOVATION
B. SUBSTITUTION OF DEBTORS ARTS. 1293 AND 1295
C. EXPROMISSION ART. 1294
D. DELEGACION ART. 1295
E. SUBROGATION ART. 1300 TO 1304
I. LEGAL ART. 1302
II. CONVENTIONAL ART. 1301
2. MODIFICATORY

YOUNG v. CA
[G.R. No. 79518 January 13, 1989]

OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; NOVATION; MODIFICATORY;


STIPULATION POR ATRUI The stipulation that young gave may be a stipulation pour
autrui but it is unrebutted that she did not communicate her acceptance whether expressly or
impliedly. The requisites of a stipulation pour autrui or a stipulation in favor of a third person
are the following: (1) there must be a stipulation in favor of a third person (2) the stipulation
must be a part, not the whole of the contract (3) the contracting parties must have clearly and
deliberately conferred a favor upon a third person, not a mere incidental benefit or interest (4)
the third person must have communicated his acceptance to the obligor before its revocation. (5)
neither of the contracting parties bears the legal representation or authorization of the third
party. The argument is pointless, considering that the sale of subject property to some other
person or entity constitutes in effect a revocation of the grant of the right of first refusal to
Rebecca C. Young.

HERNANDEZ-NIEVERAvs . HERNANDEZ
[G.R. No. 171165; February 14, 2011]

PERALTA, J:

OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; NOVATION; MODIFICATORY


Demetrio as attorney-in-fact, have agreed to novate the terms of the MOA by extinguishing the
core obligations of PMRDC on the payment of option money. This seems to suggest that with the
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Obligations and Contracts: Doctrines and Case Digests
execution of the DAC, PMRDC has already entered into the exercise of its option except that its
obligation to deliver the option money has, by subsequent agreement embodied in the DAC, been
substituted instead by the obligation to issue participation certificates in Demetrio's name but
which, likewise, has not yet been performed by PMRDC.

MILLAR vs. COURT OF APPEALS


[G.R. No. L-29981; April 30, 1971]
CASTRO, J:

CIVIL LAW; EXTINGUISHMENT OF OBLIGATIONS; IMPLIED NOVATION; DOES NOT


TAKE PLACE IF THE TWO OBLIGATIONS ARE NOT INCOMPATIBLE. The defense of
implied novation requires clear and convincing proof of complete incompatibility between the
two obligations. (Magda Estates, Inc. v. Rodriguez and Rodriguez, L-18411, Dec. 17, 1966, 18
SCRA 967.) The law requires no specific form for an effective novation by implication. The test is
whether the two obligations can stand together. If they cannot, incompatibility arises, and the
second obligation novates the first. If they can stand together, no incompatibility results and
novation does not take place.

MACONDRAY & CO., INC. vs . RUIZ


[G.R. No. 44671; November 26, 1938]
IMPERIAL, J;

CONTRACTS; NOVATION. According to article 1203 of the Civil Code obligations are
modified by altering their object or principal conditions, by substituting another in place of the
debtor, or by subrogating a third person to the rights of creditor; and article 1204 provides that
in order that an obligation may be extinguished by another which substitutes it, it shall be
necessary that it be declared expressly, or that the old and new obligations be incompatible in
every respect. In the first contract the debtors were R and B and they were answerable jointly
and severally for the sum of P3,270. In the second contract the debtors were the same R and E.
C. and the amount for which they were liable was only P2,246.18. In the latter contract the dates
of maturity of the obligations were changed due to the lapse of time and to the partial payments
made by the former debtors. These facts show at a glance that the first contract was in its terms
substituted by the second, and that the latter was incompatible with the former.

INCHAUSTI & CO. vs. YULO,


[G.R. No. 7721; March 25, 1914]

ARRELLANO. J:

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Obligations and Contracts: Doctrines and Case Digests
CONTRACT; NOVATION; MODIFICATORY. Demetrio as attorney-in-fact, have agreed to
novate the terms of the MOA by extinguishing the core obligations of PMRDC on the payment of
option money. This seems to suggest that with the execution of the DAC, PMRDC has already
entered into the exercise of its option except that its obligation to deliver the option money has,
by subsequent agreement embodied in the DAC, been substituted instead by the obligation to
issue participation certificates in Demetrio's name but which, likewise, has not yet been
performed by PMRDC.

KABANKALAN SUGAR CO., INC. vs. PACHECO


[G.R. No. 33654. December 29, 1930.]

VILLA-REAL, J:

CONTRACT; NOVATION; EASEMENT OF RIGHT OF WAY. When an easement of right of


way is one of the principal conditions of a contract, and the duration of said easement is
specified, the reduction of said period in a subsequent contract, wherein the same obligation is
one of the principal conditions, constitutes a novation and to that extent extinguishes the former
contractual obligation.

B. CONCEPT ART. 1159


C. CHARACTERISTICS (TENETS) OF CONTRACTS:
I. AUTONOMY ART. 1306

BANCO FILIPINO SAVINGS AND MORTGAGE BANK vs. NAVARRO


[G.R. No. L-46591. July 28, 1987.]

MELENCIO-HERRERA, J:

CONTRACTS; CHARACTERISTICS; AUTONOMY. In Banco Filipino Savings and


Mortgage Bank vs. Navarro, 15 SCRA 346 (1987), this Court disauthorized the bank from
raising the interest rate on the borrowers' loan from 12% to 17% despite an escalation clause in
the loan agreement signed by the debtors authorizing Banco Filipino "to correspondingly
increase the interest rate stipulated in this contract without advance notice to me/us in the event
a law should be enacted increasing the lawful rates of interest that may be charged on this
particular kind of loan."

FLAVIO K. MACASAET & ASSOCIATES, INC vs. COMMISSION ON AUDIT


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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. 83748; May 12, 1989.]

MELENCIO-HERRERA, J:

CIVIL LAW; CONTRACTS; INTERPRETATION OF CONTRACTS; LITERAL MEANING OF


TERMINOLOGIES OF CONTRACT CONTROL WHEN THEY ARE CLEAR. The
terminologies in the contract being clear, leaving no doubt as to the intention of the contracting
parties, their literal meaning control (Article 1370, Civil Code).

OBLIGATIONS; HAVE FORCE OF LAW BETWEEN CONTRACTING PARTIES AND SHOULD


BE COMPLIED WITH IN GOOD FAITH WHEN ARISING FROM CONTRACT. The price
escalation cost must be deemed included in the final actual project cost and petitioner held
entitled to the payment of its additional professional fees. Obligations arising from contract have
the force of law between the contracting parties and should be complied with in good faith
(Article 1159, Civil Code).

PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS


[G.R. No. 88880. April 30, 1991.]

GRINO-AQUINO, J:

CONTRACTS; CHARACTERISTICS; MUTUALITY. Besides violating P.D. 116, the unilateral


action of the PNB in increasing the interest rate on the private respondent's loan, violated the
mutuality of contracts ordained in Article 1308 of the Civil Code: "ART. 1308. The contract must
bind both contracting parties; its validity or compliance cannot be left to the will of one of
them."

REPUBLIC OF THE PHILIPPINES vs. PHILIPPINE LONG DISTANCE TELEPHONE


COMPANY
[G.R. No. L-18841. January 27, 1969.]

REYES, J.B.L;

CIVIL LAW; CONTRACTS; FREEDOM TO STIPULATE TERMS AND CONDITIONS;


PARTIES CAN NOT BE COERCED. Parties cannot be coerced to enter into a contract where
no agreement is had between them as to the principal terms and conditions of the contract.
Freedom to stipulate such terms and condition is of the essence of our contractual system, and
by express provision of the statute, a contract may be annulled if tainted by violence,
intimidation or undue influence (Articles 1306, 1336, 1337, Civil Code of the Philippines).

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Obligations and Contracts: Doctrines and Case Digests
LITA ENTERPRISES, INC vs. SECOND CIVIL CASES DIVISION, INTERMEDIATE
APPELLATE COURT
[G.R. No. 64693; April 27, 1984.]

ESCOLIN, J;

OBLICON: PUBLIC POLICY. Although not outrightly penalized as a criminal offense, the
"kabit system" is invariably recognized as being contrary to public policy and, therefore, void
and inexistent under Article 1409 of the Civil Code. It is a fundamental principle that the court
will not aid either party to enforce an illegal contract, but will leave them both where it finds
them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts
to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies
them such aid.

CIVIL LAW; OBLIGATIONS AND CONTRACTS; VOID CONTRACTS, CANNOT BE CURED


BY RATIFICATION OR PRESCRIPTION. The defect of inexistence of a contract is
permanent and incurable, and cannot be cured by ratification or by prescription. As this Court
said in Eugenio vs. Perdido, 97 Phil. 41, "the mere lapse of time cannot give efficacy to
contracts that are null and void."

CUI vs. ARELLANO UNIVERSITY


[G.R. No. L-15127; May 30, 1961.]

CONCEPCION, J:

CONTRACTS; STUDENTS AND EDUCATIONAL INSTITUTIONS; SCHOLARSHIPS;


STIPULATION WHEREBY STUDENT CANNOT TRANSFER TO ANOTHER SCHOOL
WITHOUT REFUNDING SCHOLARSHIP CASH NULL AND VOID. The stipulation in a
contract, between a student and the school, that the student's scholarship is good only if he
continues in the same school, and that he waives his right to transfer to another school without
refunding the equivalent of his scholarship in cash, is contrary to public policy and, hence, null
and void, because scholarships are awarded in recognition of merit and to help gifted students in
whom society has an established interest or a first lien, and not to keep outstanding students in
school to bolster its prestige and increase its business potential.

NON vs. DAMES


[G.R. No. 89317. May 20, 1990.]
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Obligations and Contracts: Doctrines and Case Digests

CORTEZ, J:

CONTRACTS; CHARACTERISTICS; AUTONOMY; CONTRACT FOR PUBLIC POLICY.


The Supreme Court ruled that the trial court cannot anchor the Termination of Contract
theory the contract between the school and the student is not an ordinary contract. It is imbued
with public interest, considering the high priority given by the Constitution to education and the
grant to the State of supervisory and regulatory powers over all educational institutions. It is
intended merely to protect schools wherein tuition fees are collected and paid on installment
basis. It cannot be construed to mean that a student shall be enrolled for only one semester.

CAPITOL MEDICAL CENTER, INC vs. COURT OF APPEALS


[G.R. No. 82499. October 13, 1989.]

GRIO-AQUINO, J:

CONTRACT; ENROLLMENT FOR A SEMESTER; CONTRACT WITH THE SCHOOL


DEEMED FOR THE PERIOD ENROLLED AND PAID FOR. The contract between the
college and a student who is enrolled and pays the fees for a semester, is for the entire semester
only, not for the entire course. The law does not require a school to see a student through to the
completion of his course. If the school closes or is closed by proper authority at the end of a
semester, the student has no cause of action for breach of contract against the school. Thus did
this Court rule in "Alcuaz, et al. vs. Philippine School of Business Administration, Quezon City
Branch, et al.," G.R. No. 76353, promulgated on May 2, 1988.

ENROLLMENT IN COLLEGE, NOT AN OBLIGATION FOR THE LATTER TO REMAIN OPEN


TILL THE STUDENT COMPLETES THE COURSE. We, therefore, hold that the lower court
gravely abused its discretion in compelling the CMCC to reopen and re-admit the striking
students for enrollment in the second semester of their courses. Since their contracts with the
school were terminated at the end of the first semester of 1987, and as the school has already
ceased to operate, they have no "clear legal right" to reenroll and the school has no legal
obligation to reopen and readmit them. No provision in the Education Act of 1982, nor in the
Manual of Regulations for Private Schools can be, or has been, cited to support the novel view
that a school is obligated to remain open until its students have completed their courses therein.
Indeed, neither is there a law or rule that obligates a student who has enrolled in a school, to
remain there until he finishes his course. On the contrary he may transfer at any time to any
school that is willing to accept.

II. CONSENSUALITY ARTS. 1305 AND 1315; SEE ALSO ART. 448
III. MUTUALITY ART. 1308

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Obligations and Contracts: Doctrines and Case Digests
PHILIPPINE NATIONAL BANK , petitioner, vs. THE HON. COURT OF APPEALS and
AMBROSIO PADILLA, respondents.
[G.R. No. 88880. April 30, 1991.]
GRINO-AQUINO, J:

UNILATERAL ACTION TO INCREASE INTEREST RATES, A VIOLATION OF ARTICLE 1308


OF CIVIL CODE. Besides violating P.D. 116, the unilateral action of the PNB in increasing
the interest rate on the private respondent's loan, violated the mutuality of contracts ordained in
Article 1308 of the Civil Code: "ART. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them."

SUCCESSIVE INCREASE OF INTEREST RATES, A VIOLATION OF ARTICLE 1956 OF CIVIL


CODE. PNB's successive increases of the interest rate on the private respondent's loan, over
the latter's protest, were arbitrary as they violated an express provision of the Credit Agreement
(Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in writing signed by
the party to be bound as burdened by such amendment." The increases imposed by PNB also
contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has
been expressly stipulated in writing."

VICENTE SINGSON ENCARNACION, PLAINTIFF-APPELLEE, VS . JACINTA


BALDOMAR, ET AL., DEFENDANTS-APPELLANTS.
[G.R. No. L-264. October 4, 1946.]
HIDALGO. J:

OBLIGATIONS AND CONTRACTS; LEASE; VALIDITY AND FULFILLMENT CANNOT BE


LEFT TO EXCLUSIVE WILL OF LESSEE. The continuance and fulfillment of the contract of
lease cannot be made to depend solely and exclusively upon the free and uncontrolled choice of
the lessees between continuing paying the rentals or not, completely depriving the owner of all
say in the matter. For if this were allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue, the lessees could effectively
thwart his purpose if they should prefer to terminate the contract by the simple expedient of
stopping payment of the rentals. This, of course, is prohibited by article 1256 of the Civil Code.

IV. OBLIGATORINESS ART. 1156, 1315 AND 1316


V. RELATIVITY ART. 1311 TO 1314
1. STIPULATION POUR ATRUI 2ND PARAGRAGPH OF ART. 1311
A. REQUISITES

COQUIA vs. FIELDMENS INSURANCE CO.,


[G.R. No. L-23276, November 29, 1968]
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Obligations and Contracts: Doctrines and Case Digests

CONCEPCION, C.J.:

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.

KAUFFMAN vs. NATIONAL BANK


[G.R. No. 16454, September 29, 1921]

STREET, J.:

"In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the
nature of a gift or whether there is an obligation owing from the promise to the third person.
That no such obligation exists may in some degree assist in determining whether the parties
intended to benefit a third person, whether they stipulated for him."

YOUNG vs. CA
[G.R. No. 79518 January 13, 1989]

PARAS, J.:

The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the
following: (1) there must be a stipulation in favor of a third person. (2) the stipulation must be a
part, not the whole of the contract. (3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental benefit or interest. (4) the third
person must have communicated his acceptance to the obligor before its revocation. (5) neither
of the contracting parties bears the legal representation or authorization of the third party.

D. STAGES OF CONTRACTS: (NEGOTIATION, PERFECTION, CONSUMMATION)

ANG YU v. CA
[G.R. No. 109125; Deccember 2, 1994]

VITUG, J.:

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The
vinculum juris or juridical tie which is the efficient cause established by the various sources of

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Obligations and Contracts: Doctrines and Case Digests
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the
prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.

i. NEGOTIATION- ARTICLE 1319 TO 1326


1. ART. 1324 VS. ART. 1479
2. Cases:

SOUTH WESTERN SUGAR vs. ATLANTIC GULF


[G.R. No. L-7382, June 29, 1955]

BAUTISTA ANGELO, J.:

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may
be withdrawn at any time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to "a promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.

ATKINS KROLL AND CO., INC. vs. CUA HIAN TEK


[G.R. No. L-9871, January 31, 1958]

BENGZON, J.:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified time. After accepting the promise and
before he exercises his option, the holder of the option is not bound to buy. He is free either to
buy or not to later. In this case, however, upon accepeting herein petitioner's offer a bilateral
promise to sell and to buy ensued, and the respondent ipso facto assumed the obligations of a
purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere
option then; it was bilalteral contract of sale.

SANCHEZ VS. RIGOS


[G.R. No. L-25494 June 14, 1972]

CONCEPCION, C.J.:

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Obligations and Contracts: Doctrines and Case Digests
This view has the advantage of avoiding a conflict between Articles 1324 on the general
principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal
rule of statutory construction that, in construing different provisions of one and the same law or
code, such interpretation should be favored as will reconcile or harmonize said provisions and
avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the
Code, its author has maintained a consistent philosophy or position.

RURAL BANK OF PARANAQUE vs. REMOLADO


[G.R. No. L-62051 March 18, 1985]

AQUINO, J.:

Courts operate not because one person has been defeated or overcome by another, but because
he has been defeated or overcome illegally. Men may do foolish things, make ridiculous
contracts, use miserable judgment, and lose money by them-indeed, all they have in the world;
but not for that alone can the law intervene and restore. There must be, in addition, a violation
of law, the commission of what the law knows as an actionable wrong before the courts are
authorized to lay hold of the situation and remedy it.

MONTILLA vs. CA
[G.R. No. L-47968. May 9, 1988]

NARVASA, J.:

The action is also dismissible upon another legal ground. Assuming arguendo veritability of the
oral promise to sell by Montilla, the promise was nevertheless not binding upon her in view of
the absence of any consideration therefor distinct from the stipulated price. This is the principle
laid down by the second paragraph of Article 1479: "An accepted unilateral promise to .. sell a
determinate thing for a price certain is binding upon the promissor if the promise is supported
by a consideration distinct from the price."

NATINO vs. IAC


G.R. No. 73573 May 23, 1991

DAVIDE, JR., J.:


The second paragraph of Article 1479 of the Civil Code expressly provides: An accepted
unilateral. promise to buy or to sell a determinate thing for a price certain is binding upon the
promissory if the promise is supported by a consideration distinct from the price.

YAO KA SIN TRADING vs. CA


[G.R. No. L-53820 June 15, 1992]
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Obligations and Contracts: Doctrines and Case Digests

DAVIDE, JR., J.:

Since a corporation, such as the private respondent, can act only through its officers and agents,
"all acts within the powers of said corporation may be performed by agents of its selection; and,
except so far as limitations or restrictions may be imposed by special charter, by-law, or
statutory provisions, the same general principles of law which govern the relation of agency for
a natural person govern the officer or agent of a corporation, of whatever status or rank, in
respect to his power to act for the corporation; and agents when once appointed, or members
acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of
individuals and private persons."

DIAMANTE VS. CA
[G.R. No. L-51824 February 7, 1992]

DAVIDE, JR., J.:

The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee
in a separate instrument cannot be a right of repurchase but some other right like the option to
buy in the instant case.

3. EARNEST MONEY (ART. 1482) vs. OPTION MONEY (ART. 1479)


II. PERFECTION ART. 1315, 1316, AND 1319(2ND PARAGRAPH); SEE ALSO ART.
54 OF THE CODE OF COMMERCE
1. ESSENTIAL REQUISITES OF A VALID CONTRACT
2. WHO ARE INCAPACITATED TO GIVE CONSENT
3. LACK OF CAPACITY (ART. 1327) vs. WANT OF CAPACITY(ART. 1403) vs.
DISQUALIFICATION (ART. 96 OF THE FAMILY CODE)
4. THEORY OF GENERAL CAPACITIES vs. THEORY OF SPECIAL CAPACITIES
5. VICES OF CONSENT
6. SIMULATION OF CONTRACTS
A. OBJECT ART. 1374
B. CAUSE ART. 1350
C. CASES:
LIGUEZ vs. HON. CA
[G.R. No. L-11240; December 18, 1957]

REYES, J.B.L., J.:


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Obligations and Contracts: Doctrines and Case Digests

To determine the prejudice to the widow, it must be shown that the value of her share in the
property donated cannot be paid out of the husband's share of the community profits. The
requisite data, however, are not available to us and necessitate a remand of the records to the
court of origin that settled the estate of the late Salvador P. Lopez.

ONG vs. ONG


[G.R. No. L-67888; October 8, 1985]

RELOVA, J.:

The execution of a deed purporting to convey ownership of a realty is in itself prima facie
evidence of the existence of a valuable consideration, the party alleging lack of consideration
has the burden of proving such allegation.

BAGNAS vs. CA
[G.R. No. L-38498; August 10, 1989]

NARVASA, J.:

Without necessarily according all these assertions its full concurrence, but upon the
consideration alone that the apparent gross, not to say enormous, disproportion between the
stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the
undisputably valuable real estate allegedly sold worth at least P10,500.00 going only by
assessments for tax purposes which, it is well-known, are notoriously low indicators of actual
value plainly and unquestionably demonstrates that they state a false and fictitious
consideration, and no other true and lawful cause having been shown, the Court finds both said
deeds, insofar as they purport to be sales, not merely voidable, but void ab initio.

E. FORMS OF CONTRACTS ARTS. 1356 TO 1358


I. FOR VALIDITY
1. IN WRITING
A. DONATION ART. 748
B. COMMON CARRIERS LIABILITY ART. 1744
C. AGENTS AUTHORITY ART. 1874
D. INTEREST ON LOAN ART. 1956
E. ANTICHRESIS ART. 2134
2. IN PUBLIC INSTRUMENTS
A. DONATION ART. 749
B. PARTNERSHIP ART. 1771 AND 1773
II. FOR ENFORCEABILITY
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Obligations and Contracts: Doctrines and Case Digests
1. STATUTE OF FRAUD ART. 1403
III. FOR CONVENIENCE
1. TO AFFECT THIRD PERSON ART. 1358
F. REFORMATION OF INSTRUMENTS ARTS. 1359 TO 1369

CABANATUAN vs. LAZARO


[G.R. No. L-29256 June 30, 1971]

REYES, J.:

Every party to a contract has a clear interest that the instrument bodying its terms should
conform to the actual and true agreement had by and between the contracting parties. Hence, if
by accident or mistake, as expressly pleaded in the complaint, the document does not conform to
or reflect the actual agreement, either party can ask for the reformation of the instrument as
provided by Articles 1359, et seq. (Chapter 4, Title 2, Book 4) of the Civil Code of the
Philippines, to forestall future litigations on the true import of the agreement.

COSIO vs. PALILEO


[G.R. No. L-18452; May 31, 1965]

REGALA, J.:

In reforming instruments, courts do not make another contract for the parties (See Civil Code,
Arts. 1359-1369 and the Report of the Code Commission, p. 56). They merely inquire into the
intention of the parties and, having found it, reform the written instrument (not the contract) in
order that it may express the real intention of the parties (See Id., Arts. 1365 and 1602).

G. INTERPRETATION OF CONTRACTS ARTS. 1370 TO 1379

GSIS vs. CA
[G.R. No. L-52478 October 30, 1986]

PARAS, J.:

It is a basic and fundamental rule in the interpretation of contract that if the terms thereof are
clear and leave no doubt as to the intention of the contracting parties, the literal meaning of the
stipulations shall control but when the words appear contrary to the evident intention of the
parties, the latter shall prevail over, the former. In order to judge the intention of the parties,
their contemporaneous and subsequent acts shall be principally considered.

UNIVERSITY OF THE PHILIPPINES vs. Gabriel


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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. 70826; October 12, 1987]

GUTIERREZ, JR., J.:

Act 3959 was intended for private persons, companies, firms, or corporations using the services
of contractors who may employ their own carpenters, masons, and laborers or hire sub-
contractors. This is made even more evident by the fact that Presidential Decree No. 442. The
Labor Code of the Philippines, Articles 106 to 109 and its Rules and Regulations, Rule VIII,
Sections 7-9, have superseded Act 3959. The Labor Code does not cover government
employment.

BAY VIEW HOTEL, INC., VS. KER AND CO., LTD


[G.R. No. L-28237; August 31, 1982]

TEEHANKEE, J.:

Admission is in the nature of evidence and its legal effects were already part of the records of the
case and therefore could be availed of by any party even by one subsequently impleaded. The
amendment of the complaint per se cannot set aside the legal effects of the request for admission
since its materiality has not been affected by the amendment. If a fact is admitted to be true at
any stage of the proceedings, it is not stricken out through the amendment of the complaint. To
allow a party to alter the legal effects of the request for admission by the mere amendment of a
pleading would constitute a dangerous and undesirable precedent.

ANGELES vs. CALASANZ


[G.R. No. L-42283; March 18, 1985]

GUTIERREZ, JR., J.:

Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract
upon the failure of the other to perform the obligation assumed thereunder. Moreover, there is
nothing in the law that prohibits the parties from entering into an agreement that violation of the
terms of the contract would cause its cancellation even without court intervention

LABASAN vs. LACUESTA


[G.R. No. L-25931; October 30, 1978]
MUOZ PALMA, J.:

Article 1602 paragraph 1 of the New Civil Code expressly provides that in case of doubt a
contract purporting to be a sale with a right to repurchase shall be construed as an equitable
mortgage when the price or consideration of the sale is unusually inadequate.
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Obligations and Contracts: Doctrines and Case Digests

SY VS. CA
[G.R. No. L-39853; August 17, 1983]

MELENCIO-HERRERA, J.:

As provided for by Article 2227 of the Civil Code, however, Liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are inequitous or
unconscionable.
H. DEFECTIVE CONTRACTS
I. RESCISSIBLE CONTRACTS
1. ART. 1380 (RESCISSION) VS. ART. 1191 (RESOLUTION)
2. ARTS. 1381, 1382, 1098, 1189, 1526, 1534, 1539, 1542, 1556, 1560, 1567 AND 1659
II. VOIDABLE CONTRACTS ART. 1390
1. MODES TO EXTINGUISH AN ACTION FOR ANNULMENT
III. UNENFORCEABLE CONTRACTS ART. 1403

ORDUNA vs. FUENTEBELLA


[G.R. No. 176841; June 29, 2010]

VELASCO, JR., J.:

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.

IV. VOID AND INEXISTENT CONTRACTS ART. 1409


I. ESTOPPEL ARTS. 1431 TO 1439
I. KINDS OF ESTOPPELS
1. ELEMENTS
II. LACHES VS. PRESCRIPTION

LAUREL vs. CSC


[G.R. No. 71562; October 28, 1991]

DAVIDE, JR., J.:

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Obligations and Contracts: Doctrines and Case Digests
Per Article 1431 of the Civil Code, through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon.

PNB vs. IAC


[G.R. No. 66715; September 18, 1990]

GRIO-AQUINO, J.

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against its own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied thereon.
The doctrine of estoppel springs from equitable principles and the equities in the case. It is
designed to aid the law in the administration of justice where without its aid injustice might
result. It has been applied by this Court wherever and whenever the special circumstances of a
case so demands.

KALALO vs. LUZ


[G.R. No. L-27782; July 31, 1970]

ZALDIVAR, J.:

The essential elements of estoppel in pais may be considered in relation to the party sought to be
estopped, and in relation to the party invoking the estoppel in his favor. As related to the party to
be estopped, the essential elements are: (1) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2)
intent, or at least expectation that his conduct shall be acted upon by, or at least influence, the
other party; and (3) knowledge, actual or constructive, of the real facts. As related to the party
claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of
knowledge of the truth as the facts in questions; (2) (reliance, in good faith, upon the conduct or
statements of the party to be estopped; (3) action or inaction based thereon of such character as
To change the position or status of the party claiming the estoppel, to his injury, detriment or
prejudice.

MEDIJA vs. PATCHO


[G.R. No. L-30310; October 23, 1984]

MAKASIAR, J.:

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Obligations and Contracts: Doctrines and Case Digests
An estoppel by laches arises from the negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to asset it (Tijam et al. vs. Sibonghanoy, 23 SCRA 29). Its essence is the
doctrine of estoppel, a concept derived from American law that aims to bring out justice between
parties, through the operation of the principle that an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon (Report of the Code Commission, p. 59).

F.A.T. Kee Computer vs. Online Networks


[G.R. No. 171238; February 2, 2011]

LEONARDO DE CASTRO, J.:

The elements of estoppel are: first, the actor who usually must have knowledge, notice or
suspicion of the true facts, communicates something to another in a misleading way, either by
words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably,
upon that communication; third, the other would be harmed materially if the actor is later
permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows,
expects or foresees that the other would act upon the information given or that a reasonable
person in the actor's position would expect or foresee such action.

MAPA III vs. GUANZON


[G.R. No. L-25605; June 20, 1977]

ANTONIO, J.:

Under the doctrine of res judicata an adjudication is final and conclusive not only as to the
matter actually determined, but as to every other matter which the parties might have litigated
and have had decided as incident to or essentially connected with the subject matter of the
litigation, and every matter coming within the legitimate purview of the original action, both in
respect to matters of claim and of defense.

INSURANCE OF THE PHILIPPINE ISLANDS CORP vs. SPS. GREGORIO


[G.R. No. 174104; February 14, 2011]

PERALTA, J.:

The essence of laches or "stale demands" is the failure or neglect for an unreasonable and
unexplained length of time to do that which, by exercising due diligence, could or should have
been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has

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abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact of delay,
standing alone, being insufficient to constitute laches.

CARAGAY-LAYNO vs. CA
[G.R. No. L-52064; December 26, 1984]

MELENCIO-HERRERA, J.:

The remedy of the landowner whose property has been wrongfully or erroneously registered in
another's name is, after one year from the date of the decree, not to set aside the decree, but,
respecting the decree as incontrovertible and no longer open to review, to bring an ordinary
action in the ordinary court of justice for reconveyance or, if the property has passed into the
hands of an innocent purchaser for value, for damages.

JOSE MARQUES AND MAXILITE TECHNOLOGIES, INC. vs. FAR EAST BANK AND
TRUST COMPANY
[G.R. No. 171379; January 10, 2011]

CARPIO, J.:

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. Estoppel is based on public policy, fair
dealing, good faith and justice. Its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one who reasonably relied thereon. It springs
from equity, and is designed to aid the law in the administration of justice where without its aid
injustice might result.

MANILA LODGE NO. 716 vs. CA


[G. R. No. L-41001; September 30, 1976]

CASTRO, C.J.:

TDC finally claims that the City of Manila is estopped from questioning the validity of the sale it
executed on July 13,'1911 conveying the subject property to the Manila Lodge No. 761, BPOE.
This contention cannot be seriously defended in the light of the doctrine repeatedly enunciated
by this Court that the Government is never estopped by mistakes or errors on the pan of its
agents, and estoppel does not apply to a municipal corporation to validate a contract that is
prohibited by law or its against Republic policy, and the sale of July 13, 1911 executed by the
City of Manila to Manila Lodge was certainly a contract prohibited by law. Moreover, estoppel
cannot be urged even if the City of Manila accepted the benefits of such contract of sale and the
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Obligations and Contracts: Doctrines and Case Digests
Manila Lodge No. 761 had performed its part of the agreement, for to apply the doctrine of
estoppel against the City of Manila in this case would be tantamount to enabling it to do
indirectly what it could not do directly.

Central Bank vs. CA


[G.R. No. L-50031-32; July 27, 1981]

CONCEPCION, JR., J.:

The broad general rule to the effect that a promise to do or not to do something in the future
does not work an estoppel must be qualified, since there are numerous cases in which an
estoppel has been predicated on promises or assurances as to future contract. The doctrine of
promissory estoppel is by no means new, although the name has been adopted only in
comparatively recent years. According to that doctrine, an estoppel may arise from the making
of a promise, even though without consideration, if it was intended that the promise should be
relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to
sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance
by the promisee is generally evidenced by action or forbearance on his part, and the idea has
been expressed that such action of forbearance would reasonably have been expected by the
promissor. Mere omission by the promisee to do whatever the promissor promised to do has been
held insufficient forbearance to give rise to a promissory estoppel.

REPUBLIC vs. ALAGAD


[G.R. No. L-66807; January 26, 1989]

SARMIENTO, J.:

Lakes, ponds, and pools existing upon the lands of private individuals, or the State or provinces,
belong to the respective owners of such lands, and those situated upon lands of communal use
belong to their respective pueblos.

Assuming, therefore, for purposes of this petition, that the lands subject of the Republic's
reversion efforts are foreshore in nature, the Republic has legitimate reason to demand
reconveyance. In that case, res judicata or estoppel is no defense.

NIEVA vs. MANILA BANKING CORPORATION


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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. L-30811; September 2, 1983]

GUTIERREZ, JR., J.:

Considering that the petitioner had actively participated in all stages of the proceedings in the
this court, be cannot, this stage, question the courts jurisdiction. As matter of fact, Nieva was
the one who proposed what amounted to a compromise agreement, which formed the basis of the
decision after the respondent bank agreed to the proposal. Only after the court had promulgated
the decision did Nieva have second thoughts which led to the manifestation raising the issue of
jurisdiction. And when his manifestation denied, he did not pursue the denial and raise the
matter to an appellant tribunal. Nieva allowed the decision to become final and executory

MANILA ELECTRIC COMPANY vs. CA


[G.R. No. L-33794; May 31, 1982]

MELENCIO-HERRERA, J.:

Contracts should be given effect as the parties construe it. "Acts done by the parties to a contract
in the course of its performance are admissible in evidence upon the question of its meaning as
being their own contemporaneous interpretation of , its terms". Thus, VELASCO should be held
as estopped from seeking cancellation of his sale of the PROPERTY to MERALCO because the
sub-station, while it was built, was considered by VELASCO as not violative of the requirement
for "residential purposes". Estoppel against VELASCO has set in.

BAILON-CASILAO vs. CA
[G.R. No. 78178; April 15, 1988]

CORTES, J.:

Well-stated in this jurisdiction are the four basic elements of laches, namely: (1) conduct on the
part of the defendant or of one under whom he claims, giving rise to the situation of which
complaint is made and for which the complainant seeks a remedy; (2) delay in asserting the
corporations complainant's rights, the complainant having had knowledge or notice of the
defendant's conduct and having been afforded an opportunity to institute suit; (3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right on
which he bases his suit; and, (4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held to be barred.

Heirs of Batiog Lacumen vs. Heirs of Laruan


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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. L-27088 July 31, 1975]

MARTIN, J.:
Claim of absolute ownership over the land cannot be countenanced. It has been held that while a
person may not acquire title to the registered property through continuous adverse possession, in
derogation of the title of the original registered owner, the heir of the latter, however, may lose
his right to recover back the possession of such property and the title thereto, by reason of
laches. Much more should it be in the instant case where the possession of nearly 30 years or
almost half a century now is in pursuance of sale which regrettably did not bear the approval of
the executive authority but which the vendor never questioned during his life time. Laruan's
laches extends to his heirs, the respondents-appellants herein, since they stand in privity with
him.

J. TRUST ART. 1440 TO 1457

DELUAO vs. CASTEEL


[G.R. No. L-21906; December 24, 1968]

CASTRO, J.:

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant
himself, to appear before Judge Fernandez on the scheduled dates of hearing Parties and their
lawyers have no right to presume that their motions for postponement will be granted. For
indeed, the appellant and his 12 lawyers cannot pretend ignorance of the recorded fact that since
September 24, 1953 until the trial held on May 2, 1956, the case was under the advisement of
Judge Fernandez who presided over Branch I. There was, therefore, no necessity to "re-assign"
the same to Branch II because Judge Fernandez had exclusive control of said case, unless he
was legally inhibited to try the case and he was not.

VALDEZ vs. OLORGA


[G.R. No. L-22571; May 25, 1973]

MAKALINTAL, J.:

Insofar as the aspect of extinctive prescription referred to in this article is concerned, it is but a
restatement of Article 1965 of the Spanish Civil Code, which provides: "As between co-heirs, co-
owners, or proprietors of adjacent estates, the action to demand the partition of the inheritance
or of the thing held in common, or the survey of the adjacent properties, does not prescribe."
And from the standpoint of acquisitive prescription, or prescription of ownership, this Court has
held in numerous decisions involving fiduciary relations such as those occupied by a trustee with
respect to the cestui que trust that as a general-rule the former's possession is not adverse and
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Obligations and Contracts: Doctrines and Case Digests
therefore cannot ripen into a title by prescription. Adverse possession in such a case requires,
the concurrence of the following-circumstances: (a) that the trustee has performed unequivocal
acts of repudiation amounting to an ouster of the cestui que trust; (b) that such, positive acts of
repudiation have been made known to the cestui que trust and (c) that the evidence thereon
should be clear and conclusive.

FABIAN vs. FABIAN


[G.R. No. L-20449; January 29, 1968]

CASTRO, J.:

Article 1456 of the new Civil Code, while not retroactive in character, merely expresses a rule
already recognized by our courts prior to the Code's promulgation (see Gayondato vs. Insular
Treasurer, 49 Phil. 244). Appellants are, however, in error in believing that like express trust,
such constructive trusts may not be barred by lapse of time. The American law on trusts has
always maintained a distinction between express trusts created by the intention of the parties,
and the implied or constructive trusts that are exclusively created by law, the latter not being
trusts in their technical sense (Gayondato vs. Insular Treasurer, supra). The express trusts
disable the trustee from acquiring for his own benefit the property committed to his management
or custody, at least while he does not openly repudiate the trust, and makes such repudiation
known to the beneficiary or cestui que trust. For this reason, the old Code of Civil Procedure
(Act 190) declared that the rules on adverse possession does not apply to "continuing and
subsisting" (i.e., unrepudiated) trusts.

FERRER-LOPEZ vs. CA
[G.R. No. L-50420; May 29, 1987]

PARAS, J.:

The doctrine of implied trust asserted by petitioners finds no application in the case at bar,
because there are no proven facts to this effect. While an implied trust (of real or personal
property) does not require the formalities of an express trust over realty (which as mandated by
the law cannot be proved by oral evidence under Art. 1443 of the Civil Code, still there must be
proof that the trustor wanted to grant one party only the beneficial ownership of a parcel of
land, although said beneficiary may have legal title in himself. Implied trusts are exemplified in
Arts, 1447-1456 of the Civil Code. Private respondents have been in possession of Lot. No.
12510 as owners since its purchase in 1935 thru their late father Ramon Puzon. Ramon Puzon
was the overseer of petitioners' mother over another lot (Lot No. 12509) and not over the lot in
question (Lot No. 12510). It is therefore obvious that there could not have been any possible
conflict of interest in the role of private respondents' father. And even if indeed he had been the
overseer of both lots, there was also no such conflict of interest. Both lots had their own marked
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Obligations and Contracts: Doctrines and Case Digests
and natural boundaries; both had their own separate registered titles of ownership; dominion
over each was exercised by two separate groups of owners.

MORALES vs. CA
[G.R. No. 117228; June 19, 1997]

DAVIDE, JR., J.:

A trust is the legal relationship between one person having an equitable ownership in property
and another person owning the legal title to such property, the equitable ownership of the former
entitling him to the performance of certain duties and the exercise of certain powers by the latter.
The characteristics of a trust are: 1. It is a relationship; 2. it is a relationship of fiduciary
character; 3. it is a relationship with respect to property, not one involving merely personal
duties; 4. it involves the existence of equitable duties imposed upon the holder of the title to the
property to deal with it for the benefit of another; and 5. it arises as a result of a manifestation of
intention to create the relationship.

PNB vs. CA
[G.R. No. 97995; January 21, 1993]

ROMERO, J.:

In turn, implied trusts are subdivided into resulting and constructive trusts. A resulting trust is a
trust raised by implication of law and presumed always to have been contemplated by the
parties, the intention of which is found in the nature of the transaction, but not expressed in the
deed or instrument of conveyance. Examples of resulting trusts are found in Articles 1448 to
1455 of the Civil Code. On the other hand, a constructive trust is one not created by words
either expressly or impliedly, but by construction of equity in order to satisfy the demands of
justice. An example of a constructive trust is Article 1456 quoted above.

TIGNO vs. CA
[G.R. No. 110115; October 8, 1997]

PANGANIBAN, J.:

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Implied trusts are those which are deducible by operation of law from the nature of the
transaction as matters of equity, independently of the particular intention of the parties. An
implied trust arises where a person purchases land with his own money and takes conveyance
thereof in the name of another. In such a case, the property is held on resulting trust in favor of
the one furnishing the consideration for the transfer, unless a different intention or
understanding appears. The trust which results under such circumstances does not arise from a
contract or an agreement of the parties, but from the facts and circumstances; that is to say, the
trust results because of equity and it arises by implication or operation of law.

ARLEGUI vs. CA
[G.R. No. 126437; March 6, 2002]

YNARES-SANTIAGO, J.:

A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son
tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary
to intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse
of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice,
concealment, or questionable means, or who in any way against equity and good conscience,
either has obtained or holds the legal right to property which he ought not, in equity and good
conscience, hold and enjoy. It is raised by equity to satisfy the demands of justice. However, a
constructive trust does not arise on every moral wrong in acquiring or holding property or on
every abuse of confidence in business or other affairs; ordinarily such a trust arises and will be
declared only on wrongful acquisitions or retentions of property of which equity, in accordance
with its fundamental principles and the traditional exercise of its jurisdiction or in accordance
with statutory provision, takes cognizance. It has been broadly ruled that a breach of confidence,
although in business or social relations, rendering an acquisition or retention of property by one
person unconscionable against another, raises a constructive trust.

III. PRESCRIPTION
1. Art. 1106 to 1155

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CASE DIGESTS
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Obligations and Contracts: Doctrines and Case Digests

I. OBLIGATIONS
1. DEFINITION ART. 1156
2. REQUISITES OF A VALID OBLIGATION
a. REQUISITES OF PRESTATION
3. SOURCES OF OBLIGATIONS ART. 1157
A. LAW
I. ARTS. 1158, 448, 636 AND 2014 OF THE CIVIL CODE; ART. 199 OF
FAMILY CODE

Cases:

PELAYO V. LAURON
[G.R No. L-4089; 12 Phil 453; 12 January 1909]

Torres, J.:

Facts:
On 13 October 1906, Arturo Pelayo, a Physician was called at night to render medical assistance
to defendants daughter-in-law who is about to give birth. The operation went until the following
morning. The petitioner also visited the patient several times that day. It was alleged by the
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Obligations and Contracts: Doctrines and Case Digests
defendants that their daughter-in-law died as a consequence of the child delivery performed by
the petitioner.Before the incident, the daughter-in-law lives with her husband in a separate house,
and that her stay that night with the defendants was merely accidental and due to fortuitous
circumstances. The petitioner demands the payment for his services in the amount of Php 500.00
from the defendants, which the defendants refused to pay.

The lower court ruled on 5 April 1907 that defendants are absolved from the complaint as there
was lack of sufficient evidence to establish a right of action against them.

Issue:
Whether or not the father and mother-in-law or the husband is bound to pay the medical bill.

Held:
The husband must pay the medical bill.

According to the Article 1089 of the Spanish Civil Code, and currently Article 1157, Obligations
arise from: Law, Contracts, Quasi-contracts, and Illicit acts and omissions or by those in which
any kind of fault or negligence occurs(Delicts and Quasi-delicts). And that Obligations arising
from law are not presumed. Those expressly determined by the code or special laws, etc., are the
only demandable ones. (Article 1158). The rendering of medical assistance in case of illness is
comprised among the mutual obligations to which the spouses are bound by way of mutual
support.

Spouses are mutually bound to support each other, and when either of them by reason of illness
should be in need of medical assistance, the other is under the unavoidable obligation to furnish
the necessary services of a physician in order that health may be restored, and he or she may be
freed from the sickness by which life is jeopardized; the party bound to furnish such support is
therefore liable for all expenses, including the fees of the medical expert for his professional
services.

In the present case, it is the husband that has the obligation to pay for the medical assistance
rendered by the petitioner, and not the defendants. It is not a bar to the obligation that it was not
the husband who called the petitioner to render the assistance.

Within the meaning of law, the father and mother-in-law are strangers with respect to the
obligation that devolves upon the husband to provide support, among which is the furnishing of
medical assistance to his wife at the time of her confinement.

Therefore, it is the husband, and not the father and mother-in-law, that is obligated to pay for the
services rendered by the petitioner.

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DELA CRUZ V. NORTHERN THEATRICAL ENTERPRISE INC.
[GR. No. 7089; 50 O.G. 4225; 31 August 1954]
Montemayor, J.:

Facts:
In 1941, the plaintiff works for the defendant as special guard and is assigned in the entrance of
the movie house. As such, he was allowed to carry with him a revolver. One afternoon, Benjamin
Martin tried to trespass the movie house. Martin attacked plaintiff with a bolo, which plaintiff
defended him-self by shooting Martin which caused the latters death. Plaintiff was charged with
homicide.

After reinvestigation, the provincial fiscal filed a motion to dismiss the charges, which was
granted. However, on 8 July 1948, charges were filed once again, and he was finally acquitted on
31 January 1948.

Plaintiff then demanded the defendant for the reimbursement of the expenses from the
proceedings as he was an agent of the defendants and is therefore entitled for such
reimbursement

His demand was denied by the Court of First Instance of IlocosNorte.

Issue:
Whether or not an employee or servant, who in line of duty and while in the performance of the
task assigned to him, performs an act which eventually results in incurring expenses, caused not
directly by his master or employer or his fellow servants, or by reason of his performance of his
duty, but rather by a third party or stranger not in the employ of his employer, may recover said
damages against his employer.

Held:
The employer is not legally obliged to give legal assistance to its employee and provide him with
a lawyer, naturally said employee may not recover the amount he may have paid a lawyer hired
by him.

Although it may be said that it would be in the interest of the employer to give legal help to and
defend its employee in order to show that the latter was not guilty of any crime either
deliberately or through negligence, because should the employee be found criminally liable and
he was found insolvent, the employer will be subsidiarily liable. However, the court is unable to
say and hold that the giving of legal assistance to its employees is a legal obligation, as it does
not count with the sanction of man-made laws.

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Obligations and Contracts: Doctrines and Case Digests
Therefore, the judgment of the lower court is affirmed, and the defendant is not obliged to
reimburse the legal expenses of the plaintiff.

f) CONTRACTS
ii. ARTS. 1159 AND 1305
g) QUASI-CONTRACTS
vi. DEFINITION ART.2142
vii. NEGOTIORUM GESTIO - ARTS. 2144 TO 2153
viii. SOLUTIO INDEBITI ARTS. 2154 TO 2163
ix. OTHER QUASI-CONTRACTS ARTS. 2164 TO 2175
x. SOLUTIO INDEBITI VS. NATURAL OBLIGATIONS (ARTS. 1423 TO 1430)
h) DELICTS
iii. ART. 100 OF THE REVISED PENAL CODE
iv. ART. 2177
i) QUASI-DELICT
iv. ARTS. 2176
v. VICARIOUS LIABILITY - ART. 2180 OF THE CIVIL CODE AND ARTS. 218,
219 AND 236 OF THE FAMILY CODE
vi. ART. 33

Cases:

PADUA V. ROBLES
[GR No. L-40486; 66 SCRA 485; 29 August 1975]

Castro, J.:

Facts:
Early morning of New Years Day of 1969 a taxicab driven by Romeo Punzalan and operated by
Bay Taxicab owned by the defendant struck the 10-year-old Normandy Padua on the National
Road in Barrio Barretto, Olongapo City, which resulted to the childs death.

The childs parents, herein plaintiffs filed a complaint to the Court of First Instance of Zambales
and sought damages from Punzalan and the Defendant. A crime of Homicide through reckless
imprudence was filed by the City Fiscal of Olongapo against Punzalan.

On the decision rendered by the court on 27 October 1969 for the civil case, Punzalan was
ordered to pay for the amount of P27,000.00, and the complaint against Bay Taxicab was
dismissed.

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On 5 October 1970, the court rendered its decision for the criminal, finding Punzalan guilty
beyond reasonable doubt of the crime charged against him.

The Paduas sought for the execution of the judgment of the civil case, however Punzalan was
unable to pay for it. Unable to collect such amounts, the Paduas filed a case against defendant to
enforce the latters subsidiary responsibility. Defendant however moved to dismiss the case on
the grounds of the prior judgment of the court in the civil case and also to the failure of the
complaint to state the cause of action.

On 25 October 1972, the court granted the defendants motion to dismiss on the ground that the
Paduas complaint states no cause of action.

Issue:
Whether or not the judgment for the criminal case includes a determination and adjudication of
Punzalans civil liability arising from his criminal act upon which Defendants subsidiary may be
based.

Held:
Yes, the judgment of the criminal case includes a determination and adjudication of Punzalans
civil liability arising from his criminal act upon which Defendants subsidiary may be based.

Civil liability coexists with criminal responsibility. In negligence cases the offended party (or his
heirs) has the option between an action for enforcement of civil liability based on culpa criminal
under article 100 of the Revised Penal Code and an action for recovery of damages based on
culpa aquiliana under article 2177 of the Civil Code. The action for enforcement of civil liability
based on culpa criminal section 1 of Rule 111 of the Rules of Court deems simultaneously
instituted with the criminal action, unless expressly waived or reserved for a separate application
by the offended party. Article 2177 of the Civil Code, however, precludes recovery of damages
twice for the same negligent act or omission.

In the present case, the Court finds it immaterial that the Paduas chose, in the first instance, an
action for recovery of damages based on culpa aquiliana which action proved ineffectual. The
Court also takes note of the absence of any inconsistency between the aforementioned action
prior availed of by the Paduas and their subsequent application for enforcement of civil liability
arising from the offense committed by Punzalan and consequently, for exaction of Robles'
subsidiary responsibility. Allowance of the latter application involves no violation of the
proscription against double recovery of damages for the same negligent act or omission. It was
stated that the writ of execution for the judgment on the civil case was left unsatisfied.

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The Court therefore holds that the Paduas complaint in the civil case states a cause of action
against Robles, whose subsidiary responsibility, per the judgment in criminal case, subsist.

The case was remanded to the lower court for further proceeding.

SINGSON V. BPI
[GR. No. L-24837; 23 SCRA 1117; 27 June 1968]

Concepcion, C.J.:

Facts:
Plaintiff is one of the defendants in a civil case in Court of First Instance, Manila in which the
judgment was rendered sentencing him and his co-defendants to pay the The Philippine Milling
Co. the amount of P105,539.56. Singson and Lobregat filed an appeal but not Villa Abrille& Co.,
as against which judgment has become final and executory.

A writ of garnishment was subsequently served upon the herein defendant in so far as the
account of Villa Abrille& Co. is concerned. Upon the receipt of the writ, however, the clerk of
bank, upon reading the name of the plaintiff as a party defendant, and not the whole body of the
writ itself, has issued a letter dated 17 April 1963 informing plaintiff of the garnishment of his
account signed by the president of the BPI.

Subsequently two checks were issued by the plaintiff in favor of B. M. Glass Services, and Lega
Corporation and drawn against the bank. Believing that the plaintiffs account has been
garnished, the checks were dishonored which resulted for B. M Glass Services to write to
plaintiff in regards to this and also informing him of the closing of his credit account with them.

In view of this plaintiff wrote to the bank that his account is not included in Writ of Garnishment.
After verifying and finding out that plaintiffs account is indeed not included in the writ. The
president of the bank then apologized and requested him to disregard the letter of 17 April 1963
and the action of garnishment was removed from his account. The Defendants rectified their
mistakes immediately.

On 8 May 1963, Plaintiff filed an action for damages against defendant for illegally freezing his
account. In which the Court of First Instance of Manila rendered judgment dismissing the
complaint on the grounds that plaintiff cannot recover from the defendants upon the basis of a
quasi-delict because their relation is not contractual in nature.

Issue:
Whether or not the defendant is liable for damages to the plaintiff.

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Obligations and Contracts: Doctrines and Case Digests
Held:
Yes. BPI is liable for nominal damages in favor of the plaintiff.

The court repeatedly held that the existence of a contract between the parties does not bar the
commission of a tort by the one against the order and the consequent recovery thereof.

Stating the case of Air France v. Carrascoso, the tort on the air carriers part, for, although the
relation between the carrier and passenger is contractual both in origin and nature the act
breaks the contract may also be a tort.

In the case at bar, the wrong done to the plaintiff was remedied as soon as the President of the
bank realized the mistake they had committed, then therefore, the court decided for nominal
damages should be awarded to the plaintiff.

Therefore, the judgment rendered by the lower court is reversed.

MALIPOL v. TAN
[GR. No. L-27730; 55 SCRA 1117; 21 January 1974]

Zaldivar, J.:

Facts:
In the evening of 6 February 1965, Malijan and Amante were walking on the road in Barrio San
Felix, Santo Tomas, Batangas when they were hit by a gasoline tanker and was thrown on the
ground. Malijanwas run over by the tankers right wheel that got detached for it axle which
causes his death. The gasoline tanker was driven by Ernesto Labsan and was being used in
connection with the gasoline business of Lily Lim Tan. Demands for payment of damages were
ignored by the defendants.

Plaintiffs then filed a case to the Court of First Instance of Batangas. The defendants, being
served with summons, still failed to file their answer within the period. The trial court then filed
a decision dated 1 July 1966 ordering defendants to pay plaintiffs for damages.

21 September 1966, defendants filed a verified motion to lift the order of default and requesting
for a new trial as they were deprives of their day in court. They also said that they have good and
valid defense such that the accident was a force majeure, that the defendant Labsan is without
fault in the accident, and that defendant Tan has exercised the due diligence requires of a good
father of a family to prevent damage. The court found the motion without merit the denied the
same.

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Thus the appeal of the defendants.

Issue:
Whether or not the court erred in in finding that the appellants took the complaint for granted by
reason of the fact that the defendants referred to the lawyer the complaint for answer only after
the lapse of eleven days from the receipt thereof.

Held:
No, the court did not err in finding that the appellants took the complaint for granted by reason of
the fact that the defendants referred to the lawyer the complaint for answer only after the lapse of
eleven days from the receipt thereof.

The defendants had 15 days from the receipt of the summons to file their answer to the court.
However the complaint was referred to the defendants lawyer only on the eleventh day. The late
lawyer Atty. Chavez still had 4 days to file the answer. Also, given that defendant Lim knows of
her obligation to pay for the damages done by her employee, being subsidiarily liable, but still
took her the lapse of ten days before she took the complaint to her lawyer.

There was, therefore, no showing of due diligence on the part of appellants.

LIBI v. IAC
[GR. No. 70890; 214 SCRA 2002; 18 September 1992]

Regalado, J.:

Facts:
Julie Ann Gotiong and Wendell Libi were sweethearts until December 1978 when Julie Ann
broke up with Wendell. During the first two weeks of January 1979, Wendell kept on pestering
Julie Ann asking for reconciliation. Julie Ann however adamantly refused and this led to Wendell
threatening her. To avoid him she decided to live with her friend.

On 14 January 1979, Julie Ann and Wendell died both from the same gunshot from the same
weapon which is under the name of CresencioLibi. The said gun was kept in a safety deposit
box, in which each of the petitioners hold a key and that Amelitas key was always in her bag and
is known by Wendell. There was no eye-witness and therefore parties were to file their own
circumstantial evidences.

The private respondents, who are Julie Anns parents alleged that Wendell killed their daughter
and afterwards committing suicide. On the other hand, the petitioners alleged that the couple

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were killed by an unknown third party whom Wendell may have antagonized while working as a
narcotics informer of the Constabulary Anti-Narcotics Unit (CANU).

Private Respondents filed a civil case for the petitioners vicarious liability, which the court
dismissed for insufficient evidence.

On appeal, the herein respondent court set aside the ruling of the lower court.

Issue:
Whether or not Wendells parents are civilly liable for the crime committed by their minor son
given their defense that they have shown due diligence of a good father of a family.

Held:
Yes. Wendells parents are civilly liable for the crime committed by their minor son.

The diligence of a good father of a family required by law in a parent and child relationship
consists, to a large extent of the instruction and supervision of the child. Subsidiary liability of
parents for damages committed by their minor children imposed by Article 2180 of the New
Civil Code covers obligations arising from both quasi-delictsand criminal offenses.

In the present case, the petitioners are gravely remiss in their duties in not diligently supervising
the activities of their son, despite his immaturity and minority, so much that it was only at the
time of Wendells death that they allegedly discovered that he was a CANU agent and that his
fathers gun was missing from the safety deposit box.

Therefore the petition has been denied, the decision of the Court of Appeals was affirmed, and
the Wendell Libis parents are civilly liable for the damages done by their minor child.

MADEJA v. CARO
[GR No. L-51183; 214 SCRA 2002; 21 December 1983]

Abad Santos, J.:

Facts:
A criminal case was filed against Dr. Eva A.Japzon by Camen L. Madeja for homicide through
reckless imprudence for the death of CletoMadeja after an appendectomy. While the criminal
case was pending, a civil case was also filed by the petitioner against the respondent for gross
negligence of Dr.Japzon, A motion to dismiss was filed by the defendants invoking Section 3(a)
of Rule 111 of the Rules of Court which was granted by the respondent judge, Hon. Felix T.
Caro, stating that the civil case may only be instituted after the criminal action when the final
judgment has been rendered.
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The petitioner seeks to set aside the order of the respondent judge.

Issue:
Whether or not the respondent judge erred in granting the defendants motions to dismiss the
civil case and applying Section 3(a) of Rule 111 of the Rules of Court.

Held:
Yes, the respondent judge judge erred in granting the defendants motions to dismiss the civil
case and applying Section 3(a) of Rule 111 of the Rules of Court.

According to the Supreme Court, the rule that applies in this case is the Section 2, Rule 111 of
the Rules of Court for Independent Civil Action that in civil action entirely separate and
distinct from the criminal actions may be brought by the injured party during the pendency of the
criminal case in relation to Article 33 of the Civil Code that In cases of defamation, fraud,
and physical injuries a civil action for damages entirely separate from the criminal action may be
brought by the injured part and that Such civil action shall proceed independently of the
criminal prosecution It also noted that civil action for damages which it allows to be
instituted is ex-delicto. Another is that the term Physical Injuries in Article 33 of the Civil code is
to be taken in the generic sense as it includes consummated, frustrated, and attempted homicide.
Stating the case of Carandang v. Santiago, it must be understood to mean bodily injury and not
the crime of Physical Injuries.

In the light of the foregoing circumstances of the case, it is apparent that the civil action against
private respondent may proceed independently from the criminal case.

Therefore, the order dismissing the civil case was set aside.

MARCIA v. CA
[GR. No. L-34529; 120 SCRA 193; 27 January 1983]

Relova, J.:

Facts:
On 23 December 1956, a passenger bus operated by Victory Liner, Inc. driven by FelardoPaje
collided with a jeep driven by Clemente Marcia resulting to the latters death and in the physical
injuries of the herein petitioners, Edgar Marcia, and Renato Yap. From the incident, a case for
homicide and serious physical injuries thru reckless imprudence was filed against Paje in the
Court of First Instance of Pampanga.

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On 23 January 1957, an action for damages was filed in Court of First Instance of Rizal by Edgar
Marci and Renato Yap, together with their respective parents against Victory Liner, Inc. and Paje
and that the mishap was due to reckless imprudence and negligence of the latter in driving the
passenger bus.

While the civil case was in progress, the criminal action was also in progress. Paje was convicted
of the offense charged. However, on appeal he was acquitted on the grounds that: the appellant
was diligent and hence not liable for the collision which is at the least a fortuitous event. As a
consequence of this acquittal, the defendants moved for the dismissal of the civil case filed
against them invoking the acquittal of Paje and citing further Section 3 (c), Rule 111 of the New
Rules of Court.

The trial court denied the motion to dismiss. On 10 August 1966, however, the Court of First
Instance rendered a decision dismissing the complaint.

The petitioners appealed the case to the Court of Appeals, alleging that the acquittal of Paje is not
a ground for the said dismissal and the civil action is entirely separate from the criminal action
and that whatever may be the result of the criminal action is irrelevant to the results of the civil
action.

The CA ruled however that the private respondents cannot be held civilly liable after it had ruled
that the collision was in pure accident.

Thus the present case in the Supreme Court.

Issue:
Whether or not the acquittal of Paje in the criminal case is irrelevant to the instant civil action
and that it must be the Section 2, Rule 111 of the Rules of Court and not Section 3 (c) which
should apply.

Held:
No, the theory of the petitioners that it that it must be the Section 2, Rule 111 of the Rules of
Court and not Section 3 (c) which should apply is untenable.

The Section 2 of the Rule 111 merely refers to the institution of an independent civil action
without waiting for the filing or termination of the criminal action and requires only
preponderance of evidence to prosper and not proof of beyond reasonable doubt as required for
conviction in criminal cases. However, an acquittal based on the finding that the facts upon
which civil liability did not eist, bars the filing of an independent civil action if it is based on the
crime. Also, Article 33which prescribes that in cases of defamation, fraud and physical injuries

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the offended parties may bring a civil action separate and distinct from the criminal action.
Stating Tan v. Standard Vacuum Oil Company:

"the acquittal of the accused from the criminal charge will not necessarily extinguish the
civil liability unless the court declares in the judgment that the fact from which the civil
liability might arise did not exist. Where the court states 'that the evidence throws no light
on the cause of fire and that it was an unfortunate accident for which the accused cannot
be held responsible,' this declaration fits well into the exception of the rule which
exempts the accused, from civil liability.

In the present case, the charge against Paje was not for homicide and physical injuries but for
reckless imprudence resulting in homicide and physical injuries suffered by Edgar Marcia and
Renato Yap. These crimes were not mentioned in Article 33.

Therefore, the decision of the Court of Appeals was affirmed, and the respondents were found
not civilly liable to petitioners.

CASUPARAN v. LAROYA
[GR. No. 145391; 388 SCRA 28; 26 August 2002]

Carpio, J.:

Facts:
A vehicle driven by Mario LlavoreLaroya and another owned by Roberto Capitulo driven by
petitioner AvelinoCasupanan got into an accident which caused the filing of two cases in the
MCTC of Capas, Tarlac. Laroya filed a criminal case against Casupamam for reckless
imprudence resulting in damage to property and Casupanan filed a civil case against Laroya for
quasi-delict.

The civil case was filed while the criminal case was at the preliminary investigation stage.
Laroya, the defendant for the civil case filed a motion to dismiss the civil case on the grounds of
forum-shopping considering the pendency of the criminal case. The MCTC granted the motion.
Casupanan and Capitulo filed a motion for reconsideration which was denied by the MCTC,
which elevated the case to the Regional Trial Court of Capas, Tarlac with the petition for
certiorari.

The RTC however denied the petition for certiorari for lack of merit. It stated that the proper
remedy is appeal, and that a special civil action for certiorari is not a substitute for a lost appeal.
Casupanan and Capitulo filed a motion for reconsideration but was denied. Thus the present
petition.

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Issue:
Whether or not an accused in a pending criminal case for reckless imprudence can validly file,
simultaneously and independently, a separate civil action for quasi-delict against the private
complainant in the criminal case.

Held:
Yes, an accused in a pending criminal case for reckless imprudence can validly file,
simultaneously and independently, a separate civil action for quasi-delict against the private
complainant in the criminal case.

Under Section 1 of the present Rule 111, the independent civil action in Articles 32, 33, 34 and
2176 of the Civil Code is not deemed instituted with the criminal action but may be filed
separately by the offended party even without reservation. The commencement of the criminal
action does not suspend the prosecution of the independent civil action under these articles of the
Civil Code. Also, the accused can file a civil action for quasi-delict for the same act or omission
he is accused of in the criminal case. This is expressly allowed in paragraph 6, Section 1 of the
present Rule 111 which states that the counterclaim of the accused may be litigated in a separate
civil action. This is only fair for two reasons. First, the accused is prohibited from setting up any
counterclaim in the civil aspect that is deemed instituted in the criminal case. The accused is
therefore forced to litigate separately his counterclaim against the offended party. If the accused
does not file a separate civil action for quasi-delict, the prescriptive period may set in since the
period continues to run until the civil action for quasi-delict is filed. Second, the accused, who is
presumed innocent, has a right to invoke Article 2177 of the Civil Code, in the same way that the
offended party can avail of this remedy which is independent of the criminal action. To disallow
the accused from filing a separate civil action for quasi-delict, while refusing to recognize his
counterclaim in the criminal case, is to deny him due process of law, access to the courts, and
equal protection of the law.

Thus, the civil action based on quasi-delict filed separately by Casupanan and Capitulo is proper.

Therefore, the review on certiorari is granted, and the civil case was reinstated.

RAFAEL TRUCKING CORPORATION v. People


[GR. No. 129029; 329SCRA 600; 02 April 2000]

Pardo, J.:

Fact:
On 20 June 1989, a trailer truck registered under the name of the petitioner and driven by Romeo
Dunca hit a Nissan Pick-up killing Feliciano Balcita and Francisco Dy, Jr.

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The said trailer was carrying 2,000 cases of empty beer bottles and while descending at a slight
downgrade slope it approached a damaged portion of the road. Dunca testified that he usually
take the left lane which is smooth. But at that particular moment, there was an incoming vehicle.
Dunca then run over the damaged portion of the road which caused him to lose control of the
wheels and the truck swerved left, ramming the Nissan Pick-up driven by the deceased.

On 10 October 1989, the Provincial Prosecutor filed charges against Dunca for Reckless
Imprudence Resulting in Double Homicide and Damage to Property. Accused entered the plea of
not guilty and on the same day, offended parties reserved to file a separate civil action against the
accused.

On 29 November 1989 offended parties filed a separate civil action against petitioner based on
quasi-delict. The petitioner settled the claim for the heirs of Feliciano Balcita . The Private
respondents opted to pursue the criminal action but did not withdraw the civil case they filed
against petitioner. On 15 December 1989, Private respondents withdrew the reservation to file
for a separate civil action but did not withdraw the separate civil action. Upon agreement of the
parties, the court consolidated the case.

On 6 June 1992, the trial court rendered a decision finding Dunca guilty beyond reasonable
doubt of the charges filed against him and ordering that the plaintiff in the civil case be paid for
the damages.

The petitioner and the accused filed a notice of appeal from the joint decision, and the private
respondents herein also moved for an amendment so as to hold herein petitioner subsidiarily
liable for the damages. The trial court rendered a supplemental decision amending the previos
decision and holding herein petitioner subsidiarily liable.

Petitioner filed in the trial court a supplemental notice of appeal from the supplemental decision
on 12 November 1992. During the pendency of the case the accused jumped bail and fled to a
different country.

The Court of Appeals dismissed the appeal in the criminal case and rendered a decision affirming
the decision of the trial court. The petitioner filed a motion for reconsideration but was denied by
the CA.

Thus, the present petition for review.

Issue:
Whether or not the petitioners may still be held subsidiarily liable for the damages awarded to
the offended parties in the criminal action against the truck driver despite the filing of a separate
civil action by the offended parties against the petitioners.
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Held:
No, the petitioners can no longer be held subsidiarily liable for the damages awarded to the
offended parties in the criminal action against the truck driver.

In negligence cases, the aggrieved party has the choice between (1) an action to enforce civil
liability arising from crime under Article 100 of the Revised Penal Code; and (2) a separate
action for quasi delict under Article 2176 of the Civil Code of the Philippines. Once the choice is
made, the injured party can not avail himself of any other remedy because he may not recover
damages twice for the same negligent act or omission of the accused. This is the rule against
double recovery.

Private respondents sued petitioner Rafael Reyes Trucking Corporation, as the employer of the
accused, to be vicariously liable for the fault or negligence of the latter. Under the law, this
vicarious liability of the employer is founded on at least two specific provisions of law. The first
is expressed in Article 2176 in relation to Article 2180 of the Civil Code, which would allow an
action predicated on quasi-delict to be instituted by the injured party against the employer for an
act or omission of the employee and would need only a preponderance of evidence to prevail.
The liability of the employer for the negligent conduct of the subordinate is direct and primary,
subject to the defense of due diligence in the selection and supervision of the employee. The
second, expressed in Article 103 of the Revised Penal Code, provides that an employer may be
held civilly liable(subsidiarily) for a felony committed by his employee in the discharge of his
duty. This liability attaches when the employee is convicted of a crime done in the performance
of his work and is found to be insolvent that renders him unable to properly respond to the civil
liability adjudged.

Also, pursuant to the provision of Rule 111, Section 1, paragraph 3 of the 1985 Rules of Criminal
Procedure, when private respondents, as complainants in the criminal action, reserved the right to
file the separate civil action, they waived other available civil actions predicated on the same act
or omission of the accused-driver.

In the instant case, the offended parties elected to file a separate civil action for damages against
petitioner as employer of the accused, based on quasi delict, under Article 2176 of the Civil Code
of the Philippines. The intention of private respondents to proceed primarily and directly against
petitioner as employer of accused truck driver became clear when they did not ask for the
dismissal of the civil action against the latter based on quasi delict.

Therefore, the Court of Appeals and the trial court erred in holding the accused civilly liable, and
petitioner-employer of the accused subsidiarily liable for damages arising from crime (ex delicto)
in the criminal action as the offended parties in fact filed a separate civil action against the
employer based on quasi delict resulting in the waiver of the civil action ex delicto.
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FERNANDO v. CA
[GR. No. 92087; 208 SCRA 714; 08 May 1992]

Medialdea, J.:

Facts:
On 07 November 1975, BibianoMorta, the market master of Agdao Public Market filed a request
with the Chief Property of the Treassurers Office to re-empty the septic tank of the market. An
invitation to bid was issued to Aurelio Bertulano, LitoCatarsa, Feliciano Bascon, Federico Bolo
and Antonio Suner Jr. Bascon won the bid.

On 22 November of the same year, bidder Bertulano together with other four men were found
dead in the septic tank. Upon investigation the men entered the septic tank without clearance
from the City Engineers Office nor with the knowledge or consent of the market master. The
septic tank was found almost empty and it was presumed that it was the victims who did the re-
emptying.

Upon autopsy of the body, it was found that the death of the men were caused budimunation of
oxygen supply of the body working below normal condition. Their lungs burst due to the intake
of toxic gas.

The heirs of the victim sued the city of Davao for damages.

The trial court dismissed the case. Petitioner filed an appeal in the then Intermediate Appellate
Court (now Court of Appeals). On 3 January 1986, the court ruled in favor of the petitioners,
awarding the total of Php 50,000.00 to each petitioner. Both parties filed a motion for
reconsideration. On 11 January 1990, the Court of Appeals amended the decision granting the
petition of the defendant Davao City and reversing the decision of 31 January 1986.

Thus the present petition for certiorari.

The petitioners blame the city government for failing to clean the septic tank for 19 years, which
caused the accumulation of hydrogen sulfide gas which killed the laborers. It also compounded
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that there was no warning sign of the existing danger and no efforts exerted by the public
respondent to neutralize or render harmless the effect of the toxic gas.

Issue:
Whether or not the respondent is negligent and being so it is the immediate and proximate cause
of death of the deceased.

Held:
No, the respondent is negligent and being so it is the immediate and proximate cause of death of
the victims.

Negligence has been defined as the failure to observe for the protection of the ineterst of another
person in the degree of care, precaution, and vigilance which the circumstances justify demand,
whereby such other person suffers injury. A person who by his omission causes damage to
another, there being negligence is obliged to pay for the damage done. Stating the case of Picart
v. Smith, the court stated that the test by which the existence of negligence in a particular case
may be stated as: Did the defendant in doing the alleged negligent act use that reasonable care
and caution which an ordinary prudent person would have used in the same situation? If not,
then he is guilty of negligence.

To be entitled for damages for an injury resulting from negligence of another, a claimant must
establish the relation between the omission and the damage. He must prove under Article 2179 of
the Civil Code, that the defendants negligence was the immediate and proximate cause of his
injury. Proximate cause has been defined as that cause, which, in natural and continuous
sequence unbroken by any efficient intervening cause, produces the injury, and without which
the result would not have occurred. Where the resulting injury was the product of the negligence
of both parties, there exist a difficulty to discern which acts shall be considered the proximate
cause of the accident. The court, stating the case of Taylor v. Manila Electric Railroad and Light
Co. provided a guideline for a judicious assessment of the situation: Distinction must be made
between the accident and the injury between the event itself, without which there could have
been no accident, and those acts of the victim not entering into it, independent of it but
contributing to his own proper hurt.

In the case at bar, though it is true that the City Government was at fault in failing to empty the
septic tank annually, the negligence is not a continuing one. Upon learning from the market
master that there is a need to do so, immediately took action.

The accident in this case occurred because the victims on their own and without authority from
the public respondent opened the septic tank. An ordinarily prudent man would know the
attendant risks of emptying a septic tank which has not been cleaned for years. Also, Bertulano,

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being considered to be an old hand in this kind of service is presumed to know the hazards of the
job.

Therefore, the amended decision of the Court of Appeals was affirmed, and the City Government
of Davao is not negligent and hence not liable for damages.

MMTC v. CA
[G.R. No. 104408; 223 SCRA 521; 21 June 1993]

Regalado, J.:

Facts:
On 28 August 1979, NenitaCustodio boarded a Public Utility Jeepney, driven by AgudoCalebag
and owned by VictorianoLamayo bound for her work at Bicutan, Taguig, Metro Manila. And
when the jeepney was travelling in a fast pace in the intersection in DBP Avenue, a Metro Manila
Transit Corp. (MMTC) Bus, driven by Godofredo Leonardo, was also travelling in a fast pace in
Honeydew Road. In the intersection, without slowing down, and blowing of horn, the two
vehicles collided and resulted for Custodio to hit the windshield and thrown out of the jeepney.
She got serious physical injuries and was unable to work for three and one half months.

A complaint for damages was filed by the private respondent against MMTC, Leonardo, Calebag
and Lamayo. However, the defendants denied all material allegations in the complaint and
pointed an accusing finger at each other as being the party at fault.

MMTC presented that it had exercised due diligence in selecting its employees which includes
subjecting applicants to examinations and training programs, and also requiring them to submit
multiple requirements.

The trial court then issued its decision finding both the drivers together with Lamayo as
solidarily liable for the injuries sustained by plaintiff Custodio. The complaint against MMTC,
however, was dismissed.

Plaintiff then filed a motion for reconsideration, which was denied by the trial court. They then
filed their appeal to Court of Appeals which modified the trial courts decision and found the
MMTC to be solidarily liable with the other offenders for the damages awarded to plaintiff
Custodio.

The Court of Appeals denied the motion for reconsideration filed by MMTC.

Hence, the present petition.


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Issue:
Whether or not the evidence presented during the trial with respect to the proof of due
diligenceof petitioner MMTC in the selection and supervision of its employees, particularly
driver Leonardo, is sufficient.

Held:
No, the evidence presented during the trial with respect to the proof of due diligenceof petitioner
MMTC in the selection and supervision of its employees, particularly driver Leonardo, is not
sufficient.

Due diligence in the selection and supervision of its employees is more often honored in the
breach than in the observance.

According to Article 2176 and 2177, in relation to Article 2180, of the Civil Code provisions on
quasi-delicts as all the elements thereof are present, to wit: (1) damages suffered by the plaintiff,
(2) fault or negligence of the defendant or some other person for whose act he must respond, and
(3) the connection of cause and effect between fault or negligence of the defendant and the
damages incurred by plaintiff. The pertinent parts of which provides that employers shall be
liable for damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or industry. The
responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage. This arises by
virtue of a presumption juristantum of negligence on the part of the persons made responsible
under the article, derived from their failure to exercise due care and vigilance over the acts of
subordinates to prevent them from causing damage. Negligence is imputed to them by law,
unless they prove the contrary. It should be borne in mind that the legal obligation of employers
to observe due diligence in the selection and supervision of employees is not to be considered as
an empty play of words or a mere formalism, as appears to be the fashion of the times, since the
non-observance thereof actually becomes the basis of their vicarious liability under Article 2180.

Due diligence in the supervision of employees includes formulation of rules and regulations for
the guidance of employees and the issuance of proper instructions intended for the protection of
the public persons with whom the employer has relations through his or its employees. It also
includes disciplinary measures in cases of breach of the employee to the regulations.

The court reiterated that the mere formulation of various company policies on safety without
showing tjat they were being complied with is not sufficient to exempt them from liability arising
from negligence of its employees.

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Therefore, the court held MMTC to be solidarily liable, along with the other offenders, for the
damages against Custodio.

PEOPLE V. SENDAYDIEGO
[GR. No. L-33254; 81SCRA 120; 20 January 1978]

Aquino, J.:

Facts:
Three cases of malversation through falsification was filed against Licerio P. Sendaydiego in
conspiracy with Juan Samson and AnastacioQuirimit as an accomplice for using six forged
voucher to embezzle the amount of Php 57,048.23.

The Lower court acquitted the auditor and found Sendaydiego and Samson guilty of
malversation through falsification.

Sendaydiego and Samson filed an appeal to the Supreme Court. However, Sendaydiego died on
05 October 1976. His appeal to his criminal liability was dismissed in a resolution dated 08 July
1977.

Issue:
Whether or not in the event of the death of Sendaydiego, his estate should still be civilly liable to
the Province of Pangasinan and therefore his criminal liability should still be resolved if they are
civilly liable for such damages.

Held:
Yes.Sendaydiegos estate should still be civilly liable to the Province of Pangasinan and therefore
his criminal liability should still be resolved if they are civilly liable for such damages.

The civil action for the civil liability is deemed impliedly instituted with the criminal action in
the absence of express waiver or its reservation in a separate action. When the action is for the
recovery of money and the defendant dies before final judgment in the Court of First Instance, it
shall be dismissed to be prosecuted in the manner especially provided in the Rule of Court. The
implication is that if the defendant dies after a money judgment had been rendered against him
by the Court of First Instance, the action survives him. In some instances an accountable public
officer may still be civilly liable for the funds improperly disbursed although he has no criminal
liability.

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In the present case, the dismissal of the appeal of the deceased Sendaydiego insofar as his
criminal liability is concerned, the court decided to continue exercising appellate jurisdiction
over his possible civil liability in accordance with the Article 30 of the Civil Code.

Therefore, the death of Sendaydiego, his estate should still be civilly liable to the Province of
Pangasinan and therefore his criminal liability should still be resolved if they are civilly liable for
such damages.

PEOPLE v. BAYOTAS
[G.R. No. 102007; 236 SCRA 255; 02 September 1994]

Romero, J.:

Facts:
Rogelio Bayotas was filed with charges of rape and was eventually convicted thereof. Pending
the appeal of his conviction, Bayotas died on 04 February 1992 at the National Bilibid Hospital.
Consequently the Supreme Court dismissed the criminal aspect of the appeal. However, the court
required the Solicitor General to file its comments regarding the civil liability of the deceased.

In his comment, the Solicitor General expressed his view that the death of the accused appellant
did not extinguish his civil liability as a result of his commission of the charged. The Solicitor
General relied on the case of People v. Sendaydiego.

The counsel for the accused appellant opposed the view of the Solicitor General that the death of
the accused extinguished both his criminal and civil penalties, relying to the case of People v.
Castillo and Ocfemia which held that civil obligation in a criminal case takes roots in the
criminal liability.

Issue:
Whether or not the death of the accused pending appeal of his conviction extinguish his civil
liability.

Held:
Yes, the death of the accused pending appeal of his conviction extinguish his civil liability.
In pursuing recovery of civil liability arising from crime, the final determination of the criminal
liability is a condition precedent to the prosecution of the civil action, such that when the
criminal action is extinguished by the demise of accused-appellant pending appeal thereof, said
civil action cannot survive. The civil liability springs out of and is dependent upon facts, which if
true, would constitute a crime.

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In the Sendaydiego case, although Article 30 was not applied in the final determination of the
civil liability there was a reopening of the criminal case to determine his civil liability. The court
reiterated that upon death of the accused pending the appeal of his conviction the criminal action
is extinguished in as much as there is no longer a defendant to stand as the accused; the civil
action instituted therein for recovery of civil liability ex delicto is ipso facto extinguished
grounded as it is on the criminal.

Also the court emphasized that the claim for civil liability survives notwithstanding the death of
accused if the same may also be predicated in a source of obligation other than delict. And if the
civil liability survives in accordance with the aforementioned, an action for recovery therefor
may be pursued but only by way of filing a separate civil action.

In applying the set of rules laid down by the court, the death of the appellant Bayotas
extinguished his criminal liability and the civil liability based solely on the act of rape. The
appeal is dismissed without qualifications.

VDA. DE PAMAN v. SENERIS


[G.R. No. L-37632; 115 SCRA 709; 30 July 1982]

Guerrero, J.:

Facts:
On 24 May 1961, accused respondent Teodoro De los Santos was charged by the City Attorney
of Zamboanga with Homicide thru Reckless Imprudence based on the incident that happened on
21 December 1956in the City of Zamboangawhen he was driving a truck owned by Western
Mindanao Lumber Co. and without precaution killed VictorianoPaman.

Upon arraignment on 26 June 1972, De los Santos entered the plea of guilty and was founded to
be the same.

On 04 August 1972, the petitioner filed a motion for execution of the civil liability of the accused
which was granted on 31 August 1972. However, the Sheriffs Return ofService showed that De
Los Santos has no property registered under his name.

Upon this discovery, petitioner filed a Motion for Execution of Subsidiary Liability of Employer
Western Mindanao Lumber Co. under Article 103 of Revised Penal Code.

On 08 September 1973 respondent judge denied the motion on the grounds that alleged employer
not havinf been notified that its dirver is facing a criminal charge, hence a separate civil action
must be filed.

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Issue:
Whether or not the subsidiary liability established under Article 103 of the Revised Penal Code
may be enforced in the same criminal case where the award was made, or in a separate civil
action.

Held:
The subsidiary liability may be enforced in the same criminal case where that award was made.

According the Section 1, Rule 111 of the Rules of Court when a criminal action is instituted the
civil action for recovery of civil liability arising from the offense charged is impliedly instituted
with the criminal action, unless the offended party expressly waives the civil action or reserves
his right to institute it separately. It means that the civil action may be tried and prosecuted, with
all the ancillary processes provided by law.

In the present case, the judgment of the respondent judge is will render the abovementioned
provision if the subsidiary civil liability is not allowed to be enforced in the same proceeding.

Therefore, the court decided to set aside the order of the respondent judge and the court a quo
was ordered to conduct further proceeding in the same case regarding the subsidiary liability on
the alleged employer of the accused respondent.

VILLEGAS v. CA
[G.R. No. 82562; 271 SCRA 148; 11 April 1997]

Romero, J.:

Facts:
This case arises from the libel case filed against Assemblyman Antonio Raquiza against the then
Manila Mayor Antonio J. Villegas. It was said that Villegas publicly imputed Raquiza acts in
violation of the Anti-Graft and Corrupt Practices Act on his several speeches.

The committee observed that all the allegations were based primarily on the testimony of Pedro
U. Fernandez, whose credibility, as later found out, was questionable. Villegas failed to submit
his documentary evidences. As a result, Raquiza was found cleared of all charges by the
committee. This event gained the extensive attention from the media.

On 25 July 1969, the case for libel was filed by the Office of the Fiscal of Manila with the then
Court of First Instance of Manila against Villegas, who denied all charges.

After losing the 1971 election, Villegas lived in the U.S.A where he stayed until his death on 16
November 1984.
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Obligations and Contracts: Doctrines and Case Digests

Though Villegas was absent, the trial continued trial for the case and by the time of his death, the
prosecution had rested its case. Two months after, the court dismissed the criminal aspect of the
case but reserved the right to resolve the civil aspect of the case.

In the judgment rendered on 07 March 1985, though acquitting the deceased of his criminal
liability, his heirs are liable for damages against the offended party. From this judgment, the
Villegass heirs appealed to the Court of Appeals.

The CA, however, affirmed the trial courts judgment but reduced the amount of damages
awarded.

Issue:
Whether or not the death of the accused before the final judgment extinguish his civil liability.

Held:
Yes, the death of the accused before the final judgment extinguished his civil liability.

As the court held in the case of People v. Bayotas: the survival of the civil liability depends on
whether the same can be predicated on sources of obligations other than delict The claim for
civil liability is also extinguished together with the criminal action if it were solely based
thereon, i.e civil liability ex delicto. The claim for civil liability survives notwithstanding the
death of accused if the same may also be predicated in a source of obligation other than delict.
And if the civil liability survives in accordance with the aforementioned, an action for recovery
therefor may be pursued but only by way of filing a separate civil action.

In the present case, the court a quo should have dismissed both actions against Villegas which
dismissal shall not stop Raquiza from pursuing his claim for damages against the heirs of the
former.

Therefore, the court ruled to reverse the CA and trial courts ruling and granted the petition of the
heirs of Villegas, without the prejudice to the right of Raquiza as the private offended party in the
libel case to institute a civil action for damages against the heirs of the deceased Villegas.

HEIRS OF THE LATE TEODORO GUARING, JR. v. CA


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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. 108395; 269 SCRA 283; 07 March 1997]

Mendoza, J.:

Facts:
This case started on the vehicular accident on the 07 November 1987 along North Expressway in
Pampanga involving a Mitsubishi Lancer driven by TeodoroGuaring, Jr. and seated beside him
was Bonifacio Clemente, a Philippine Rabbit Bus driven by Angele Cuevas, and a Toyota
Cressida car driven by Sgt.Eligio Enriquez with his mother, wife and daughter as his passengers.

The petitioners filed a case for damages against private respondents. Based on their evidence, the
bus tried to overtake Guarings car by passing on the right shoulder of the road and that in so
doing it hit the rear portion of Guarings car. The impact caused the Lancer to swerve on the
south bound lane and collided with the Enriquezs car. This collision killed Guaring and Sgt.
Enriquezs mother and injured Clemente and the occupants of the Cressida car.

The private respondent, however, presented an evidence contending that the accident was due to
the negligence of Guaring, claiming that it was Guaring who tried to overtake the vehicle and in
so doing encroached the South bound lane and collided with the Cressida and as a result of the
collision the Lancer was thrown back to the lane where it crashed with the bus.

On 16 May 1990, the trial court rendered judgment that private respondents were at fault and
thus solidarily liable to the petitioners.

Philippine Rabbit Bus Inc. appealed the decision of the trial court and on 16 December 1992, the
CA held that the decision of the trial court shall be set aside and dismisses the complaint against
the private respondents on the grounds of the acquittal of the bus driver from the charges of
reckless imprudence resulting to damage to property and double homicide. The CA held that
since the civil liability was predicated upon the charged criminal offense and that such is found
non-existent, it follows that the acquittal of the accused in the criminal case carries with it the
extinction of the civil liability arising from it.

Hence, the present petition.

Issue:
Whether or not the judgment in the criminal case extinguished the liability of private respondents
for damages for the death of Guaring.

Held:

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Obligations and Contracts: Doctrines and Case Digests
No, the judgment in the criminal case does extinguished the liability of private respondents for
damages for the death of Guaring.

The present action was instituted pursuant to Art. 2176 of the Civil Code, which provides:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.

It is now settled that the acquittal of the accused, even if based on a finding that he is not guilty,
does not carry with it the extinction of the civil liability based on quasi delict. Even if damages
are sought on the basis of crime and not quasi delict, the acquittal of the bus driver will not bar
recovery of damages if the acquittal was based not on a finding that he was not guilty but only on
reasonable doubt.

In the present case, the acquittal of the bus driver was because of the RTC entertaining
reasonable doubt to his guilt. The appellate court erred in skipping the review of the evidence in
this case and based its decision on the findings of the trial court in the criminal case. By doing
this, the appellate court disregarded the fact that this case had been instituted independently of
the criminal case and that petitioners herein took no part in the criminal prosecution.

Therefore, the Supreme Court decided to reverse the CAs ruling and remanded the case back
with an order to decide the case in the basis of the evidence presented in the civil case.

AGUILAR, Sr. v. COMMERCIAL SAVINGS BANK


[G.R. No. 128705; 36 SCRA 395; 29 June 2001]

Quisumbing, J.:

Facts:
Petitioner is the father of Conrado Aguilar, Jr. who died after getting involved in a vehicular
accident with a Lancer car under the name of the respondent bank and driven by the co-
responden Fernando Borja on 08 September 1984. Aguilar, Jr. was crossing the street with his
companions, as they were crossing the street, the Lancer overtook a jeepney and hit Aguilar. He
was brought to the hospital but he was pronounced dead on arrival.

On 29 July 1985, the petitioners filed a complaint for damages against respondent but the latter
failed to file his answer within the reglementary period and thus he was declared default by the
court.

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Obligations and Contracts: Doctrines and Case Digests
During the trial, the bank admitted that the car was under their name at the time of the incident.
Petitioners then was able to show that Borja was negligent.

On 14 June 1991, the court held that the respondents were liable for Aguilars death. The trial
court declared that Borjas negligence, carelessness and imprudence caused the victims death. It
also found that Borja, as assistant vice president of respondent bank at the time of the incident,
under Art. 2180[3] of the Civil Code, the negligence of the employee is presumed to be that of
the employer, whose liability is primary and direct; and that respondent bank failed to exercise
due diligence in the selection of its employees.

Respondent bank appealed to the Court of Appeals, which reversed the ruling of the trial court on
the grounds that there is no evidence that Borja had acted as respondent banks assistant vice-
president at the time of the accident.

A motion for reconsideration, filed by the petitioner, was denied.

Thus, the present petition.

Issue:
Whether or not respondent bank, as the Lancers registered owner, is liable for damages

Held:
Yes, the respondent bank is liable for damages.

The Supreme Court stated the past ruling from the case of BA Finance Corporation v. CA that
the registered owner of any vehicle, even if not for public service, is primarily responsible to
third persons for any damages it caused. Also, the court held in the case of Erezo v. Jepte that the
rationale for holding the registered owner of a vehicle to be directly liable is that registration is
required not to make said registration the operative act by which ownership in vehicle is
transferred but to permit the use and operation of the vehicle upon any public highway. The main
aim of the motor vehicle registration is to identify the owner in case any damage or injury is
caused by the vehicle on public highways, responsibility therefor can be fixed on a definite
individual, the registered owner.

In applying such jurisprudence to the present case, the court held that the bank is primarily
responsible for the damages caused by the vehicle. The bank, however, still has the right to be
indemnified by the real or actual owner of the amount that he may be required to pay as
damages.

Therefore, the decision of the Court of Appeals is reversed and the decision of the trial court is
affirmed, holding the respondent bank liable for damages.
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Obligations and Contracts: Doctrines and Case Digests

8. COMPLIANCE OF PRESTATIONS
c) GENERALLY ART. 19
d) SPECIFICALLY
iv. TO GIVE (REAL OBLIGATION) ARTS. 1163 TO 1166
v. TO DO (PERSONAL OBLIGATION) ART. 1167
vi. NOT TO DO (PERSONAL OBLIGATION) ART. 1168
9. BREACH OF OBLIGATIONS
b) CAUSES: ART. 1170
iv. FRAUD
3. ART. 1171 VS. ART. 1338
4. DOLO INCIDENTE VS. DOLO CAUSANTE
v. NEGLIGENCE
4. ARTS. 1172 AND 1173
5. CULPA CONTRACTUAL VS. CULPA AQUILIANA (OR CULPA
EX-CONTRACTU)
6. FORTUITOUS EVENT ART. 1174
b) REQUISITES OF FORTUITOUS EVENT
CASES:

LASAM v. SMITH
[G.R. No. 19495; 45 Phil 657; 02 February 1924]

Ostrand, J.:

Facts:
21 February 1918 defendant is on the business of carrying passengers from one point to another
in the Province of La Union and surrounding provinces and was hired by the plaintiff in a ford
automobile. While leaving San Fernando, the vehicle was driven by a licensed driver, however
having reached the town of San Juan, the driver allowed his assistant, Remigio Bueno to drive
the car. After crossing the Abra River in Tagudin, defects developed in the steering gear so as to
make accurate steering impossible and after zigzagging, the car left the road and went down a
steep embankment.

The defendant averred that there was no problem with the steering gear before nor after the
accident and that the zigzagging must have been caused by the excessive rate of speed in which
it was driven. The automobile was overturned and pinned the plaintiffs down under it. Mr. Lasam
escaped with a few concussions and a dislocated rib, but Mrs .Lasam received serious physical
injuries. She also had nervous breakdowns.

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Obligations and Contracts: Doctrines and Case Digests
The complaint was filed about a year and a half after the incident occurred. It alleged that the
automobile as well as to the incompetence and negligence of the driver and that the liability of
the defendant is in accordance with the Article 1903 of the Civil Code. The trial court held that
the cause of action rest on the defendants breach of contract of carriage and that Article 1101
1107 of the Civil code shall govern. It also stated that the breach of contract is not due a
fortuitous event and therefore defendant is liable for damages.

Issue:
Whether or not the accident is a fortuitous event.

Held:
No, the accident that happened is not a fortuitous event.

The court agrees with the ruling of the lower court when it found that the defendants liability is
contractual. By entering in the contract of carriage, he bound himself to deliver the plaintiffs
safely and securely to their destination and having failed to do so, he is liable for damages,
except in times when such breach occurred in accordance with the Article 1105 (now Article
1174) which states:

No one shall be liable for events which could not be foreseen or which, even if foreseen,
were inevitable, with the exception of the cases in which the law expressly provides
otherwise and those in which the obligation itself imposes such liability.

The Supreme Court stated that the expression "events which cannot be foreseen and which
having been foreseen, are inevitable" is synonymous with the term "fortuitous event"
(casofortuito) of which some extraordinary circumstance independent of the will of the obligor,
or of his employees, is one of the essential elements.

In the present case, the above mentioned element is lacking for the defendants to use the defense
of fortuitous event. The said accident was caused either by defects in the automobile or else
through the negligence of its driver and such are not fortuitous events.

Therefore, the respondents are liable for damages.

SERVANDO v. PHILIPPINE STEAM NAVIGATION CO.


[G.R No. L-36481; 117 SCRA 832; 23 October 1982]

Escolin, J.:

Facts:

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Obligations and Contracts: Doctrines and Case Digests
On 06 November 1963, Plaintiffs loaded on board the respondents vessel 1,528 cavans of rice
for Clara Uy Bico and 44 cartons of colored paper for Amparo Servando. Upon arrival of the
vessel to its destination, the cargos were discharged and placed in the warehouse of the Bureau of
Customs which was razed with fire around 2 o clock in the afternoon, that same day. Before the
fire, Uy Bico was able to get 907 cavans of rice. The plaintiffs wanted to claim the value of said
good which were destroyed by the fire.

The lower court decided in favor of the plaintiffs. It stated that Article 1736 of the civil code
imposes upon common carriers the duty to observe extraordinary diligence from the moment the
goods are unconditionally placed in their possession "until the same are delivered, actually or
constructively, by the carrier to the consignee or to the person who has a right to receive them,
without prejudice to the provisions of Article 1738. It further stated the delivery of the shipment
in question to the warehouse of the Bureau of Customs is not the delivery contemplated by
Article 1736; and since the burning of the warehouse occurred before actual or constructive
delivery of the goods to the appellees, the loss is chargeable against the appellant.

However, according to the bill of lading issued for the cargoes provided that the parties agreed to
limit the responsibility of the carrier for the loss or damage that may be caused to the shipment.

Thus, the present petition.

Issue:
Whether or not the respondents are liable for damages.

Held:
No, the Philippine Steam Navigation Co. is not liable for the damages against the plaintiffs.

The court agrees with the validity of the provision in the bill of lading, as it is not contrary to
law, morals or public policy. Though the plaintiffs contend that they did not sign it, it was held
that they were bound by the provisions thereof, as previously held in the case of OngYui v. CA.
Also, the questioned provision is a mere iteration of the basoc principle of law in Article 1174 of
the Civil Code which pertains to the exemption of the obligor from liability in cases of loss due
to fortuitous events. Quoting the EnciclopediaJuridicada Espanola, the court enumerated the
characteristics of a fortuitous event:

(1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor
to comply with his obligation, must be independent of the human will;
(2) it must be impossible to foresee the event which constitutes the 'casofortuito', or if it
can be foreseen, it must be impossible to avoid;
(3) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and
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Obligations and Contracts: Doctrines and Case Digests
(4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor.

In the present case, there is no proof that the respondent incurred delay in fulfilling their
obligation. They not only contacted the plaintiffs of the arrival of their cargoes but also
demanded that it be withdrawn. Nor there is an evidence showing that the respondent was
negligent in the fulfillment of their work. The warehouse that burned was owned by the
government and it would be unfair to impute negligence to the respondent when it has no control
over the said warehouse. There is also no proof that the cause of the fire was in any way
attributable to the negligence of the respondent.
Therefore, the respondent is not liable for damages to the plaintiffs.

AUSTRIA v. CA
[G.R. No. L-29640; 39 SCRA 527; 10 June 1971]

Reyes, J.B.L., J.:

Facts:
Maria G. Abad received from Guillermo Austria a pendant with diamond valued at P4,500.00,
which was to be sold by the former on commission basis or to be returned upon the latters
demand. On 01 February 1961, while walking on her way home in Mandaluyong, Abad was
robbed. Among those which were taken by the robbers was the pendant. This resulted to the
failure of Abad to return the pendant to Austria. The petitioner then filed with the Court of First
Instance of Manila an action against Abad and her husband for the recovery of the pendant or of
its value and damages. The respondents however asserted that the alleged robbery had
extinguished their obligation.

The trial court decided in favor of the plaintiffand ordered the spouses to pay the plaintiff.
Defendants then filed appeal to the CA which reversed the ruling of the lower court. It declared
that the respondents are not responsible for the loss of the jewelry on account of fortuitous event.

Issue:
Whether or not in contract of agency, it is necessary that there be a prior conviction for robbery
before the loss of the article shall exempt the consignee from liability for such loss.

Held:
No, it is not necessary that there be a prior conviction for robbery before the loss of the article
shall exempt the consignee from liability for such loss

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Obligations and Contracts: Doctrines and Case Digests
The Article 1174 of the Civil Code provides for the extinction of liability of the debtors or
obligors in cases of fortuitous events. CasoFortuitowould exempt a person from responsibility of
the loss of an object of an obligation if all of its characteristics are present:
(1) the event must be independent of the human will (or rather, of the debtor's or
obligor's);
(2) the occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and that
(3) the obligor must be free of participation in or aggravation of the injury to the creditor.

To be able to be exempted in accordance with the above provision, the court held that it is not
necessary that the persons responsible for the event to be found or punished. It is sufficient to
establish that the enforceable event happened did take place without any concurrent fault on the
debtors part and can be done with preponderance of evidence.

However to completely free the debtor from the liability by fortuitous event, such debtor must be
free from any contributory fault or negligence.

In the present case, it was undeniable that defendant Maria Abad was robbed. Hence, applying
the above ruling, it is apparent that defendants are not liable for the loss of the pendant. The
court, however, emphasized that this ruling is only applicable in this case. The robbery happened
10 years before the decision was rendered, and it was in 1961, when the crime rate had not far
reached yet the level it has attained by the time the decision was rendered and far more as to this
day.

Therefore, the Supreme Court held that the defendants were not liable for the loss of the pendant.

OVERSEAS BANK OF MANILA v. CA


[G.R. No. L-49353; 105 SCRA 49; 11 June 1981]

Barredo, J.:

Facts:
Private respondent Tony D. Tapia, in his capacity as the attorney-in-fact of Enriqueta Michel de
Champourcin (TAPIA), instituted the case in the Court of First Instance against the present
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Obligations and Contracts: Doctrines and Case Digests
petitioner (TOBM) for the collection of the proceeds of the time deposit of the private respondent
with the petitioner in the amount of Php 100,000.00 with an interest of 4 % per annum.

The trial court ruled in favor of the private respondents.

The TOBM filed an appeal in the Court of Appeals. CA considered the following events in
rendering its decisions:

The Central Bank issued a resolution stating that the TOBM was excluded from inter-bank
clearing, its operation was also suspended. Under a Central Bank resolution dated 13 August
1968, it was completely forbidden to do business in preparation to its forcible liquidation. The
Supreme Court however resolved to set these resolutions aside and further ordered for its
rehabilitation, normalization, and stabilization.

The CA however held that the TOBM should pay the petitioners the amount of the time deposit
with the interest, therefore affirming the trial courts decision.

Thus, the present petition.

Issue:
Whether or not for the purposes of the payment of interest in question, stoppage of the operations
of a bank by a legal order of liquidation may be equated with the actual cessation of the banks
operation , not different, in its effect, from legal liquidation, the factual cessation having been
ordered by the Central Bank.

Held:
No, it is utterly unfair to award private respondent his petition for the payment of interest during
the period that the petitioner bank was not allowed to operate by the Central Bank.

The Court takes judicial notice that what enables a bank to pay stipulated interest on money
deposited with it is that through the other aspects of its operation it is able to generate funds to
cover the payment of such interest. Unless a bank can lend money, engage in international
transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in
other banking and financing activities from which it can derive income, it is inconceivable how it
can carry on as a depository obligated to pay stipulated interest.

The stopping of the TOBMs operation by the Central Bank, which was found to be illegal by the
Supreme Court may be considered as force majeure. TOBM has no choice but to follow the
resolutions issued by the CB while the case is pending resolution. Though the Supreme Court
rendered in favor of the bank, it still remains that TOBM was unable to earn the income.

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Obligations and Contracts: Doctrines and Case Digests
Therefore, the Supreme Court decided to reverse the ruling of the CA in regards the payment of
the TOBM of the interests incurred by the time deposit at the time the bank was forbidden to
operate by the Central Bank.

OVERSEAS BANK OF MANILA v. CA


[G.R. No. L-33582; 113 SCRA 778; 30 March 1982]

Escolin, J.:

Facts:
On 20 July 1967, the private respondent opened a one-year time deposit with TOBM with the
amount of Php 80,000.00 which will mature on 20 July 1968 with an interest rate of 6% per
annum. The TOBM failed to pay Private Respondent because of distressed financial condition.
The enforce payment private respondent filed the case in the Court of First Instance of Manila. In
its answer, TOBM raised the defense of insolvency being found by the Monetary Board as such.
In the pre-trial the TOBM filed a motion to dismiss using the same defense. The trial court
however, finding that it is not meritorious, rendered the decision in favor of Cordero.

Not satisfied with the trial courts decision, they filed an appeal in the CA. The CA however,
affirmed the decision of the lower court.

Hence, the present petition.

Issue:
Whether or not private respondents are entitled for the interest on his time deposit during the
period that petitioner was closed and to attorneys fees.

Held:
No, private respondents are not entitled for the interest on his time deposit during the period that
petitioner was closed.

The court reiterated the doctrine founded in the case of Overseas Bank of Manila v. CA. The
Court takes notice that what enables a bank to pay stipulated interest on money deposited with it
is that through the other aspects of its operation it is able to generate funds to cover the payment
of such interest. Unless a bank can lend money, engage in international transactions, acquire
foreclosed mortgaged properties or their proceeds and generally engage in other banking and
financing activities from which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest.

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Obligations and Contracts: Doctrines and Case Digests
Therefore, the court set aside the decision of the lower court holding that the bank is liable for
interest of the time deposit.

VASQUEZ v. CA
[G.R. No. L-42926; 13 September 1985]

Melencio-Herrera, J.:

Facts:
On 15 May 1966, the MV Pioneer Cebu left the port of Manila bound for Cebu which was
originally scheduled to leave on 14 May 1966.The vessel started its voyage under a special
permit issued by the Collector of Customs when it was found out that the vessel has no
emergency electrical power system.

When the vessel left Manila, the officers of the vessel already knew of the typhoon Klaring
building up somewhere in Mindanao. There being no typhoon signal on their route from Manila
to Cebu, the crew decided to continue with the voyage.

When the vessel reached the Romblon Island, it decided not to take shelter because the weather
condition is still good. However, when it reached the island of Tanguigui, the weather changed.
Fearing of hitting the Chocolate Island Group, the captain ordered to reverse the vessel so that it
can weather out the typhoon. Unfortunately, it hit a reef near the Malapascua Island at about
noon time on 16 May 1966. The vessel sustained leaks and eventually sunk, bringing with it the
Captain of the vessel.

The petitioners were the parents of some of the deceased from the sinking of the ship. They sued
for damages before the Court of First Instance. Private respondents entered the plea of force
majeure and therefore their liability has been extinguished.

The trial court rendered its decision finding the respondents liable for damages. Upon appeal the
CA reversed the ruling.

The petitioners filed the present petition for review on certiorari.

Issue:
Whether or not the private respondents are liable for damages on the death of the presumptive
death of the children of the petitioners.

Held:
Yes, the private respondents are liable for damages on the death of the children of the petitioners.

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Obligations and Contracts: Doctrines and Case Digests
The court agrees with the decision of the trial court. To avail of the defense of fortuitous events,
it must be independent of human will, such occurrence must render it impossible for the obligor
to fulfill the obligation in the normal manner, and that the obligor must be free of participation
in, or aggravation of, the injury to the creditor. It must be impossible to foresee, or if it can be
foreseen, must have been impossible to avoid.

The trial court said that the defense of the fortuitous event is untenable due to the knowledge of
the crew of the incoming typhoon and still took the risk of proceeding with the voyage, ignoring
the typhoon advisory. Though they held various conferences, and oblivious of the utmost
diligence required of very cautious persons, they still took the risk. By doing so, they failed to
show outmost diligence required by law for the safety of the passengers transported by them.
Their actions exposed their passengers to the tragedy.

Therefore, the private respondent is liable for damages on the death of the children of the
petitioners.

SWEET LINES, INC. v. CA


[G.R. No. L-46340; 121 SCRA 769; 28 April 1983]

Melencio-Herrera, J.:

Facts:
Private respondents purchased first-class tickets from petitioner to board the vessel MV Sweet
Grace bound for Catbalogan, Western Samar. The vessel was supposed to stop first in Catbalogan
before proceeding to Tacloban. The scheduled departure of the vessel was about midnight on 08
July 1972, however the ship set sail at 3:00am of 09 July 1972 but was towed back to Cebu
because of problems in its engine arriving in Cebu at 4:00pm that same day. The engine was
fixed and sailed again on 10 July 1972 at 08:00am. Instead of stopping in Catbalogan, the ship
went directly to Tacloban where the private respondents were forced to take a ferryboat to take
them to Catbalogan. The General Manager admitted that the reason why the vessel did not stop
in Catbalogan was to allow it to catch-up with its schedule for the next week.

The private respondents filed an action for damages against the petitioner, which the trial court
granted. And upon appeal, the CA affirmed the trial courts decision.

Thus, the present petition.

The petitioners aver the presence of a fortuitous event.

Issue:

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Whether or not there is a fortuitous event in the incident and therefore it extinguishes the liability
of the petitioner.

Held:
No, there is no fortuitous event in the incident, thus, the petitioner is liable for the damages to the
private respondents.

Article 2220 states that moral damages are justly due in breaches of contract where the defendant
acted fraudulently or in bad faith. The court defined bad faith as a breach of a known duty
through some motive or interest or illwill. Self-enrichment or fraternal interest, and not personal
illwill may have been the motive, but it is malice nevertheless.

The court held that there is bad faith when defendants-appellants did not give notice to plaintiffs-
appellees as to the change of schedule of the vessel, while knowing fully well that it would take
no less than fifteen hours to effect the repairs of the damaged engine, defendants-appellants
instead made announcement of assurance that the vessel would leave within a short period of
time, and when plaintiffs-appellees wanted to leave the port and gave up the trip, defendants-
appellants' employees would come and say, 'we are leaving, already and when defendants-
appellants did not offer to refund plaintiffs-appellees' tickets nor provide them with
transportation from Tacloban City to Catbalogan.

In the defense of the petitioner of fortuitous event, the court stated that mechanical defects of the
vessel is not considered as a fortuitous event. The court found no fortuitous events which
prevented the vessel from fulfilling its obligation to take the passengers to Catbalogan. And even
if it was granted that the mechanical defect is a force majeure, the moment the vessel set sail on
10 July 1972, the force majeure is no longer existent because the vessel has been completely
repaired.

Therefore, having found to have acted of bad faith and no force majeure in the incident, the
petitioner is liable for damages against respondents.

JUNTILLA v. FONTANAR
[G.R. No. L-45637; 136 SCRA 625; 31 May 1985]

Gutierrez, J.:

Facts:
Plaintiff is a passenger of a jeepney bound from Danao City to Cebu City which was driven by
defendant Camoro. The franchise was registered under the defendant Fontanar, but is originally
owned by defendant Banzon. It carried 3 passengers in front seat and fourteen passengers in the
rear. Upon reaching Mandaue City, while being driven at a fast speed, as stated in the evidences
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found during the trial, the right rear tire of the jeepney exploded, and caused the vehicle to topple
over. The plaintiff, seating in the front seat, was thrown out of the vehicle and he lost
consciousness. When he came to his senses, he found that he suffered multiple injuries and
discovered that his Omega wrist watch was lost. He went back to Danao City and went to the
hospital, were his injuries were attended. He requested his father-in-law to look for the watch
which are no longer found.

Plaintiff then filed a case for breach of contract with damages before the City Court of Cebu
against defendants.

In their answer, the defendants stated that the accident that caused the loss to the petitioner was
beyond the control of the respondents. They contended that the tire that exploded were new and
was only slightly used when the accident happened.

The trial court rendered its decision in favor of the plaintiff. The defendants filed an appeal to the
Court of First Instance where the decision was reversed on the grounds of fortuitous event. It
also denied the motion for reconsideration.

Issue:
Whether or not the accident was caused by a fortuitous event.

Held:
No, the accident was not caused by a fortuitous event.

Citing the case of Lasam v. Smith, the court laid down the essential characteristics of fortuitous
event, such as it must be independent of human will, such occurrence must render it impossible
for the obligor to fulfill the obligation in the normal manner, the obligor must be free of
participation in, or aggravation of, the injury to the creditor and it must also be impossible to
foresee or if it can be foreseen, it must be inevitable.

In the present case, the blowing up of the tire of the jeepney is not independent of the human
will. The court held that the accident was either due to the negligence of the driver, or because of
the mechanical defects of the tire. Evidences showed that the vehicle was running very fast
before the accident. Common carriers should teach their drivers not to overload their vehicles,
not to exceed safe and legal speed limits and to know correct measures to take when incidents
like this happens.

Therefore, the court ruled to set aside the ruling of the Court of First Instance and the decision of
the City Court of Cebu was reinstated, finding the defendants liable for damages against plaintiff.

VICTORIAS PLANTERS ASSOCIATION v. VICTORIAS MILLING CO., INC.


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[G.R. No. L-6648; 97 Phil 318; 25 July 1955]

Padilla, J.:

Facts:
Petitioners are corporations composed of sugar cane planter. Petitioners sugar canes were milled
by respondents. Milling contracts were executed by the parties on 17 November 1916. In the said
contract it stated that the petitioners will mill the sugar canes they will produce with the
respondents for the next 30 years. It was also stipulated that in cases of fortuitous event, the
contract shall be deemed suspended.

For four years, the Japanese occupation occurred in the Philippines and after such, another two
years of post-war reconstruction of the central of the respondent.

In 1948, the petitioners, believing that the contract for milling has expired, repeatedly asked the
respondents to execute a new milling contract which would take into consideration of the
circumstances prevailing in the sugar industry in the present time as compared to the trend 30
years ago, and such will benefit the planters and workers. The respondents refused to accede to
the request. According to them, as there was no milling during the 6 years 4 years of Japanese
occupation and 2 years of post-war reconstructions the contract was to end in 1952.

The trial court rule ruled in favor of the petitioners and from this judgment, the respondent
appealed.

Issue:
Whether or not the petitioners contract of milling shall expire on 1952, 6 years after the
stipulated expiration of the contract, to make up from the lost 6 years of production because of
the war.

Held:
No, the contract of milling shall expire after 30 years of the execution of the first contract, as
stipulated thereon.

The court stated Fortuitous Event relieves the obligor from fulfilling the contractual obligation
under Article 1174 of the Civil Code. The stipulation regarding the fortuitous events in the
contract and its suspension, should such events happen, only relieves the parties from the
fulfilment of the respective obligations during that time. It doesnt stop the period of the contract.

Therefore, contract cannot be extended on 1952, and the 6 years cannot be deducted from the
originally stipulated 30 years.
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vi. DELAY
3. ART. 1169
4. KINDS OF DELAY
d) MORA SOLVENDI
iii. EX RE
iv. EX PERSONA
e) MORA ACCIPIENDI
ii. REQUISITES
f) COMPENSATIO MORAE
v. CONTRAVENTION OF THE TENOR

CASES:

ARRIETA v. NLRC
[G.R. No. L-15645; 10 SCRA 79; 31 January 1964]

Regala, J.:

Facts:
On 19 May 1952, plaintiff participated in a public bidding by NARIC for 20,000 metric tons of
Burmese Rice. The plaintiff won the bidding and entered into a Contract of Sale of Rice for the
price of $203 per metric tons. In turn, the defendant NARIC committed itself to pay by means
letter of credit in U.S currency.

On 30 July 1952, the defendant corporation took the first open letter of credit by forwarding its
application for commercial letter of credit to the PNB which included a letter asking that it be
considered as a special case as the defendant corporation has no enough funds to cover the
amount required and that plaintiffs deadline is on 04 August 1952 therefore it is necessary that
the letter should be opened prior said date. At the same time, plaintif advised NARIC of the
necessity of opening of the letter of credit as she already made a tender with the supplier in
Burma.

On 04 August 1952, the PNB letter of credit has been approved with a condition that the
marginal deposit and drafts be paid upon presentment. However, NARIC failed to comply with
the condition. It confessed that it is in not in the financial position to do so as reflected in the
letter dated 02 August 1952.

The credit instrument was only opened on 08 September 1952. Because of this delay, the
allocation of the supplier was cancelled and the 5% deposit was forfeited. Plaintiff tried to
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Obligations and Contracts: Doctrines and Case Digests
restore the allocation but still failed. She offered to NARIC to substitute instead Thailand rice,
but the latter rejected the offer.

The plaintiff then demanded compensation for the loss from NARIC. The defendants disclaim
the responsibility and stating that the fault of the delay was because of the plaintiff because it did
not promptly gave the data which is needed in opening of the letter.

Issue:
Whether or not the delay in the opening of the letter of credit in dispute by NARIC amounted to
a breach of contract for which it must be held liable for damages.

Held:
Yes, the delay in the opening of the letter of credit in dispute by NARIC amounted to a breach of
contract for which it must be held liable for damages.

According to Article 1170 of the Civil Code, Those who in the performance of their obligation
are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable in damages. In the said provision it stated that in general, every debtor who
fails to fulfill his obligation is liable for damages, not only those who are guilty of fraud,
negligence or delay. The phrase any manner contravene the tenor includes any illicit acts
which impairs the strict and faithful fulfillment of the obligation or every kind of defective
performance.

The liability of the appellant started not alone in the failure or inability to satisfy the conditions
provided by the PNB, but from its willful and deliberate assumption of contractual obligations
even as it was aware of the financial incapacity to undertake such. It is evident that NARIC was
knowledgeable of this financial position as it has stated in the transmittal letter that they do not
have sufficient deposit with PNB to cover the required amount.

Therefore, the court ruled in favor of the plaintiff with the modification that it must be in
Philippine currency and to be converted at the prevailing exchange rate at the time of the
obligation was incurred.

SPS.GUANIO v. MAKATI SHANGRI-LA HOTEL and RESORT, INC.


[G.R. No.190601; 07 February 2011]

Carpio-Morales, J.:

Facts:
The petitioners booked the respondents for their wedding reception on 28 July 2001. For the
initial food tasting, the petitioners claim that they requested the hotel to prepare for seven
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Obligations and Contracts: Doctrines and Case Digests
persons, however they prepared only six. They initially chose a menu which costs Php1,000 per
person but they were given an option that by changing the menu from king prawns to salmon, it
will only cost Php 950.00. They decided to take the salmon instead.

Three days before the event, on the final food tasting, the salmon was served half the size of that
which was served in the initial food tasting. The hotel explained that should the size be that of
what was initially served to them, it would cost Php 1,200.00. They eventually agreed on a final
price of Php1,150.00 per person.

On 27 July 2001, the parties finalized the arrangements and they executed the contract.

However, on the date of the event, the representatives of the respondents did not show up, the
guests complained of the delay of the service for dinner, and some items listed in the menu was
not available. It was also stated that the hotel waiters were rude and unapologetic when told
about the delay. The petitioners were also promised by the representatives that there will be no
charges for extensions of the reception beyond 12 midnight, but they were billed 8,000.00 for the
3-hour extensions of the event up to 4:00am the next day. Petitioners further claim that they
brought wine and liquor in accordance with their open bar arrangements but these were not
served and their guests paid for their own drinks.

Petitioners thus sent a letter to the respondent and were able to receive an apologetic letter from
one Kristen Svenson, the hotels Executive Assistant Manager in charge of Food and Beverage.
The petitioner, nevertheless, filed a complaint for breach of contract and damages before the
RTC of Makati.

In its answer, the respondent stated that the petitioners requested a combination of king prawns
and salmon, hence the price was increased to Php 1,200.00 and was discounted to Php 1,150.00.
Also, that the representatives were present in the event but were not permanently stationed
therein as there were other three events in the hotel that day. And that the delay in the service of
meals were because of the sudden increase on the numbers of guests to 470 from the expected
350-380 guests. This delay was also relayed to the father of the groom. In regards to Svenssons
letter, it was not an admission of guilt but meant to maintain goodwill to its customers.

Makati RTC ruled in favor of the petitioners relying heavily on Svenssons letter of apology
which stated that the services received by the petitioners were unacceptable and not up to their
standards.

The Court of Appeals however reversed the trial courts ruling stating that the proximate cause of
the inconvenience was attributable to the petitioners. A motion for reconsideration was filed by
the petitioners but was denied.

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Issue:
Whether or not the respondents are liable for damages.

Held:
Yes, the respondents are liable for damages.

The court held that since the complaint rose from a contract, the doctrine of proximate cause
cannot be applied. The doctrine of proximate cause is only applicable on actions for quasi-delicts
and not on actions involving breach of contract. And thus the Article 1170 is the applicable rule
in this case. Article 1170 states Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
in damages. Breach of contract is defined as the failure without legal reason to comply with the
terms of a contract.

Given the respondents vast experience, it is safe to presume that it is not the first time it
encounters events booked exceeding the guaranteed cover. The respondents admitted the three
hotel functions coincided with the petitioners event. The delay in service might have been
avoided or minimized if respondents exercised prescience in scheduling events. The Court also
stated that no less than quality service should be delivered especially in events which possibility
of repetition is close to none.

Therefore, the Supreme Court ruled in favor of the petitioners awarding nominal damages in the
amount of Php 50,000.00.

10. REMEDIES FOR BREACH


c) EXTRA-JUDICIAL (NO COURT ACTION NEEDED)
ARTS. 1526 AND 1592
d) JUDICIAL (COURT ACTION NEEDED)
iv. PRINCIPAL REMEDIES
2. ARTS. 1165, 1167, 1168 AND 1191
CASES:
CENTRAL BANK OF THE PHILIPPINES v. CA
[G.R. No. L-45710; 139 SCRA 46; 03 October 1985]

Makasiar, CJ.:

Facts:
Island Savings Bank approved the loan of SulpicioTolentino in the amount of Php80,000.00. As
security to the loan, Tolentino executed a Real Estate Mortgage over his 100-hectare land.The
said loan is repayable in semi-annual installments for a period of 3 years with 12% annual
interest. The said loan is to be used to develop his proposed subdivision.
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On 22 May 1965, the amount of Php17,000.00 was released as part of the Php80,000.00.
Tolentino and his wife issued a promissory note for Php17,000.00 at 12% interest per annum,
payable within 3 years from execution of the contract at semi-annual installment. An advance
interest for the Php80,000.00loand covering a 6-month period amounting to Php4,800.00 was
deducted from the partial release of Php 17,000.00. This prededucted interest however was
refunded to Tolentino after he was informed that the bank has no funds yet to release the
remaining Php63,000.00.

On 13 August 1965, the Central Bank prohibited the Island Savings Bank from making new
loans and investments excluding extensions or renewals of already existing loans which shall be
subject to review by Superintendent of Banks who will impose limitations.

Upon failing to acquire funds required to restore solvency, Central Bank released a Resolution
prohibiting Island Savings Bank from doing business in the Philippines.and ordered the acting
Superintendent of Banks to take charge of the Assets of the Island Savings Bank.

On 01 August 1968, the Island Savings Bank, filed an application for the extra-judicial
foreclosure of Tolentinos lot in line with the non-payment of the Php17,000.00. The auction was
scheduled to be on the 22 January 1969.

On 20 January 1969, Tolentino filed a petition with the Court of First Instance of Agusan for
injunction, specific performance or rescission and damages with preliminary injunction. The
alleged that Island Savings bank failed to deliver the Php63,000.00 therefore he is entitled for the
specific performance by ordering the bank to deliver the balance of Php63,000.00 and if said
balance cannot be delivered the real estate mortgage should be rescinded.

The trial court ruled in favor of the Island Savings Bank, ordering Tolentino to pay the former
the amount of 17,000.00 and lifting the restraining order allowing the foreclosure of the land.

The Court of Appeals affirmed the dismissal of Tolentinos petition for specific performance but
ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the
17,000.00.

Hence, the petition by the Central Bank.

Issue:
Whether or not the action for specific performance meritorious.

Held:
No, the the action for specific performance cannot prosper.
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In reciprocal obligations, the obligation or promise of each party is the consideration for that of
the other and when one party has performed or is ready and willing to perform his part of the
contract, the other party who has not performed or is not ready and willing to perform incurs in
delay as stated in Article 1169 of the Civil Code.Moreover Article 1191 stated that in reciprocal
obligations, in cases of the obligors should not comply with what is incumbent upon him, the
injured party may choose between the performance of the obligation or the rescission of the
obligation.

In the present case, since the Island Savings Bank was in default in not fulfilling the reciprocal
obligation under the loan agreement, Tolentino may choose between specific performance or
rescission with damages in either case. However, since the bank was forbidden by the Monetary
Board to do further business, the court cannot grant the petition of Tolentino for specific
performance. Rescission is the only remedy left. The court ruled that the rescission should only
be on the part of the amount of Php63,000.00 as it is the default of the bank as the Php 17,000.00
was already given to Tolentino. Tolentinos execution of the promisory note gave rise to his
obligation to pay the Php17,000.00 when it became due.

Therefore, rescission is applicable only to the 78.75 hectares of the land and the remaining 21.25
shall either be paid by Tolentino, or in failure to do so, shall be foreclosed by the bank.

AYSON-SIMON v. ADAMOS
[G.R. No. L-39378; 131 SCRA 439; 28 August 1984]

Melencio-Herrera, J.:

Facts:
13 December 1943, Nicolas Adamos and Vicente Feria purchased two lots from Juan
Porciuncula. The successors-in-interest, however filed a Civil Case for the Annulment of the
Sale. The Court of First Instance rendered its decision annulling such.

While the above case was pending, the defendants sold the said lots to GenerosaAyson-Simon for
Php 3,800.00 with additional Php 800.00 for the issuance of the new title under the name of the
petitioners. The defendants however failed to comply with their commitment to transfer the titles
to the petitioner which led to her filing of suit for the specific performance. The trial court
rendered its decision in favor of the petitioner.

However, the execution of the order was rendered impossible because of the decision rendered in
the Civil Case filed by the successors-in-interest of the lots. Petitioner, filed another suit for
rescission of sale with damages. On 07 June 1969 the court decided in favor of the
petitioner.Defendants appealed on the grounds that petitioners action had prescribed considering
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that she only had four years from 29 May 1946 to rescind the transaction and that her action for
specific performance was a waiver of her rights to rescind.

Issue:
Whether or not the fulfilment and rescission in reciprocal obligations are alternative remedies
and the petitioner having chosen fulfilment beforehand can no longer seek rescission.

Held:
No, though the petitioner has already filed a suit for specific performance, it doesnt bar her from
seeking rescission.

The rule when the injured party can only choose between fulfilment and rescission of the
obligation, and cannot have both, applies only to obligations which its fulfilment is possible.
Article 1191 allows the injured party to seek rescission even after seeking for its fulfilment
provided that the fulfilment of the obligation is deemed impossible.

In the present case, though the court has decided in favor of the petitioner in the civil case for the
fulfilment, the fact that it is impossible for the defendants to deliver the titles to the petitioner, the
portion of the decision requiring the defendants to fulfill their obligation is deemed without force
and effect.

Therefore, the petitioner may still rescind the transaction.

GABOYA v. CUI
[G.R. No. L-19614; 38 SCRA 85; 27 March 1971]

Reyes, J.B.L., J.:

Facts:
Don Mariano Cui is the owner of several lots in Cebu City. On 08 March 1946, he sold three lots
to his children, undivided for the amount of Php64,000.00. But because Rosario C. De
Encarnacion lack funds and was unable to pay for her part and therefore the sale to her was
cancelled. These three lots were commercial lot. The improvements were destroyed during the
war so that in 1946, the time of the sale, there was no building on it. Because of the sale of the
property to the two children of Don Mariano, and the inability to purchase of Rosario, Don
Mariano, and his children Mercedes and Antonio became co-owners of the whole lot.

A building was subsequently built on a portion of this mass facing Calderon street and was
occupied by a Chinese businessman for which he paid Don Mariano P600 a month as rental.

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After the sale of the property, Mercedes and Antonio applied to the Rehabilitation Finance
Corporation (RFC) a loan amounting to Php 130,000.00 to construct a commercial building, on
the portion of the land corresponding to their share. Don Mariano then executed an authority to
mortgage his share in the land. The loan was granted and Don Mariano was then included in the
mortgagors of the land. He, however, did not take part in the construction of the commercial
building. When it was finished, Mercedes and Antonio received the rents thereof amounting to
P4,800 a month from which the payments for the installments on the loan to the Rehabilitation
Finance Corporation came from.

On March 25, 1948, two other children of Don Mariano named Jesus and Jorge brought an action
in the Court of First Instance of Cebu for the purpose of annulling the deed of sale of the three
lots in question on the ground that they belonged to the conjugal partnership of Don Mariano and
his deceased wife Antonia Perales. They also petitioned to be appointed as the receiver to take
charge of the lots and of the rentals of the building. Such was denied by the court.

On 19 March 1949, Rosario Encarnacion filed a petition to declare her father incompetent which
was heeded by the court and appointed Victorino Reynes to be the guardian of Don Marianos
property.

On 15 June 1949, guardian Victorino Reynes filed a motion in the guardianship proceedings
seeking authority to collect the rentals from the three lots in question and asking the Court to
order Antonio and Mercedes to deliver to him all the rentals they had previously collected from
the 12-door commercial building, together with all the papers belonging to his ward, which was
eventually denied.

May 22, 1951, a decision was rendered finding that the three lots in question were not conjugal
property and the sale of the portion of lots to Mercedes and Antonio were valid.

The present petition started by the erstwhile guardian of Don Mariano Cui (while the latter was
still alive) in order to recover P126,344.91 plus legal interest from Antonio Cui and Mercedes
Cui (Record on Appeal, pages 2-3) apparently as fruits due to his ward by virtue of his usufruct.
The complaint alleges that the usufructuary right reserved in favor of Don Mariano Cui extends
to and includes the rentals of the building constructed by Antonio and Mercedes on the land sold
to them by their father; that the defendants retained those rentals for themselves; that the
usufructuary rights of the vendor were of the essence of the sale, and their violation entitled him
to rescind (or resolve) the sale.

In their answer, while admitting the reserved usufruct and the collection of rentals of the building
by the defendants, they denied that the usufructuary rights included or extended to the said
rentals, or that such usufruct was of the essence of the sale and that the vendor (Don Mariano
Cui) had waived and renounced the usufruct and that the defendants vendees gave the vendor
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Obligations and Contracts: Doctrines and Case Digests
P400.00 a month by way of aid. It also contended that at the original complaint having sought
fulfillment of the contract, plaintiff can no longer seek rescission.

Petitioners denied all allegations.

The appellants aver that the building is an accession to the land in accordance with the Article
571 of the Civil Code.

Issue:
Whether or not the usufruct reserved by the vendor in the deed of sale over the lots in question
that were at the time vacant and unoccupied, gave the usufructuary the right to receive the rentals
of the commercial building constructed by the vendees with funds borrowed from the
Rehabilitation and Finance Corporation, the loan being secured by a mortgage over the lots sold.

Held:
No, the usufruct cannot be extended to the rentals for the building.

The argument of the appellants invoking Article 571 has not convinced the court. According to
them, Article 445 to 456 of the Civil Code pertaining to industrial accession by modification on
the principal land, such accession is limited to either to buildings erected on the land of another,
or buildings constructed by the owner of the land with materials owner by someone else.
Moreover, Article 445 stated has established the basic rule of industrial accession and prescribes:
"Whatever is built, planted or sown on the land of another, and the improvements or repairs
made thereon, belong to the owner of the land subject to the provisions of the following articles."
While Article 449 stated that: "He who builds, plants or sows in bad faith on the land of another,
loses what is built, planted or sown without right to indemnity. There is none in the provision of
the civil code which particularly expresses the present case: a landowner building on their own
lot with their own materials.

Also, the court agreed with the ruling of the lower court, the terms of the 1946 deed of sale of the
vacant lots in question made by the late Don Mariano Cui in favor of his three children, Rosario,
Mercedes and Antonio Cui, in consideration of the sum of P64,000.00 and the reserved usufruct
of the said lot in favor of the vendor, as amplified by the deed authorizing Mercedes, and
Antonio Cui to borrow money, with the security of a mortgage over the entirety of the lots, in
order to enable them to construct a house or building thereon clearly prove that the reserved
usufruct in favor of the vendor, Mariano Cui, was limited to the rentals of the land alone.

Therefore, the usufruct reserved by the vendor in the deed of sale over the lots in question that
were at the time vacant and unoccupied, does not give the usufructuary the right to receive the
rentals of the commercial building constructed by the vendees with funds borrowed from the
Rehabilitation and Finance Corporation, the loan being secured by a mortgage over the lots sold.
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UNIVERSAL FOOD CORP. v. CA


[G.R. No. L-29155; 33 SCRA 1; 13 May 1970]

Castro, J.:

Facts:
Back in 1938, Magdalo Francisco Sr. discovered and invented a formula for the manufacture of
food seasoning made of banana known as Mafran sauce. Plaintiff registered his trademark as
owner and inventor in the Bureau of Patents. Due to lack of funds to expands his business, he
decided to avail of a secured financial assistance with Tirso T. Reyes, and formed the Universal
Food Corporation along with several other people.

Magdalo Francisco was appointed as the head chemist and Victoriano Francisco was appointed
as auditor. Since the start of the corporation, Magdalo Franciso never allowed anyone inside the
laboratory, to keep the formula secret. However, the plaintiff expressed his willingness to give
the formula to defendants provided that it should be kept inside the safe and may only be opened
when he is already incapacitated for his job as the chief chemist.

Tirso T. Reyes requested to allow one or two family members to observe the preparation of the
sauce but it was denied by the plaintiff.

Due to scarcity of materials, a memorandum was issued stating that only Ricardo Francisco can
be retained in the factory and the salary of Magdalo Francisco shall be stopped for the mean time
and shall resume only when the corporation shall resume its operation.

Five day later, a memorandum was issued to Victoriano Francisco ordering him to report to the
factory and produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope
with the orders with instructions to take only the necessary daily employees without employing
permanent ones.

On December 29, 1960, another memorandum was issued instructing Ricardo Francisco, as
Chief Chemist, and Porfirio Zarraga, as Acting Superintendent, to produce Mafran Sauce
regularly starting January 2, 1961 with further instructions to hire daily laborers in order to cope
with the full blast protection.

Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a
month only until his services were terminated on November 30, 1960.

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On 09 and 16 January 1961 the Universal Food Corporation started looking for a buyer of the
corporation including its trademarks, formula and assets at a price of not less than P300,000.00.
With all the memorandum issued, Magdalo Francisco Sr. was never recalled back to work.

On 14 February 1961, Magdalo Francisco and Victoriano Francisco filed an action for rescission
of a contract entitled Bill of Assignment. They prayed that the Universal Food Corporation be
adjudged as without any right to the use of the Mafran trademark and formula, that such right be
restored to them and that Magdalo Francisco be paid of his unpaid salary from December 1,
1960, as well as damages in the sum of P40,000, and to pay the costs of suit.

Issue:
Whether or not the rescission of the Bill of Assignment is proper.

Held:
Yes, the Bill of Assignment should be rescinded.

According to the Article 1191 of the Civil Code, The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him
and that 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. Though rescission of a contract
will not be permitted for a slight or casual breach and only for such substantial and fundamental
breach as would defeat the very object of the parties in making the agreement.

In the present case, the dismissal of the respondent from his position is a fundamental and
substantial breach of the Bill of Assignment, and he was not at fault or did not commit
negligence to be dismissed. The option to choose between fulfillment and rescission rests in the
injured party, and the respondents had no alternative but to file the present action for rescission
with damages. The respondent may not have agreed to the Bill of Assignment if not for the terms
that respondent will be appointed as the corporations Second Vice President and Chief Chemist
in a permanent basis, that the manufacturing of the sauce will be under his absolute control and
supervision over the laboratory assistants and personnel and for him to ensure monopoly of the
formula of the sauce and in the process shall secure a lifetime job and steady income.

Therefore, the Bill of Assignment should be rescinded.

ROMAN v. CA
[G.R. No. 77425; 137 SCRA 563; 19 June 1991]

Regalado, J.:
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Facts:
On 29 November 1984 private respondents filed a complaint for nullification of deed of
donation, rescission of contract and reconveyance of real property with damages against
petitioners Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus, Cavite,
together with the Roman Catholic Archbishop of Manila, before the Regional Trial Court,
Branch XX, Imus, Cavite.

On 23 August 1930, the spouses Eusebio de Castro and Martina Rieta, now both deceased,
executed a deed of donation in favor of therein defendant Roman Catholic Archbishop of Manila
covering a parcel of land containing an area of 964 square meters, more or less, with a condition
that the donee shall not dispose or sell the property within a period of one hundred (100) years
from the execution of the deed of donation, otherwise a violation of such condition would render
ipso facto null and void.

Around 30 June 1980, and while still within the prohibitive period to dispose of the property, the
petitioner executed a deed of absolute sale of the property subject of the donation in favor of
petitioners Florencio and Soledad C. Ignao in consideration of the sum of Php114,000.00.

This led to the filing of the complaint by the private respondents.

Petitioners filed motion to dismiss on the grounds that private respondents have no legal capacity
to sue; the complaint states no cause of action, and the cause of action, if any, has prescribed. On
09 January 1984, Roman Catholic Archbishop of Manila also filed a motion to dismiss given that
he is not a real party in interest and, therefore, the complaint does not state a cause of action
against him.

The trial court issued an order dated 31 January 1985, dismissing the complaint on the ground
that the cause of action has prescribed.

Private respondents thereafter appealed to the Court of Appeals, which held that the action has
not yet prescribed, and rendered a decision in favor of private respondents. It remanded the case
back to the lower court for further proceeding.

Petitioners filed their separate motions for reconsideration,, which were denied by the CA.

Hence, the present petition.

Issue:
Whether or not the petitioners may invoke Article 764 of the Civil Code which provides that
"(t)he donation shall be revoked at the instance of the donor, when the donee fails to comply with
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any of the conditions which the former imposed upon the latter," and that "(t)his action shall
prescribe after four years from the non-compliance with the condition, may be transmitted to the
heirs of the donor, and may be exercised against the donee's heirs.

Held:
No, the petitioners may not invoke Article 764 of the Civil Code.

Under Article 764 of the Civil Code an action for the revocation of a donation must be brought
within four (4) years from the non-compliance of the conditions of the donation. Article 732 of
the Civil Code provides that donations inter vivos shall be governed by the general provisions on
contracts and obligations in all that is not determined in Title III, Book III on donations. The
Title III does not have an explicit provision on the matter of a donation with a resolutory
condition and which is subject to an express provision that the same shall be considered ipso
facto revoked upon the breach of said resolutory condition imposed in the deed. When a deed of
donation expressly provides for automatic revocation and reversion of the property donated, the
rules on contract and the general rules on prescription should apply, and not Article 764 of the
Civil Code. Moreover, the court reiterated the doctrine that a judicial action is proper only when
there is absence of a special provision granting the power of cancellation. The validity of such a
stipulation in the deed of donation providing for the automatic reversion of the donated property
to the donor upon non-compliance of the condition was upheld in the recent case of De Luna, et
al. vs. Abrigo, et al where the Supreme Court held that such stipulation is in the nature of an
agreement granting a party the right to rescind a contract unilaterally in case of breach, without
need of going to court, and that, upon the happening of the resolutory condition or non-
compliance with the conditions of the contract, the donation is automatically revoked without
need of a judicial declaration to that effect.

The case at bar is also subject to the same rules because of its provision on automatic revocation
upon the violation of a resolutory condition, from parity of reasons said pronouncements in De
Luna pertinently apply.

SONGCUAN V. IAC
[G.R. No. 75096; 191 SCRA 28; 29 October 1990]

Medialdea, J.:

Facts:
Victoriano Alviar was the owner of two parcels of lands in La Union and on the land, a building
owned by his son stood. On 29 September 1966, the Alviars sold the properties to the petitioner.

On 10 October 1966, Songcuan executed a Deed Of Repurchase of Two Parcels of Land and a
Residential Building giving the Alviars the right to repurchase the property for the amount of
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Php 34,026.09 for the period of 10 years and the redemptioner shall pay for the cost of
improvements. An undated additional condition was show in the dorsal portion of the document
stating that when the Alviars was able to exercise their ight to repurchase, Songcuan shall be
given the right of lease for the period of twenty-five years. With a monthly rental of three
hundred and ninety pesos. The signatures of the Alviars appear in the bottom part of the
condition.

In March 1969, the building was razed by fire. Songcuan then built a new building at his own
expense.

In 1974, the Alviars filed a complaint against Songcuan for Redemption with consignation and
compel Songcuan to let them redeem the realties. But Songcuan refused to sell them back the
properties because the Alviars is only tendering the amount of Php 34,026.00 but he wanted to be
reimbursed of the amount he had spent in re-building the establishment and for the registration of
such. Alviars claimed, however, that their transaction was equitable and therefore, Songcuan
cannot compel them to pay for the cost of the new building without their permission.

On 29 July 1977, the Court of First Instance in La Union rendered its decision enjoining the
parties to comply with the deed of sale with right of repurchase and compelling the Alviars that
in exercising their right of repurchase, they should pay for the new building in addition to the
repurchase price and the additional expense of Php1,000.00. Songcuan appealed from this
decision, on the grounds that his right to lease the property was not addressed, but decision was
affirmed by the Court of Appeals while addressing that since the court has upheld the validity of
the deed, it is unnecessary to pronounce the validity of the said clause.

The decision has become final and executor. The writ of execution was issued on 01 April 1981,
but wa unsatisfied because Songcuan refused to accept the check as it was not a legal tender and
also that the reason that the Alviars refused to execute the lease contract in his favor.

On 07 July 1981, Songcuan filed a complaint for the Rescission of the right to repurchase on the
grounds that the Alviars has forfeited their right to repurchase by failing to exercise such right 30
days after the decision of the Court has been final in contrast with the Article 1606 of the Civil
Code.

On 09 July 1981, the trial court in the former civil case issued a deed of reconveyance in favor of
the Alviars. And on 11 July 1981, Songcuan amended his complaint stating that the reason for
him in rescinding the deed of repurchase was the failure of the Alviars to execute the contract of
lease in favor to him citing Article 1191 of the Civil Code.

On 19 March 1984, the trial court rendered its decision granting the writ of reconveyance and
compelling the Alviars to execute a contract of lease in favor of Songcuan.
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Both parties appealed from the decision. CA rendered its decision to compel the Alviars to allow
Songcuan to lease 1/3 of the property.

Songcuan filed the appeal for this decision.

Issue:
Whether or not the right to repurchase may be rescinded on the grounds presented by Songcuan.

Held:
No, the right to repurchase may not be rescinded.

Article 1191 is not applicable in the present case. The obligation is not reciprocal, because to
define reciprocal obligations, the obligation of one is a resolutory condition of the obligation of
the other, the non-fulfillment of which entitles the other party to rescind the contract.

In the present case, there are two and distinct obligations which is independent of the other:
Songcuans obligation is to reconvey the property and Alviars is to lease the premises to the
former. Both is not dependent of the other.

Therefore, rescission of the right to repurchase cannot be invoked by petitioner.

SANCHO v. LIZARRAGA
[G.R. No. L-33580; 55 Phil 601; 06 February 1931]

Romualdez, J.:

Facts:
The plaintiff filed the case asking for the rescission of the partnership contract between himself
and the defendant and the reimbursement of his investment in the amount of fifty thousand
pesos. The defendant denies the allegations of the plaintiff and asked the court for the dissolution
of the partnership and his payment as its manager and administrator.

The Court of First Instance of Manila declared that partnership contract is dissolved, ordering the
defendant to liquidate the partnership.

The petitioner appealed from said decision.

Issue:
Whether or not the court erred in holding that the plaintiff and appellant is not entitled to the
rescission of the partnership contract and that Article 1124 is not applicable in the present case.
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Held:
No, the court did not commit an error in holding that the plaintiff and appellant is not entitled to
the rescission of the partnership contract and that Article 1124 is not applicable in the present
case.

The provision of Article 1124 is not applicable in the present case as it pertains to resolutions of
obligations in general. However, Articles 1681 and 1682 refers to contract partnerships.

In the present case, though the defendant failed to pay for the whole amount he had bound
himself to pay, the plaintiff may still not acquire the right to demand rescission. The defendant
may have indebted himself to the partnership with interest and damages but rescission under
Article 1124 cannot be invoked. It is a well settled rule that special provisions prevail over
general ones.

Therefore, the court did not commit an error in holding that the plaintiff and appellant is not
entitled to the rescission of the partnership contract and that Article 1124 is not applicable in the
present case.

CALTEX PHILIPPINES, INC. v. IAC


[G.R. No. 74730; 176 SCRA 741; 25 August 1989]

Medialdea, J.:

Facts:
Private respondent Manzana purchased credit petroleum products from petitioner. As of 31
August 1969 his debt amounted to Php 361,218.66. On 04 October 1969, private respondent
executed a Deed mortgaging in favor of the petitioner to secure respondents debt with them.

Petitioner sent statement of accounts to respondent multiple times and demanded its payment.
However the respondent still fails and refuses to pay the debt. This resulted to petitioner filing a
complaint for the recovery of the amount from the respondent.

On 15 September 1970, Caltex foreclosed the mortgaged property. On 30 October 1970, the
property was sold to Caltex in an auction. It was alleged that the foreclosure was known by
Manzana only on 04 October 1980 when it was manifested by the petitioner in its reply to the
opposition of Manzana in the motion for execution pending appeal.

On 23 July 1980, the trial court decided in favor of Caltex, ordering Manzana to pay the former
of the amount of Php353,218.66 after deducting Php8,000.00 aid by the insurance. It has an
interest of 12% per annum from 17 August 1970 and 20% for attorneys fees.
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Manzana appealed the decision, but the Intermediate Appellate Court (IAC) affirmed the
appealed decision. But upon motion for reconsideration of both parties, the court rendered a
decision
Issue:
Whether or not the filing of the complaint for recovery of the amount of indebtedness and the
subsequent extrajudicial foreclosure of the deed of first mortgage constitutes splitting of a single
cause of action.

Held:
No, the institution of action for recovery and the subsequent action for extrajudicial foreclosure
does not split the cause of action

For non-payment of a note secured by mortgage, the creditor has a single cause of action against
the debtor. This single cause of action consists in the recovery of the credit with execution of the
security. In other words, the creditor in his action may make two demands, the payment of the
debt and the foreclosure of his mortgage. But both demands arise from the same cause, the non-
payment of the debt, and, for that reason, they constitute a single cause of action. Though the
debt and the mortgage constitute separate agreements, the latter is subsidiary to the former, and
both refer to one and the same obligation.

In the present case, the petitioner has only one cause of action which is the non-payment of debt.
Two choices, however, was given as remedies to this cause of action, which is either for the
payment of debt and the foreclosure of the mortgage.

SURIA v. IAC
[G.R. No. 73893; 151 SCRA 661; 30 June 1987]

Gutierrez, J.:

Facts:
On 31 March 1975, Private-respondents are the owner of a parcel of land. They entered a Deed
of Sale with Mortgage with the petitioners. The petitioners has allegedly violated the terms of the
contract by failing to pay the stipulated instalments, as only one of the instalment was paid.
Repeated demands were made by the private respondents, but plaintiffs failed to comply.

On 20 June 1983, private respondents filed an action for rescission of the contract and damages.
While on 14 November 1983 petitioners filed their answer with counter claim and a motion
dismiss on 16 July 1984. Petitioners allege that respondents are not entitled to the remedy of
rescission because of the presence of the remedy of foreclosure in the Deed of Sale with
Mortgage.

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On 06 August 1984, petitioners offered to pay respondents all the outstanding balance but the
latter rejected the payment.

On 26 November 1984, respondent court rejected the motion to dismiss filed by the petitioners.
Petitioners filed a motion for reconsideration, but was denied by the respondent court.

Issue:
Whether or not the seller may resort to the remedy of rescission under Article 1191 of the Civil
Code, which provides for the subsidiary remedy of rescission in case of breach of reciprocal
obligation.

Held:

No, the seller may not resort to the remedy of rescission under Article 1191 of the Civil Code.

Art. 1383 of the Civil Code provides: The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal means to obtain reparation
for the same. Also, According to Article 1458, by the contract of sale, the vendor obligates
himself to transfer the ownership of and to deliver a determinate thing to the buyer, who in turn,
is obligated to pay a price certain in money or its equivalent.

In the present case, Article 1191 is not applicable since the respondents have fully complied with
their part of the reciprocal obligation and the petitioner fulfilled his end of the bargain when he
executed the deed of mortgage. The petitioners' breach of obligations is not with respect to the
perfected contract of sale but in the obligations created by the mortgage contract. The remedy of
rescission is not a principal action retaliatory in character but becomes a subsidiary one which by
law is available only in the absence of any other legal remedy. However, foreclosure was
stipulated in their contract and therefore, according to the Article 1504, it must be followed.

Therefore, respondents may only foreclose the property in the event that the petitioners will still
default in the payment of the deed of sale with mortgage.

v.SUBSIDIARY REMEDIES
2. ART. 1177
vi. ANCILLARY REMEDIES
2. ATTACHMENT, REPLEVIN, GARNISHMENT, RECEIVERSHIP,
EXAMINATION OF DEBTOR, ETC.
11. KINDS OF OBLIGATION
b) PURE AND CONDITIONAL
ii. KINDS OF CONDITION

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LIEBENOW v. PHILIPPINE VEGETABLE OIL COMPANY
[G.R No. 13463; 39 Phil 60; 09 November 1918]

Street, J.:

Facts:
Plaintiff filed the present case against defendant for the recovery of the sum of money to which
the petitioner believes that he is entitled of by way of an additional salary while being employed
from the respondent as stipulated in a contract. It was stated therein that the appointment of the
plaintiff shall be as the superintendent of the defendants factory in Nagtahan, Manila for a
period of one year from 01 April 1914 with a monthly compensation of Php500.00, a living
quarters and any other way of bonus that the board of directors may deem fit. The plaintiff
accepted the terms of the contract. He alleged that his skill and ability has increased the
productivity and profit of the company which was not denied. The plaintiff contended that the
stipulation regarding the bonus was not fulfilled by the defendant. The Php 4,500.00 given by
Php 750.00 per month for six month, was considered by the plaintiff as a free gift.

The Court of First Instance decided in favor of the defendant.

The plaintiff appealed the decision, thus, the present petition.

Issue:
1. Whether or not the stipulation of the contract in regards to the bonus is binding.
2. Whether or not the amount of the bonus can be judicially reviewed.

Held:

Yes, the stipulation of the contract in regards to the bonus is binding.

According to the Article 1308, then Article 1256 provides that the validity and performance of a
contract cannot be left to the will of one of the contracting parties. The promise to provide bonus
creates a legal obligation binding upon the promisor. This kind of promise is not nugatory, under
Article 1182, then 1115, as embodying a condition dependent exclusively upon the will of the
obligor. Also, under Article 1349, then Article 1273, The fact that the quantity is not
determinate shall notbe an obstacle to the existence of the contract

In the present case, the uncertainty of the amount of the bonus does not bar the validity of the
contract. Moreover, the promise is absolute and unconditional. It is not conditioned upon
satisfactory service nor to the duration of the service nor upon the profits earned. These may
operate upon the minds of the board of directors, but these are unconnected to legal right of the
plaintiff to receive something as a bonus.
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Therefore the contract is valid and binding but the amount to be given as a bonus is out of the
courts jurisdiction.

TRILLANA v. QUEZON COLLEGE


[G.R. No. L-5003; 93 Phil 383; 27 June 1953]

Paras, J.:

Facts:
DamasaCrisostomo sent a letter to the board of trustees of the Quezon College Inc., herein
respondent, saying that she will enter her subscription of two-hundred shares with a par value of
Php100.00 each. However, she also stated that she will give the amount when she was able to
harvest fishes. The letter was dated 01 June 1948.

Damasa Crisostomo died on 26 October 1948. The respondent presented a claim before the Court
of First Instance for the amount of Php20,000.00 representing the value of the subscription to the
capital stock of the respondent. The claim was opposed by the petitioner, who is the
administrator of the estate of the deceased.

The court issued the decision dismissing the respondents claim on the grounds that it was not
registered in the Security and Exchange Commission.

It was found out that the application sent by Crisostomo was written in a general form. Moreover
the letter was sent not with the amount of the initial payment but with a condition that the
amount shall be paid by her upon her harvest of fishes. There was nothing in the records of the
Quezon College that it has accepted Crisostomos term of payment.

Issue:
Whether or not the obligation of Damasa Crisostomo which arose from the letter sent to
respondents stating the terms of her payment is binding.

Held:
No, the obligation of Damasa Crisostomo which arose from the letter sent to respondents is void.

According to the then Article 1115, and now the Article 1182, of the Civil Code, When the
fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a third person, the obligation shall
take effect in conformity with the provisions of this Code.

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In the present case, the proposal of Damasa Crisostomo to pay the value of the subscription after
she has harvested fish is a condition obviously dependent upon her sole will. It is facultative in
nature, which according to the above stated provision is void.

Therefore, the obligation of Damasa Crisostomo which arose from the letter sent to respondents
stating the terms of her payment is void, affirming the order appealed thereof.

TIBLE v. AQUINO
[G.R. No. L-28967; 65 SCRA 207; 22 July 1975]

Esguerra, J.:

Facts:
Petitioner was appointed administrator of the late Emilio Tible who died on 14 August 1957.
Respondent Aquino filed with the court the claim against the estate of the late Tible the amount
of Php 30,000.00 on 06 February 1959.

According to the claimant, he met Tible in the office of Bureau of Forestry in Manila, him being
a timber licensee. Tible was said to have borrowed money from him in the total amount of
Php50,000.00. Thereafter, Tible bought from him a forest concession in the amount of
Php107,000.00. Upon his death according to Aquino, Tible has a debt amounting to Php
30,000.00 as shown in the promissory notes. He further said that the concession was already
transferred to Tible. He reminded Tible repeatedly of the debt, but Tible would just reply that he
doesnt have money yet. The agreement between him and Tible in the cession of the 2,000
hectares of forest land was not made into writing.

However, the administrator of the estate presented a different story regarding the said
transaction. They said that the real agreement between the parties was for the cession of 2,000
hectares of timberland to Tible in consideration of the amount of Php50,000.00 which was
already paid by the latter. On 09 April 1955, the claimant was able to convince the Tible to
increase the price from Php50,000.00 to Php80,000.00. This led to the execution of four
promissory notes by Tible under conditions that the payment shall be made depending on the
operation of the forest land to him. After 08 March 1955, the claimant borrowed several amounts
of money from Tible in total of Php50,000.00. In failure to pay such borrowed money, Tible shall
become a partner of the claimant in the operation of the timberland.

The court of First Instance believed the petitioners side of the events. And ruled to dismiss the
claim of respondent Aquino and ordered him to pay the amount of Php50,000.00.

Appellate court reversed this decision of thed lower court. It believed the claimants side of the
story.
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Thus, the present petition for review on certiorari.

Issue:
Whether or not the court erred in deciding that the conditions provided by the late Tible for the
payment of amounts embodied in the promissory notes a void conditional obligation.

Held:
No, the appellate court did not commit an error into holding that the condition provided by Tible
was a void conditional obligation.

Article 1115, or presently the Article 1182, of the Civil Code states that When the fulfillment of
the condition depends upon the sole will of the debtor, the conditional obligation shall be void...

In the present case, the condition for the payment of the amounts shown in the promissory notes
was clearly dependent upon Tibles operation of the forest concession that he acquired from
Aquino. It is undoubtedly a void conditional obligation, since its fulfilment is made to depend on
the exclusive will of the debtor, which is Tible and on whether or not he will operate the timber
concession.

Therefore, decision of the Court of Appeals has been affirmed and the condition provided by the
deceased Tible is void.

PATENTE v. OMEGA
[G.R. No. L-4433; 93 Phil 218; 29 May 1953]

Pablo, J.:

Facts:
On 24 August 1949, Respondent issued a receipt acknowledging the amount of Php1,600.00
from petitioner. This amount is given to respondent as debt to be paid. The respondent also stated
that the money shall be paid as soon as possible or as soon as he has money to pay for it. It was
also stipulated in the document that there was no security for the said loan, and that respondent
must pay his indebtedness to petitioner before he can exercise his right to repurchase the
property which he sold to the petitioner, under a pacto de retro sale.

The Court of First Instance of Leyte decided in favor of the petitioner, and ordered for the
payment of the debt.

Hence the present appeal.

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Issue:
Whether or not the court has jurisdiction in the case and should be the one to determine the term
of the payment of the indebtedness.

Held:
Yes, the court has jurisdiction in the case and should be the one to determine the term of the
payment of the indebtedness.

Article 1115 of the old Civil Code states that When the fulfilment of the condition depends on
the will of the debtor, the conditional obligation shall be null and void... Also Article 1128 of the
same code provides that if the obligation does not indicate the term, but its nature and
circumstances , it is deduced that it is intended to be granted to the debtor, the court shall
determine the duration of that debt.

In the present case, the promissory note does not express the period within which the debt must
be paid.. It was left to the discretion of the debtor as to when to pay his debt. In applying the
Article 1128 of the old civil code, it is the court who shall determine the period. As stated by the
Supreme Court, it is unfair to leave it at the exclusive discretion of the debtor.

Therefore, the court has jurisdiction over the case and that it shall determine the period when the
debtor must pay for his debt.

CENTRAL PHILIPPINE UNIVERSITY v. CA


[G.R. No. 112127; 246 SCRA 511; 17 July 1995]

Bellosillo, J.

Facts:
In 1939, Don Ramon Lopez donated a parcel of land to the petitioner where he was a member of
its board of trustees. The said land was donated under the condition that the petitioner shall build
on that parcel of land a medical college, that it shall be called RAMON LOPEZ CAMPUS,
and that the land shall not be sold, transferred, conveyed nor in any way encumbered.

On 31 May 1989, the respondents, the heirs of the late Don Ramon Lopez, filed an action for the
annulment of donation, reconveyance and damages against petitioner, as the latter has not
complied with the conditions of the donation from the time it was executed. The petitioner
answered that it has not violated any of the conditions of the donation.

On 31 May 1991, the trial court decided in favor of the respondents and declared the donation
null and void.

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Petitioner appealed to the Court of Appeals. The appellate court found that the donor did not fix
the period that the condition must be fulfilled. Until a period has not been fixed the petitioners
cannot be considered as in default in the conditions of the donation. It remanded the case back to
the lower court to determine the period of the condition.

Thus, the present petition for review on certiorari filed by the petitioner.

Issue:
1. Whether or not the Court of Appeals erred in holding that the annotations in the
certificate of title of the petitioner are onerous obligation and resolutory conditions of the
donation which must be fulfilled and non-compliance therewith would render the
donation revocable.

2. Whether or not the Court of Appeals erred in remanding the case back to the lower court
to fix the period within which the petitioner shall comply with the condition.

Held:
1. No, the Court of Appeals did not commit an error in holding that the annotations in the
certificate of title of the petitioner are onerous obligation and resolutory conditions of the
donation which must be fulfilled and non-compliance therewith would render the
donation revocable.

When a donation imposes a burden equivalent to the amount of the donation, the
donation is onerous. Under Article 1181 of the Civil Code, on 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. When a person
donates land to another on the condition that the latter would build upon the land a
school, the condition imposed was not a condition precedent or a suspensive condition
but a resolutory one. If there was no compliance with the condition, the donation may
now be revoked and all rights which the donee may have acquired under it shall be
deemed lost and extinguished.

In the present case, upon the conditions stipulated in the deed of donation executed by
Don Ramon Lopez, Sr., the Supreme Court was given no alternative but to conclude that
his donation was onerous. Also, it is clear that there was no compliance in the part of the
school from this condition. Records are clear that since the execution of the deed of
donation up to the time of filing of the instant action, which is about fifty years, petitioner
has failed to comply with its obligation as donee.

Therefore, the inability of the petitioner to comply with the donations condition renders
the donation void.
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2. Yes, the Court of Appeals committed an error in remanding the case back to the lower
court for the determination of the period within which the petitioners may comply with
the condition.

The CA based their decision on the general rule provided in the Art. 1197 of the Civil
Code applies, which provides that the courts may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the court has fixed the
period for compliance therewith and such period has arrived.

According to the Supreme Court, however, the general rule cannot be applied in the
present case. For the span of fifty (50) years the petitioner was given a time to comply
with tghe conditions of the donation. However, the petitioners were still unable to create
a medical college in the parcel of land donated by the late Don Ramon Lopez. As the SC
stated: Petitioner has slept on its obligation for an unreasonable length of time.. Thus it
is only fair that the donation be deemed ineffective and revoked in favor of the herein
private respondents.

Therefore, the Court of Appeals committed an error in remanding the case back to the
lower court for the determination of the period within which the petitioners may comply
with the condition.

iii. EFFECTS OF CONDITION

LAFORTEZA v. MACHUCA
[G.R. No. 137552; 333 SCRA 643; 16 June 2000]

Gonzaga-Reyes, J.:

Facts:
A Memorandum of Agreement (Contract to Sell) was executed in favor of the respondent by the
petitioners. The property subject in the said MOA was a house and lot owned by the late
Francisco Laforteza. It is stipulated in the contract that the amount of Php30,000.00 shall be paid
by the respondent as earnest money, and the balance of Php600,000.00 shall be paid upon the
issuance of the title under the name of the late Francisco Laforteza and upon execution of the
extra-judicial settlement of the decedents estate with sale in favor of the respondent. It also
stated that upon issuance of the title, the respondent shall be notified by writing and the
respondent shall have 30 days to pay the amount of Php600,000.00.

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Obligations and Contracts: Doctrines and Case Digests
On 20 January 1989, the plaintiff paid the earnest money. And on 18 September 1989, the
petitioners wrote a letter furnishing the reconstituted title to the subject property and further
advising him that he has 30 days to produce the remaining Php600,000.00.

On 18 October 1989, the respondent wrote to the petitioner asking for an extension of 30 more
days up until 155 November 1989 to be able to produce that amount. Roberto Laforteza signed
the conformity to the request.

However, on 15 November 1989 respondent informed the petitioners that he can now furnish the
Php600,000.00. The petitioners refused to receive the amount stating that the property is no
longer for sale. And on 20 November 1989 petitioners informed the respondent that they were
now cancelling the Memorandum of Agreement due to the respondents failure to comply with
the conditions of the contract.

Respondent filed an action for specific performance before the court. Which the lower court
decided in favor of the respondent, ordering petitioners to accept the payment tendered by the
respondent.

Petitioner appealed to the Court of Appeals, which only affirmed the decision of the lower court.
Motion for Reconsideration was denied.

Thus the present petition for review on certiorari.

Issue:
Whether or not the petitioners no longer had an obligation to proceed with the sale since the
condition of the issuance of the new certificate of title and the execution of an extrajudicial
settlement of his estate was not complied with.

Held:
No, the petitioners still has the obligation to proceed with the sale.

Failure to comply with condition imposed upon the perfection of the contract results in the
failure of a contract, while the failure to comply with condition imposed on the performance of
an obligation only gives the other party the option either to refuse to proceed with the sale or to
waive the condition. According to Article 1545, Where the obligation of either party to a
contract of sale is subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the condition. If the other party has
promised that the condition should happen or be performed, such first mentioned party may also
treat the non-performance of the condition as a breach of warranty...

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Obligations and Contracts: Doctrines and Case Digests
In the present case, the Memorandum of Agreement is a perfected contract. The condition
imposed was only for the performance of the obligations stipulated in the said contract. In the
event that the new certificate of title was released, and that the petitioners has admitted that they
now have the ability to execute an extrajudicial settlement on their fathers estate, the respondent
now has the right to demand the fulfilment of the delivery of the ownership of the house and lot.

Therefore, the petitioners are still obligated to sell the property regardless of the breach in the
condition.

iv.
LOSS, DETERIORATION AND IMPROVEMENT DURING THE
PENDENCY OF THE CONDITION ART. 1189
v. EFFECTS WHEN RESOLUTORY CONDITION IS FULFILLED ART.
1190
c) WITH A PERIOD ARTS. 1193 TO 1180
i. KINDS OF PERIOD/TERM
ii. EFFECTS OF PERIOD
iii. LOSS, DETERIORATION AND IMPROVEMENT BEFORE ARRIVAL
OF PERIOD
iv. WHEN COURTS MAY FIX PERIOD ART. 1197

CALERO v. CARRION
[G.R. No. L-13246; 107 Phil 549; 30 March 1960]

Barrera, J.:

Facts:
In 1937, Don Enrique Carrion was asked by Calero to acquire a property in Plaza Santa Cruz
worth Php250,000.00. where the Calero will pay Php15,000.00 and Carrion will pay
Php10,000.00 as down payment. This Don Carrion accepted. The properties were placed under
the name of Don Carrions daughters, herein respondent. This is with the obligation to pay
Calero 20% of the profits when the property was sold.

Calero made several offers to the respondents to sell the property. But respondents refused to sell
it.

On 20 December 1956, petitioner filed a case before the court to fix the period within which the
respondents may fulfil their obligation of giving him 20% of the profit shares he may get upon
the selling of the property.

On 02 February 1956, respondents filed a motion to dismiss alleging that the complaint stated no
cause of action, and if there is, the filing of complaint is barred by the statute of limitation.
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Obligations and Contracts: Doctrines and Case Digests

The case was dismissed by the lower court. The petitioner filed a motion for reconsideration
which was also denied by the court.

Thus the present direct appeal to the Supreme Court.

Issue:
Whether or not the petitioner may still ask the court to determine the period within which the
respondents may perform their obligation of giving the petitioner the 20% of the profit share
when the property is sold.

Held:
No, the petitioner may still ask the court to determine the period within which the respondents
may perform their obligation.

According to Article 1197 If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the duration
thereof. The courts shall also fix the duration of the period when it depends upon the will of the
debtor. In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them.

Extrajudicial demand is not essential for the creation of the cause of action to have the period
fixed. It exists by operation of law from the moment such an agreement subject to an
undetermined period is entered into, whether the period depends upon the will of the debtor
alone, or of the parties themselves, or where from the nature and the circumstances of the
obligation it can be inferred that a period was intended.

In the present case, however, the agreement was executed on May 28, 1937 and the complaint to
have the period fixed was filed on December 21, 1956 or after almost 20 years.

Therefore, it is undisputed that the cause of action of the petitioner has prescribed, he can no
longer ask the court for the performance of the obligation.

BORROMEO v. CA
[G.R. No. L-22962; 47 SCRA 65; 28 September 1972]

Fernando, J.:

Facts:

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Obligations and Contracts: Doctrines and Case Digests
In 1933 the defendant was a distributor of lumber belonging t a certain Mr. Miller. The defendant
used to borrow from the plaintiff money, being the defendants friend and old classmate.

On one occasion, defendant was obligated to Mr. Miller, he borrowed from the defendant large
amount of money and his house and lot was mortgaged. Mr. Miller filed a case against
defendant and attached his properties including those mortgaged to the plaintiff.

Plaintiff pressed the defendant of his obligation, but the latter instead executed a document
promising that he will pay his obligation even after the lapse of 10 years.

Liquidation was made and it was found that the defendant is indebted to the plaintiff in the
amount of Php7,200.00. Defendant then signed a promissory note stipulating an interest of 12%
per annum and that he will pay the plaintiff as soon as he have money. It further stipulates that he
relinquished, renounces r otherwise waive his rights to the prescription established under the
Code of Civil Procedure. After that, the plaintiff limited himself into verbally requesting for the
money from time to time and did not file a civil action within 10 years considering that there was
no property registered under the name of the defendant. After the last war, subsequent reminders
from the plaintiff to the defendant were made, but the latter failed to pay the debt.

The plaintiff then filed a case before the court for the collection of the amount of money.

The court of first instance of cebu sentenced the defendant to pay the amount of Php7,200.00 to
the plaintiff within 90 days, and a 12% interest per annum should the defendant still not able to
pay the debt after 90 days.

Upon appeal, the Court of Appeals reversed the said decision for lack of validity of the
stipulation amounting to the waiver as a person cannot renounce future prescription.

Issue:
Whether or not the Court of Appeals has erred in reversing the decision of the CFI in the grounds
that it lacks validity.

Held:
Yes, Court of Appeals has committed an error reversing the decision of the CFI in the grounds
that it lacks validity.

According to the Article 1370, It is a fundamental principle in the interpretation of contracts that
while ordinarily the literal sense of the words employed is to be followed, such is not the case
where they "appear to be contrary to the evident intention of the contracting parties," which
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Obligations and Contracts: Doctrines and Case Digests
intention shall prevail. The rule is that a lawful promise made for a lawful consideration is not
invalid merely because an unlawful promise was made at the same time and for the same
consideration, and this rule applies, although the invalidity is due to violation of a statutory
provision, unless the statute expressly or by necessary implication declares the entire contract
void.

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

GREGORIO ARANETA, INC. v. PHILIPPINE SUGAR ESTATE DEVELOPMENT CO.


[G.R. No. 22558; 20 SCRA 330; 31 May 1967]

Reyes, J.B.L., J.:

Facts:
On 28 July 1950, Gregorio Araneta, Inc., sold a portion of the land to with an area of 43,034 sq.
m. for the sum of Php430,514.00. The parties stipulated that the buyer shall build on the same
land the Sto. Domingo Church and Convent and the seller shall create streets around the church
and convent.

The buyer finished constructing the church and convent. However, the streets were not finished
because of the refusal to vacate of a certain Manuel Abundo, who physically occupies the middle
part of the area.

On 07 May 1958 the respondent filed its complaint against petitioner, seeking to compel the
latter to comply with the obligation. The petitioners countered that the action is premature as
there was no definite period prescribed within which the petitioners must comply with it.
On 31 May 1960, the lower court decided in favor of the petitioner.

The respondent filed a motion for reconsideration and on 16 July 1960, the lower court granted
the motion and fixed the period to two years.

Upon appeal, the appellate court affirmed the decision of the lower court and modified it to the
term of two years starting from the date of finality of the decision.

Thus, the present petition for review on certiorari.

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Obligations and Contracts: Doctrines and Case Digests
Issue:
Whether or not the court may fix the period to perform the obligation.

Held:
No, the court may not fix the period within which the petitioner must comply with the obligation
stipulated in the deed of sale of the land.

Article 1197 of the Civil Code is applicable in cases where the period is not stipulated in the
contract. Moreover, this provision clearly stated that periods cannot be set arbitrarily and that the
periods to be determined by the court shall be probable that the parties must have contemplated
such period. For the court to proceed into determining the period within which the obligation
must be complied with, it must be included in the complaint.

In the present case, the deed of sale expressly stated that the contract with respondent Philippine
Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time
within which to comply with its obligation to construct and complete the streets." The contract so
provided that there was a period fixed, a "reasonable time;" and all that the court should have
done was to determine if that reasonable time had already elapsed when suit was filed if it had
passed, then the court should declare that petitioner had breached the contract, as averred in the
complaint, and fix the resulting damages.

Moreover, should it be said that there was no fixed time in the complaint not having sought that
the Court should set a period, the court could not proceed to do so unless the complaint in as first
amended. And granted that this is within the power to be determined by the court, the amended
decision is still untenable as no basis is stated to support the conclusion that the period should be
set at two years after finality of the judgment. The trial Court appears to have pulled the two-year
period set in its decision out of thin air, since no circumstances are mentioned to support it.

Therefore, the court may not fix the period within which the petitioner must comply with the
obligation stipulated in the deed of sale of the land and the time for the performance of the
obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the squatters on
affected areas are finally evicted therefrom.

CHAVES v. GONZALES
[G.R. No. L-27454; 32 SCRA 547; 30 April 1970]

Reyes, J.B.L., J.:

Facts:
On July 1963, the plaintiff delivered a typewriter to the defendant, who is a typewriter repairer, a
portable typewriter for routine cleaning and servicing. The defendant was not able to finish the
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Obligations and Contracts: Doctrines and Case Digests
job for some time and only assures the plaintiff. On October 1963, the defendant asked for the
amount of Php6.00 for the amount of the spare part which the plaintiff provided. On 26 October
1963, the defendant got exasperated and therefore decided to just take back the typewriter. The
defendant delivered that typewriter in a wrapped package. Upon checking, the plaintiff
discovered that the typewriter was in shambles.

The plaintiff took the typewriter to Freixas Business Machines which cost him Php89.85.

The plaintiff the filed a complaint demanding the payment of Php90.00 as actual and
compensatory damages, Php100.00 for temperate damages, Php500.00 for moral damages, and
Php500.00 as attorneys fees. The trial court held that the defendant is only liable to the amount
of the parts which was Php31.10.

Issue:
Whether or not the period should be fixed by the court.

Held:
No, the court does not need to fix the term within which the obligation must be complied with.

Where the time for compliance had expired and there was breach of contract by non-
performance, it was academic for the plaintiff to have first petitioned the court to fix a period for
the performance of the contract before filing his complaint.

However in the present case, they intended that the defendant was to finish it at some future time
although such time was not specified and that such time had passed without the work having
been accomplished. the defendant admitted himself that he returned the typewriter cannibalized
and unrepaired, which is clearly a breach of his obligation. Defendant cannot invoke Article 1197
of the Civil Code for he virtually admitted non-performance by returning the typewriter that he
was obliged to repair in a non-working condition, with essential parts missing. The fixing of a
period would thus be a mere formality and would serve no purpose than to delay.

Therefore, the court does not need to fix the period within which the obligation must be
complied with.

RADIOWEALTH FINANCE COMPANY vs. DEL ROSARIO


[G.R. No. 138739. 335 SCRA 288 July 6, 2000.]

Panganiban, J:

Facts:

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Obligations and Contracts: Doctrines and Case Digests
On March 2, 1991, Sps Vicente and Maria Sumilang del Rosario. (respondents), jointly and
severally executed, signed and delivered in favor of Radiowealth Finance Company (herein
petitioner), a Promissory Note for sum of (P138,948.00) to be paid on installment basis.
Thereafter, the respondent defaulted on monthly installments.

On the course of trial the respondent had a judicial admissions of established their indebtedness
to the petitioner, on the grounds that they admitted the due execution of the Promissory Note,
and that their only defense was the absence of an agreement on when the installment payments
were to begin.

Issue:
When the obligation became due and demandable

Ruling:
Respondents theorize that the action for immediate enforcement of their obligation is premature
because its fulfillment is dependent on the sole will of the debtor. Hence, they consider that the
proper court should first fix a period for payment, pursuant to Articles 1180 and 1197 of the Civil
Code.

This contention is untenable. The act of leaving blank the due date of the first installment did not
necessarily mean that the debtors were allowed to pay as and when they could. If this was the
intention of the parties, they should have so indicated in the Promissory Note.

However, it did not reflect any such intention.

Verily, the contemporaneous and subsequent acts of the parties manifest their intention and
knowledge that the monthly installments would be due and demandable each month. In this case,
the conclusion that the installments had already became due and demandable is bolstered by the
fact that respondents started paying installments on the Promissory Note, even if the checks were
dishonored by their drawee bank. We are convinced neither by their avowals that the obligation
had not yet matured nor by their claim that a period for payment should be fixed by a court.

BUCCAT vs. DISPO


[G.R. No. L-44338. April 15, 1988.]

Sarmiento, J:

Facts:
Feb. 1953, Buccat and Dispo entered into a contract of lease, the expiration date of which was
August 31, 1967, Dispo constructed the National Business Institute, a small vocational school on
the parcel of land subject of the lease agreement. In 1958, nine years before the expiration of the
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Obligations and Contracts: Doctrines and Case Digests
contract, the parties entered into another lease agreement over the same parcel of land
substantially modifying the duration of the lease as shown by the following provision, to wit:
Par. 3: "That the lease contract shall remain in full force and effect as long as the land will serve
the purpose for which it is intended as a school site of the National Business Institute but the
rentals now stipulated shall be subject to review every after ten (10) years by mutual agreement
of the parties."

Eight months after the supposed expiration date of the first contract, Buccat filed a complaint for
Unlawful Detainer against the Dispo, the basis of which was the expiration obuccatf the first
lease contract, as the second agreement, according to the plaintiff-appellee, was null and void for
being simulated and for want of consideration.

The Court of Appeals was resolved in favor of the validity of the second lease contract, but the
provision as to the duration of the contract was interpreted by the Court of Appeals as one that
was left to the will of Dispo so that the period of lease was indefinite.

Issue:
When the right of action for the fixing of the period of lease accrued?

Ruling:
We hold that it was only in November 1972 that the cause of action for the fixing of the period of
lease accrued. This is as it should be because prior to that, the validity of the second contract of
lease was being challenged. The case for unlawful detainer filed by the plaintiff-appellee became
in fact a case questioning the validity of the second contract on the grounds that the said contract
was simulated and that there was no consideration. The plaintiff-appellee could not have been
expected to file an action for the fixing of the period of the lease before the Court of Appeals
promulgated its decision because she was not yet aware that the said paragraph of the second
contract was a provision that called for an indefinite period. For the reason that the very
existence, and subsequently, the interpretation of the second contract of lease, particularly par. 3
thereof, were put in issue in the unlawful detainer case, the court trying the case was required to
interpret the provisions of, and consequently, rule on the validity of the said contract. This was
precisely what the trial court's decision which was affirmed by the Court of Appeals, in fact,
resolved. And in conformity with the suggestion of the said court, the plaintiff-appellee filed the
present case. The remedy or the cause of action for the filing of a case for the fixing of a period
in the contract, therefore, only accrued when the court finally declared the second contract valid
but that the provision as to the period was indefinite and hence, an action for the fixing of the
period of the contract had to be filed. Furthermore, should the plaintiff-appellee have opted to
file a case for the fixing of the period of the lease contract before the termination of the unlawful
detainer case, the latter case would have been rendered moot and academic and the plaintiff-
appellee would have inevitably and unwittingly ratified the second contract. No person in his
right mind would have done such.
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Obligations and Contracts: Doctrines and Case Digests

v. LOSS OF THE BENEFIT OF PERIOD ART. 1198


DAGUHOY ENTERPRISES, INC. vs. PONCE
[G.R. No. L-6515. October 18, 1954.]
Montemayor, J:

Facts:
On June 24th, Rita L. Ponce, wife of Domingo, executed in favor of plaintiff corporation a deed
of mortgage over a parcel of land including the improvements thereon, situated in Manila, to
secure the payment of a loan of P5,000 granted to her by said corporation, payable within six
years with interest at 12 per cent per annum. On March 10, 1951, Rita L. Ponce with the consent
of her husband Domingo executed another mortgage deed amending the first one, whereby the
loan was increased from P5,000 to P6,190, the terms and conditions of the mortgage remaining
the same. Rita and Domingo presented the two mortgage deeds for registration in the office of
the register of deeds, but the said register after going over the papers noted defects and
deficiencies and advised Rita and Domingo to cure the defects and furnish the necessary data
Instead of complying with the suggestion and requirements, the two withdrew the two mortgage
deeds and then mortgaged the same parcel of land in favor of the Rehabilitation Finance
Corporation (RFC) to secure a loan. Potenciano Gapol was the majority stockholder in the
Daguhoy Enterprises, Inc. and naturally was interested in the security of the payment of the loan
aforesaid. Upon learning that the deeds of mortgage were not registered and what is more, that
they were withdrawn from the office of the register of deeds and the land covered by the two
deeds was again mortgaged to the RFC, he filed Civil Case No. 13753 entitled "Potenciano
Gapol, for and on behalf of Daguhoy Enterprises, Inc. vs. Domingo Ponce and Buhay M. Ponce"

Issue:
Whether or not the loan became due and demandable?

Rulings:
Although the original loan, including its increased amount, was payable within six years, and so
did not become due and payable until the expiration thereof, the debtor lost the benefit of the
period by reason of her failure to give and register the security agreed upon in the form of the
two deeds of mortgage; and so the obligation became pure and without any condition.
Consequently, the loan became due and immediately demandable.

d) ALTERNATIVE AND FACULTATIVE ARTS. 1199 TO 1206


e) JOINT AND SOLIDARY ARTS. 1207 TO 1222

PHILIPPINE NATIONAL BANK, vs. ASUNCION

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Obligations and Contracts: Doctrines and Case Digests
[G.R. No. L-46095. November 23, 1977.]
Makasiar, J:

Facts:
PNB on January 16, 1963, granted in favor of respondent Fabar Inc.various credit
accommodations and advances in the form of a discounting line, overdraft line, temporary
overdraft line and letters of credit covering the importation of machinery and equipment.
Petitioner likewise made advances by way of insurance premiums covering the chattels subject
matter of a mortgage securing the aforementioned credit accommodations. Said credit
accommodations had an outstanding balance of P8,449,169.98 as of May 13, 1977.

For failure of private respondents to pay their obligations notwithstanding repeated demands,
petitioner instituted a case for collection against all private respondents.

Issue:
Whether the respondent Court erred in dismissing the case against all the defendants, instead of
dismissing the case only as against the deceased defendant?

Ruling:
Petitioner's contention is well taken. Respondent Court's reliance on Section 6, Rule 86 of the
Revised Rules of Court was erroneous.
Article 1216 of the New Civil Code gives the creditor the right to "proceed against anyone of the
solidary debtors or some or all of them simultaneously."
The choice is undoubtedly left to the solidary creditor to determine against whom he will enforce
collection. In case of the death of one of the solidary debtors, he (the creditor) may, if he so
chooses, proceed against the surviving solidary debtors without necessity of filing a claim in the
estate of the deceased debtors. It is not mandatory for him to have the case dismissed as against
the surviving debtors and file its claim against the estate of the deceased solidary debtor, as was
made apparent in the aforequoted decision. For to require the creditor to proceed against the
estate, making it a condition precedent for any collection action against the surviving debtors to
prosper, would deprive him of his substantive rights provided by Article 1216 of the New Civil
Code.

INCHAUSTI & CO. vs. YULO,


[G.R. No. 7721. March 25, 1914.]

Arrellano. J:

Facts:
This suit is brought for the recovery of a certain sum of money, the balance of a current account
opened by the firm of Inchausti & Company with Teodoro Yulo and after his death continued
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Obligations and Contracts: Doctrines and Case Digests
with his widow and children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a
property owner of Iloilo, for the exploitation andcultivation of his numerous haciendas in the
province of Occidental Negros, had been borrowing money from the Inchausti & Company
under specific conditions. On April 9, 1903, Teodoro Yulo died testate and for the execution of
the provisions of his will he had appointed as administrators his widow and 5 of his sons,
Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who died on
October 22d of the following year, 1904, there remaining of the marriage the following
legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen,
Conception, and Jose Yulo y Regalado. Of these children Conception and Jose were minors,
while Teodoro was mentally incompetent. At the death of their predecessor in interest, Teodoro
Yulo, his widow and children held the conjugal property in common and at the death of this said
widow, Gregoria Regalado, these children preserved the same relations under the name of Hijos
de T. Yulo continuing their current account with Inchausti & Company in the best and most
harmonious reciprocity until said balance amounted to two hundred thousand pesos. In this state
of affairs the creditor firm tried to obtain security for the payment of the disbursements of money
which until that time it had been making in favor of its debtors, the Yulos.

Issue:
Whether the plaintiff can sue Gregorio Yulo alone, there being other Obligors?

Ruling:
When the obligation is a solidary one, the creditor may bring his action in toto against any of the
debtors obligated in solidum and although the creditor may have, by means of a subsequent
instrument, covenanted with some of the solidary debtors different periods of payment and
different conditions, not on this account may it be understood that the solidarity stipulated in the
previous instrument has been broken.

f) DIVISIBLE AND INDIVISIBLE ARTS. 1223 TO 1225


g) WITH A PENAL CLAUSE ARTS. 1226 TO 1230

MAKATI DEVELOPMENT CORPORATION vs. EMPIRE INSURANCE CO


[G.R. No. L-21780. June 30, 1967.]

Facts:
On March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a lot, with an
area of 1,589 square meters, in the Urdaneta Village, Makati, Rizal, for P55,615.

A so-called "special condition" contained in the deed of sale provides that "[T]he VENDEE/S
shall commence the construction and complete at least 50% of his/her/their/ its residence on the
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Obligations and Contracts: Doctrines and Case Digests
property within two (2) years from March 31, 1959 to the satisfaction of the VENDOR and, in
the event of his/her/their/its failure to do so, the bond which the VENDEE/S has delivered to the
VENDOR in the sum of P11,123.00 and evidenced by a cash bond receipt dated April 10, 1959
will be forfeited in favor of the VENDOR by the mere fact of failure of the VENDEE/S to
comply with this special condition."

To insure faithful compliance with this "condition," Andal gave a surety bond he, as principal,
and the Empire Insurance Company as surety, jointly and severally, undertook to pay the Makati
Development Corporation the sum of P12,000 in case Andal failed to comply with his obligation
under the deed of sale.

Andal did not build his house; instead he sold the lot to Juan Carlos on January 18, 1960. As
neither Andal nor Juan Carlos built a house on the lot within the stipulated period, the Makati
Development Corporation, on April 3, 1961, that is, three days after the lapse of the two-year
period, sent a notice of claim to the Empire Insurance Co. advising it of Andal's failure to comply
with his undertaking. Demand for the payment of P12,000 was refused, whereupon the Makati
Development Corporation filed a complaint.

Andal defense was such stipulation is contrary to morals, public policy and law.

Issue:
Whether the special condition imposed on the contract is binding?

Ruling:
Where a contract of sale of real property imposes a "special condition" upon the vendee to
construct a house thereon and complete at least 50% of such construction within two years
otherwise the surety bond of P12,000.00 would be forfeited in favor of the vendor, such "special
condition" is in reality an obligation with a penal clause, and the obligor's liability may be
mitigated pursuant to Article 1229 of the Civil Code, considering that such penalty is intended
not to indemnify the vendor for any damage it might suffer as a result of a breach of contract, but
rather to compel performance and thus encourage home building among lot owners in the
Urdaneta Village.

COMMERCIAL CREDIT CORPORATION OF CAGAYAN DE ORO vs. COURT OF


APPEALS
[G.R. No. 78315. January 2, 1989.]
Gangayco,J:

Facts:
Sometime in 1978 private respondent Cagayan De Oro Coliseum, Inc. executed a promissory
note in the amount of P329,852.54 in favor of petitioner Commercial Credit Corporation of
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Obligations and Contracts: Doctrines and Case Digests
Cagayan de Oro, payable in 36 monthly installments. The note is secured by a real estate
mortgage duly executed by private respondent in favor of petitioner. As said respondent
defaulted in the payment of the monthly installments due, petitioner proceeded with the
extrajudicial foreclosure of the real estate mortgage in September, 1979.

In due course a compromise agreement was entered into by the parties on the basis of which a
compromise judgment was rendered by the trial court on March 11, 1980.

However as private respondent failed to comply with the terms of the judgment for failure to pay
several installments in the amount of P70,152.65 which matured on July 13, 1982, petitioner
filed an ex-parte motion for the issuance of a writ of execution on March 4, 1983.

Issue:
Whether the honorable court of appeals committed grave and reversible error when it modified
the effects of the 3% penalty interest and attorney's fees, after it upheld the legality of the
compromise judgment of the trial court?

Ruling:
Article 1229 of the Civil Code applies only to obligations or contract, subject of a litigation, the
condition being that the same has been partly or irregularly complied with by the debtor. The
provision also applies even if there has been no performance, as long as the penalty is
iniquituous or unconscionable. It cannot apply to a final and executory judgment. When the
parties entered into the said compromise agreement and submitted the same for the approval of
the trial court, its terms and conditions must be the primordial consideration why the parties
voluntarily entered into the same. The trial court approved it because it is lawful, and is not
against public policy or morals. Even the respondent Court of Appeals upheld the validity of the
said compromise agreement. Hence, the respondent court has no authority to reduce the penalty
and attorney's fees therein stipulated which is the law between the parties and is res judicata.

RADIOWEALTH FINANCE COMPANY v. DEL ROSARIO


[G.R. No. 138739. 335 SCRA 288 July 6, 2000.]

Panganiban, J:

Facts:
On March 2, 1991, Sps Vicente and Maria Sumilang del Rosario. (respondents), jointly and
severally executed, signed and delivered in favor of Radiowealth Finance Company (herein
petitioner), a Promissory Note for sum of (P138,948.00) to be paid on installment basis.
Thereafter, the respondent defaulted on monthly installments.

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Obligations and Contracts: Doctrines and Case Digests
On the course of trial the respondent had a judicial admissions of established their indebtedness
to the petitioner, on the grounds that they admitted the due execution of the Promissory Note,
and that their only defense was the absence of an agreement on when the installment payments
were to begin.

Issue:
Whether or not the debtor shall pay penalty?

Ruling:
Petitioner, in its Complaint, prayed for "14% interest per annum from May 6, 1993 until fully
paid." We disagree. The Note already stipulated a late payment penalty of 2.5 percent monthly to
be added to each unpaid installment until fully paid. Payment of interest was not expressly
stipulated in the Note. Thus, it should be deemed included in such penalty.

8. EXTINGUISHMENT OF OBLIGATIONS
A. MODES ART. 1231

TEJUCO vs . E. R. SQUIBB & SON


[G.R. No. L-11052. April 30, 1958.]

PARAS, J:

FACTS:
A civil complaint was filed in the Court of First Instance of Manila by theappellant, alleging that
the appellees, her former employers wrote her a libelous letter of separation, a copy of which was
posted in the company's bulletin board.

As the appellant admits that the complaint was filed one year and six months after the
publication of the libelous letter on October 18, 1954.

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Obligations and Contracts: Doctrines and Case Digests
ISSUE:
Whether or not the obligation arising from the crime of libel already extinguished?

RULING:
Concerning extinguishment of obligations arising from felonies, Article 112 of the Revised Penal
Code provides that "civil liability established in Articles 100, 101, 102 and 103 of this Code shall
be extinguished in the same manner as other obligations in accordance with the provisions of the
Civil Law." Upon the other hand, Article 1231 of the Civil Code is to the effect that ". . . other
causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code." On the matter of
prescription, the applicable provision is Article 1129 of the Civil Code which states that "actions
prescribe by mere lapse of time fixed by law." This necessarily leads us to Article 1147 of the
Civil Code which requires that an action for defamation must be filed within one year. The broad
term "defamation" in the absence of any other specific provisions, includes libel.

SAURA IMPORT & EXPORT CO., INC. vs. DEVELOPMENT BANK OF THE
PHILIPPINES
[G.R. No. L-24968. April 27, 1972.]

MAKALINTAL, J:

FACTS:
In July 1953 Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its
conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00
for the construction of a factory building; P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by
Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and
arrived in Davao City in July 1953; and that to secure its release without first paying the draft,
Saura, Inc. executed a trust receipt in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory buildings to be constructed, the
land site thereof, and the machinery and equipment to be installed.

Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely:
that in lieu of having China Engineers, Ltd. sign as co-maker on the corresponding promissory
notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the
other co-makers, having acquired the latter's shares in Saura, Inc.

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Obligations and Contracts: Doctrines and Case Digests
In view of such request RFC approved Resolution No. 736

ISSUE:
Whether there is an extinguishment of obligation in the case at bar?

RULING:
When RFC turned down the request of Saura Inc., the negotiations which had been going on for
the implementation of the agreement reached an impasse. Saura Inc., obviously was in no
position to comply with RFC's conditions. So instead of doing so and insisting that the loan be
released as agreed upon, Saura Inc., asked that the mortgage be cancelled, which was done on
June 15, 1955. The action thus taken by both parties was in the nature of mutual desistance
what Manresa terms "mutuo disenso" which is a mode of extinguishing obligations. It is a
concept that derives from the principle that since mutual agreement by the parties can create a
contract, mutual disagreement by the parties can cause its extinguishment.

B. PAYMENT OR PERFORMANCE ART. 1232


I. CHARACTERISTICS
1. INTEGRITY OF PAYMENT ART. 1233
A. EXCEPTIONS ARTS. 1234 AND 1235
2. IDENTITY OF PAYMENT ART. 1244
A. EXCEPTION ART. 1245
3. INDIVISIBILITY OF PAYMENT ART. 1248
A. EXCEPTION ART. 1245
II. WHO CAN MAKE PAYMENT ARTS. 1236 TO 1239

GONZAGA vs. GARCIA


[G.R. No. 8254. March 3, 1914.]
TRENT,J:

FACTS:
Rufino Francisco acquired the land in question by inheritance from the registered owner. On
August 20, 1909, he sold it with the right to repurchase the same within one year and with the
understanding that the time could be extended one year more, to Vicente San Martin. On August
30, 1909, Francisco's right to repurchase was attached by one Del Rosario. This right of
repurchase was sold under execution on December 29, 1909, at a sheriff's sale, Del Rosario being
the purchaser. The certificate of sale was registered January 6, 1910, and Francisco having failed
to exercise his right of redemption within one year, the sheriff issued his deed to Del Rosario for
the interest of Francisco in the land thus sold at the execution sale. On November 9, 1908,
Francisco sold the same land to Jose de Lavengco. The document evidencing this sale was never
registered. The opponents are the widow and minor children of Jose de Lavengco. Neither Jose
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Obligations and Contracts: Doctrines and Case Digests
nor the opponents ever entered into the possession of the property. The appellants knew nothing
of the sale by Rufino Francisco to Jose de Lanvengco.

ISSUE:
Did the appellants acquire a registerable title?

RULING:
The right to repurchase real estate sold under pacto de retro is subject to execution and may be
sold at public auction to satisfy a judgment against the owner of such a right. By virtue of the
sheriff's sale of December 29, 1909, Del Rosario acquired the right to repurchase the land in
question from Martin. In November or December, 1911, Del Rosario sold all of his interest to the
appellants. The only interest acquired by Del Rosario at the sheriff's sale was the right to
repurchase from Martin because this was the only interest that Francisco had at that time.
Francisco repurchased the land several months before Del Rosario sold his interest to the
appellants. It is therefore clear that the appellants acquired no interest whatever in the land unless
the repurchase made by Francisco vested the title in Del Rosario, the then owner of the right to
repurchase. We think that Francisco's repurchase did not have this effect. When Francisco's right
to repurchase was sold at public auction the judgment against him was completely satisfied, and
he was therefore a stranger to the proceedings. But it is said that under the provisions of article
1158 of the Civil Code the repurchase by Francisco was a payment for Del Rosario and that the
former may recover from the latter the price paid. Del Rosario was not a debtor. He was under no
obligations to repurchase the land from Martin. He had a right to do so but whether he exercised
this right or not depended upon his own volition. Article 1158 is not for these reasons applicable.
The judgment appealed from is therefore affirmed, with costs against the appellants.

SISON vs. BALGOS


[G.R. No. 10305. September 5, 1916.]

ARELLANO, CJ:

FACTS:
Isidro Azarraga was guardian of certain minors named Maria Felisa and Jesus Bellosillo. During
his administration, as the result of a writ of execution issued by the Court of First Instance of
Capiz, the sheriff of Capiz sold at public auction. This land was knocked down to Alejandro
Balgos for P126.

On May 17, 1911, the period for redemption was to expire. But it happened that Isidro Azarraga
died on May 2, 1911, the minors thus being left without any guardian. Notwithstanding this, on
the every last day of the period for redemption, May 17, 1911, Leodegario Azarraga, an uncle of
said minors, deposited with the sheriff the sum of P141.12 in refund of the principal paid by the
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Obligations and Contracts: Doctrines and Case Digests
purchaser and the interest thereon. The sheriff notified the latter of the deposit in order that he
might receive the money and turn over the land. But the purchaser refused and still refuses to
allow the redemption.

ISSUE:
Whether Leodegario Azzarraga, the uncle of the minors repurchase the parcel of land in
question?

RULING:
Any person, whether he has an interest or not in the fulfillment of the obligation, and whether the
debtor knows approves it or is not aware thereof, can make the payment. (Civil Code, art. 1158.)

III. TO WHOM CAN PAYMENT BE MADE ARTS. 1240 TO 1243


IV. PAYMENT OF DEBTS IN MONEY ART. 1249
1. SEC. 1 OF RA 529 (EFFECTIVITY: 16 JUNE 1950), AS AMENDED BY RA 4100
2. SEC. 1 AND 2 OF RA 8183 (11 JUNE 1996)

BUENAVENTURA vs. COURT OF APPEALS


[G.R. No. L-43830. January 22, 1990.]

FERNAN, J:

FACTS:
On November 21, December 21 year 1967 and January 3, 1968, petitioner San Buenaventura
purchased directly on credit textile materials and other allied goods from private respondent in
the total amount of US$14,612.20, which purchases were to be paid by petitioner within thirty
(30) days from the date of sale.

On April 19, 1969 and in September of 1969, petitioners paid directly to private respondent the
total amount of US $7,500.00, thereby reducing their undisputed principal obligation of US
$14,612.20 to US $7,112.20. Ten percent (10%) of the balance was added as collection charges,
giving a total balance of US $7,823.42; which petitioner Lily San Buenaventura, on February 19,
1970, acknowledged and promised to pay through the Syquia Law Offices.

Thereafter, petitioners made several partial installment payments amounting to a total sum of
P32,812.00 which according to private respondent, if computed at the floating market rate of the
US dollar at the time of the said payment would only amount to $5,209.00. Allegedly, this
amount if deducted from the original balance of $7,823.42 as reflected in the aforequoted letter
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Obligations and Contracts: Doctrines and Case Digests
agreement dated February 19, 1970 would leave an unpaid balance of $2,614.42. On the other
hand, petitioners contend that the amount of $7,823.42 had been fully paid through the Syquia
Law Offices retained by private respondent for collection purposes.

ISSUE:
Whether the rate of exchange of the U.S. Dollar to the Philippine Peso should be applied in
converting petitioner's monetary obligation to private respondent in the amount of US $2,614.42
to its equivalent value in Philippine Peso. Is it the rate of exchange prevailing at the time the
obligation was incurred or that prevailing at the time of its payment?

RULING:
An agreement to pay an obligation in a currency other than Philippine currency is null and void
as contrary to public policy, what the law specifically prohibits is payment in currency other than
legal tender but does not defeat a creditor's claim for payment. A contrary rule would allow a
person to profit or enrich himself inequitably at another's expense. With regard to obligations
incurred prior to the effectivity of Republic Act No. 529 requiring payment in a particular kind of
coin or currency other than Philippine currency, it is specifically provided that the same shall be
discharged in Philippine currency measured at the prevailing rate of exchange at the time the
obligation was incurred except in case of a loan made in a foreign currency stipulated to be
payable in the same currency in which case the rate of exchange prevailing at the stipulated date
of payment shall prevail. In the case before Us, petitioners' obligation was incurred after the
enactment of Republic Act No. 529, as amended. As held in Kalalo vs. Luz (supra) and as
correctly relied upon by respondent appellate court, the rate of exchange should be that
prevailing at the time of payment.

3. LEGAL TENDER SECS. 31 AND 32 OF PD72 (11 NOVEMBER 1972)


A. COINS CIRCULAR NO. 537

V. PAYMENT IN MERCANTILE DOCUMENT 2ND PARAGRAPH OF ART. 1249

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. vs. SENERIS


[G.R. No. L-41764. December 19, 1980.]

CONCEPCION, JR., J:

FACTS:
On July 19, 1974, a compromise judgment was rendered by the respondent Judge in accordance
with an amicable settlement entered into by the parties. For failure of petitioner to comply with
his judgment obligation, the respondent Judge, upon motion of the private respondent, issued an
order for the issuance of a writ of execution on December 21, 1974. Accordingly, writ of
execution was issued for the amount of P63,130.00
Page | 147
Obligations and Contracts: Doctrines and Case Digests

In a letter dated January 14, 1975, to the Ex-Officio Sheriff, private respondent through counsel,
refused to accept the check as well as the cash deposit. In the same letter, private respondent
requested the scheduled auction sale on January 15, 1975 to proceed if the petitioner cannot
produce the cash.

ISSUE:
Whether or not the private respondent can validly refuse acceptance of the payment of the
judgment obligation made by the petitioner consisting of P50,000.00 in Cashier's Check and
P13,130.00 in cash which it deposited with the Ex-Officio Sheriff before the date of the
scheduled auction sale?

RULING:
We find the petition to be impressed with merit.
In upholding private respondent's claim that he has the right to refuse payment by means of a
check, the respondent Judge cited the following:

Section 63 of the Central Bank Act:

"Sec. 63. Legal Character. Checks representing deposit money do not have legal tender
power and then acceptance in payment of debts, both public and private, is at the option of
the creditor, Provided, however, that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount
equal to the amount credited to his account."

Article 1249 of the New Civil Code:

"Art. 1249. The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

TIBAJIA vs. COURT OF APPEALS


[G.R. No. 100290. June 4, 1993.]

PADILLA, J:

FACTS:
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Obligations and Contracts: Doctrines and Case Digests
Suit for collection of a sum of money filed by Eden Tan against the
Tibajia spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17
September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia
spouses in the Regional Trial Court of Kalookan City in the amount of (P442,750.00) in another
case, had been garnished by him.

ISSUE:
Whether or not payment by means of check (even by cashier's check)is considered payment in
legal tender as required by the Civil Code, Republic Act No. 529, and the Central Bank Act?

RULING:
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals and Roman Catholic Bishop
of Malolos, Inc. vs. Intermediate Appellate Court, this Court held that "A check, whether a
manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be refused receipt by the obligee or creditor." The
ruling in these two (2) cases merely applies the statutory provisions which lay down the rule that
a check is not legal tender and that a creditor may validly refuse payment by check, whether it be
a manager's, cashier's or personal check. Petitioners erroneously rely on one of the dissenting
opinions in the Philippine Airlines case to support their cause. The dissenting opinion however
does not in any way support the contention that a check is legal tender but, on the contrary, states
that "If the PAL checks in question had not been encashed by Sheriff Reyes, there would be no
payment by the PAL and, consequently, no discharge or satisfaction of its judgment obligation."
Moreover, the circumstances in the Philippine Airlines case are quite different from those in the
case at bar for in that case the checks issued by the judgment debtor were made payable to the
sheriff, Emilio Z. Reyes, who encashed the checks but failed to deliver the proceeds of said
encashment to the judgment creditor. In the more recent case of Fortunado vs. Court of Appeals,
this Court stressed that, "We are not, by this decision, sanctioning the use of a check for the
payment of obligations over the objection of the creditor."

FORTUNADO vs. COURT OF APPEALS


[G.R. No. 78556. April 25, 1991.]

CRUZ, J.:

FACTS:
On April 21, 1981, the RTC QC rendered judgment in Civil Case No. Q-22367, entitled "Alfaro
Fortunado vs. Angel Bautista," ordering the defendant to pay damages to the plaintiff. Pursuant
to the said judgment, respondent Basilisa Campano, City Sheriff of Iligan City, levied upon two
parcels of land registered in the name of Bautista located at Iligan City and covered by TCT Nos.
T-7625 and T-14133. The latter lot had already been purchased by respondent National Steel
Corporation as of August 17, 1983, but had not yet been registered in its name.
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Obligations and Contracts: Doctrines and Case Digests

After due notice, these lots were sold at public auction to the petitioners as the only bidder on
April 23, 1984. They were issued a certificate of sale which was registered on April 25, 1984 On
March 21, 1985, Bautista sent the sheriff a letter bearing NSC's conformity in which he availed
himself of NSC's check, which was sufficient to cover the full redemption price for both lots, to
redeem the other lot covered by TCT No. T-7625.

The sheriff acknowledged receipt of the check as redemption money for the two parcels of land
on March 21, 1985, and on March 22, 1985, issued a certificate of redemption in favor of NSC
and Bautista.

ISSUE:
Whether the payment of check constitute legal tender?

RULING:
We are not, by this decision, sanctioning the use of a check for the payment of obligations over
the objection of the creditor. What we are saying is that 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 is not in itself a payment that relieves the redemptioner from
his liability to pay the redemption price. In other words, while we hold that the private
respondents properly exercised their right of redemption, they remain liable, of course, for the
payment of the redemption price.

CO vs. PHILIPPINE NATIONAL BANK


[G.R. No. L-51767. June 29, 1982.]

BARREDO, J:

FACTS:
On November 10, 1961, the STANDARD, executed a real estate mortgage in favor of PNB,
over properties covered by TCT Nos. T-5108 and T-5320, both situated in Baguio City, as
collateral for a loan consideration of P500,000.00. On February 20, 1963, the same debtor
corporation executed an amended real estate mortgage to include as collateral for the increase of
the above loan to P1,000,000.00 a property located at Pasong Tamo Extension.
Additionally, on February 20, 1963, the same corporation executed in favor of PNB a chattel
mortgage of its personal properties listed on pages 96 to 108 of the Record on Appeal. On pages
6-7 of appellant's brief it is stated that as of July 19, 1974, the "borrowed loan" of STANDARD
totaled P4,296,803.56, and that the said obligation was secured, as aforementioned, by the
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Obligations and Contracts: Doctrines and Case Digests
mortgages on the Baguio and Makati real estates of STANDARD and the chattel mortgage on its
personal properties above referred to.

When STANDARD failed to pay its obligation, PNB extra-judicially foreclosed the mortgage on
the Baguio properties as well as the chattel mortgage on July 19, 1974, with PNB as the highest
bidder for P1,514,305.00. Subsequently, on August 8, 1974, PNB also foreclosed the mortgage
on the Makati property and purchased the same, as highest bidder, for P1,363,000.00.

ISSUE:
What is the law applicable to this case as to the period of redemption?

RULING:
Republic Act 1300 entitled "An Act Revising the Charter of the Philippine National Bank" was
approved and made effective on June 16, 1955. It was therefore the law when in 1963 the
mortgage here in dispute was executed. It was the very law that the above-quoted paragraph (g)
of the mortgage contract made reference to. In this connection, evidently overlooked by counsel
for PNB is that Republic Act 1300 does not contemplate extrajudicial procedure. Clearly
indicative of this is Section 20 thereof which provides:
"Sec. 20. Right of redemption of property foreclosed. The mortgagor shall have the right,
within the year after the sale of real estate as a result of the foreclosure of a mortgage, to redeem
the property by paying the amount fixed by the court in the order of execution, with interest
thereon at the rate specified in the mortgage, and all the costs and other judicial expenses
incurred by the Bank by reason of the execution and sale and for the custody of said property."
Indeed, conventional legal and banking business sense dictates that it must have been because of
such omission that paragraph (g) above had to expressly incorporate Act 3135 which provides for
extrajudicial foreclosure. We cannot, therefore, escape the conclusion that what STANDARD
agreed to in respect to the possible foreclosure of its mortgage was to subject the same to the
provisions of Act 3135 should the PNB opt to utilize said law instead of Republic Act 1300.

NATIONAL MARKETING CORPORATION vs. FEDERATION OF UNITED


NAMARCO DISTRIBUTORS, INC.
[G.R. No. L-22578. January 31, 1973.]

ANTONIO, J:

FACTS:
On November 16, 1959, the NAMARCO and the FEDERATION entered into a Contract of Sale.
NAMARCO instituted the present action (Civil Case No. 46124) alleging, among others, that the
FEDERATION'S act or omission in refusing to satisfy the former's valid, just and demandable
claim has compelled it to file the instant action; and praying that the FEDERATION be ordered
to pay the NAMARCO the sum of P611,053.35, representing the cost of merchandise mentioned
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Obligations and Contracts: Doctrines and Case Digests
in the preceding paragraph, with interest thereon at the legal rate from the date of delivery of the
merchandise in question, until the whole obligation is paid; P20,000.00 as attorney's fees and
other expenses of litigation, plus costs.

ISSUE:
Whether the delivery of negotiable documents does constitute payment?

RULING:
The mere delivery by FEDERATION of the domestic letters of credit to NAMARCO did not
operate to discharge the debt of FEDERATION. As shown by the appealed judgment,
NAMARCO accepted the three letters of credit "to insure the payment of those goods by the
FEDERATION . . ." They were given therefore as mere guarantee for the payment of the
merchandise. The delivery of promissory notes payable to order, or bills of exchange or drafts or
other mercantile document shall produce the effect of payment only when realized, or when by
the fault of the creditor, the privileges inherent in their negotiable character have been impaired

VI. EXTRA-ORDINARY INFLATION OR DEFLATION OF THE CURRENCY ART.


1250

FILIPINO PIPE AND FOUNDRY CORPORATION vs. NATIONAL WATERWORKS


AND SEWERAGE AUTHORITY
[G.R. No. L-43446. May 3, 1988.]

GRIO-AQUINO, J:

FACTS:
On June 12, 1961, the NAWASA entered into a contract with the plaintiff FPFC for the latter to
supply it with 4" and 6" diameter centrifugally cast iron pressure pipes worth P270,187.50 to be
used in the construction of the Anonoy Waterworks in Masbate and the Barrio San Andres-
Villareal Waterworks in Samar. Defendant NAWASA paid in installments on various dates, a
total of (P134,680.00) leaving a balance of (P135,507.50) excluding interest. Having completed
the delivery of the pipes, the plaintiff demanded payment from the defendant of the unpaid
balance of the price with interest in accordance with the terms of their contract.
When the NAWASA failed to pay the balance of its account, the plaintiff filed a collection suit on
March 16, 1967.

ISSUE:

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Obligations and Contracts: Doctrines and Case Digests
whether, on the basis of the continuously spiralling price index indisputably shown by the
plaintiff, there exists an extraordinary inflation of the currency justifying an adjustment of
defendant-appellee's unpaid judgment obligation to the plaintiff-appellant?

RULING:

Extraordinary inflation exists when "there is a decrease or increase in the purchasing power of
the Philippine currency which is unusual or beyond the common fluctuation in the value of said
currency, and such decrease or increase could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation.

MOBIL OIL PHILIPPINES, INC. vs. COURT OF APPEALS


[G.R. No. 58122. December 29, 1989.]
PARAS, J:

FACTS:
Plaintiff is a dealer of defendant's petroleum products and accessories, operating a Mobil
gasoline service station under the name of Anne Marie Mobil Service Station located at Aurora
Blvd., San Juan, Metro Manila. The contractual relationship between plaintiff and defendant is
governed by a Retail Dealer Contract, Exh. A, also Exh. 1.
In the later part of 1973, an international oil crisis came about by reason of the concerted action
of principal oil producing countries to increase the oil prices. The Philippines was not spared of
this economic scourge, and to meet the emergency, as the commodity became scarce while the
demand therefore remained the same.
On February 15, 1974 a Friday while there was still this oil crisis, plaintiff placed with
defendant a pre-paid order for 8,000 liters of premium gasoline and 2,000 liters of regular
gasoline paying therefore a PBTC Cashier's Check in the amount of P4,610.00 was received.
Mr. Alberto Latuno further states that the order, Exh. B, did not come back to him for invoicing
that Friday afternoon (February 15, 1974); it was on February 19, 1974 that he received again the
order, because the processing thereof by one coupon comptroller was completed only on that day,
the reason for the delay being that on February 18 there was a price increase and they had to give
priority to the recall of invoices already with their warehouse and dispatcher for re-pricing.

ISSUE:
Whether or not the company should be liable for amount of inflation of the gasoline price?

RULING:

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Obligations and Contracts: Doctrines and Case Digests
On the issue for adjustment claims, private respondent has no basis in contract or in law.
Parenthetically, the principle We laid down in the case of Commissioner of Public Highways vs.
Burgos (96 SCRA 831) can be applied here, to wit: ". . . an agreement is needed for the effects of
an extraordinary inflation to be taken into account to alter the value of the currency at the time of
the establishment of the obligation which, as a rule, is always the determinative element, to be
varied by agreement that would find reason only in the supervention of extraordinary inflation or
deflation." (pp. 837-838 emphasis supplied) Moreover, in his concurring opinion in the same
case, Justice Claudio Teehankee stated: "I concur in the result with the observation that the
statements in the main opinion re the applicability or non-applicability of Article 1250 of the
Civil Code should be taken as obiter dicta, since said article may not be invoked nor applied
without a proper declaration of extraordinary inflation or deflation of currency by the competent
authorities. In the case at bar, the obligation of the petitioner, if any, is based on law since the
same calls for the application of the Civil Code provisions on damages. Moreover, there has been
no official pronouncement or declaration of the existence of extraordinary inflation or deflation.

2. WHEN ARTICLE 1250 DOES NOT APPLY (OBLIGATIONS, NOT CONTRACTUAL):

VELASCO vs. MANILA ELECTRIC CO.


[G.R. No. L-18390. December 20, 1971.]

REYES, JBL;

FACTS:
The thrust of this motion is that the decision has incorrectly assessed appellant's damages and
unreasonably reduced their amount. It is first argued that the decision erred in not taking into
account, in computing appellant's loss of income, the appellant's undeclared income of
P8,338.20, assessed by BIR for the year 1954, in addition to his declared income for that year
(P10,975), it being argued that appellant never claimed any other source of income besides his
professional earnings Several circumstances of record disprove this claim. (1) That the amount of
P8,338.20 was kept apart from the ordinary earnings of appellant for the year 1954 (P10,975),
and not declared with it, is in itself circumstantial evidence that it was not of comparable
character. (2) If it was part of his ordinary professional income, appellant was guilty of fraud in
not declaring it and he should not be allowed to derive advantage from his own wrongdoing. (3)
The decision pointed out that by including the undeclared amount in appellant's disclosed
professional earnings for 1954, to a grand total of P19,313.20, the income for said year becomes
abnormally high (in fact, more than double), as compared to appellant's earnings for the three
preceding years, 1951-1953, that averaged not more than P7,000 per annum. Such abnormality
justifies the Court's refusal to consider the undisclosed P8,338.20 as part of appellant's regular
income for the purpose of computing the reduction in his earnings as a result of the complained
acts of appellee. (4) Finally, the true source of the undeclared amount lay in appellant's own

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knowledge, but he chose not to disclose it; neither did he call upon the assessing revenue officer
to reveal its character.

ISSUE:
Whether Art. 1250 of Civil Code is applicable in the case at bar?

RULING:
We do not deem the rules invoked to be applicable. Article 1250 of the Civil Code is to the effect
that:

"ART. 1250. In case an extraordinary inflation or deflation of the currency stipulated


should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary."

It can be seen from the employment of the words "extraordinary inflation or deflation of the
currency stipulated" that the legal rule envisages contractual obligations where a specific
currency is selected by the parties as the medium of payment; hence it is inapplicable to
obligations arising from tort and not from contract, as in the case at bar, besides there being no
showing that the factual assumption of the article has come into existence As to the Pantoja
ruling, the regard paid to the decreasing purchase of the peso was considered a factor in
estimating the indemnity due for loss of life, which in itself is not susceptible of accurate
estimation. It should not be forgotten that the damages awarded to herein appellant were by no
means full compensatory damages, since the decision makes clear that appellant, by his failure to
minimize his damages by means easily within his reach, was declared entitled only to a reduced
award for the nuisance sued upon (Steel vs. Rail & River Coal Co., 43 Ohio App. 228, 182 N.E.
552); and the amount granted him had already taken into account the changed economic
circumstances. Nor is the fact that appellant lost a chance to sell his house for P95,000 to Jose
Valencia constitute a ground for an award of damages in that amount. As remarked in the main
decision, there is no adequate proof of loss, since there is no evidence of the depreciation in the
market value of the house in question caused by the acts of defendant Meralco. The house, after
all, has remained with appellant, and he admits in his motion for reconsideration (page 48) that
properties have increased in value by 200% since then.

COMMISSIONER OF PUBLIC HIGHWAYS vs. BURGOS


[G.R. No. L-36706. March 31, 1980.]

DE CASTRO, J:

FACTS:

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Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of 6,167
square meters. Sometime in 1924, the Government took this land for road-right-of way purpose.
The land had since become streets known as Mango Avenue and Gorordo Avenue in Cebu City.

Victoria Amigable filed in the CFI of Cebu City a complaint, to recover ownership and
possession of the land, and for damages in the sum of P50,000.00 for the alleged illegal
occupation of the land by the Government, moral damages in the sum of P25,000.00, and
attorney's fees in the sum of P5,000.00, plus costs of suit. The complaint was docketed as Civil
Case No. R-5977 of the Court of First Instance of Cebu, entitled "Victoria Amigable vs. Nicolas
Cuenca, in his capacity as Commissioner of Public Highways and Republic of the Philippines."

ISSUE:
Whether or not the provision of Article 1250 of the New Civil Code is applicable in determining
the amount of compensation to be paid to respondent Victoria Amigable for the property taken is
raised because the respondent court applied said Article by considering the value of the peso to
the dollar at the time of hearing, in determining due compensation to be paid for the property
taken. The Solicitor General contends that in so doing, the respondent court violated the order of
this Court, in its decision in G.R. No. L-26400, February 29, 1972, to make as basis of the
determination of just compensation the price or value of the land at the time of the taking.

RULING:
It is to be noted that respondent judge did consider the value of the property at the time of the
taking, which as proven by the petitioner was P2.37 per square meter in 1924.

However, applying Article 1250 of the New Civil Code, and considering that the value of the
peso to the dollar during the hearing in 1972 was P6.775 to a dollar, as proven by the evidence of
the private respondent Victoria Amigable, the Court fixed the value of the property at the debated
value of the peso in relation, to the dollar, and came up with the sum of P49,459.34 as the just
compensation to be paid by the Government. To this action of the respondent judge, the Solicitor
General has taken exception.

Article 1250 of the New Civil Code seems to be the only provision in our statutes which
provides for payment of an obligation in an amount different from what has been agreed upon by
the parties because of the supervention of extra-ordinary inflation or deflation.

"ART. 1250. In case extra-ordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation shall
be the basis of payment, unless there is an agreement to the contrary."

It is clear that the foregoing provision applies only to cases where a contract or agreement is
involved. It does not apply where the obligation to pay arises from law, independent of contract.
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The taking of private property by the Government in the exercise of its power of view in the case
of Velasco vs. Manila Electric Co., et al., L-19390, December 29, 1971.

Moreover, the law as quoted, clearly provides that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment which, in cases of expropriation,
would be the value of the peso at the time of the taking of the property when the obligation of the
Government to pay arises. It is only when there is an "agreement to the contrary" that the
extraordinary inflation will make the value of the currency at the time of payment, not at the time
of the establishment of the obligation, the basis for payment.

In other words, an agreement is needed for the effects of an extraordinary inflation to be taken
into account to alter the value of the currency at the time of the establishment of the obligation
which, as a rule, is always the determinative element, to be varied by agreement that would find
reason only in the supervention of extraordinary inflation or deflation.

We hold, therefore, that under the law, in the absence of any agreement to the contrary, even
assuming that there has been an extraordinary inflation within the meaning of Article 1250 of the
New Civil Code, a fact We decline to declare categorically, the value of the peso at the time of
the establishment of the obligation, which in the instant case is when the property was taken
possession of by the Government, must be considered for the purpose of determining just
compensation. Obviously, there can be no "agreement to the contrary" to speak of because the
obligation of the Government sought to be enforced in the present action does not originate from
contract, but from law which, generally is not subject to the will of the parties. And there being
no other legal provision cited which would justify a departure from the rule that just
compensation is determined on the basis of the value of the property at the time of the taking
thereof in expropriation by the Government, the value of the property as it is when the
Government took possession of the land in question, not the increased value resulting from the
passage of time which invariably brings unearned increment to landed properties, represents the
true value to be paid as just compensation for the property taken.

ST. PAUL FIRE & MARINE INSURANCE CO. vs. MACONDRAY & CO., INC.,
[G.R. No. L-27796. March 25, 1976.]

ANTONIO, J:

FACTS:
On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila and discharged its aforesaid
shipment into the custody of Manila Port Service, the arrastre contractor for the Port of Manila.
The said shipment was discharged complete and in good order with the exception of one (1)
drum and several cartons which were in bad order condition. Because consignee failed to receive
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Obligations and Contracts: Doctrines and Case Digests
the whole shipment and as several cartons of medicine were received in bad order condition, the
consignee filed the corresponding claim in the amount of P1,109.67 representing the C.I.F. value
of the damaged drum and cartons of medicine with the carrier, herein defendants-appellees and
the Manila Port Service. However, both refused to pay such claim. Consequently, the consignee
filed its claim with the insurer, St. Paul Fire & Marine Insurance Co., and the insurance
company, on the basis of such claim, paid to the consignee the insured value of the lost and
damaged goods, including other expenses in connection therewith, in the total amount of
$1,134.46 U.S. currency

ISSUE:
Whether or not, in case of loss or damage, the liability of the carrier to the consignee is limited to
the C.I.F. value of the goods which were lost or damaged?

RULING:
The limitation of the carrier's liability is sanctioned by the freedom of the contracting parties to
established such stipulations, clauses, terms, or conditions as they may deem convenient, provide
they are not contrary to law, morals, good customs and public policy. A stipulation fixing or
limiting the sum that may be recovered from the carrier on the loss or deterioration of the goods
is valid provide it is (a) reasonable and just under the circumstances, and (b) has been fairly and
freely agreed upon.

VII. FORMS OF PAYMENT


1. APPLICATION OF PAYMENT ARTS. 1252 TO 1254

REPARATIONS COMMISSION vs. UNIVERSAL DEEP-SEA FISHING


CORPORATION
[G.R. Nos. L-21901 and L-21996. June 27, 1978.]

CONCEPTION, J:

FACTS:
UNIVERSAL was awarded six (6) trawl boats by the Reparations Commission as end-user of
reparations goods. These fishing boats, were delivered to UNIVERSAL on November 20, 1958,
and the contract of Conditional Purchase and Sale of Reparations Goods, executed by and
between the parties on February 12, 1960, provided among others, that "the first installment
representing 10% of the amount or (P53,642.84) shall be paid within 24 months from the date of
complete delivery thereof, the balance shall be paid in the manner herein stated in the contract.

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To guarantee the faithful compliance with the obligations under said contract, a performance
bond in the amount of P53,643.00, with UNIVERSAL as principal and the Manila Surety &
Fidelity Co., Inc., as surety, was executed in favor of the Reparations Commission. A
corresponding indemnity agreement was executed to indemnify the surety company for any
damage, loss charges, etc., which it may sustain or incur as a consequence of having become a
surety upon the performance bond.

On August 10, 1962, the Reparations Commission instituted the present action against
UNIVERSAL and the surety company to recover various amounts of money due under these
contracts. In answer, UNIVERSAL claimed that the amounts of money sought to be collected are
not yet due and demandable.

ISSUE:
Whether or not the first installments under the three (3) contracts of conditional purchase and
sale of reparations goods were already due and demandable when the complaint was filed?

RULING:
The rules contained in Articles 1252 to 1254 of the Civil Code apply to a person owing several
debts of the same kind to a single creditor. They cannot be made applicable to a person whose
obligation as a mere surety is both contingent and singular, which in this case is the full and
faithful compliance with the terms of the contract of conditional purchase and sale of reparations
goods. The obligation included the payment, not only of the first installment in the amount of
P53,643.00, but also of the ten (10) equal yearly installments of P56,597.20 per annum. The
amount of P10,000.00 was, indeed, deducted from the amount of P53,643.00, but then the first
of the ten (10) equal yearly installments had also accrued; hence, no error was committed in
holding the surety company to the full extent of its undertaking.

MAGDALENA ESTATES, INC. vs. RODRIGUEZ


[G.R. No. L-18411. December 17, 1966.]

REGALA, J:

FACTS:
The appellants bought from the appellee a parcel of land in QC known as Lot 7-K- 2-G, Psd-
26193. In view of an unpaid balance of P5,000.00 on account of the purchase price of the lot, the
appellants executed on January 4, 1957, the following promissory note representing the said
account.

The alleged accumulated interests on the principal of P5,000.00. Due to the refusal of the
appellants to pay the said interest, the appellee started this suit in the MTC of Manila to enforce
the collection thereof. The said court, on February 5, 1959, rendered judgment in favor of the
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Obligations and Contracts: Doctrines and Case Digests
appellee and against the appellants, ordering the latter to pay jointly and severally the appellee
the sum of P655.89 with interest thereon at the legal rate from November 10, 1958, the date of
the filing of the complaint, until the whole amount is fully paid. Not satisfied with that judgment,
appellants appealed to the CFI of Manila, where the case was submitted for decision on the
pleadings. The CFI of Manila rendered the judgment stated at the outset of this decision.

ISSUE:
Whether the sum constitute full payment?

RULING:
We do not agree with the contention of the appellants. It is very clear in the promissory note that
the principal obligation is the balance of the purchase price of the parcel of land known as Lot 7-
K-2-C, Psd-26193, which is the sum of P5,000.00, and in the surety bond, the Luzon Surety Co.,
Inc. undertook "to pay the amount of P5,000.00 representing balance of the purchase price of a
parcel of land known as Lot 7-K-2-C, Psd-26193, . . ." The appellee did not protest nor object
when it accepted the payment of P5,000.00 because it knew that was the complete amount
undertaken by the surety as appearing in the contract. The liability of a surety is not extended, by
implication, beyond the terms of his contract. It is for the same reason that the appellee cannot
apply a part of the P5,000.00 as payment for the accrued interest. Appellants are relying on
Article 1253 of the Civil Code, but the rules contained in Articles 1252 to 1254 of the Civil Code
apply to a person owing several debts of the same kind of* a single creditor. They cannot be
made applicable to a person whose obligation as a mere surety is both contingent and singular;
his liability is confined to such obligation, and he is entitled to have all payments made applied
exclusively to said application and to no other. Besides, Article 1253 of the Civil Code is merely
directory, and not mandatory. Inasmuch as the appellee cannot protest for non-payment of the
interest when it accepted the amount of P5,000.00 from the Luzon Surety Co., Inc., nor apply a
part of that amount as payment for the interest, we cannot now say that there was a waiver or
condonation on the interest due.

It is claimed that there was a novation and/or modification of the obligation of the appellants in
favor of the appellee because the appellee accepted without reservation the subsequent
agreement set forth in the surety bond despite its failure to provide that it also guaranteed
payment of accruing interest.

The rule is settled that novation by presumption has never been favored. To be sustained, it needs
to be established that the old and new contracts are incompatible in all points, or that the will to
novate appears by express agreement of the parties or in acts of similar import.
The rules contained in Arts. 1252 and 1254 of the Civil Code applies to a person owing several
debts of the same kind of a single creditor. They cannot be made applicable to a person whose
obligation as a mere surety is both contingent and singular; his liability is confined to such
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obligation, and he is entitled to have all payments made applied exclusively to said application
and to no other. Besides Art. 1253 of the Civil Code is merely directory, and not mandatory

THE BACHRACH GARAGE AND TAXICAB CO. (INC.) vs. GOLINGCO


[G.R. No. 13761. July 12, 1919.]

AVANCEA, J.:

FACTS:
This case is brought for the recovery of a sum of money. Three causes of action are alleged. By
the first cause of action, the plaintiff claims the amount of P7,583.93 with interests thereon from
December 14th (the year not being mentioned therein), till the date it is fully paid in addition to
the 25 per cent of the total amount. By the second cause of action, he claims the amount of
P1,059.17 with interests thereon until fully paid plus the 25 per cent of the total amount; by the
third cause of action, the amount of P1,534.75 with legal interests thereon. The lower court
rendered judgment sentencing the defendant, for the first cause of action, to pay the amount of
P7,583.93 with 10 percent interest thereon from January 19, 1917, plus 12 1/2 percent on the said
amount; for the second cause of action P1,059.17 with the same interest from the said date plus
12 1/2 percent on the same amount; for the third, P154.75 with legal interest from January 19,
1917. From this judgment, the defendant appealed.

ISSUE:
Whether, as alleged by the defendant, the payment of P7,000 which appears in Exhibit 1 is on the
account of the promissory note for P8,750?

RULING:
He who owes several debts of the same kind to a single creditor may declare, at the time of
making a payment, to which of them it is to be applied. (Article 1172 Civil Code.) If, in making
use of this right, the defendant applied the payment of P7,000 to a debt, he cannot claim that it be
applied to another debt.

THE COMMONWEALTH OF THE PHILIPPINES vs . THE FAR EASTERN SURETY &


INSURANCE COMPANY
[G.R. No. L-979. April 13, 1949.]
BENGZON, J:
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FACTS:

On August 20 and October 1, 1935, the Vda. de Tiu Seng and Tan Kiang, a sociedad en
comandita, as principal and the Far Eastern Surety & Insurance Co., Inc., as surety executed two
bonds by which they bound themselves jointly and severally to pay the government the sum of
P10,000 which was the amount due from Tiu Seng (for the sake of brevity we shall use the name
Tiu Seng for the Vda. de Tiu Seng and Tan Kiang) as internal revenue taxes and surcharge. These
bonds were filed before the indebtedness was accurately ascertained. It was afterwards found by
the Collector of Internal Revenue that the amount due from Tiu Seng was P30,512.64. Demand
for payment of this amount was made, but without success. However, a compromise was effected
on November 6, 1936, by which the tax due was reduced to P12,874.17 Paid P2,874.17 on
January 30, 1937, and the balance of P10,000 on monthly payments of P500 each, beginning
February 17, 1937. Finally, it was agreed that the payment be made as follows: P2,874.17 on
January 20, 1937 and the balance of P10,000 within a period of 10 months at the rate of P1,000
per month. Under this agreement, Tiu Seng has paid the Collector the total amount of P11,644.12
leaving a balance of P1,230.05, the amount which the plaintiff now seeks to recover from the
defendant, the Far Eastern Surety & Insurance Co., Inc.

ISSUE:
Whether said sum of P1,230.05 is covered by the two bonds above mentioned?

RULING:
Within the framework of the above statement of facts attorney for appellant vigorously argues
the proposition that it merely guaranteed the payment of P10,000 to the Commonwealth of the
Philippines (now the Republic), without undertaking to pay any balance of the obligation of the
principal debtor, and that after such sum had been fully satisfied, as in this case, it had no further
liability. It is an admitted circumstance that Tin Seng had delivered, after the execution of the
bonds, the total amount of P11,644.12 to the Bureau of Internal Revenue.
It must be observed, however, at this juncture that the trial judge upheld the plaintiff's contention
that the amounts paid should be applied first to the unsecured portion of Tin Seng's liability, thus
leaving unpaid and covered by the bonds the sum of P1,230.05, which may legally be collected
from defendant as a solidary surety.
Appellant's proposition, which is the crux of this appeal, would undoubtedly be unassailable had
all the payments been made specifically on account of the debt secured by the bond. But
although it is agreed that the payments were made on account of taxes there is no proof as to the
imputation thereof. This point is decisive; for, in effect Tiu Seng had two liabilities to the
Commonwealth: one for the sum not covered by the bonds and another for the sum secured
thereby. Parenthetically it should be observed that under the law (article 1826, Civil Code) the
obligation of the guarantor may be less than that of the principal.

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2. PAYMENT BY CESSION (ART. 1255) VS. DATION IN PAYMENT/DACION EN
PAGO (ART. 1245)
A. KINDS OF PAYMENT BY CESSION
B. DATION IN PAYMENT AND PAYMENT BY CESSION DISTINGUISHED
3. TENDER OF PAYMENT AND CONSIGNATION - ARTS. 1256 TO 1261
A. SPECIAL REQUISITES OF CONSIGNATION

DALTON vs. FGR REALTY AND DEVELOPMENT CORPORATION


[G.R. No. 172577. January 19, 2011.]

CARPIO, J.:

FACTS:
Petitioner (Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta Fuentes,
Perla Pormento, Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro
Quebedo, Mary Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.) leased portions of
the property.

In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation
(FGR). In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted
to terminate the lease agreements with Dalton and Sasam, et al.

In a complaint dated 11 September 1985, Dalton and Sasam, et al. consigned the rental
payments with the RTC. They failed to notify Dayrit and FGR about the consignation. In motions
dated 27 March 1987, 10 November 1987, 8 July 1988, and 28 November 1994, Dayrit and
FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved the right to
question the validity of the consignation. Dayrit, FGR and Sasam, et al. entered into compromise
agreements dated 25 March 1997 and 20 June 1997. In the compromise agreements, they agreed
to abandon all claims against each other. Dalton did not enter into a compromise agreement with
Dayrit and FGR.

ISSUE:
Whether the consignation was void?

RULING:
The petition is unmeritorious.

Dalton claims that, "the issue as to whether the consignation made by the petitioner is valid or
not for lack of notice has already been rendered moot and academic with the withdrawal by the
private respondents of the amounts consigned and deposited by the petitioner as rental of the
subject premises."
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The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR
expressly reserved the right to question the validity of the consignation. In Riesenbeck v. Court
of Appeals, the Court held that:

A sensu contrario, when the creditor's acceptance of the money consigned is conditional and with
reservations, he is not deemed to have waived the claims he reserved against his debtor. Thus,
when the amount consigned does not cover the entire obligation, the creditor may accept it,
reserving his right to the balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317,
citing 3 Llerena 263). The same factual milieu obtains here because the respondent creditor
accepted with reservation the amount consigned from raising his other claims, as he did in his
answer with special defenses and counterclaim against petitioner-debtor.

As respondent-creditor's acceptance of the amount consigned was with reservations, it did not
completely extinguish the entire indebtedness of the petitioner-debtor. It is apposite to note here
that consignation is completed at the time the creditor accepts the same without objections, or, if
he objects, at the time the court declares that it has been validly made in accordance with law.
(Emphasis supplied)

Second, 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.

In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc. , the Court enumerated 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.

B. WHEN TENDER NOT NECESSARY 2ND PARAGRAPH OF ART. 1256


C. LOSS OF THE THING DUE ARTS. 1262 TO 1269
I. DEFINITION ART. 1189 (2)
II. LOSS IN OBLIGATION TO DO ART. 1266
III. THEORY OF IMPREVISIBILITY (FRUSTRATION OF ENTERPRISE) ART. 1267

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OCCEA vs. JABSON


[G.R. No. L-44349. October 29, 1976.]

TEEHANKEE, J:

FACTS:
iOn February 25, 1975 private respondent Tropical Homes, Inc.filed a complaint for mod ication
of the terms and conditions of its subdivision contract with petitioners (landowners of a 55,330
square meter parcel of land in Davao City), Under the subdivision contract, respondent
"guaranteed (petitioners as landowners) as the latter's xed and sole share and participation an
amount equivalent to forty (40%) per cent of all cash receipts from the sale of the subdivision
lots".

Respondent prayed of the Rizal court of rst instance that "after due trial, this Honorable Court
render judgment modifying the terms and conditions of the contract . . . by fixing the proper
shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision"
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon
denial thereof and of reconsideration by the lower court elevated the matter on certiorari to
respondent Court of Appeals.

Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dismissed petition on the ground that under Article 1267 of
the Civil Code which provides that.

"ART. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part."
". . . a positive right is created in favor of the obligor to be released from the performance
of an obligation in full or in part when its performance 'has become so difficult as to be
manifestly beyond the contemplation of the parties'."

ISSUE:
Whether or not Art. 1267 is applicable?

RULING:
The petition must be granted.
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While respondent court correctly cited in its decision the Code Commission's report giving the
rationale for Article 1267 of the Civil Code, to wit:

"The general rule is that impossibility of performance releases the obligor. However, it is
submitted that when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to release the obligor in
whole or in part. The intention of the parties should govern and if it appears that the
service turns out to be so difficult as have been beyond their contemplation, it would be
doing violence to that intention to hold the obligor still responsible. . . .,"

it misapplied the same to respondent's complaint. If respondent's complaint were to be released


from having to comply with the subdivision contract, assuming it could show at the trial that the
service undertaken contractually by it had "become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's upholding of respondent's complaint and
dismissal of the petition would be justifiable under the cited codal article. Without said article,
respondent would remain bound by its contract under the theretofore prevailing doctrine that
performance therewith is not excused "by the fact that the contract turns out to be hard and
improvident, unprofitable or impracticable, ill advised or even foolish, or less profitable, or
unexpectedly burdensome", since in case a party desires to be excused from performance in the
event of such contingencies arising, it is his duty to provide therefor in the contract.

But respondent's complaint seeks not release from the subdivision contract but that the court
"render judgment modifying the terms and conditions of the contract . . . by fixing the proper
shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision". The cited article does not grant the courts this authority
to remake, modify or revise the contract or to fix the division of shares between the parties as
contractually stipulated with the force of law between the parties, so as to substitute its own
terms for those covenanted by the parties themselves.

Respondent's complaints for modification of contract manifestly has no basis in law and
therefore states no cause of action. Under the particular allegations of respondent's complaint and
the circumstances therein averred, the courts cannot even in equity grant the relief sought.

IV. WHO BEARS THE RISK OF LOSS ARTS. 1262, 1269, 1189
1. SEE ALSO ARTS. 1504, 1655, 1717 AND 1191
D. CONDONATION OR REMISSION OF DEBT ARTS. 1270 TO 1274
E. CONFUSION OR MERGER ARTS. 1275 TO 1277
F. COMPENSATION ARTS. 1278 TO 1290
I. KINDS OF COMPENSATION

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II. REQUISITES FOR LEGAL COMPENSATION ART. 1279
III. WHEN COMPENSATION NOT PROPER ART. 1287 AND 1288

FRANCIA vs. INTERMEDIATE APPELLATE COURT


[G.R. No. 67649. June 28, 1988.]

GUITERREZ, JR;

FACTS:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with
an area of about 328 square meters, is described and covered by TCT No. 4739 (37795) of the
Registry of Deeds of Pasay City.

On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to
Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to
satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property
Francia was not present during the auction sale since he was in Iligan City at that time helping
his uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition
for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT
No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification
through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho
Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale
were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.

ISSUE:
Whether respondent intermediate appellate court committed a grave error of law in not holding
that petitioner's obligation to pay P2,400.00 for supposed tax delinquency was set-off by the
amount of p4,116.00 which the government is indebted to the former?

RULING:

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We gave due course to the petition for a more thorough inquiry into the petitioner's allegations
that his property was sold at public auction without notice to him and that the price paid for the
property was shockingly inadequate, amounting to fraud and deprivation without due process of
law.

A careful review of the case, however, discloses that Mr. Francia brought the problems raised in
his petition upon himself. While we commiserate with him at the loss of his property, the law and
the facts militate against the grant of his petition. We are constrained to dismiss it.

Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land
was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of
law as of October 15, 1977.

There is no legal basis for the contention. By legal compensation, obligations of persons, who in
their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278,
Civil Code). The circumstances of the case do not satisfy the requirements provided by Article
1279, to wit:

"(1) that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other;
xxx xxx xxx
"(3) that the two debts be due.
xxx xxx xxx

This principal contention of the petitioner has no merit. We have consistently ruled that there can
be no off-setting of taxes against the claims that the taxpayer may have against the government.
A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results of
a lawsuit against the government.

G. NOVATION ARTS. 1291 TO 1304


I. KINDS: EXTINCTIVE AND MODIFICATORY
1. EXTINCTIVE
A. REQUISITES OF EXTINCTIVE NOVATION
B. SUBSTITUTION OF DEBTORS ARTS. 1293 AND 1295
C. EXPROMISSION ART. 1294
D. DELEGACION ART. 1295
E. SUBROGATION ART. 1300 TO 1304
I. LEGAL ART. 1302
II. CONVENTIONAL ART. 1301
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2. MODIFICATORY

YOUNG v. CA
[G.R. No. 79518 January 13, 1989]

FACTS:
The Defendant Philippine Holding, Inc. is the former owner of a piece of land located at Soler
St., Sta. Cruz, Manila, and a two storey building erected thereon, consisting of six units. The
owner Philippine Holding, Inc. secured an order from the City Engineer of Manila to demolish
the building. Antonio Young, then a tenant of said Unit 1352, filed an action to annul the City
Engineer's demolition As an incident in said case, the parties submitted a Compromise
Agreement to the Court. Paragraph 3 of said agreement provides that plaintiff (Antonio S.
Young) and Rebecca Young and all persons claiming rights under them bind themselves to
voluntarily and peacefully vacate the premises which they were occupying as lessees which are
the subject of the condemnation and demolition order and to surrender possession . A case was
filed to the RTC and Young contended that even assuming that her supposed right of first refusal
is a stipulation for the benefit of a third person, she did not inform the obligor of her acceptance
as required by the second paragraph of Article 1311 of the Civil Code.

ISSUE:
Whether or not Youngs stipulation that gave her the right of refusal is a stipulation pour autrui.

RULING:
The stipulation that young gave may be a stipulation pour autrui but it is unrebutted that she did
not communicate her acceptance whether expressly or impliedly. The requisites of a
stipulation pour autrui or a stipulation in favor of a third person are the following: (1) there must
be a stipulation in favor of a third person (2) the stipulation must be a part, not the whole of the
contract (3) the contracting parties must have clearly and deliberately conferred a favor upon a
third person, not a mere incidental benefit or interest (4) the third person must have
communicated his acceptance to the obligor before its revocation. (5) neither of the contracting
parties bears the legal representation or authorization of the third party. The argument is
pointless, considering that the sale of subject property to some other person or entity constitutes
in effect a revocation of the grant of the right of first refusal to Rebecca C. Young.

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HERNANDEZ-NIEVERA vs. HERNANDEZ
[G.R. No. 171165. February 14, 2011.]

PERALTA, J:

FACTS:
Project Movers Realty & Development Corporation (PMRDC), one of the respondents herein, is
a duly organized domestic corporation engaged in real estate development. Sometime in 1995, it
entered through its president, respondent Mario Villamor (Villamor), into various agreements
with co-respondents Home Insurance & Guaranty Corporation (HIGC) and Land Bank of the
Philippines (LBP), in connection with the construction of the Isabel Homes housing project in
Batangas and of the Monumento Plaza commercial and recreation complex in Caloocan City. In
its Asset Pool Formation Agreement, PMRDC conveyed to HIGC the constituent assets of the
two projects, whereas LBP agreed to act as trustee of the resulting Asset Pool for a consideration.
The execution of the projects would be funded largely through securitization, a method of
sourcing development funds by the issuance of participation certificates against the direct
backing assets of the projects, whereby LBP would act as the nominal issuer of such certificates
with the Asset Pool itself acting as the real issuer. 10 HIGC, in turn, would provide guaranty
coverage to these participation certificates in accordance with its Contract of Guaranty with
PMRDC and LBP.

On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) whereby it
was given the option to buy pieces of land owned by petitioners Carolina Hernandez-Nievera
(Carolina), Margarita H. Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio).
Demetrio, under authority of a Special Power of Attorney to Sell or Mortgage, 12 signed the
MOA also in behalf of Carolina and Margarita. In the aggregate, the realty measured 4,580,451
square meters and was segregated by agreement into Area I and Area II, respectively pertaining
to the parcels covered by Transfer Certificate of Title (TCT) Nos. T-3137, T-3138, T-3139 and T-
3140 on the one hand, and on the other by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-
3136, all

ISSUE:
Whether or not novation took place?

RULING:
The Court denies the petition. Petitioners' cause stems from the failure of PMRDC to restore to
petitioners the possession of the TCTs of the lands within Area II upon its failure to exercise the
option to purchase within the 12-month period stipulated in the MOA. Respondents maintain,
however, that said obligation, dependent as it is on the exercise of the option to purchase, has
altogether been expressly obliterated by the terms of the DAC whereby petitioners, through
Demetrio as attorney-in-fact, have agreed to novate the terms of the MOA by extinguishing the
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Obligations and Contracts: Doctrines and Case Digests
core obligations of PMRDC on the payment of option money. This seems to suggest that with the
execution of the DAC, PMRDC has already entered into the exercise of its option except that its
obligation to deliver the option money has, by subsequent agreement embodied in the DAC, been
substituted instead by the obligation to issue participation certificates in Demetrio's name but
which, likewise, has not yet been performed by PMRDC. But petitioners stand against the
validity of the DAC on the ground that the signature of Demetrio therein was spurious.

MILLAR vs. COURT OF APPEALS


[G.R. No. L-29981. April 30, 1971.]

CASTRO, J:

FACTS:
Millar obtained a favorable condemning Antonio P. Gabriel to pay him the sum of P1,746.98
with interest at 12% per annum from the date of the filing of the complaint, the sum of P400 as
attorney's fees, and the costs of suit. The lower court issued the writ of execution on the basis of
which the sheriff seized the respondent's Willy's Ford jeep. The respondent, however, pleaded
with the petitioner to release the jeep under an arrangement whereby the respondent, to secure
the payment of the judgment debt, agreed to mortgage the vehicle in favor of the petitioner. The
petitioner agreed to the arrangement; thus, the parties executed a chattel mortgage on the jeep.
Resolution of the controversy posed by the petition at bar hinges entirely on a determination of
whether or not the subsequent agreement of the parties as embodied in the deed of chattel
mortgage impliedly novated the judgment obligation.

ISSUE:
Whether or not the subsequent agreement of the parties as embodied in the deed of chattel
mortgage impliedly novated the judgment obligation in civil case 27116?

RULING:
No substantial incompatibility between the mortgage obligation and the judgment liability of the
respondent sufficient to justify a conclusion of implied novation. The stipulation for the payment
of the obligation under the terms of the deed of chattel mortgage serves only to provide an
express and specific method for its extinguishment payment in two equal installments. The
chattel mortgage simply gave the respondent a method and more time to enable him to fully
satisfy the judgment indebtedness. The chattel mortgage agreement in no manner introduced any
substantial modification or alteration of the judgment. Instead of extinguishing the obligation of
the respondent arising from the judgment, the deed of chattel mortgage expressly ratified and
confirmed the existence of the same, amplifying only the mode and period for compliance by the
respondent.

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Obligations and Contracts: Doctrines and Case Digests
The defense of implied novation requires clear and convincing proof of complete incompatibility
between the two obligations. The law requires no specific form for an effective novation by
implication. The test is whether the two obligations can stand together. If they cannot,
incompatibility arises, and the second obligation novates the first. If they can stand together, no
incompatibility results and novation does not take place.

MACONDRAY & CO., INC. vs. RUIZ


[G.R. No. 44671. November 26, 1938.]

IMPERIAL, J;

Facts:
On January 21, 1932 plaintiff sold to the defendant Antonio E. Ruiz an automobile "De Sotto De
Luxe Sedan" for P,572. They agreed that defendant would pay in cash P302 and for the balance
of P3,270 he would execute several promissory notes in different amounts maturing on different
dates. The defendant executed jointly with one Ramon Borromeo 27 promissory notes wherein
both undertook to pay jointly and severally the value of said notes on the dates of their maturity.
In addition, Ruiz mortgaged the automobile, executing the corresponding deed. Ruiz made some
payments on account of his promissory notes and his indebtedness was reduced to P2,246.18. On
March 15, 1934 the parties agreed to execute another contract excluding Ramon Borromeo,
whereby Ruiz and another person would sign the promissory notes for the balance.
Consequently, on said date Ruiz and the other defandant, Ernesto Cuisia, signed another
promissory note whereby they promised jointly and severally to pay the plaintiff the sum of
P2,246.18 with interest thereon at 12 per cent per annum. In this latter contract the parties
stipulated that the mortgage of the automobile would be left to stand. Ruiz again made other
payments and his indebtedness was reduced to P2.088.89 plus the interest thereon. As the
defendants failed to pay some of the installments upon their maturity, the plaintiff foreclosed the
mortgage and the sheriff sold the automobile at public auction, awarding it to the plaintiff for the
sum of P500. After the account of the defendants had been liquidated and the proceeds of the
public sale of the automobile together with the expenses of the proceeding had been deducted, it
appeared that the defendants were owing the plaintiff the sum of P1,696.20. In order to recover
this amount plus the interest thereon and the penalty agreed upon, the plaintiff brought this action
against the defendants. After trial the court absolved the defendants from the complaint, without
costs. The plaintiff appealed from the decision and timely filed the bill of exceptions which was
approved and certified.

ISSUE:

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Whether the court did commit the alleged error, for it clearly appears that the first contract was
substituted in its entirety by the second, because the stipulations contained in the first were
substantially altered by other stipulations that were inserted in the second?

RULING:
The court absolved the defendants because in its opinion the first mortgage and the promissory
notes signed by Ruiz and Ramon Borromeo on January 21, 1932 were substituted and novated by
the deed executed by Ruiz and Ernesto Cuisia on March 14, 1934, and because on this latter date
Act No. 4122 was already in force, under which the plaintiff cannot maintain the present action
for the recovery from the defendants of the balance owing after it had elected to foreclose the
mortgage. In its first assignment of error plaintiff contends that the court erroneously applied the
law in considering as novated the first mortgage and the promissory notes which were then
executed. We hold that the court did not commit the alleged error, for it clearly appears that the
first contract was substituted in its entirety by the second, because the stipulations contained in
the first were substantially altered by other stipulations that were inserted in the second.
According to article 1203 of the Civil Code obligations are modified by altering their object or
principal conditions, by substituting another in place of the debtor, or by subrogating a third
person to the rights of the creditor; and article 1204 provides that in order that an obligation may
be extinguished by another which substitutes it, it shall be necessary that it be so declared
expressly, or that the old and new obligations be incompatible in every respect In the first
contract the debtors were Ruiz and Borromeo and they were answerable jointly and severally for
the sum of P3,270. In the second contract the debtors were the same Ruiz and Ernesto Cuisia and
the amount for which they 'were liable was only P2,246.18. In the latter contract the dates of the
maturity of the obligations were changed due to the lapse of time and to the partial payments
made by the former debtors. These facts show at a glance that the first contract was in its terms
substituted by the second, and that the latter is incompatible with the former. With respect to the
first mortgage, the principal obligation, consisting of the previous indebtedness, having been
extinguished, its terms and conditions should be understood as subject to those of the contract
subsequently entered into.

INCHAUSTI & CO. v. YULO


[G.R. No. 7721. March 25, 1914.]
ARRELLANO. J:

FACTS:
This suit is brought for the recovery of a certain sum of money, the balance of a current account
opened by the firm of Inchausti & Company with Teodoro Yulo and after his death continued
with his widow and children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a
property owner of Iloilo, for the exploitation and cultivation of his numerous haciendas in the
province of Occidental Negros, had been borrowing money from the Inchausti & Company
under specific conditions. On April 9, 1903, Teodoro Yulo died testate and for the execution of
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Obligations and Contracts: Doctrines and Case Digests
the provisions of his will he had appointed as administrators his widow and 5 of his sons,
Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who died on
October 22 of the following year, 1904, there remaining of the marriage the following legitimate
children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Conception, and Jose
Yulo y Regalado. Of these children Conception and Jose were minors, while Teodoro was
mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo, his widow and
children held the conjugal property in common and at the death of this said widow, Gregoria
Regalado, these children preserved the same relations under the name of Hijos de T. Yulo
continuing their current account with Inchausti & Company in the best and most harmonious
reciprocity until said balance amounted to two hundred thousand pesos. In this state of affairs the
creditor firm triedto obtain security for the payment of the disbursements of money which until
that time it had been making in favor of its debtors, the Yulos.

ISSUE:
Whether the plaintiff can sue Gregorio Yulo alone, there being other Obligors?

RULING:
When the obligation is a solidary one, the creditor may bring his action in toto against any of the
debtors obligated in solidum and although the creditor may have, by means of a subsequent
instrument, covenanted with some of the solidary debtors different periods of payment and
different conditions, not on this account may it be understood that the solidarity stipulated in the
previous instrument has been broken.

KABANKALAN SUGAR CO., INC. vs. PACHECO


[G.R. No. 33654. December 29, 1930.]

VILLA-REAL, J:

FACTS:
Josefa Pacheco binds herself to acknowledge in favor of the Kabankalan Sugar Co., Inc., all the
easements which the Kabankalan may consider convenient and necessary for its railroad on the
Hilabagan estate belonging to the Pacheco; the only differences being that the term of the
contract of November 1, 1920, is twenty years, while that of the contract entered into on
September 29, 1922, is seven crops (one of the stipulations of the contract).

ISSUE:
Whether the contract of September 29, 1922, has extinguished the contract of November 1, 1920,
by novation?

RULING:
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Obligations and Contracts: Doctrines and Case Digests
When an easement of right way is one of the principal conditions of a contract, and the duration
of said easement is specified, the reduction of said period in a subsequent contract, wherein the
same obligation is one of the principal conditions, constitutes a novation and to that extent
extinguishes the former contractual obligation.
In the contract of November 1, 1920, the duration of the right of way which the defendant bound
herself to impose upon her estate in favor of the plaintiff was twenty years, while in the contract
of September 29, 1922, that period was reduced to seven crops which is equivalent to seven
years. There can be no doubt that these two contracts, in so far as the duration of the right of way
is concerned, are incompatible with each other, for the second contract reduces the period agreed
upon in the first contract, and so both contracts cannot subsist at the same time. The duration of
the right of way is one of the principal conditions of the first as well as of the second contract,
and inasmuch as said principal condition has been modified, the contract has been novated, in
accordance with the provision quoted above.

B. CONCEPT ART. 1159


C. CHARACTERISTICS (TENETS) OF CONTRACTS:
I. AUTONOMY ART. 1306

BANCO FILIPINO SAVINGS AND MORTGAGE BANK vs. NAVARRO


[G.R. No. L-46591. July 28, 1987.]

MELENCIO-HERRERA, J:

FACTS:
On May 20, 1975, respondent Florante del Valle (the BORROWER) obtained a loan secured by a
real estate mortgage (the LOAN, for short) from petitioner BANCO FILIPINO in the sum of
(P41,300.00) Pesos, payable and to be amortized within (15) years at (12%) per cent interest
annually. Hence, the LOAN still had more than 730 days to run by January 2, 1976, the date
when CIRCULAR No. 494 was issued by the Central Bank.

Stamped on the promissory note evidencing the loan is an Escalation Clause, reading as follows:
"I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in
this contract without advance notice to me/us in the event a law should be enacted increasing the
lawful rates of interest that may be charged on this particular kind of loan."

The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued on January 2,
1976, the pertinent portion of which reads:

"3. The maximum rate of interest, including commissions, premiums, fees and other
charges on loans with maturity of more than seven hundred thirty (730) days, by banking
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Obligations and Contracts: Doctrines and Case Digests
institutions, including thrift banks and rural banks, or by financial intermediaries
authorized to engage in quasi-banking functions shall be nineteen per cent (19%) per
annum.
"xxx xxx xxx

For its part, BANCO FILIPINO maintained that the Escalation Clause signed by the
BORROWER authorized it to increase the interest rate once a law was passed increasing the rate
of interest and that its authority to increase was provided for by CIRCULAR No. 494.

In its judgment, respondent Court nullified the Escalation Clause and ordered BANCO
FILIPINO to desist from enforcing the increased rate of interest on the BORROWER's loan. It
reasoned out that P.D. No. 116 does not expressly grant the Central Bank authority to maximize
interest rates with retroactive effect and that BANCO FILIPINO cannot legally impose a higher
rate of interest before the expiration of the 15-year period in which the loan is to be paid other
than the 12% per annum in force at the time of the execution of the loan.

It is from that Decision in favor of the BORROWER that BANCO FILIPINO has come to this
instance on review by Certiorari. We gave due course to the Petition, the question being one of
law.

RULING:

In Banco Filipino Savings and Mortgage Bank vs. Navarro, 15 SCRA 346 (1987), this Court
disauthorized the bank from raising the interest rate on the borrowers' loan from 12% to 17%
despite an escalation clause in the loan agreement signed by the debtors authorizing Banco
Filipino "to correspondingly increase the interest rate stipulated in this contract without advance
notice to me/us in the event a law should be enacted increasing the lawful rates of interest that
may be charged on this particular kind of loan." (emphasis supplied.)

In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1,
1976 (72 O.G. No. 3, p. 676-J) which provided that "the maximum rate of interest, including
commissions premiums, fees and other charges on loans with a maturity of more than 730 days
by banking institution shall be 19%.

FLAVIO K. MACASAET & ASSOCIATES, INC. vs. COMMISSION ON AUDIT


[G.R. No. 83748. May 12, 1989.]

MELENCIO-HERRERA, J:

FACTS:
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Obligations and Contracts: Doctrines and Case Digests
On 15 September 1977 respondent Philippine Tourism Authority (PTA) entered into a Contract
for "Project Design and Management Services for the development of the proposed Zamboanga
Golf and Country Club, Calarian, Zamboanga City" with petitioner company, but originally with
Flavio K. Macasaet alone (hereinafter referred to simply as the "Contract").
Under the Contract, PTA obligated itself to pay petitioner a professional fee of seven (7%) of the
actual construction cost, Pursuant to the foregoing Schedule, the PTA made periodic payments of
the stipulated professional fees to petitioner. And, upon completion of the project, PTA paid
petitioners what it perceived to be the balance of the latter's professional fees. It turned out,
however, that after the project was completed, PTA paid Supra Construction Company, the main
contractor, the additional sum of P3,148,198.26 representing the escalation cost of the contract
price due to the increase in the price of construction materials.

Upon learning of the price escalation, petitioner requested payment of P219,302.47 additional
professional fee representing seven (7%) percent of P3,148,198.26.

On 3 July 1985 PTA denied payment on the ground that "the subject price escalation referred to
increased cost of construction materials and did not entail additional work on the part of
petitioner as to entitle it to additional compensation under Article VI of the contract"

Reconsiderations sought by the petitioner, up to respondent COA, were to no avail. The latter
expressed the opinion that "to allow subject claim in the absence of a showing that extra or
additional services had been rendered by claimant would certainly result in overpayment to him
to the prejudice of the Government"

ISSUE:
Whether petitioner's entitlement to additional professional fees, which, in turn, hinges on
whether or not the price escalation should be included in the "final actual project cost."?

RULING:
The terminologies in the contract being clear, leaving no doubt as to the intention of the
contracting parties, their literal meaning control (Article 1370, Civil Code).
The price escalation cost must be deemed included in the final actual project cost and petitioner
held entitled to the payment of its additional professional fees. Obligations arising from contract
have the force of law between the contracting parties and should be complied with in good faith
(Article 1159, Civil Code).

PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS


[G.R. No. 88880. April 30, 1991.]

GRINO-AQUINO, J:

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Obligations and Contracts: Doctrines and Case Digests
FACTS:
In July 1982, the private respondent applied for, and was granted by petitioner PNB, a credit line
of 321.8 million, secured by a real estate mortgage, for a term of two (2) years, with 18% interest
per annum. Private respondent executed in favor of the PNB a Credit Agreement, two (2)
promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract. The
Credit Agreement provided that "9.06 Other Conditions. The Borrowers hereby agree to be
bound by the rules and regulations of the Central Bank and the current and general policies of the
Bank and those which the Bank may adopt in the future, which may have relation to or in any
way affect the Line, which rules, regulations and policies are incorporated herein by reference as
if set forth herein in full. Promptly upon receipt of a written request from the Bank, the
Borrowers shall execute and deliver such documents and instruments, in form and substance
satisfactory to the Bank, in order to effectuate or otherwise comply with such rules, regulations
and policies."

The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18%
interest per annum "within the limits allowed by law at any time depending on whatever policy it
[PNB] may adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by
law or by the Monetary Board."

The Real Estate Mortgage Contract likewise provided that:

"(k) INCREASE OF INTEREST RATE "The rate of interest charged on the obligation secured
by this mortgage as well as the interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this
contract to such an increase within the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe for its debtors." (p. 86, Rollo; emphasis supplied.)
Four (4) months advance interest and incidental expenses/charges were deducted from the loan,
the net proceeds of which were released to the private respondent by crediting or transferring the
amount to his current account with the bank.

ISSUE:
Whether the bank, within the term of the loan which it granted to the private respondent, may
unilaterally change or increase the interest rate stipulated therein at will and as often as it
pleased?

RULING:
The answer to that question is no. In the first place, although Section 2, PD. No. 116 of January
29, 1973, authorizes the Monetary Board to prescribe the maximum rate or rates of interest for
loans or renewal thereof and to change such rate or rates whenever warranted by prevailing
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Obligations and Contracts: Doctrines and Case Digests
economic and social conditions, it expressly provides that "such changes shall not be made
oftener than once every twelve months."
Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the
private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil
Code: "ART. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them."
PNB's successive increases of the interest rate on the private respondent's loan, over the latter's
protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1)
Section 9.01 that its terms "may be amended only by an instrument in writing signed by the party
to be bound as burdened by such amendment." The increases imposed by PNB also contravene
Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has been
expressly stipulated in writing."

REPUBLIC OF THE PHILIPPINES vs. PHILIPPINE LONG DISTANCE TELEPHONE


COMPANY
[G.R. No. L-18841. January 27, 1969.]

REYES, J.B.L;

FACTS:
The Bureau of Telecommunications had a contract with PLDT; that the Bureau would pay PLDT
for the use the trunk lines of PLDT to establish phone lines in all government offices in the
country. However, after sometime, the Bureau extended its services for commercial use as PLDT
could not cope with the demands of the public for phone line connections. PLDT knew about the
actuations of the Bureau but it took PLDT a long time to file a complaint for the Bureaus act.

ISSUE:
Whether can be coerced to enter into a contract where no agreement is had between them as to
the principal terms and conditions of the contract?

RULING:
We agree with the court below that parties cannot be coerced to enter into a contract where no
agreement is had between them as to the principal terms and conditions of the contract. Freedom
to stipulate such terms and conditions is of the essence of our contractual system, and by express
provision of the statute, a contract may be annulled if tainted by violence, intimidation, or undue
influence. But the court a quo has apparently overlooked that while the Republic may not compel
the PLDT to celebrate a contract with it, the Republic may, in the exercise of the sovereign
power of eminent domain, require the telephone company to permit interconnection of the
government telephone system and that of the PLDT, as the needs of the government service may
require, subject to the payment of just compensation to be determined by the court. Nominally, of
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Obligations and Contracts: Doctrines and Case Digests
course, the power of eminent domain results in the taking or appropriation of title to, and
possession of, the expropriated property; but no cogent reason appears why the said power may
not be availed of to impose only a burden upon the owner of condemned property, without loss
of title and possession. It is unquestionable that real property may, through expropriation, be
subjected to an easement of right of way. The use of the PLDT's lines and services to allow inter-
service connection between both telephone systems is not much different. In either case private
property is subjected to a burden for public use and benefit. If, under section 6, Article XIII, of
the Constitution, the State may, in the interest of national welfare, transfer utilities to public
ownership upon payment of just compensation, there is no reason why the State may not require
a public utility to render services in the general interest, provided just compensation is paid
therefor. Ultimately, the beneficiary of the interconnecting service would be the users of both
telephone systems, so that the condemnation would be for public use.

LITA ENTERPRISES, INC. vs. SECOND CIVIL CASES DIVISION, INTERMEDIATE


APPELLATE COURT
[G.R. No. 64693. April 27, 1984.]

ESCOLIN, J;

FACTS:
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota
Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs,
they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel
Concordia, for the use of the latter's certificate of public convenience in consideration of an
initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate said
agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc.
Possession, however, remained with the spouses Ocampo who operated and maintained the same
under the name Acme Taxi, petitioner's trade name.

About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio
Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head
injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio
Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of
the victim, against Lita Enterprises, Inc., as registered owner of the taxicab. In the latter case,
Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc.
was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued. One of the vehicles of
respondent spouses with Engine No. 2R- 914472 was levied upon and sold at public auction for
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Obligations and Contracts: Doctrines and Case Digests
P2,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was
likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his
name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration
papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against
Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the
Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No.
90988 of the Court of First Instance of Manila.

ISSUE:
Whether void contracts, cannot be cured by ratification or prescription?

RULING:
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by
ratification or by prescription. As this Court said in Eugenio vs. Perdido, 97 Phil. 41, "the mere
lapse of time cannot give efficacy to contracts that are null and void."

CUI vs. ARELLANO UNIVERSITY


[G.R. No. L-15127. May 30, 1961.]

CONCEPCION, J:

FACTS:
Cui was a law scholar at the Arellano University; he paid the tuition fees but it was returned to
him at the end of every semester. Before Arellano awarded the scholarship grant, Cui was made
to sign a contract covenant and agreement saying that he waives his right to transfer to another
school in consideration of the scholarship grant and if he transfers, he shall pay the tuition fees
awarded to him while being a scholar. He transferred to another school to finish his last term in
law school. When he was about to take the Bar, his TOR at Arellano was not issued unless he
pays the amount of the tuition fees that were returned to him when he was still their scholar. He
paid under protest.

ISSUE:
Whether the above quoted provision of the contract between plaintiff and the defendant whereby
the former waived his right to transfer to another school without refunding to the latter the
equivalent of his scholarships in cash, is valid or not?

RULING:
The waiver signed by Cui was void as it was contrary to public policy; it was null and void.

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Obligations and Contracts: Doctrines and Case Digests
The stipulation in a contract, between a student and the school, that the student's scholarship is
good only if he continues in the same school, and that he waives his right to transfer to another
school without refunding the equivalent of his scholarship in cash, is contrary to public policy
and, hence, null and void, because scholarships are awarded in recognition of merit and to help
gifted students in whom society has an established interest or a first lien, and not to keep
outstanding students in school to bolster its prestige and increase its business potential.

NON vs. DAMES


[G.R. No. 89317. May 20, 1990.]
CORTEZ, J:

FACTS:
Petitioners, students in private respondent Mabini Colleges, Inc. were not allowed to re-enroll by
the school for the academic year 1988-1989 for leading or participating in student mass actions
against the school in the preceding semester. The subject of the protests is not, however, made
clear in the pleadings.

The trial court dismissed the petition referring to the ruling in Alcuaz vs. PSBA stating, that
being a mere privilege and not a legal right for a student to be enrolled or re-enrolled, respondent
Mabini College is free to admit or not admit the petitioners for re-enrollment in view of the
academic freedom enjoyed by the school.

The respondents, in justifying their action, stated that 8 of the petitioners have incurred failing
grades. In response, the petitioners stated that: (a) three of them were graduating. (b) Their
academic deficiencies do not warrant non-readmission. (c) The improper conduct attributed to
them was during the exercise of the cognate rights of free speech and peaceable assembly. (d)
There was no due investigation that could serve as basis for disciplinary action. (e) Respondent
school is their choice institution near their places of residence, which they can afford to pay for
tertiary education.

ISSUE:
Whether or not the school has the right not to re-admit the petitioners?

RULING:
The Supreme Court ruled that the trial court cannot anchor the Termination of Contract theory
the contract between the school and the student is not an ordinary contract. It is imbued with
public interest, considering the high priority given by the Constitution to education and the grant
to the State of supervisory and regulatory powers over all educational institutions. It is intended
merely to protect schools wherein tuition fees are collected and paid on installment basis. It
cannot be construed to mean that a student shall be enrolled for only one semester.
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Obligations and Contracts: Doctrines and Case Digests

The right of an institution of higher learning to set academic standards cannot be utilized to
discriminate against students who exercise their constitutional rights to speech and assembly, for
otherwise there will be a violation of their right to equal protection. It provides that every student
has the right to enroll in any school college or university upon meeting its specific requirements
and reasonable regulations; . . . and that the student is presumed to be qualified for enrollment
for the entire period he is expected to complete the course, without prejudice to his right to
transfer.

CAPITOL MEDICAL CENTER, INC. vs. COURT OF APPEALS


[G.R. No. 82499. October 13, 1989.]

GRIO-AQUINO, J:

FACTS:

On December 2, 1987, fifteen (15) students and parents purporting to represent the 900 students
of the CMCC filed a class suit (Civil Case No. 52429) against "Capitol Medical Center College"
and petitioner Dr. Clemente, in the Regional Trial Court of Quezon City praying for the
reopening of the Capitol Medical Center College which had been closed effective at the end of
the first semester of the school year 1987-1988 (p. 208, Rollo).

As the complaint prayed for the issuance of a writ of preliminary mandatory injunction, the court
set the hearing of the application on December 9, 1987. As agreed at the hearing, an opposition
was filed by CMCC on December 14, 1987.

On the same day, the lower court granted the writ of preliminary mandatory injunction and
directed the defendants "to reopen (the) school and allow plaintiffs students to enroll in their
respective course[s] . . ." It fixed the plaintiffs' bond in the sum of P50,000.

The petitioners filed a motion for reconsideration of the above order but the court denied their
motion. In due time, the petitioners elevated the order to the Court of Appeals on a petition for
certiorari with preliminary injunction. The Court of Appeals issued a restraining order and
directed the respondents to comment on the petition.

After hearing the parties in oral argument, the Court of Appeals rendered a decision on February
15, 1988 holding that the respondent RTC Judge did not abuse his discretion in issuing the order
of preliminary mandatory injunction because the petitioners had no right to suddenly close the

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Obligations and Contracts: Doctrines and Case Digests
school for the enrollment of the students created a binding contract between them and the school
for the latter to continue operating until the former shall have finished their courses.

On February 26, 1988, the petitioners filed a motion for reconsideration and rehearing which was
held on March 3, 1988.

Nevertheless, on March 8, 1988, the Court of Appeals denied petitioner's motion for
reconsideration. Hence, this petition for review.

ISSUE:
Whether a school that, after due notice to the Secretary of Education, Culture and Sports, closed
at the end of the first semester of the school year 1987-1988, because its teachers and students
declared a strike, refusing to hold classes and take examinations, may be forced to reopen by the
courts at the instance of the striking students?

RULING:
The petition for review has merit.
The sole object of a preliminary injunction, whether prohibitory or mandatory, is to preserve the
status quo until the merits of the case can be heard. The status quo is the last actual peaceable
uncontested status which preceded the controversy (Rodulfa vs. Alfonso, 76 Phil. 225). It may
only be resorted to by a litigant for the preservation or protection of his rights or interests and for
no other purpose during the pendency of the principal action (Calo vs. Roldan, 76 Phil. 445). It
should only be granted if the party asking for it is clearly entitled thereto (Climaco vs. Macaraeg,
4 SCRA 930; Subido vs. Gopengco, 27 SCRA 455; Police Commission vs. Bello, 37 SCRA 230).

Inasmuch as a mandatory injunction tends to do more than to maintain the status quo, it is
generally improper to issue such an injunction prior to the final hearing (Manila Electric Railroad
and Light Co. vs. Del Rosario, 22 Phil. 433). It may, however, issue "in cases of extreme
urgency; where the right is very clear; where considerations of relative inconvenience bear
strongly in complainant's favor; where there is a willful and unlawful invasion of plaintiffs right
against his protest and remonstrance, the injury being a continuing one; and where the effect of
the mandatory injunction is rather to reestablish and maintain a preexisting continuing relation
between the parties, recently and arbitrarily interrupted by the defendant, than to establish a new
relation. Indeed, the writ should not be denied the complainant when he makes out a clear case,
free from, doubt and dispute." (Commissioner of Customs vs. Cloribel, et al., 19 SCRA 235.)

II. CONSENSUALITY ARTS. 1305 AND 1315; SEE ALSO ART. 448
III. MUTUALITY ART. 1308

PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS


[G.R. No. 88880. April 30, 1991.]
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Obligations and Contracts: Doctrines and Case Digests

GRINO-AQUINO, J:

FACTS:
In July 1982, the private respondent applied for, and was granted by petitioner PNB, a credit line
of 321.8 million, secured by a real estate mortgage, for a term of two (2) years, with 18% interest
per annum. Private respondent executed in favor of the PNB a Credit Agreement, two (2)
promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract. The
Credit Agreement provided that

"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and
regulations of the Central Bank and the current and general policies of the Bank and
those which the Bank may adopt in the future, which may have relation to or in any way
affect the Line, which rules, regulations and policies are incorporated herein by reference
as if set forth herein in full. Promptly upon receipt of a written request from the Bank, the
Borrowers shall execute and deliver such documents and instruments, in form and
substance satisfactory to the Bank, in order to effectuate or otherwise comply with such
rules, regulations and policies." (p. 85, Rollo.)

The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18%
interest per annum "within the limits allowed by law at any time depending on whatever policy it
[PNB] may adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by
law or by the Monetary Board."

The Real Estate Mortgage Contract likewise provided that:

"(k) INCREASE OF INTEREST RATE "The rate of interest charged on the obligation
secured by this mortgage as well as the interest on the amount which may have been
advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be
subject during the life of this contract to such an increase within the rate allowed by law,
as the Board of Directors of the MORTGAGEE may prescribe for its debtors." (p. 86,
Rollo)

Four (4) months advance interest and incidental expenses/charges were deducted from the loan,
the net proceeds of which were released to the private respondent by crediting or transferring the
amount to his current account with the bank.

ISSUE:

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Obligations and Contracts: Doctrines and Case Digests
Whether the bank, within the term of the loan which it granted to the private respondent, may
unilaterally change or increase the interest rate stipulated therein at will and as often as it
pleased.

RULING:
The answer to that question is no. In the first place, although Section 2, PD. No. 116 of January
29, 1973, authorizes the Monetary Board to prescribe the maximum rate or rates of interest for
loans or renewal thereof and to change such rate or rates whenever warranted by prevailing
economic and social conditions, it expressly provides that "such changes shall not be made
oftener than once every twelve months."

Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the
private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil
Code: "ART. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them."

PNB's successive increases of the interest rate on the private respondent's loan, over the latter's
protest, were arbitrary as they violated an express provision of the Credit Agreement. Section
9.01 that its terms "may be amended only by an instrument in writing signed by the party to be
bound as burdened by such amendment." The increases imposed by PNB also contravene Art.
1956 of the Civil Code which provides that "no interest shall be due unless it has been expressly
stipulated in writing."

SINGSON ENCARNACION vs. BALDOMAR


[G.R. No. L-264. October 4, 1946.]

HIDALGO. J:

FACTS:
Vicente Singson Encarnacion, owner of the house numbered 589 Legarda Street, Manila, some
six years ago leased said house to Jacinta Baldomar and her son, Lefrado Fernando, upon a
month-to-month basis for the monthly rental of P35. After Manila was liberated in the last war,
specifically on March 16, 1945, and on April 7, of the same year, plaintiff Singson Encarnacion
notified defendants, the said mother and son, to vacate the house above-mentioned on or before
April 15, 1945, because plaintiff needed it for his offices as a result of the destruction of the
building where said plaintiff had said offices before. Despite this demand, defendants insisted on
continuing their occupancy. When the original action was lodged with the Municipal Court of
Manila on April 20, 1945, defendants were in arrears in the payment of the rental corresponding
to said month, the agreed rental being payable within the first five days of each month.
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Obligations and Contracts: Doctrines and Case Digests
That rental was paid prior to the hearing of the case in the municipal court, as a consequence of
which said court entered judgment for restitution and payment of rentals at the rate of P35 a
month from May 1, 1945, until defendants completely vacate the premises. Although plaintiff
included in said original complaint a claim for P500 damages per month, that claim was waived
by him before the hearing in the municipal court, on account of which nothing was said
regarding said damages in the municipal court's decision.

ISSUE:
Whether continuance and fulfillment of the contract of lease can be made to depend solely and
exclusively upon the free and uncontrolled choice of the lessees?

RULING:
The continuance and fulfillment of the contract of lease cannot be made to depend solely and
exclusively upon the free and uncontrolled choice of the lessees between continuing paying the
rentals or not, completely depriving the owner of all say in the matter. For if this were allowed,
so long as defendants elected to continue the lease by continuing the payment of the rentals, the
owner would never be able to discontinue it; conversely, although the owner should desire the
lease to continue, the lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment of the rentals. This, of
course, is prohibited by article 1256 of the Civil Code.

IV. OBLIGATORINESS- ARTS. 1156, 1315 AND 1316


V. RELATIVITY- ART. 1311 TO 1314
1. STIPULATION POUR AUTRUI 2ND PARAGRAPH OF ART. 1311
A. REQUISITES?

COQUIA vs. FIELDMENS INSURANCE CO.


[G.R. NO. L-23276, NOVEMBER 29, 1968.]

CONCEPCION, C.J.:

FACTS:
On Dec. 1, 1961, Fieldmens Insurance Co. issued in favor of the Manila Yellow Taxicab a
common carrier insurance policy with a stipulation that the company shall indemnify the insured
of the sums which the latter may be held liable for with respect to death or bodily injury to any
faire-paying passenger including the driver and conductor.

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Obligations and Contracts: Doctrines and Case Digests
The policy also stated that in the event of the death of the driver, the Company shall indemnify
his personal representatives and at the Companys option may make indemnity payable directly
to the claimants or heirs of the claimants.

During the policys lifetime, a taxicab of the insured driven by Coquia met an accident and
Coquia died.

When the company refused to pay the only heirs of Coquia, his parents, they institued this
complaint. The company contends that plaintiffs have no cause of action since the Coquias have
no contractual relationship with the company.

ISSUE:
Whether or not plaintiffs have the right to collect on the policy.

HELD:
Athough, in general, only parties to a contract may bring an action based thereon, this rule is
subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil
Code of the Philippines, reading: "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."
This is but the restatement of a well-known principle concerning contracts pour autrui, the
enforcement of which may be demanded by a third party for whose benefit it was made, although
not a party to the contract, before the stipulation in his favor has been revoked by the contracting
parties
The policy under consideration is typical of contracts pour autrui, this character being made
more manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding
premiums, which were deducted from his weekly commissions. Under these conditions, it is
clear that the Coquias who, admittedly, are the sole heirs of the deceased have a direct
cause of action against the Company, and, since they could have maintained this action by
themselves, without the assistance of the Insured, it goes without saying that they could and did
properly join the latter in filing the complaint herein.

KAUFFMAN vs. NATIONAL BANK


[G.R. NO. 16454, SEPTEMBER 29, 1921.]

STREET, J.:

FACTS:
George A. Kauffman, was the president of a domestic corporation engaged chiefly in the
exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce
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Obligations and Contracts: Doctrines and Case Digests
Company, of which company the plaintiff apparently held in his own right nearly the entire issue
of capital stock. He was based in New York City and as the president of the said company, he
was entitled to receive a dividend; as per instruction, Wicks who worked as the treasurer of the
company, went to the exchange department of PNB and requested a telegraphic transfer of the
money to Kauffman.

The PNB agreed with additional charges for the transaction. The treasurer issued a check to PNB
and it was accepted. The PNBs representative in New York sent a message suggesting the
advisability of withholding this money from Kauffman, in view of his reluctance to accept
certain bills of the company. PNB acquiesced in this and dispatched to its NY agency a message
to withhold the Kauffman payment as suggested. Meanwhile, Wicks then informed Kauffman
that his dividends had been wired to his credit in the NY agency of PNB. So Kauffman went to
PNB office in NYC and demanded the money, however, he was refused payment. So he filed this
complaint.

ISSUE:
Whether or not Kauffman has a right of action against PNB?

HELD:
In Art. 1257, par. 2, should the contract contain any stipulation in favor of a third person, he may
demand its fulfillment, provided he has given notice of his acceptance to the person bound before
the stipulation has been revoked.
In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is
clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be
paid to the plaintiff in NYC is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was given disclose an evident
intention on the part of the contracting parties that the plaintiff should have the money upon
demand in NYC. The recognition of this unqualified right in the plaintiff to receive the money
implies in our opinion the right in him to maintain an action to recover it.

It will be noted that under the paragraph cited a third person seeking to enforce compliance with
a stipulation in his favor must signify his acceptance before it has been revoked. In this case the
plaintiff clearly signified his acceptance to the bank by demanding payment; and although PNB
had already directed its NY agency to withhold payment when this demand was made, the rights
of the plaintiff cannot be considered to as there used, must be understood to imply revocation by
the mutual consent of the contracting parties, or at least by direction of the party purchasing he
exchange. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money
by cable wherein the seller engages that he has the balance at the point on which the payment is
ordered and that on receipt of the cable directing the transfer his correspondent at such point will
make payment to the beneficiary described in the cable. All these transaction are matters of
purchase and sale create no trust relationship."
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Obligations and Contracts: Doctrines and Case Digests

YOUNG VS. CA
[G.R. NO. 79518 JANUARY 13, 1989]

PARAS, J.:

FACTS:
Defendant Philippine Holding, Inc. is the former owner of a piece of land located at Soler St.,
Sta. Cruz, Manila, and a two storey building erected thereon, consisting of six units; Unit 1350
which is vacant, Unit 1352 occupied by Antonio Young, Unit 1354 by Rebecca C. Young, Unit
1356 by Chui Wan and Felisa Tan Yu, Unit 1358 by Fong Yook Lu and Ellen Yee Fong and Unit
1360 by the Guan Heng Hardware (Rollo, pp. 14-15).

The owner Philippine Holding, Inc. secured an order from the City Engineer of Manila to
demolish the building. Antonio Young, then a tenant of said Unit 1352, filed an action to annul
the City Engineer's demolition Order (Civil Case No. 123883) entitled Antonio S. Young vs.
Philippine Holding, Inc. before the then Court of First Instance of Manila, Branch XXX. As an
incident in said case, the parties submitted a Compromise Agreement to the Court on September
24, 1981. Paragraph 3 of said agreement provides that plaintiff (Antonio S. Young) and Rebecca
Young and all persons claiming rights under them bind themselves to voluntarily and peacefully
vacate the premises which they were occupying as lessees (Units 1352 and 1354, respectively)
which are the subject of the condemnation and demolition order and to surrender possession
thereof to the defendant Philippine Holding, Inc. within sixty (60) days from written notice,
subject to the proviso that should defendant decided to sell the subject property or portion
thereof, "plaintiff and Rebecca C. Young have the right of first refusal thereof." (Rollo, p. 49).

On September 17, 1981, Philippine Holding, Inc. had previously sold the above said property
described in the compromise agreement by way of dacion in payment to PH Credit Corporation
(Rollo, p. 49).

On November 9, 1982, the property was subdivided into two parcels, one 244.09 sq.m. in area
covering Units 1350, 1352 and 1354 (TCT No. 152439) and the other 241.71 sq.m. in area
covering Units 1356, 1358 and 1360 (TCT No. 152440) and both titles were placed in the name
of PH Credit Corporation.

On December 8, 1982, PH Credit Corporation sold the property covered by TCT 152439 to the
Blessed Land Development Corporation represented by its President Antonio T. S. Young; and
on September 16, 1983, PH Credit Corporation sold the property covered by TCT 152440
embracing Units 1356, 1358 and 1360 to spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p.
15).

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Obligations and Contracts: Doctrines and Case Digests
ISSUE:
Whether or not petitioner can enforce the compromise agreement

HELD:
This issue has already been squarely settled by this Court in the negative in J.M. Tuason & Co.,
Inc. v. Cadampog (7 SCRA 808 [1963])where it was ruled that appellant is not entitled to enforce
a compromise agreement to which he was not a party and that as to its effect and scope, it has
been determined in the sense that its effectivity if at all, is limited to the parties thereto and those
mentioned in the exhibits
The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the
following:
(1) there must be a stipulation in favor of a third person.
(2) the stipulation must be a part, not the whole of the contract.
(3) the contracting parties must have clearly and deliberately conferred a favor
upon a third person, not a mere incidental benefit or interest.
(4) the third person must have communicated his acceptance to the obligor before
its revocation.
(5) neither of the contracting parties bears the legal representation or authorization
of the third party. (Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]).
Assuming that petitioner is correct in claiming that this is a stipulation pour autrui it is
unrebutted that she did not communicate her acceptance whether expressly or impliedly. She
insists however, that the stipulation has not yet been revoked, so that her present claim or
demand is still timely.

D. STAGES OF CONTRACTS: (NEGOTIATION; PERFECTION;


CONSUMMATION)

ANG YU v. CA
[G.R. No. 109125; Deccember 2, 1994]

VITUG, J.:

Facts:
On July 29, 1987, a Second Amended Complaint for Specific Performance was filed by Ang Yu
Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng and Jose Tan before the Regional
Trial Court of Manila.

The plaintiffs were tenants or lessees of residential and commercial spaces owned by defendants
in Binondo, Manila. On several conditions defendants informed the plaintiffs that they are
offering to sell the premises and are giving them priority to acquire the same. During
negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter of
offer of P5-million. Plaintiff thereafter asked the defendants to put their offer in writing to which

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Obligations and Contracts: Doctrines and Case Digests
the defendants acceded. In reply to defendants letter, plaintiffs wrote, asking that they specify
the terms and conditions of the offer to sell. When the plaintiffs did not receive any reply, they
sent another letter with the same request.Since defendants failed to specify the terms and
conditions of the offer to sell and because of information received that the defendants were
about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to
sell the property to them.

The court dismissed the complaint on the ground that the parties did not agree upon the terms
and conditions of the proposed sale, hence, there was no contact of sale at all.

On November 15, 1990, the Cu Unjieng spouses executed a Deed of Sale transferring the
property in question to Buen Realty and Development Corporation. Buen Realty, as the new
owner of the subject property, wrote to the lessees demanding the latter to vacate the premises. In
its reply, it stated that Buen Realty and Development Corporation brought the property subject to
the notice of lis pendens.

Issue:
Whether or not Buen Realty be bound by the writ of execution by virtue of the notice of lis
pendens?

Held:
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is upon the concurrence of the essential elements thereof, viz:

(a) the vinculum juris or juridical tie which is the efficient cause established by the various
sources of obligations; (b) the object which is the prestation or conduct, required to observed;
and (c) the subject-persons who, viewed demandability of the obligation are the active (oblige)
and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157), which is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give something or
to render some service. A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a


binding juridical relation. In sales, particularly, to which the case at bench belongs, the contract
is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and
to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees.

The registration of lis pendens must be independently addressed in appropriate proceedings.


Therefore, Buen Realty cannot be held subject to the writ of execution issued by the respondent
Judge, let alone ousted from the ownership and possession of the property, without first being
duly afforded its day in court.

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I. NEGOTIATION ARTS. 1319 TO 1326
1. ART. 1324 VS. ART. 1479

SOUTH WESTERN SUGAR VS. ATLANTIC GULF


[G.R. NO. L-7382, JUNE 29, 1955]

BAUTISTA ANGELO, J.:

FACTS:
On March 24, 1953, defendant-appellant Atlantic granted plaintiff-appellee Southwestern an
option period of ninety days to buy the formers barge No. 10 for the sum of P30,000. On May 11
of the same year, Southwestern Company communicated its acceptance of the option to Atlantic
through a letter, to which the latter replied that their understanding was that the "offer of option"
is to be a cash transaction and to be effected "at the time the lighter is available." On June 25,
Atlantic advised the Southwestern Company that since there is still further work for it, the barge
could not be turned over to the latter company.

On June 27, 1953, the Southwestern Company filed this action to compel Atlantic to sell the
barge in line with the option, depositing with the court a check covering the sum of P30,000, but
said check was later withdrawn with the approval of the court. On June 29, the Atlantic withdrew
its "offer of option" with due notices to Southwestern Company stating that the option was
granted merely as a favor. The Atlantic contended that the option to sell it made to Southwestern
Company is null and void because said option to sell is not supported by any consideration.

The trial court granted herein plaintiff-appellee Southwestern Companys action for specific
performance and ordered herein defendant-appellant Atlantic to pay damages equivalent to 6 per
centum per annum on the sum of P30,000 from the date of the filing of the complaint.

ISSUE:
Whether or not Atlantic is liable for specific performance and to pay damages in favor of
Southwestern Company.

HELD:
The Court reiterated that "an accepted unilateral promise" can only have a binding effect if
supported by a consideration, which means that the option can still be withdrawn, even if
accepted, if said option is not supported by any consideration. The option that Atlantic had
provided was without consideration, hence, can be withdrawn notwithstanding Southwestern
Companys acceptance of said option.

American jurisprudence hold that an offer, once accepted, cannot be withdrawn, regardless of
whether it is supported or not by a consideration, but the specific provisions of Article 1479
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commands otherwise. While under the "offer of option" in question appellant Atlantic has
assumed a clear obligation to sell its barge to appellee Southwestern Company and the option has
been exercised in accordance with its terms, and there appears to be no valid or justifiable reason
for the former to withdraw its offer, the Court cannot adopt a different attitude because the law
on the matter is clear.

ATKINS KROLL AND CO., INC. VS. CUA HIAN TEK


[G.R. NO. L-9871, JANUARY 31, 1958]

BENGZON, J.:

FACTS:
On September 13, 1951, petitioner Atkins Kroll & Co. (Atkins) sent a letter to respondent B. Cu
Hian Tek (Hian Tek) offering (a) 400 cartons of Luneta brand Sardines in Tomato Sauce 48 / 15-
oz. Ovals at $8.25 per carton, (b) 300 cartons of Luneta brand Sardines Natural 48/15 oz. talls at
$6.25 per carton, and (c) 300 cartons of Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at
$7.48 per carton, with all of the offers subject to reply by September 23, 1951. Hian Tek
unconditionally accepted the said offer through a letter delivered on September 21, 1951, but
Atkins failed to deliver the commodities due to the shortage of catch of sardines by the packers
in California.

Hian Tek, therefore, filed an action for damages in the CFI of Manila which granted the same in
his favor. Upon Atkins appeal, the Court of Appeals affirmed said decision but reduced the
damages to P3,240.15 representing unrealized profits. Atkins herein contends that there was no
such contract of sale but only an option to buy, which was not enforceable for lack of
consideration because it is provided under the 2nd paragraph of Article 1479 of the New Civil
Code that "an accepted unilatateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promisor if the promise is supported by a consideration distinct from
the price. Atkins also insisted that the offer was a mere offer of option, because the "firm offer"
was a continuing offer to sell until September 23.

ISSUE:
Whether or not there is a contract of sale.

HELD:
Petitioners argument assumed that only a unilateral promise arose when the respondent accepted
the offer, which is incorrect because a bilateral contract to sell and to buy was created upon
respondents acceptance.

Had B. Cua Hian Tek backed out after accepting, by refusing to get the sardines and / or to pay
for their price, he could also be sued. But his letter-reply to Atkins indicated that he accepted "the
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firm offer for the sale" and that "the undersigned buyer has immediately filed an application for
import license. After accepting the promise and before he exercises his option, the holder of the
option is not bound to buy. In this case at bar, however, upon respondents acceptance of herein
petitioner's offer, a bilateral promise to sell and to buy ensued, and the respondent had
immediately assumed the obligations of a purchaser.

SANCHEZ VS. RIGOS


[G.R. NO. L-25494 JUNE 14, 1972]

CONCEPCION, C.J.:

FACTS:

In an instrument entitled "Option to Purchase," executed on April 3, 1961, defendant-appellant


Severina Rigos "agreed, promised and committed ... to sell" to plaintiff-appellee Nicolas Sanchez
for the sum of P1,510.00 within two (2) years from said date, a parcel of land situated in the
barrios of Abar and Sibot, San Jose, Nueva Ecija. It was agreed that said option shall be deemed
"terminated and elapsed," if Sanchez shall fail to exercise his right to buy the property" within
the stipulated period. On March 12, 1963, Sanchez deposited the sum of Pl,510.00 with the CFI
of Nueva Ecija and filed an action for specific performance and damages against Rigos for the
latters refusal to accept several tenders of payment that Sanchez made to purchase the subject
land.

Defendant Rigos contended that the contract between them was only a unilateral promise to
sell, and the same being unsupported by any valuable consideration, by force of the New Civil
Code, is null and void." Plaintiff Sanchez, on the other hand, alleged in his compliant that, by
virtue of the option under consideration, "defendant agreed and committed to sell" and "the
plaintiff agreed and committed to buy" the land described in the option. The lower court rendered
judgment in favor of Sanchez and ordered Rigos to accept the sum Sanchez judicially consigned,
and to execute in his favor the requisite deed of conveyance. The Court of Appeals certified the
case at bar to the Supreme Court for it involves a question purely of law.

ISSUE:

Whether or not there is a Contract to Buy and Sell

HELD:

The instrument executed in 1961 is not a "contract to buy and sell," but merely granted plaintiff
an "option" to buy, as indicated by its own title "Option to Purchase." The option did not impose
upon plaintiff Sanchez the obligation to purchase defendant Rigos' property. Rigos "agreed,
promised and committed" herself to sell the land to Sanchez for P1,510.00, but there is nothing

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in the contract to indicate that her aforementioned agreement, promise and undertaking is
supported by a consideration "distinct from the price" stipulated for the sale of the land. The
lower court relied upon Article 1354 of the Civil Code when it presumed the existence of said
consideration, but the said Article only applies to contracts in general.

However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in the
case at bar because the latters 2nd paragraph refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." Since there may be no valid
contract without a cause or consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of
sale. Upon mature deliberation, the Court reiterates the doctrine laid down in the Atkins case and
deemed abandoned or modified the view adhered to in the Southwestern Company case.

RURAL BANK OF PARANAQUE VS. REMOLADO


[G.R. NO. L-62051 MARCH 18, 1985]

AQUINO, J.:

FACTS:
Isidra Remolado, a resident of Rizal, owned a lot with a bungalow which was leased to Beatriz
Cabagnot. The said lot is located at Molave St., United Paranaque, Rizal. In 1966 she mortgaged
the lot to the Rural Bank of Paranaque as security for a loan of P15,000. She paid the loan. On
April 17, 1971 she again mortgaged it to the bank. She failed to pay the loan amounting
toP18,000. The bank foreclosed the mortgage on July 21, 1972 and bought the lot at the
foreclosure sale at P22,192.70. The lot had a one year period of redemption which was to expire
on August21, 1973.On August 8 ,1973 the bank advised her that she has up to August 23 to
redeem the property with the price amounting to P 25,491.96. No redemption was made. The
bank consolidated its ownership of the property and was issued the title of the land on September
5. However, on September 24 the bank, again, extended the deadline to October 31, without
specifying there purchase price. On October 26, Remolado and her daughter promised to pay the
bank P33,000 on October 31. She failed to meet the deadline and only paid the bank on
November 5.The amount was returned to her the following day for the assistant manager did not
intend to receive the money for the bank was no longer willing to allow the repurchase. On that
day, November 6, she filed an action to compel the bank to return the property to her for
P25,491.96 plus interest and other charges and pay P35,000 as damages. The repurchase price
was not consigned. A notice of lis pendens was registered. On November 15, the bank sold the
property to Pilar Aysip for P50,000, along with the new title issued to Aysip with an annotation

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of lis pendens. The trial court ordered the bank to return the property to Remolado upon payment
of P25,491.96 plus interest and other bank charges and P15,000 for damages.

ISSUE:
Whether or not the property may be returned to Remolado

HELD:
There was no binding agreement for its repurchase. Even on the assumption that the bank should
be bound by its commitment to allow repurchase on or before October 31, 1973, still Remolado
had no cause of action because she did not repurchase the property on that date.

As a rule, equity follows the law. There may be a moral obligation, often regarded as an
equitable consideration (meaning compassion), but if there is no enforceable legal duty, the
action must fail although the disadvantaged party deserves commiseration or sympathy.

MONTILLA VS. CA
[G.R. NO. L-47968. MAY 9, 1988]

NARVASA, J.:

FACTS:
An action was initiated in the Court of First Instance of Iloilo on April 27, 1972 by Emilio
Aragon, Jr., to compel Lina Montilla to comply with a verbal contract to sell to him a piece of
land situated at Poblacion, Iloilo City, known as Lot No. 4 of the Consolidated Subdivision plan
(LRC) Psc-11605. In his complaint, Aragon claimed that in the last week of June, 1969, Montilla
had orally offered to sell the lot to him at a price of P57,650.00 (at the rate of P50.00 per square
meter), the price being payable at any time within a three-year period from June, 1969 provided
that Aragon constructed on the lot a house of strong materials and paid a nominal monthly rental
in the meantime; but despite Aragon's acceptance of the offer, fulfillment by him of the specified
conditions, and his seasonable tender of the purchase price, Montilla had refused to comply with
her obligation.

In her answer Montilla categorically denied ever having entered into such an agreement, and set
up the affirmative defenses of (1) unenforceability of the alleged agreement under the Statute of
Frauds; and (2) failure of the complaint to state a cause of action, no allegation having been
made therein of any consideration for the promise to sell distinct and separate from the price, as
required by Article 1479 of the Civil Code.

ISSUE:

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Whether or not there is an enforceable contract to sell.

HELD:
It is difficult to see by what process of ratiocination the Trial Court arrived at the conclusion that
Montillas answer had admitted the offer to sell as any such admission is absolutely precluded
by the specific and unequivocal denial by Montilla of the claimed verbal contract to sell. She in
fact branded the allegations to that effect in the complaint as outrageously false, fantastically
ridiculous and despicable fabrications of plaintiff . Nor may any admission be inferred from the
circumstance that Montilla, apart from unqualifiedly denying the contract to sell, had also
asserted in her responsive pleading that the contract was unenforceable because violative of the
Statute of Frauds and because not supported by any consideration distinct from the price. For
while those defenses imply an acceptance by the pleader of the truth of the agreement at which
the defenses are directed, the acceptance is at best hypothetical, assumed only for purposes of
determining the validity of the defenses, but cannot in any sense be taken as an unconditional
and irretrievably binding factual admission. The import of the answer, couched in language that
could not be made any plainer, is that there was no verbal contract to sell ever agreed to by
Montilla, but that, even assuming hypothetically, or for the sake of argument that there was, the
agreement was unenforceable because in breach of the Statute of Frauds.

NATINO VS. IAC


[G.R. NO. 73573 MAY 23, 1991]

DAVIDE, JR., J.:

FACTS:
Petitioners Trinidad and Epifanio Natino executed a real-estate mortgage in favor of respondent-
bank Rural Bank of Aguilar, for security to a loan amounting to P2000. On the agreed date, the
spouses failed to pay the said loan and in the foreclosure of the property, the bank was the
highest bidder at its auction. Along with the certificate of sale, a notice for the redemption period
was sent to the spouses. Still, upon the expiration of the said period, no redemption was made.
Upon finalization of the deed of sale, the spouses deposited P4000 to the bank, and stated that
they were granted the extension of the redemption period and it was understood that it was a
pay when able arrangement. This said agreement was not approved by the banks Board of
Directors, nor was it ratified. The court ruled in favor of the bank, hence this petition.

ISSUE:
Whether or not the agreement is valid.

HELD:
Given the provisions of article 1180, the contentions of the petitioner would be meritorious.
However, because of the fact that such agreement was not approved by the Board of Directors, it

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was held that a meeting of minds did not occur, therefore making the said arrangement not
binding. The case was dismissed.

YAO KA SIN TRADING VS. CA


[G.R. NO. L-53820 JUNE 15, 1992]

DAVIDE, JR., J.:

FACTS:
In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer letter
to Yao Ka Sin Trading. The offer states that Prime White is willing to sell 45,000 bags of cement
at P24.30 per bag. The offer letter was received by Yao Ka Sins manager, Henry Yao. Yao
accepted the letter and pursuant to the letter, he sent a check in the amount of P243,000.00
equivalent to the value of 10,000 bags of cement. However, the Board of Directors of Prime
White rejected the offer letter sent by Maglana but it considered Yaos acceptance letter as a new
contract offer hence the Board sent a letter to Yao telling him that Prime White is instead willing
to sell only 10,000 bags to Yao Ka Sin and that he has ten days to reply; that if no reply is made
by Yao then they will consider it as an acceptance and that thereafter Prime White shall deposit
the P243k check in its account and then deliver the cements to Yao Ka Sin. Henry Yao never
replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin
considered as the true contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its defense
averred that although Maglana is empowered to sign contracts in behalf of Prime White, such
contracts are still subject to approval by Prime Whites Board, and then it still requires further
approval by the National Investment and Development Corporation (NIDC), a government
owned and controlled corporation because Prime White is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract because it was made under
the apparent authority of Maglana.
ISSUE:
Whether or not the President has authority to enter into binding contracts of third person

HELD:
The Board may enter into contracts through the president. The president may only enter into
contracts upon authority of the Board. Hence, any agreement signed by the president is subject to
approval by the Board. Unlike a general manager (like the case of Francisco vs GSIS), the
president has no apparent authority to enter into binding contracts with third persons. Further, if
indeed the by-laws of Prime White did provide Maglana with apparent authority, this was not
proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner, by which the corporation
holds out an officer or agent as having power to act or, in other words, the apparent authority

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with which it clothes him to act in general or (2) acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, whether within or without the scope of his
ordinary powers. These are not present in this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka Sins failure
to respond constitutes an acceptance, per stated in the letter itself which was not contested by
Henry Yao during trial.

DIAMANTE VS. CA
[G.R. NO. L-51824 FEBRUARY 7, 1992]

DAVIDE, JR., J.:

FACTS:
A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No. 518-A of the
Cadastral Survey of Dumangas, Iloilo, was previously covered by Fishpond Permit No. F-2021
issued in the name of Anecita Dionio. Upon Anecita's death, her heirs, petitioner Diamante and
Primitivo Dafeliz, inherited the property which they later divided between themselves; petitioner
got 4.4. hectares while Dafeliz got 5 hectares. It is the petitioner's share that is the subject of the
present controversy. Primitivo Dafeliz later sold his share to private respondent.

On 21 May 1959, petitioner sold to private respondent his leasehold rights over the property in
question for P8,000.00 with the right to repurchase the same within three (3) years from said
date.

On 16 August 1960, private respondent filed an application with the Bureau of Fisheries, dated
12 July 1960, for a fishpond permit and a fishpond lease agreement over the entire lot,
submitting therewith the deeds of sale executed by Dafeliz and the petitioner.

Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his remaining rights
over the property in question to the private respondent for P4,000.00.

On 25 October 1960, private respondent, with his wife's consent, executed in favor of the
petitioner an Option to Repurchase the property in question within ten (10) years from said date,
with a ten-year grace period.

Private respondent submitted to the Bureau of Fisheries the definite deed of sale; he did not,
however, submit the Option to Repurchase.

Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private respondent Fishpond
Permit No. 4953-Q; on 17 December 1962, it approved FLA No. 1372 in the latter's favor.

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On 11 December 1963, petitioner, contending that he has a valid twenty-year option to
repurchase the subject property, requested the Bureau of Fisheries to nullify FLA No. 1372
insofar as the said property is concerned. On 18 December 1964, his letter-complaint was
dismissed. Petitioner then sought a reconsideration of the dismissal; the same was denied on 29
April 1965. His appeal to the Secretary of the DANR was likewise dismissed on 30 October
1968. Again, on 20 November 1968, petitioner sought for a reconsideration; this time, however,
he was successful. On 29 August 1969, the DANR Secretary granted his motion in an Order
cancelling FLA No. 1372.

ISSUE:
Whether or not the Option to Repurchase was a promise to sell.

HELD:
The Option to Repurchase executed by private respondent in the present case, was merely
a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as
follows:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price


certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.

A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except
at the moment it is accepted. Acceptance is the act that gives life to a juridical obligation,
because, before the promise is accepted, the promissor may withdraw it at any time. Upon
acceptance, however, a bilateral contract to sell and to buy is created, and the offeree ipso
facto assumes the obligations of a purchaser; the offeror, on the other hand, would be liable for
damages if he fails to deliver the thing he had offered for sale.

3. EARNEST MONEY (ART. 1482) VS. OPTION MONEY (ART. 1479)


II. PERFECTION ARTS. 1315, 1316 AND 1319 (2ND PARAGRAPH); SEE ALSO
ART. 54 OF THE CODE OF COMMERCE
1. ESSENTIAL REQUISITES OF A VALID CONTRACT A. CONSENT REREAD
ARTS. 1319 TO 1326
2. WHO ARE INCAPACITATED TO GIVE CONSENT ARTS. 1327 TO 1329
3. LACK OF CAPACITY (ART. 1327) VS. WANT OF CAPACITY (ART. 1403 [1]) VS.
DISQUALIFICATION (ART. 96 OF THE FAMILY CODE)
4. THEORY OF GENERAL CAPACITIES VS. THEORY OF SPECIAL CAPACITIES
5. VICES OF CONSENT ARTS. 1330 TO 1344

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Obligations and Contracts: Doctrines and Case Digests
6. SIMULATION OF CONTRACTS ARTS. 1345 TO 1355
A. OBJECT - ART. 1347
B. CAUSE ART. 1350

LIGUEZ VS. CA
[G.R. NO. L-11240, DECEMBER 18, 1957]

REYES, J.B.L., J.:

FACTS:
Plaintiff averred to be a legal owner, pursuant to a deed of donation of a land, executed in her
favor by the late owner, Salvador P. Lopez, on 18 May 1943. The defense interposed was that the
donation was null and void for having an illicit causa or consideration, which was the plaintiff's
entering into marital relations with Salvador P. Lopez, a married man; and that the property had
been adjudicated to the appellees as heirs of Lopez by the court of First Instance, since 1949.
The Court of Appeals rejected the appellant's claim on the basis of the well- known rule "in pari
delicto non oritur actio" as embodied in Article 1306 of 1889

ISSUE:
Whether or not CAs rejection was correct

HELD:
CA erred in applying to the present case the pari delicto rule. First, because it can not be said that
both parties here had equal guilt when we consider that as against the deceased Salvador P.
Lopez, who was a man advanced in years and mature experience, the appellant was a mere
minor, 16 yrs of age, when the donation was made; that there is no finding made by CA that she
was fully aware of the terms of the bargain entered into by and Lopez and her parents; that, her
acceptance in the deed of donation (Art. 741) did not necessarily imply knowledge of conditions
and terms not set forth therein; and that the substance of the testimony of the instrumental
witnesses is that it was the appellant's parents who insisted on the donation before allowing her
to live with Lopez. These facts are more suggestive of seduction than of immoral bargaining on
the part of appellant. It must not be forgotten that illegality is not presumed, but must be duly and
adequately proved. Second, the rule that parties to an illegal contract, if equally guilty, will not
be aided by the law but will both be left where it finds them, has been interpreted by this Court
as barring the party from pleading the illegality of the bargain either as a cause of action or as a
defense.

CA correctly held that Lopez could not donate the entirety of the property in litigation, to the
prejudice of his wife Maria Ngo, because said property was conjugal in character and the right of
the husband to donate community property is strictly limited by law

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ONG VS. ONG
[G.R. NO. L-67888 OCTOBER 8, 1985]

RELOVA, J.:

FACTS:
On February 25, 1976, Imelda Ong, for and in consideration of P1.00 and other valuable
considerations, executed a quitclaim over a parcel of land in Makati in favor of Sandra Maruzzo,
then a minor. On November 19, 1980, Imelda revoked the quitclaim and donated the property to
her son Rex. On June 20, 1983, Sandra, through her guardial ad litem Alfredo Ong, filed an
action to recover the land and to declare the donation to Rex null and void. In their responsive
pleading, petitioners claimed that the quitclaim is equivalent to a donation which requires
acceptance by the donee, and since Sandra was a minor, there was no valid acceptance. The trial
court ruled that the quitclaim is equivalent to a sale. The Intermediate Appellate Court affirmed
the decision.

ISSUE:
Whether or not the quitclaim is equivalent to a deed of sale.

HELD:
The execution of a deed purporting to convey ownership of a realty is in itself prima facie
evidence of the existence of a valuable consideration, the party alleging lack of consideration has
the burden of proving such allegation. Even granting that the Quitclaim deed in question is a
donation, Article 741 of the Civil Code provides that the requirement of the acceptance of the
donation in favor of minor by parents of legal representatives applies only to onerous and
conditional donations where the donation may have to assume certain charges or burdens.
Donation to an incapacitated donee does not need the acceptance by the lawful representative if
said donation does not contain any condition. In simple and pure donation, the formal acceptance
is not important for the donor requires no right to be protected and the donee neither undertakes
to do anything nor assumes any obligation. The Quitclaim now in question does not impose any
condition.

BAGNAS vs. CA
[G.R. No. L-38498; August 10, 1989]

NARVASA, J.:

Facts:
Hilario Mateum of Kawit, Cavite, died on 11 March 1964, single, without ascendants or
descendants, and survived only by collateral relatives, of whom Isaac, Encarnacion, Silvestre,
Maximina, and Sixto Bagnas, and Agatona Encarnacion, his first cousins, were the nearest.
Mateum left no will, no debts, and an estate consisting of 29 parcels of land in Kawit and Imus,

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Cavite, 10 of which are involved in the case. On 3 April 1964, Rosa L. Retonil, Teofilo
Encarnacion and Jose B. Nambayan, themselves collateral relatives of Mateum though more
remote in degree, registered with the Registry of Deeds for the Province of Cavite 2 deeds of sale
purportedly executed by Mateum in their favor covering 10 parcels of land. Both deeds were in
Tagalog, save for the English descriptions of the lands conveyed under one of them; and each
recited the reconsideration of the sale to be P1, services rendered and to be rendered for
Mateums benefit. One deed was dated 6 February 1963 and covered 5 parcels of land, and the
other was dated 4 March 1963, covering 5 other parcels, both, therefore, antedating Mateums
death by more than a year. It is asserted by the Bagnas, et.al., but denied by Retonil, et.al., that
said sales notwithstanding, Mateum continued in the possession of the lands purportedly
conveyed until his death, that he remained the declared owner thereof and that the tax payments
thereon continued to be paid in his name. Whatever the truth, however, is not crucial; what is not
disputed is that on the strength of the deeds of sale, Retonil, et.al. were able to secure title in their
favor over 3 of the 10 parcels of land conveyed thereby. On 22 May 1964, Bagnas et.al.
commenced suit against Retonil, et.al. in the CFI Cavite, seeking annulment of the deeds of sale
as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of acceptance
embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the
deeds by virtue of being intestate heirs of Hilario Mateum, Bagnas, et. al. prayed for recovery of
ownership and possession of said lands, accounting of the fruits thereof and damages. Although
the complaint originally sought recovery of all the 29 parcels of land left by Mateum, at the pre-
trial the parties agreed that the controversy be limited to the 10 parcels subject of the questioned
sales, and the Trial Court ordered the exclusion of the 19 other parcels from the action. Of the 10
parcels which remained in litigation, 9 were assessed for purposes of taxation at values
aggregating P10,500.00. The record does not disclose the assessed value of the tenth parcel,
which has an area of 1,443 sq.ms. Retonil, et.al. denied the allegations. After Bagnas, et.al. had
presented their evidence, Retonil, et.al. filed a motion for dismissal in effect, a demurrer to the
evidence reasserting the defense set up in their answer that Bagnas, et.al., as mere collateral
relatives of Hilario Mateum had no right to impugn the latters disposition of his properties by
means of the questioned conveyances and submitting, additionally, that no evidence of fraud
tainting said transfers had been presented. The Trial Court granted the motion to dismiss, holding
on the authority of Armentia vs. Patriarca, that Bagnas, et.al., as mere collateral relatives, not
forced heirs, of Hilario Mateum, could not legally question the disposition made by said
deceased during his life time, regardless of whether, as a matter of objective reality, said
dispositions were valid or not; and that Bagnas, et.al.s evidence of alleged fraud was
insufficient, the fact that the deeds of sale each stated a consideration of only P1 not being in
itself evidence of fraud or simulation. On appeal by Bagnas, et. al. to the Court of Appeals, that
court affirmed, adverting with approval to the Trial Courts reliance on the Armentia ruling
which, it would appear, both courts saw as denying, without exception, to collaterals, of a
decedent, not forced heirs, the right to impugn the latters dispositions inter vivos of his property.
The Supreme Court reversed the appealed Decision of the Court of Appeals, and declared the
questioned transfers void and of no force or effect. The Court ordered the annulment of such
certificates of title Retonil, et.al. may have obtained over the properties subject of said transfers,
and ordered them to return to Bagnas, et.al. possession of all the properties involved in the

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action, to account to the latter for the fruits thereof during the period of their possession, and to
pay the costs. No damages, attorneys fees or litigation expenses were awarded, there being no
evidence thereof before the Court.
Issue:
Whether or not the sale is void
Held:
The consideration alone that the apparent gross, not to say enormous, disproportion between the
stipulated price (in each deed) of P1.00 plus unspecified and unquantified services and
the undisputedly valuable real-estate allegedly sold -- worth at least P10,500.00 going only by
assessments for tax purposes which, it is well-known, are notoriously low indicators of actual
value -- plainly and unquestionably demonstrates that they state a false and fictitious
consideration, and no other true and lawful cause having been shown, the Court found both said
deeds, insofar as they purport to be sales, not merely voidable, but void ab initio. Neither can the
validity of said conveyances be defended on the theory that their true causa is the liberality of the
transferor and they may be considered in reality donations, because the law also
prescribes that donations of immovable property, to be valid, must be made and accepted in a
public instrument, and it is not denied by the respondents that there has been no such acceptance
which they claim is not required. The transfers in question being void, it follows as a
necessary consequence and conformably to the concurring opinion in Armentia, with which the
Court fully agrees, that the properties purportedly conveyed remained part of the estate of Hilario
Mateum, said transfers notwithstanding, recoverable by his intestate heirs, the petitioners
herein, whose status as such is not challenged.

E. FORMS OF CONTRACTS ARTS. 1356 TO 1358


I. FOR VALIDITY
1. IN WRITING
A. DONATION ART. 748
B. COMMON CARRIERS LIABILITY ART. 1744
C. AGENTS AUTHORITY ART. 1874
D. INTEREST ON LOAN ART. 1956
E. ANTICHRESIS ART. 2134
2. IN PUBLIC INSTRUMENTS
A. DONATION ART. 749
B. PARTNERSHIP ART. 1771 AND 1773
II. FOR ENFORCEABILITY
1. STATUTE OF FRAUD ART. 1403
III. FOR CONVENIENCE
1. TO AFFECT THIRD PERSON ART. 1358
F. REFORMATION OF INSTRUMENTS ARTS. 1359 TO 1369

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CABANATUAN VS. LAZARO
[G.R. NO. L-29256; JUNE 30, 1971]

REYES, J.:

FACTS:
Plaintiff-appellant sought the reformation of an agreement pursuant to Article 1359 of the New
Civil Code. The said lease was entered into on 28 December 1959 between plaintiff-appellant,
through its City Mayor, and defendants-appellees over a portion of Lot No. 1511 of Cabanatuan
Cadastre (Cad. Case No. 3, G.L.R.O. Rec. No. 94) situated in the City of Cabanatuan which
plaintiff-appellant owned, by specifically deleting paragraph 6 thereof. The said paragraph gives
the defendants-appellees an option to renew the lease for another 10 years after the expiration of
the original period, and reads:

6. That after the expiration of the ten (10) years from January 1, 1960, the party of
the second part may, at his option choose to extend this lease for another period of
ten years.

It is alleged, among others, that due to mistake or accident, the aforesaid provision was inserted
in the agreement and that the same does not reflect the true intention of the parties. It is
contended that while Resolution No. 1030 of the Municipal Board of the City of Cabanatuan,
approved on, 17 December 1959, authorizes the City Mayor to enter into a contract of lease on its
behalf "for a period of 10 years", it does not provide for authority to extend the period.

Defendants-appellees moved for the dismissal of the complaint for the reasons that: (a) the action
is premature (b) there is no cause of action; and (c) the court has no jurisdiction over the subject
and nature of the action. The court a quo granted the motion to dismiss in order of 11 November
1967 finding the same to be meritorious.

ISSUE:
Whether or not the agreement can be reformed.

HELD:
Every party to a contract has a clear interest that the instrument bodying its terms should
conform to the actual and true agreement had by and between the contracting parties. Hence, if
by accident or mistake, as expressly pleaded in the complaint, the document does not conform to
or reflect the actual agreement, either party can ask for the reformation of the instrument as
provided by Articles 1359, et seq. (Chapter 4, Title 2, Book 4) of the Civil Code of the
Philippines, to forestall future litigations on the true import of the agreement.

That the lessee's option to renew the Contract for another term of 10 years (which is alleged by
appellant not to have been intended by the parties) was not yet exercisable when the suit for

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reformation was instituted by the petitioner City (plaintiff below because the original and
uncontested lease term of 10 years had not yet expired, does not render the action premature, for
precisely its purpose was to have such option embodied in the instrument declared ineffective as
one not agreed upon by the parties. No cogent reason exists with the plaintiff-appellant should
wait for the lapse of the first ten years before having the instrument reformed, when the
inconsistency between it and the true agreement existed right from the time the document was
executed. The contrary rule invoked by the appellee, and sustained by the court below, tends to
make the reformation more difficult, for the evidence on the time intent of the parties may
disappear before the first ten years are over.

COSIO VS. PALILEO


[G.R. NO. L-18452, MAY 31, 1965]

REGALA, J.:

FACTS:
A two-story building, was formerly owned by Felicisima Vda. de Barza. It is located at 25
(formerly 6) Antipolo Street, Pasay City, on a lot belonging to the Hospicio de San Juan de Dios.
On October 4, 1950, this house and the leasehold right to the lot were bought by respondent
Cherie Palileo who paid part of the purchase price and mortgaged the house to secure the
payment of the balance.

It appears that respondent Palileo defaulted in her obligation, because of which the mortgage was
foreclosed and the house was advertised for sale. Fortunately for her, however, respondent
Palileo was able to raise money on December 18, 1951 before the house could be sold at public
auction. On this date, respondent Palileo received from petitioner Beatriz Cosio de Rama the sum
of P12,000 in consideration of which she signed a document entitled "Conditional Sale of
Residential Building," purporting to convey to petitioner Cosio de Rama the house in question.
Under this document, the right to repurchase the house within one year was reserved to
respondent Palileo. On the same day, the parties entered into an agreement whereby respondent
Palileo remained in possession of the house as tenant, paying petitioner Cosio de Rama a
monthly rental of P250.

Petitioner Cosio de Rama subsequently insured the house against fire with the Associated
Insurance & Surety Co., Inc. On October 25, 1952, fire broke out in the house and partly
destroyed the same. For the loss, petitioner Cosio de Rama was paid P13,107 by the insurance
company.

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Obligations and Contracts: Doctrines and Case Digests
At the instance of his sister, petitioner Cosio de Rama, the other petitioner Augusto Cosio entered
the premises and began the repair of the house. Soon after an action was filed by respondent
Palileo against Cosio de Rama for the reformation of the deed of pacto de retro sale into a loan
with an equitable mortgage. This case was filed in the Court of First Instance of Rizal on
December 4, 1952. One week after (December 11), respondent Palileo filed another action in the
Municipal Court of Pasay City, this time seeking the ejectment of petitioner Cosio who, it was
alleged, had entered and occupied the house without the knowledge and consent of respondent
Palileo. Just the same, however, repair work went on and although at times interrupted it was
finally completed in 1953 at a cost of P12,000.

ISSUE:
Whether or not there is reformation of the deed of sale.

HELD:
The petitioners and the Court of Appeals are in error in saying that the former had a right to the
possession of the house under the deed of pacto de retro sale. Petitioners did not have such a
right at any time and they knew this.

In reforming instruments, courts do not make another contract for the parties (See Civil Code,
Arts. 1359-1369 and the Report of the Code Commission, p. 56). They merely inquire into the
intention of the parties and, having found it, reform the written instrument (not the contract) in
order that it may express the real intention of the parties (See Id., Arts. 1365 and 1602). This is
what was done in the earlier case between the parties. In holding that the document entitled
"Conditional Sale of Residential Building" was in fact a mortgage, this Court said: "This
document did not express the true intention of the parties which was merely to place said
property (the house) as security for the payment of the loan." (Palileo v. Cosio, 51 O.G. 6181 at
6184)

If that was the intention of the parties (to conform to which their written instrument was
reformed) then petitioner Cosio de Rama knew from the beginning that she was not entitled to
the possession of the house because she was a mere mortgagee. For the same reason, she could
not have been mistaken as to the true nature of their agreement. Hence, in bidding her brother,
petitioner Cosio, to enter the premises and make repairs and in later occupying the house herself,
petitioner Cosio de Rama did so with this knowledge.

As possessors in bad faith, petitioners are jointly liable for the payment of rental, the reasonable
value of which, as found by the appellate court is P300 a month. (Art. 549. See Lerma v. De la
Cruz, 7 Phil. 581) This finding is supported by the evidence and we find no reason to disturb it.

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G. INTERPRETATION OF CONTRACTS ARTS. 1370 TO 1379

GSIS VS. CA
[G.R. NO. L-52478 OCTOBER 30, 1986]

PARAS, J.:

FACTS:
In 1961, herein private respondents spouses Nemencio R. Medina and Josefina G. Medina
(Medinas for short) applied with the herein petitioner Government Service Insurance System
(GSIS for short) for a loan of P600,000.00. The GSIS Board of Trustees, in its Resolution of
December 20, 1961, approved under Resolution No. 5041 only the amount of P350,000.00,
subject to the following conditions: that the rate of interest shall be 9% per annum compounded
monthly; repayable in ten (10) years at a monthly amortization of P4,433.65 including principal
and interest, and that any installment or amortization that remains due and unpaid shall bear
interest at the rate of 9%/12% per month. The Office of the Economic Coordinator, in a 2nd
Indorsement dated March 26, 1962, further reduced the approved amount to P295,000.00. On
April 4, 1962, the Medinas accepting the reduced amount, executed a promissory note and a real
estate mortgage in favor of GSIS. On May 29, 1962, the GSIS, and on June 6, 1962, the Office
of the Economic Coordinator, upon request of the Medinas, both approved the restoration of the
amount of P350,000.00 (P295,000.00 + P55,000.00) originally approved by the GSIS. This
P350,000.00 loan was denominated by the GSIS as Account No. 31055.

On July 6, 1962, the Medinas executed in favor of the GSIS an Amendment of Real Estate
Mortgage.

Upon application by the Medinas, the GSIS Board of Trustees adopted Resolution No. 121 on
January 18, 1963, as amended by Resolution No. 348 dated February 25, 1963, approving
an additional loan of P230,000.00 in favor of the Medinas on the security of the same mortgaged
properties and the additional properties covered by TCT Nos. 49234, 49235 and 49236, to bear
interest at 9% per annum compounded monthly and repayable in ten years. This additional loan
of P230,000.00 was denominated by the GSIS as Account No. 31442.

Beginning 1965, the Medinas having defaulted in the payment of the monthly amortization on
their loan, the GSIS imposed 9%/12% interest on an installments due and unpaid. In 1967, the
Medinas began defaulting in the payment of fire insurance premiums.

ISSUE:
Whether or not the amended REM superseded the Mortgage contract.

HELD:

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Obligations and Contracts: Doctrines and Case Digests
By agreement of the parties the issues in this case are limited to the loan of P350,000.00
denominated as Account No. 31055 subject of the Amendment of Real Mortgage dated July 6,
1962, the interpretation of which is the major issue in this case.

GSIS claims that the amendment of the real estate mortgage did not supersede the original
mortgage contract dated April 4, 1962 which was being amended only with respect to the amount
secured thereby, and the amount of monthly amortizations. All other provisions of aforesaid
mortgage contract including that on compounding of interest were deemed rewritten and thus
binding on and enforceable against the respondent spouses.

Accordingly, payments made by the Medinas in the total amount of P991,845.53 was applied as
follows: the amount of P600,495.51 to Account No. 31055, P466,965.31 of which to interest and
P133,530.20 to principal and P390,845.66 to Account No. 31442, P230,774.29 to interest and
P159,971.37 to principal.

On the other hand the Medinas maintain that there is no express stipulation on compounded
interest in the amendment of mortgage contract of July 6, 1962 so that the compounded interest
stipulation in the original mortgage contract of April 4, 1962 which has been superseded cannot
be enforced in the later mortgage.

UNIVERSITY OF THE PHILIPPINES VS. GABRIEL


[G.R. No. 70826; October 12, 1987]

GUTIERREZ, JR., J.:

FACTS:
On December 27, 1966, the UP and Beta, Construction Co., Inc., entered into a contract for the
latter to construct the Biological Science Building of the U.P. College of Agriculture at Los
Baos, Laguna for a total lump sum price of Three Million Seven Hundred Ninety Two
Thousand Two Hundred Eighteen Pesos and Seven Centavos (P3,792,218.07).

On January 4, 1967, Beta, sub-contracted its plumbing works to private respondent Allied
Plumbing Company represented by its general manager Domingo P. Gabriel for the total amount
of One Hundred Fifty Five Thousand Eighteen Hundred Twenty Eight and 60/100 Pesos
(P155,828.60).

The plumbing contract was duly approved by the U.P. Bidding Committee.

On the ground that after Allied Plumbing Company completed its works, Beta, refused to remit
the balance of P64,626.08. plus the payment of additional works asked by Beta, in the total

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Obligations and Contracts: Doctrines and Case Digests
amount of P4,017.90, the former filed a complaint for "sum of money with damages" against
U.P. and Beta, with the Court of First Instance of Rizal.

The defendants denied the allegations of the plaintiff that the latter had completed its plumbing
works under the sub-contract. They contended that there was delay in payment due to the
improper and faulty plumbing connections made by the plaintiff; that the plaintiff was unable to
complete the work stipulated in the sub-contract and that the work completed including the
additional works by the plaintiff were later found to be grossly defective and had to be repaired
and re-done by Beta; that because of the incompetence of the plaintiff, Beta, was compelled to
engage the services of another plumbing contractor who repaired the work; and that Beta
overpaid the amount of P81,686.00 under the plumbing sub-contract which plaintiff is under
obligation to return to Beta.

After trial on the merits, the lower court rendered a decision in favor of the plaintiff. The
dispositive portion of the

ISSUE:
Whether or not University of the Philippines is solidarity liable with Beta, Construction
Company, Inc.

HELD:
Act 3959 was intended for private persons, companies, firms, or corporations using the services
of contractors who may employ their own carpenters, masons, and laborers or hire sub-
contractors. This is made even more evident by the fact that Presidential Decree No. 442. The
Labor Code of the Philippines, Articles 106 to 109 and its Rules and Regulations, Rule VIII,
Sections 7-9, have superseded Act 3959. The Labor Code does not cover government
employment.

The applicable law is Act 3688 which is titled "AN ACT FOR THE PROTECTION OF
PERSONS FURNISHING MATERIAL AND LABOR FOR THE CONSTRUCTION OF
PUBLIC WORKS."

Private respondent should have requested for a certified copy of the contract and bond from UP
and sued Beta Construction and the surety company for unpaid labor and materials instead of
proceeding against UP. Under the circumstances of this case, UP is not solidarity liable with
Beta, for the claims of the sub-contractor against Beta.

BAY VIEW HOTEL, INC., VS. KER AND CO., LTD


[G.R. NO. L-28237 AUGUST 31, 1982]

TEEHANKEE, J.:

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Obligations and Contracts: Doctrines and Case Digests
FACTS:
Sometime in January, 1958, plaintiff-appellant Bay View Hotel, Inc., then the lessee arid operator
of the Manila Hotel, secured a fidelity guarantee bond from defendant-appellee Ker & Co., Ltd.,
for its accountable employees against acts of fraud and dishonesty. Said defendant-appellee Ker
& Co., Ltd., is the Philippine general agent of Phoenix Assurance Co., Ltd. a foreign corporation
duly licensed to do insurance business in the Philippines.

When one of the bonded employees, Tomas E. Ablaza, while acting in his capacity as cashier,
was discovered by plaintiff-appellant to have had a cash shortage and unremitted collections in
the total amount of P42,490.95, it filed claims for payments on the said fidelity guarantee bond
but defendant-appellee Ker & Co. denied and refused indemnification and payment. To enforce
its claims, plaintiff-appellant instituted its complaint, dated August 30, 1965 docketed as Civil
Case No. 63181 of the Court of First Instance of Manila.

In its answer, defendant-appellee Ker & Co. justified its denial of the claims of plaintiff-appellant
on various reasons, such as non-compliance with the conditions stipulated in the insurance
policy; non-presentation of evidence regarding the various charges of dishonesty and
misrepresentation against Tomas E. Ablaza and non-production of the documents to prove the
alleged loss. Ker & Co. likewise averred that it was merely an agent and- as such it was not
liable under the policy.

Plaintiff-appellant maintains that Condition No. 8 of the policy provides for arbitration only if
any dispute should arise as to the amount of companys liability consequently, the reference to
arbitration is not a condition precedent to the filing of the suit contrary to the insurer companys
posture. Plaintiff-appellant points out that in the instant case, there is a total and complete
negation of liability. There is no dispute as to the amount of companys liability because this
presupposes an admission of responsibility although not to the extent of the cost thereof, while
here the insurer denies liability wholly and totally.

ISSUE:
Whether or not Condition No. 8 of the policy should apply.

HELD:
The provisions of Condition No. 8, more specifically the portion thereof which reads, if any
dispute shall arise as to the amount of companys liability under this policy , do not appear to
require any extended interpretation. Condition No. 8 requires arbitration only as to disputes
regarding the amount of the insurers liability but not as to any dispute as to the existence or
non- existence of liability. Thus, Condition No. 8 comes into play only if the insurer admits
liability but cannot agree with the insured as to the amount thereof and cannot be invoked in
cases like that at bar where the insurer completely denies any liability. Defendants-appellees
contention that plaintiff-appellants failure to request arbitration proceedings is a bar to its filing

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Obligations and Contracts: Doctrines and Case Digests
of the suit at bar against the insurer company cannot be sustained, specially considering the
established principle that contracts of adhesion such as the insurance policy in question are to be
strictly construed in case of doubt against the insurer.

ANGELES VS. CALASANZ


[G.R. NO. L-42283 MARCH 18, 1985]

GUTIERREZ, JR., J.:

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

On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a letter requesting


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

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

ISSUE:
Whether or not the Contract to Sell was validly cancelled.

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

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

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

LABASAN VS. LACUESTA


[G.R. NO. L-25931 OCTOBER 30, 1978]

MUOZ PALMA, J.:

FACTS:
Spouses Lacuesta were the owners of an unregistered, irrigated riceland in Ilocos Norte. They
conveyed by means of a written document the land with the right to repurchase after 10 years.
They failed to exercise their right within the stipulated period.

They filed a petition seeking the reconveyance of the parcel of land, allegedly as security for a
loan. The trial court ruled that the document executed by the Lacuestas was a pacto de retro sale
and that they lost their right to redeem the land for not having taken any step within the agreed
10 years.

On appeal, the Court of Appeals set aside the judgement of the trial court and declared the
contract an equitable mortgage and ordered the Labasans to reconvey the land, and that the loan
by the Lacuestas be deemed paid from the fruits of the property which the Labasans had been
receiving for the past 32 years.

ISSUE:
Whether or not the contract is a pacto de retro sale or an equitable mortgage.

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Obligations and Contracts: Doctrines and Case Digests
HELD:
It is an equitable mortgage. It is a basic fundamental rule in the interpretation of a contract that if
the terms thereof are clear and leave no doubt upon the intention of the contracting parties the
literal meaning of the stipulation shall control, but when the words appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former (Article 1370, NCC).
In case of doubt concerning the surrounding circumstances in the execution of a contract, the
least transmission of rights and interest shall prevail if the contract is gratuitous, and if onerous,
the doubt is to be settled in favor of the greatest reciprocity of interest.

SY VS. CA
[G.R. NO. L-39853 AUGUST 17, 1983]

MELENCIO-HERRERA, J.:

Facts:
On March 20, 1969, petitioner, Buenasenso SY, and private respondent, Jaime LUZON 9 entered
into a Distributorship Agreement, whereby LUZON, as producer, would supply SY, as
distributor, sixty metric tons monthly of ipil-ipil leaves at the price stipulated therein. The
agreement was to last for two years, extendible for another two years upon mutual agreement of
the parties.
From March to June, 1969, or a period of approximately three (3) months, LUZON effected
deliveries of approximately 133.2 metric tons of ipil-ipil leaves (Exhibits "B-D"), valued at
P29,645.14, short of the stipulated quantity of 60 metric tons a month.
In June, after the seventh and eighth shipments, the defendant (Buenasenso SY) presented to the
plaintiff (Jaime LUZON) the statement of account, Exhibit D, whereby defendant deducted from
the value of the shipments all the advances, including the sum of P3,700.00 still due on the
revolving capital leaving a net proceed in favor of the plaintiff in the sum of P1,963.19. This was
received by the plaintiff and he signed the statement of account, Exhibit D, on the promise of the
defendant that he would send the money to the plaintiff. When defendant failed to send the
revolving capital to the plaintiff, the latter sent a telegram on June 21, 1969, Exhibit E,
reiterating his request that defendant transmit to him immediately the agreed amount and to wire
his reply. Defendant did not answer this letter. About the end of July, plaintiff came to Manila
and asked the defendant to deliver to him the advance capital. Defendant did not give it, and
plaintiff had to beg him even for his expenses; and defendant gave him the measly amount of
P50.00 for which he signed a receipt dated July 29, 1969. When the advance capital was not

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Obligations and Contracts: Doctrines and Case Digests
forthcoming, the plaintiff wrote the letter, Exhibit F, dated August 7, 1969, requesting that
defendant correct the violation of the terms of the agreement within sixty days from the receipt
thereof, and that 'the same (letter) shall be the written notice in accordance with paragraph 6 of
the contract.' Defendant likewise did not answer this letter.
Issue:
Whether or not Liquidated damages must be reduced
Held:
There is no question that liquidated damages of P20,000.00 were agreed upoil by the parties in
case of breach thereof. There is no question either that SY had violated the contract by not
continuing to provide the revolving capital. As provided for by Article 2227 of the Civil Code,
however,
Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if
they are inequitous or unconscionable.
In the present case, the Court of Appeals found as a fact that LUZON "had not delivered the 60
tons of ipil-ipil leaves monthly as agreed upon", a factual finding that is binding upon us. He,
therefore, neither complied faithfully with the agreement. Equitably, therefore, since LUZON
had also violated the contract, although the violation was not actionable, and in the exercise of
the Court's discretion, we reduce the liquidated damages to P10,000.00, which amount, we
believe, is adequate for the purpose intended.

H. DEFECTIVE CONTRACTS
I. RESCISSIBLE CONTRACTS
1. ART. 1380 (RESCISSION) VS. ART. 1191 (RESOLUTION)
2. ARTS. 1381, 1382, 1098, 1189, 1526, 1534, 1539, 1542, 1556, 1560, 1567 AND 1659
II. VOIDABLE CONTRACTS ART. 1390
1. MODES TO EXTINGUISH AN ACTION FOR ANNULMENT
III. UNENFORCEABLE CONTRACTS ART. 1403

ORDUNA VS. FUENTEBELLA


[G.R. NO. 176841; JUNE 29, 2010]
VELASCO, JR., J.:

FACTS:
Antonita Orduna purchased a residential lot from Gabriel Sr. payable in installments but no deed
of sale was executed. The installments were paid to Gabriel Sr. and later to Gabriel Jr. after the
death of the former. Improvements were thereafter introduced by petitioner and the latter even
paid its real property tax since 1970. Unknown to Orduna, the property has been subject to
further alienations until the same was ceded to respondent, Fuentebella, Jr. Orduna, after being
demanded by Fuentebella to vacate the disputed land, then filed a Complaint for Annulment of

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Sale, Title, Reconveyance with Damages with a prayer to acquire ownership over the subject lot
upon payment of their remaining halance.

ISSUE:
Whether or not the sale of the subject lot was unenforceable.

HELD:
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.

IV. VOID AND INEXISTENT CONTRACTS ART. 1409


I. ESTOPPEL ARTS. 1431 TO 1439
I. KINDS OF ESTOPPELS
1. ELEMENTS
II. LACHES VS. PRESCRIPTION

LAUREL vs. CSC


[G.R. No. 71562; October 28, 1991]

DAVIDE, JR., J.:

FACTS:
Petitioner, the duly elected Governor of the Province of Batangas, appointed his brother,
Benjamin Laurel, as Senior Executive Assistant in the Office of the Governor, a non-career
service position which belongs to the personal and confidential staff of an elective official. Upon
the vacancy of the position of Provincial Administrator of Batangas, petitioner designated his
brother as Acting Provincial Administrator. Then, he issued Benjamin Laurel a promotional
appointment as Civil Security Officer which is a position which the Civil Service Commission
classifies as "primarily confidential" pursuant to P.D. No. 868.

ISSUE:
Whether or not nepotism apply to designation

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HELD:
The court ruled that petitioner could not legally and validly appoint his brother Benjamin Laurel
to said position because of the prohibition on nepotism under Section 49 of P.D. No. 807. They
are related within the third degree of consanguinity and the case does not fall within any of the
exemptions provided therein. The exemption in the said section covering confidential positions
cannot be considered since the said position is not primarily confidential for it belongs to the
career service. Petitioners contention that the designation of his brother is not covered by the
prohibition cannot be accepted for by legal contemplation, the prohibitive mantle on nepotism
would include designation, because what cannot be done directly cannot be done indirectly. His
specious and tenuous distinction between appointment and designation is nothing more than
either a ploy ingeniously conceived to circumvent the rigid rule on nepotism or a last-ditch
maneuver to cushion the impact of its violation. Section 49 of P.D. No. 807 does not suggest that
designation should be differentiated from appointment. Reading the section with Section 25 of
said decree, career service positions may be filled up only by appointment, either permanent or
temporary; hence a designation of a person to fill it up because it is vacant, is necessarily
included in the term appointment, for it precisely accomplishes the same purpose.

PNB VS. IAC


[G.R. NO. 66715 SEPTEMBER 18, 1990]

GRIO-AQUINO, J.

FACTS:
On March 20, 1968, Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB,
San Carlos Branch, over a lot registered in her name under TCT No. T-31913 to secure the
payment of a sugar crop loan of P3,400. Later, Leticia Sepe, acting as attorney-in-fact for her
brother-in-law, private respondent Romeo Alcedo, executed an amended real estate mortgage to
include his (Alcedo's) Lot No. 1626 (being a portion of Lot No. 1402, covered by TCT 52705 of
the Isabela Cadastre) as additional collateral for Sepe's increased loan of P16,500. Leticia Sepe
and private respondent Alcedo verbally agreed to split fifty-fifty (50-50) the proceeds of the loan
(p. 94, Rollo) but failing to receive his one-half share from her, Alcedo wrote a letter on May 12,
1970 to the PNB, San Carlos Branch, revoking the Special Power of Attorney which he had
given to Leticia Sepe to mortgage his Lot No. 1626.

Replying on May 22, 1970, the PNB Branch Manager, Jose T. Gellegani advised Alcedo that his
land had already been included as collateral for Sepe's 1970-71 sugar crop loan, which the latter
had already availed of, nevertheless, he assured Alcedo that the bank would exclude his lot as
collateral for Sepe's forthcoming (1971-72) sugar crop loan.

On the same day, May 22, 1970, PNB advised Sepe in writing to replace Lot No. 1402 with
another collateral of equal or higher value.

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Despite the above advice from PNB, Sepe was still able to obtain an additional loan from PNB
increasing her debt of P 16,500 to P56,638.69 on the security of Alcedo's property as collateral.
On January 15, 1974, Alcedo received two (2) letters from PNB: (1) informing him of Sepe's
failure to pay her loan in the total amount of P 56,638.69; and (2) giving him six (6) days to
settle Sepe's outstanding obligation, as otherwise, foreclosure proceedings would be commenced
against his property. Alcedo requested Sepe to pay her accounts to forestall foreclosure
proceedings against his property, but to no avail.

ISSUE:
Whether or not estoppel applies in this case.

HELD:
In the case at bar, since PNB had promised to exclude Alcedo's property as collateral for Sepe's
1971-72 sugar crop loan, it should have released the property to Alcedo. The mortgage which
Sepe gave to the bank on Alcedo's lot as collateral for her 1971-72 sugar crop loan was null and
void for having been already disauthorized by Alcedo. Since Alcedo's property secured
only P13,100.00 of Sepe's 1970-71 sugar crop loan of P16,500.00 (because P3,400 was secured
by Sepe's own property), Alcedo's property may be held to answer for only the unpaid balance, if
any, of Sepe's 1970-71 loan, but not the 1971-72 crop loan.

The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid
1971-72 sugar crop loan. The extrajudicial foreclosure being null and void ab initio, the
certificate of sale which the Sheriff delivered to PNB as the highest bidder at the sale is also null
and void.

KALALO VS. LUZ


[G.R. NO. L-27782 JULY 31, 1970]

ZALDIVAR, J.:

FACTS:
Octavio Kalalo is an engineer whose services were contracted by Alfredo Luz, an architect in
1961. Luz contracted Kalalo to work on ten projects across the country, one of which was an in
the International Rice Research Institute (IRRI) Research Center in Los Baos, Laguna. Luz was
to be paid $140,000.00 for the entire project. For Kalalos work, Luz agreed to pay him 20% of
what IRRI is going to pay or equivalent to $28,000.00.

ISSUE:
Whether or not Kalalo should be paid in US currency.

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Obligations and Contracts: Doctrines and Case Digests
HELD:
No. The agreement was forged in 1961, years before the passage of Republic Act 529 in 1950.
The said law requires that payment in a particular kind of coin or currency other than the
Philippine currency shall be discharged in Philippine currency measured at the prevailing rate of
exchange at the time the obligation was incurred. Nothing in the law however provides which
rate of exchange shall be used hence it is but logical to use the rate of exchange at the time of
payment.

MEDIJA VS. PATCHO


[G.R. NO. L-30310 OCTOBER 23, 1984]

MAKASIAR, J.:

FACTS:
Civil Case No. 1884 was an action for partition and damages filed by Ernesto Patcho, Lauriana
Patcho, Tarcila Batilona, Simeon Batilona, Teodoro Baroro, Donata Baluran and Marcelino
Baluran (defendants herein) against their uncle Agripino Morante, Cirila Morante, Ignacio
Patcho and Saturnino Medija (plaintiff-appellant herein). The subject matter of the action were
five parcels of land owned by the late Lorenzo Florante who died in 1943 leaving the plaintiffs
(defendants herein) as heirs. They claimed that the defendants have been unlawfully holding and
using portions of the lands since the death of Lorenzo Florante.

After trial, the lower court held that the plaintiffs had failed to establish the allegations of their
complaint and dismissed the same. The case was elevated on appeal to the then Court of Appeals.

On October 22, 1963, the Court of Appeals reversed the same in favor of the plaintiffs for the
partition of those portions not yet partitioned among the heirs of Lorenzo Morante being
unlawfully held by defendants since the death of aforesaid Lorenzo Morante in 1943 and for the
payment of the proportionate produce corresponding to the legitimate shares of the plaintiffs
from the year 1943 (pp. 41-42, Record on Appeal, p. 5, rec.).

The case was remanded to the Court of First Instance anew with the specific order to partition
among the corresponding heirs of Lorenzo Morante the portion of the lands left unpartitioned
and to receive evidence on the damages to be paid by the defendants to the plaintiffs (defendants
herein) and thereafter to render judgment.

On April 17, 1967, the lower court issued its order embodying the partition of those undivided
portions of the land and the damages to be paid by the defendants

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Obligations and Contracts: Doctrines and Case Digests
Thereafter, on March 16, 1968, Saturnino Medija filed a complaint in the same Court of First
Instance of Misamis Occidental. This is the present Civil Case No. 2665 for quieting of title and
damages with prayer for preliminary injunction.

The plaintiff-appellant alleged that he is the legal owner of two parcels of land situated at
Dapacan Alto, Calamba, Misamis Occidental

The complaint states that Parcel I had been acquired by plaintiff-appellant from the defendants
by virtue of documents of sale executed by the latter at various dates between the years 1948 and
1952 while Parcel II had been acquired by the plaintiff-appellant from one Agripino Morante.

The defendants filed their answer on April 17, 1968. They alleged that the procurement of the
title of the plaintiff-appellant is tainted with bad faith and fraud.

ISSUE:
Whether or not there are latches in the case

HELD:
An estoppel by laches arises from the negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned it or
declined to asset it (Tijam et al. vs. Sibonghanoy, 23 SCRA 29). Its essence is the doctrine of
estoppel, a concept derived from American law that aims to bring out justice between parties,
through the operation of the principle that an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person relying
thereon (Report of the Code Commission, p. 59). In other words, it precludes a person from
denying or asserting anything to the contrary of that which has, in contemplation of law, been
established as the truth, either by the acts of judicial or legislative officials or by his own deed or
representation, either expressed or implied.

In the instant case, the complaint of appellant states that Parcel I had been acquired by plaintiff-
appellant from the defendants by virtue of documents of sale executed by the latter at various
dates between the years 1948 and 1952, while Parcel II had been acquired by the plaintiff-
appellant from one Agripino Morante (p. 3, Record on Appeal, p. 5, rec.). If this were the case,
he should have presented the deeds of sale when Civil Case No. 1884 was filed on May 10,
1956. He did not. Neither did he present any claim of ownership when Civil Case No. 1884 was
appealed to the Court of Appeals. Appellant did not contest the partition and the assessment of
damages made by the lower court in its order dated April 17, 1967 in Civil Case No. 1884. It was
only when Civil Case No. 1884 was being executed that appellant moved to file a complaint for
quieting of title in the same Court of First Instance of Misamis Occidental. Such conduct cannot
be allowed.

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F.A.T. Kee Computer vs. Online Networks
[G.R. No. 171238; February 2, 2011]

LEONARDO DE CASTRO, J.:

FACTS:
Petitioner F.A.T. Kee Computer Systems, Inc. (FAT KEE) is a domestic corporation engaged in
the business of selling computer equipment and conducting maintenance services for the units it
sold. ONLINE is also a domestic corporation principally engaged in the business of selling
computer units, parts and software.ONLINE sold computer printers to FAT KEE. However, FAT
KEE failed to pay its obligations to ONLINE without any valid reason. ONLINE filed a
Complaint for Sum of Money against FAT KEE. During the trial FAT KEE insisted that the
conversion rate they agreed upon was P34:US$1 and not P40 as insisted by ONLINE.The RTC
dismissed the complaint of ONLINE for the latters failure to establish its claim. The appellate
court reversed and set aside the Decision of the RTC. The CA ruled that even granting that FAT
KEE was of the impression that P34:$1was the applicable rate for its obligation, ONLINE cannot
be put in estoppel as this was immediately rectified by ONLINE.

ISSUE:
Whether or not ONLINE is estopped as to the conversion rate used.

HELD:
One who claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of reasonable care
and circumspection. A lack of diligence by a party claiming an estoppel is generally fatal. Thus,
after participating in the meeting on January 15, 1998, submitting its own proposals and further
negotiating for the lowering of the exchange rate, FAT KEE cannot anymore insist that it was
completely under the impression that the applicable exchange rate was P34:US$1.Respondent
Online filed a complaint against petitioner for sum of money. It alleged that petitioner failed to
pay the purchase price of the computer. Petitioner FATKEE answered the complaint and denied
all the allegations against him. Petitioner contended that the argument of Online that the instant
petition is fatally defective for failure of the former to attach the Transcript of Stenographic
Notes (TSN) of RTC proceedings. He countered that there is no need to annex the said TSN
given that Online does not dispute the accuracy of the quoted portions of the transcripts and the
petition does not request for a re-evaluation of the evidence of the parties

MAPA III VS. GUANZON


[G.R. NO. L-25605 JUNE 20, 1977]

ANTONIO, J.:

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FACTS:
On September 21, 1925, an original certificate of title was issued to Isidoro Bayeta over a certain
property lot hereinafter referred to as Lot No. 2636. On September 7, 1928, Isidoro Bayeta and
his wife, Crispina Guanzon, sold the said land to Spouses John Roemer and Julia Roemer. On
March 11, 1935, the Roemers sold the land to Lucas Guirnela. On November 10, 1936, Guirnela,
sold said land to Fernando Mapa, Jr. On January 31, 1950, Fernando Mapa Jr. leased said land to
Omarementaria and Ballesteros for a period of eight (8) years. On January 26, 1953, said land
was sold at public auction for non-payment of taxes and was bought by the Province of Negros
Occidental there being no bidders.It was repurchased by Fernando Mapa, Jr. on January 26,
1954. On December 28, 1956, said land was again sold at public auction for non-payment of
taxes and the Province of Negros Occidental again bought the same, there being also no bidders.

The final bill of sale in favor of the Province of Negros Occidental was issued on March 4, 1959,
and registered in the Register of Deeds on March 25, 1959.

Meanwhile, or on January 13, 1958, the original certificate of title in the name of Isidoro Bayeta
was reconstituted administratively. On the same date, the heirs of Isidoro Bayeta, filed an action
against Fernando Mapa for recovery of ownership of Lot No. 2636 (docketed as Civil Case No.
4666). The complaint, however, was dismissed on October 5, 1959 for lack of interest.

On November 29, 1959, the same heirs of Isidoro Bayeta filed with the CFI another complaint
against Fernando Mapa, docketed as Civil Case No. 5557, also for recovery of ownership and
possession of the same parcel of land subject of Civil Case No. 4666. The Court of First Instance
dismissed the same on February 16, 1960 on the ground of res judicata. The plaintiffs appealed
to the CA, but the CA sustained the ruling of the lower court.

On January 27, 1961, the heirs of Isidoro Bayeta, the defendants-appellants herein, executed an
Extrajudicial Partition to the aforementioned lot.

Plaintiff Fernando Mapa III, successor-in-interest of Fernando Mapa, Jr., filed on May 18, 1962,
the present case against the heirs of Isidoro Bayeta and the Provincial Treasurer of Negros
Occidental for cancellation of the transfer certificate in the name of Agustin Bayeta and the
Certificate of Repurchase issued by the Provincial Treasurer in favor of Agustin Bayeta and the
issuance of an order requiring the Provincial Treasurer to execute the deed of sale in favor of said
plaintiff, after payment of all taxes due on said property.

On November 4, 1965, the lower court rendered judgment in favor of the plaintiff-appellee and
against the defendants appellants.

ISSUE:

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Whether or not the question of ownership over Lot No. 2636 could still be relitigated, in view of
the final dismissal on the merits of Civil Cases Nos. 4666 and 5557, which were actions
instituted by herein defendants-appellants to recover the ownership and possession of the same
property from Mapa.

HELD:
Ownership of the said lot cannot be litigated anew in this case. Indeed, not one of the defendants-
appellants as heirs of Isidoro Bayeta, could have validly exercised the right of redemption or
repurchase of the property. They were already barred by the prior judgment of the Court of First
Instance of Negros Occidental in Civil Case No. 4666 from asserting any right of ownership or
title over said property. They could not also exercise the right to repurchase as the "delinquent
taxpayer" since they were never the taxpayer of said property, but Fernando Mapa. Mapa is,
therefore, the party called upon by the law to exercise the right of redemption or repurchase
within two (2) years from the date of the registration of the sale, that is, up to March 25, 1961.

INSURANCE OF THE PHILIPPINE ISLANDS CORP VS. SPS. GREGORIO


[G.R. NO. 174104 FEBRUARY 14, 2011]

PERALTA, J.:

FACTS:
Spouses Vidal Gregorio and Julita Gregorio obtained loans from the Insurance of the Philippine
Islands Corporation. By way of security for the said loan, respondents executed Real Estate
Mortgage. Respondents failed to pay their loans, as a result of which the mortgaged properties
were extrajudicially foreclosed.

Petitioner filed a Complaint for damages against respondents alleging that in 1995, when it was
in the process of gathering documents for the purpose of filing an application for the registration
and confirmation of its title over the foreclosed properties, it discovered that the said lots were
already registered in the names of third persons and transfer certificates of title (TCT) were
issued to them.

The RTC of Morong, Rizal, ruled in favor of petitioner, while the CA rendered a Decision
reversing and setting aside the decision of the RTC and dismissing the complaint of petitioner. It
ruled that petitioner's action for damages is barred by prescription and laches.

ISSUE:
Whether or not petitioner's right of action prescribed four years after the subject properties were
registered with the Register of Deeds of Morong, Rizal and TCTs were subsequently issued in
the names of third persons.

HELD:

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The Court finds no error in the ruling of the CA that petitioner's cause of action accrued at the
time it discovered the alleged fraud committed by respondents. It is at this point that the four-
year prescriptive period should be counted. However, the Court does not agree with the CA in its
ruling that the discovery of the fraud should be reckoned from the time of registration of the
titles covering the subject properties.

The essence of laches or stale demands is the failure or neglect for an unreasonable and
unexplained length of time to do that which, by exercising due diligence, could or should have
been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has
abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact of delay,
standing alone, being insufficient to constitute laches.

CARAGAY-LAYNO VS. CA
[G.R. NO. L-52064 DECEMBER 26, 1984]

MELENCIO-HERRERA, J.:

FACTS:
Mariano De Vera died in 1951. His widow administered his property until her death in 1966. De
Veras nephew (Salvador Estrada) took over as administrator of De Veras estate. Prior to the
widows death, she made an inventory showing that De Veras property (located in Calasiao,
Pangasinan) measures 5417 sq. m (more or less). Estrada however noticed that the Torrens title
under De Vera indicated that his property measures 8752 sq. m. He learned that the discrepancy
is the 3732 sq. m. being occupied by Juliana. Estrada sued to evict Juliana.

Juliana averred that she and her father have been in open, continuous, exclusive and notorious
possession and in the concept of an owner of the land since 1921; that theyve been paying taxes;
that the title held by Estrada was registered in 1947 but it only took them to initiate an action in
1967 therefore laches has set in.

ISSUE:
Whether or not the disputed portion should be adjudged in favor of De Veras estate.

HELD:
The inclusion of Julianas land in De Veras title was erroneously done. It was shown that
Juliana, an unlettered woman, agreed to have Mariano de Vera borrow her title for the purposes
of Mariano obtaining a loan during de Veras lifetime; that when de Vera registered his portion of
land adjoined to that of Juliana, the latters land was erroneously included.

The error is highlighted by the fact that de Veras widow, in her inventory before she died,
attested that de Veras portion of land is only 5417 sq. m. more or less. The discrepancy
approximates the portion of land actually being occupied by Juliana. By that, the only portion
that can be adjudged in favor of de Veras estate is that which was being claimed by the widow

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(in her inventory). A recalculation must however be made to specify the exact measure of land
belonging to each: 3732 sq m should be retained by Juliana (portion which she actually occupies)
and 5020 sq. m. should go to de Veras estate.

JOSE MARQUES AND MAXILITE TECHNOLOGIES, INC. VS. FAR EAST BANK AND
TRUST COMPANY
[G.R. NO. 171379 JANUARY 10, 2011]

CARPIO, J.:

FACTS:
Maxilite Technologies, Inc. (Maxilite) is a domestic corporation engaged in the importation and
trading of equipment for energy-efficiency systems. Jose N. Marques (Marques) is the President
and controlling stockholder of Maxilite.

Far East Bank and Trust Co. (FEBTC) is a local bank which handled the financing and related
requirements of Marques and Maxilite. Marques and Maxilite maintained accounts with FEBTC.
Accordingly, FEBTC financed Maxilites capital and operational requirements through loans
secured with properties of Marques under the latters name.

On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction with FEBTC, in
the sum of US$80,765.00, for the shipment of various high-technology equipment from the
United States, with the merchandise serving as collateral. The foregoing importation was covered
by a trust receipt document signed by Marques on behalf of Maxilite

Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated the procurement and
processing from Makati Insurance Company of four separate and independent fire insurance
policies over the trust receipted merchandise.

On 19 August 1994, Insurance Policy No. 1024439, covering the period 24 June 1994 to 24 June
1995, was released to cover the trust receipted merchandise.

Finding that Maxilite failed to pay the insurance premium in the sum of P8,265.60 for Insurance
Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995, FEBIBI sent written

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reminders to FEBTC, dated 19 October 1994, 24 January 1995, and 6 March 1995, to debit
Maxilites account.

On 24 and 26 October 1994, Maxilite fully settled its trust receipt account.

On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J. Cuenco Avenue,
Cebu City, where Maxilites office and warehouse were located. As a result, Maxilite suffered
losses amounting to at least P2.1 million, which Maxilite claimed against the fire insurance
policy with Makati Insurance Company. Makati Insurance Company denied the fire loss claim on
the ground of non-payment of premium. FEBTC and FEBIBI disclaimed any responsibility for
the denial of the claim.

ISSUE:
Whether or not there is estoppel on the part of FEBTC

HELD:
Article 1431 of the Civil Code defines estoppel as follows:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon


the person making it, and cannot be denied or disproved as against the person relying
thereon.

Meanwhile, Section 2(a), Rule 131 of the Rules of Court provides:

SEC. 2. Conclusive presumptions. The following are instances of conclusive


presumptions:

(a) Whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing is 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.

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. Estoppel is based on public policy, fair
dealing, good faith and justice. Its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one who reasonably relied thereon. It springs
from equity, and is designed to aid the law in the administration of justice where without its aid
injustice might result.

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

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Obligations and Contracts: Doctrines and Case Digests
existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an
estoppel whether the failure to speak is intentional or negligent.

MANILA LODGE NO. 716 VS. CA


[G. R. NO. L-41001 SEPTEMBER 30, 1976]

CASTRO, C.J.:

FACTS:
The Philippine Commission enacted Act No. 1306 which authorized the City of Manila to
reclaim a portion of Manila Bay. The reclaimed area was to form part of the Luneta extension.
The act provided that the reclaimed area shall be the property of the City of Manila, and the city
is authorized to set aside a tract of the reclaimed land for a hotel site and to lease or to sell the
same. Later, the City of Manila conveyed a portion of the reclaimed area to Petitioner. Then
Petitioner sold the land, together with all the improvements, to the Tarlac Development
Corporation (TDC).

ISSUE:
Whether or not the subject property was patrimonial property of the City of Manila.

HELD:
The petitions were denied for lack of merit. The court found it necessary to analyze all the
provisions of Act No. 1360, as amended, in order to unravel the legislative intent. The grant
made by Act No. 1360 of the reclaimed land to the City of Manila is a grant of a public nature.
Such grants have always been strictly construed against the grantee because it is a gratuitous
donation of public money or resources, which resulted in an unfair advantage to the grantee. In
the case at bar, the area reclaimed would be filled at the expense of the Insular Government and
without cost to the City of Manila. Hence, the letter of the statute should be narrowed to exclude
matters which, if included, would defeat the policy of legislation.

CENTRAL BANK VS. CA


[G.R. NO. L-50031-32; JULY 27, 1981]

CONCEPCION, JR., J.:

FACTS:
Isidro Fernandez and Jesus Jayme are the majority and controlling stockholders of Provident
Bank. When Provident Savings Bank experienced bankrun, which was triggered off by adverse
publicity in the newspapers, radio and television of investigations conducted by Congress that
some banks were unable to pay deposit withdrawals. The Bank was forced to borrow funds from

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other banks and the Central Bank but despite the borrowing, the funds remained insufficient to
satisfy the withdrawals.

Hence, the Isidro Fernandez and Jesus Jayme appealed to Central Bank for further assistance.
However, the Central Bank replied to them stating that they have to relinquish and turnover the
management and control of the bank to Iglesia ni Kristo (INK) affiliated entity Eagle
Broadcasting in order for it to assist the distressed provident. Under the agreement, EB agreed to
purchase 52,000 capital stock with provident. The Eagle Broadcasting Corporation, however,
did not comply with its commitment to purchase 53,000 common shares of stock and to convert
its deposits into equity. Instead, the new management of PROVIDENT caused the conversion of
the deposits of Iglesia Ni Kristo into bills payable earning 12% interest, which were
subsequently withdrawn. 4 PROVIDENT, under the new management, also failed to comply
with the Monetary Board directives relative to the rehabilitation of the bank so that it restored the
interest rate of 12% on outstanding loans.

These acts were made despite the presence of Central Bank examiners. Subsequently, Central
Bank Monetary Board issued a resolution declaring the closure of Provident Savings Bank and
ordering its liquidation. Hence, Fernandez and Jayme filed with the Court of First Instance a
petition for certiorari, prohibition, and mandamus against Central Bank to annul the resolution
and restrain CB from proceeding with the liquidation which the court granted.

ISSUE:
Whether or not the closure of the bank may be subject to judicial inquiry and whether or not the
resolution was issued arbitrarily and in bad faith.

HELD:
Having decided in 1968 that PROVIDENT was salvageable and could be permitted to continue
in business with its support, provided there is change in management and introduction of
reforms, the CB should have been vigilant in its overseeing of the faithful compliance by the
parties of the terms of the Memorandum Agreement, as well as in supervising and controlling the
operations of the bank under the management of EAGLE. The persuasive, nay, compulsory,
powers of the CB to accomplish these cannot be doubted. The CB exercises such control of
private banks under its broad powers that it can decree life or death of any bank by simply
withholding from it the facilitates that it normally accords banks.

While the closure and liquidation of a bank may be considered an exercise of police power, the
validity of such exercise of police power is subject to judicial inquiry and could be set aside if it
is either capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of due process and
equal protection clauses of the Constitution. The arbitrariness and bad faith of Central Bank is
evident from the fact that it pressured Fernandez and Jayme into relinquishing the management

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Obligations and Contracts: Doctrines and Case Digests
and control of Provident Savings Bank to Iglesia Ni Kristo which did not have any intention of
restoring the bank into its former sound financial condition but whose interest was merely to
recover its deposits from the bank and thereafter allowing INK to mismanage the bank until the
banks financial deterioration and subsequent closure. Central Bank acted whimsically and
withdrew its commitment to support the bank to the detriment of the latter.

If jurisdiction was already acquired to delve into the validity of Resolutions 1263 and 1290 (and
this the Central Bank admits), there is no cogent reason why, after such jurisdiction had been
acquired, the Court should be deprived thereof by the subsequent adoption of Resolution 1333,
particularly because the latter, in relation to the antecedent facts, appears to be no more than a
deliberate effort to evade the jurisdiction of this Court, and have the case thrown back to the
Court of First Instance. The Central Bank, by promising to rehabilitate the bank, is estopped
from closing it down. The conduct of the Central Bank reveals a calculated attempt to evade
rehabilitating OBM despite its promises. Hence, respondent Central Bank of the Philippines is
directed to comply with its obligations under the voting trust agreement, and to desist from
taking action in violation thereof.

The Central Bank made express representations to petitioners herein that it would support the
OBM, and avoid its liquidation if the petitioners would execute (a) the voting trust agreement
turning over the management of OBM to the Central Bank or its nominees, and (b) mortgage or
assign their properties to the Central Bank to cover the overdraft balance of OBM. The
petitioners having complied with these conditions and parted with value to the profit of the CB
(which thus acquired additional security for its own advances), the Central Bank may not now
renege on its representations and liquidate the OBM, to the detriment of its stockholders,
depositors and other creditors, under the rule of promissory estoppel.

REPUBLIC VS. ALAGAD


[G.R. NO. L-66807 JANUARY 26, 1989]

SARMIENTO, J.:

FACTS:
On 11 October 1951, Melitona, Carmen (with spouse Espiridion Kolimlim), Justo, Carlos,
Librada (with spouse Emerson Abano), Demetrio, and Antonio Alagad filed an application for
registration of their title over a parcel of land situated at Linga, Pila, Laguna, with an area of
8.1263 hectares (survey plan Psu-116971), which was amended after the land was divided into
two parcels, namely, Lot 1 with an area of 5.2476 hectares and Lot 2 with an area of 2.8421
hectares (survey plan Psu-226971, amendment 2). The Republic opposed the application on the
stereo-typed ground that applicants and their predecessors have not been in possession of the
land openly, continuously, publicly and adversely under a bona fide claim of ownership since 26

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July 1894 and the land has not ceased to be a part of the public domain. It appears that barrio
folk also opposed the application. On 16 January 1956, by virtue of a final judgment in said case,
supplemented by orders issued on 21 March 1956 and 13 August 1956, the Alagads were
declared owners of Lot 1 and the remaining portion, or Lot 2, was declared public land. Decree
N-51479 was entered and OCT 0-401, dated 18 October 1956, was issued in the names of the
Alagads. In August 1966, the Alagads filed before the Municipal Court of Pila, Laguna (Civil
Case 52) an action to evict the barrio folk occupying portions of Lot 1. On 8 August 1968,
judgment was rendered in the eviction case ordering the barrio folk therein to return possession
of the premises to the Alagads. The barrio folk did not appeal. The Republic filed a petition for
annulment of title and reversion, insofar as the 1.42 hectare northwestern portion on end of Lot
1 is concerned, contending that such is foreshore land, and that the Alagads could not have had
an imperfect title to it as it was the barrio folk who filled up the land to elevate the land to its
present condition. The Court, on 6 October 1970, issued a writ of preliminary injunction
enjoining the Provincial Sheriff of Laguna or his deputies from enforcing the writ of execution
issued in Civil Case 52, and the Alagads from selling, mortgaging, disposing or otherwise
entering into any transaction affecting the area. The case was set for pre-trial on 6 July 1971, to
which the attorney representing the Republic did not appear. On 16 July 1971, the court
dismissed the complaint. The Republic filed a motion for reconsideration, was set for hearing,
and finally denied by the court. Appeal was made to the Court of Appeals, which sustained the
trial.

ISSUE:
Whether or not the state can be estoppeled.

HELD:
The State cannot be bound by, or estopped from, the mistakes or negligent acts of its official or
agents, much more, non-suited as a result thereof. This is so because the state as a persona in law
is the judicial entity, which is the source of any asserted right to ownership in land under the
basic doctrine embodied in the 1935 Constitution as well as the present charter. It is charged
moreover with the conservation of such patrimony. There is need therefore of the most rigorous
scrutiny before private claims to portions thereof are judicially accorded recognition. Such
primordial consideration, not the apparent carelessness, much less the acquiescence of public
officials, is the controlling norm.

NIEVA VS. MANILA BANKING CORPORATION


[G.R. NO. L-30811. SEPTEMBER 2, 1983.]

GUTIERREZ, JR., J.:

FACTS:

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Civil Case No. 73863, entitled Manila Banking Corporation versus Antonio Nieva and Ignacio
Arroyo was an action to recover P10,897.78 with interest at 14 percent per annum until fully
paid. The promissory note evidencing the debt was originally for P8,000.00 only but because of
accrued interests, the alleged debt had increased to P10,897.78 when the action was commenced.
Ignacio Arroyo was included in his capacity as guarantor for the payment of the amount in the
promissory note.

In addition to the defendants obligation on the note, the plaintiff bank asked for the payment of
attorneys fees allegedly incurred due to the refusal of the defendants to pay their obligation
despite repeated demands. Costs of suit and incidental expenses for collection were also included

Defendant Nieva filed a manifestation questioning the court's jurisdiction considering that the
principal demand of the plaintiff was only P8,000.00. Nieva prayed for the setting aside of the
decision and the dismissal of the case. After considering the manifestation and the opposition of
the respondent bank, the court denied Nieva's prayer. No appeal was taken from the decision.

After the decision had already become final and executory, the plaintiff bank filed a motion for
execution which was granted by the court.

Thereafter, Manila Banking Corporation filed an urgent ex-parte motion to clarify the decision
under execution. The respondent court issued the questioned order and granted the motion.

ISSUE:
Whether or not the jurisdiction of the court can still be question

HELD:
It was held in Tajonera v. Lamaroza (110 SCRA 447):
"The rule is that jurisdiction is conferred by law and the objection to the authority of the tribunal
to take cognizance of a case may be raised at any stage of the proceedings. However, considering
the attendant circumstances in the case at bar, petitioners are now barred from claiming lack of
jurisdiction at this stage with their active participation. They never questioned the authority of
respondents Leogardo, Jr. and Estrella throughout the duration of the proceedings when they
have the chance to do so. They never mentioned lack of jurisdiction in their memorandum of
appeal, in their motion for reconsideration or in their position paper. They are now estopped from
raising such objection. It has been held that a party cannot invoke the jurisdiction of a court to
secure affirmative relief against his opponent and after failing to obtain such relief, repudiate or
question that same jurisdiction. (Tijam v. Sibonghanoy, 23 SCRA 35) The Court frowns upon
and does not tolerate the undesirable practice of some litigants who submit voluntarily a cause
and then accepting the judgment when favorable to them and attacking it for lack of jurisdiction
when adverse."

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Obligations and Contracts: Doctrines and Case Digests
The petitioner's arguments appear to be meritorious. However, considering that the petitioner
had actively participated in all stages of the proceedings in the trial court, he cannot, at this stage,
question the court's jurisdiction. As a matter of fact, Nieva was the one who proposed what
amounted to a compromise agreement, which formed the basis of the decision after the
respondent bank agreed to the proposal. Only after the court had promulgated the decision did
Nieva have second thoughts which led to the manifestation raising the issue of jurisdiction. And
when his manifestation was denied, he did not pursue the denial and raise the matter to an
appellate tribunal. Nieva allowed the decision to become final and executory.

MANILA ELECTRIC COMPANY VS. CA


[G.R. NO. L-33794 MAY 31, 1982]

MELENCIO-HERRERA, J.:

FACTS:
Pedro Velasco bought 3 lot from Peoples Homesite and Housing Corporation, wherein an
agreement was made that the lots shall only be used for residential purposes only. Thereafter
Velasco sold the 2 of the lots to Meralco. However, Meralco used the lots to erect a substation.
Velasco now calls for the cancellation of the sale on the ground that there was a violation with
the condition that the lot can only be used for residential purposes.

ISSUE:
Whether or not the sale can be cancelled.

HELD:
The contract of sale between PHHC and VELASCO provided that only constructions exclusively
for "residential purposes" shall be built on the PROPERTY. That requirement, naturally, was
binding on VELASCO himself, as it is also binding on MERALCO as his assignee. Be that as it
may, that contract implies that it is PHHC itself which has the right of action against any
assignee of VELASCO.

Even if the requirement for "residential purposes" were a condition imposed by VELASCO
himself in the contract of sale between VELASCO and MERALCO, the former can no longer
cancel the contract on the alleged violation of the condition. When MERALCO erected the sub-
station in September, 1953, VELASCO did not object to its construction as such.

Contracts should be given effect as the parties construe it. "Acts done by the parties to a contract
in the course of its performance are admissible in evidence upon the question of its meaning as
being their own contemporaneous interpretation of , its terms".

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Obligations and Contracts: Doctrines and Case Digests
BAILON-CASILAO VS. CA
[G.R. NO. 78178 APRIL 15, 1988]

CORTES, J.:

FACTS:
There is a parcel of land in the names of the Bailons (Rosalia, Gaudencio, Sabina Bernabe,
Nenita and Delia) as co-owners, each with a 1/6 share. It appears that Rosalia and Gaudencio
sold a portion of the land to Donato Delgado. Rosalia alone, then sold the remainder of the land
to Ponciana Aresgado de Lanuza. On the same date, Lanuza acquired from Delgado land which
the Delgado had earlier acquired from Rosalia and Gaudencio. Husband John Lanuza, acting
under a special power of attorney given by his wife, Ponciana, sold the two parcels of landto
Celestino Afable, Sr. In all these transfers, it was stated in the deeds of sale that the land was not
registered under the provisions of Act No.496 when the fact is that it is. It appears that the land
had been successively declared for taxation first, in the name of Ciriaca Dellamas,mother of the
co-owners, then in the name of Rosalia Bailon, then in that of Donato Delgado, then in
Poncianade Lanuza's name, and finally in the name of Celestino Afable, Sr.

ISSUE:
Whether or not latches apply in the case

HELD:
Well-stated in this jurisdiction are the four basic elements of laches, namely: (1) conduct on the
part of the defendant or of one under whom he claims, giving rise to the situation of which
complaint is made and for which the complainant seeks a remedy; (2) delay in asserting the
corporations complainant's rights, the complainant having had knowledge or notice of the
defendant's conduct and having been afforded an opportunity to institute suit; (3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right on
which he bases his suit; and, (4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held to be barred [Go China Gun, et al. v. Co Cho
et al., 96 Phil. 622 (1955)].

While the first and last elements are present in this case, the second and third elements are
missing.

HEIRS OF BATIOG LACUMEN VS. HEIRS OF LARUAN


[G.R. NO. L-27088 JULY 31, 1975]

MARTIN, J.:

FACTS:

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Obligations and Contracts: Doctrines and Case Digests
Laruan executed a deed of sale in favor of Lacumen for a parcel of land in La Trinidad, Benguet.
Lacumen made use of the property even without securing a transfer certificate of title. The use
and improvement continued even after his death.

After World War II, Lacumens heirs tried to fix their papers, but it appeared that the Laruans
was able to procure a new title and named the land for themselves.

Thereafter, the Lacumens filed for claiming ownership over the land in dispute.

ISSUE:
Whether or not the Lacumens should be considered the lawful owners.

HELD:
"Laches" has been defined as "such neglect or ommission to assert a right, taken in conjunction
with lapse of time and other circumstances causing prejudice to an adverse party, as will operate
as a bar in equity." It is a delay in the assertion of a right "which works disadvantage to another"
because of the "inequity founded on some change in the condition or relations of the property or
parties." It is based on public policy which, for the peace of society, ordains that relief will be
denied to a stale demand which otherwise could be a valid claim. It is different from and applies
independently of prescription. While prescription is concerned with the fact of delay, laches is
concerned with the effect of delay. Prescription is concerned with the effect of delay. Prescription
is a matter of time; laches is principally a question of inequity of permitting a claim to be
enforced, this inequity being founded on some change in the condition of the property or the
relation of the parties. Prescription is statutory; laches is not. Laches applies in equity, whereas
prescription applies at law. Prescription is based on a fixed time, laches is not.

Laruan's sale of the subject lot to Lacamen could have been valid were it not for the sole fact that
it lacked the approval of the Director of the Bureau of Non-Christian Tribes. There was
impressed upon its face full faith and credit after it was notarized by the notary public. The non-
approval was the only "drawback" of which the trial court has found the respondents-appellants
to "have taken advantage as their lever to deprive [petitioners-appellants] of this land and that
their motive is out and out greed." As between Laruan and Lacamen, the sale was regular, not
infected with any flaw. Laruan's delivery of his certificate of title to Lacamen just after the sale
symbolizes nothing more than a bared recognition and acceptance on his part that Lacamen is the
new owner of the property. Thus, not any antagonistic show of ownership was ever exhibited by
Laruan after that sale and until his death in May 1938.

It results that as against Laruan and his heirs, respondents-appellants herein, the late Batiog
Lacamen and his heirs, petitioners-appellants herein, have superior right and, hence, have validly
acquired ownership of the litigated land. Vigilantibus non dormientibos sequitas subvenit.

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Obligations and Contracts: Doctrines and Case Digests

J. TRUST ARTS. 1440 TO 1457

DELUAO VS. CASTEEL


[G.R. NO. L-21906, DECEMBER 24, 1968]

CASTRO, J.:

FACTS:
In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy land,
178.76 hectares, in the then sitio of Malalag, municipality of Padada, Davao for 3 consecutive
times because the Bureau of Fisheries did not act upon his previous applications.

Despite the said rejection, Casteel did not lose interest. Because of the threat poised upon his
position by the other applicants who entered upon and spread themselves within the area, Casteel
realized the urgent necessity of expanding his occupation thereof by constructing dikes and
cultivating marketable fishes. But lacking financial resources at that time, he sought financial aid
from his uncle Felipe Deluao.

Moreover, upon learning that portions of the area applied for by him were already occupied by
rival applicants, Casteel immediately filed a protest. Consequently, two administrative cases
ensued involving the area in question.

However, despite the finding made in the investigation of the above administrative cases, the
Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required
him to remove all the improvements which he had introduced on the land, and ordered that the
land be leased through public auction

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and
Nicanor Casteel as party of the second part, executed a contract denominated a "contract of

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Obligations and Contracts: Doctrines and Case Digests
service". On the same date the above contract was entered into, Inocencia Deluao executed a
special power of attorney in favor of Jesus Donesa

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao
on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area
in the two administrative cases and asked for reinvestigation of the application of Nicanor
Casteel over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel to be
reinstated in the area and that he shall pay for the improvement made thereupon.

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering
the fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the
premises.

ISSUE:
Whether or not the reinstatement of Casteel over the subject land constitute a dissolution of the
partnership between him and Deluao.

HELD:
The Supreme Court ruled that the arrangement under the so-called "contract of service"
continued until the decision both dated Sept. 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B.

This development, by itself, brought about the dissolution of the partnership. Since the
partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it
envisaged the unauthorized transfer of one half thereof to parties other than the applicant Casteel,
it was dissolved by the approval of his application and the award to him of the fishpond.

The approval was an event which made it unlawful for the members to carry it on in partnership.
Moreover, subsequent events likewise reveal the intent of both parties to terminate the
partnership because each refused to share the fishpond with the other.

VALDEZ VS. OLORGA


[G.R. NO. L-22571 MAY 25, 1973]

MAKALINTAL, J.:

FACTS:
A lot was sold to Spouses Gutierrez to Spouses Valdez. A portion was leased to Mr. Quicho
which was eventually purchased for a consideration. The remaining portions remained registered

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Obligations and Contracts: Doctrines and Case Digests
to Federico Valdez Jr.. The transfer of the lot in the name of Federico Sr., was never don because
the original title was lost.

It was later discovered by the plaintiffs that the lot was in the name of Federico Valdez Jr., as the
only vendee. This was done pursuant to the wishes of Mr. Quicho who advanced the money, in
order that he could facilitate the deed of sale between him and the Valdezes, with the
understanding that Federico Valdez Jr., will hold the same in trust for his other brothers and
sisters.

ISSUE:
Whether or not prescription applies.

HELD:
When Federico Valdez, Jr. was still living, he never attempted to exclude the herein plaintiffs
from ownership of the land in question. Said plaintiffs have been in open continuous and
uninterrupted possession of the premises they are occupying inside the lot in question long
before the execution of the deed of sale. It was only after the death of Federico Valdez, Jr. that
the widow Teofila Olorga tried to eject the plaintiffs.

Given the antecedents of the property and the fact that its acquisition by Federico Valdez, Jr. was
for the benefit not of himself alone but also of his brother and sisters, although for purposes of
convenience he was made to appear as the sole vendee, the juridical relation that arose among
them was one of co-ownership, with the plaintiffs-appellees actually in possession of a portion of
the property. Under Article 494 of the Civil Code, "No prescription shall run in favor of a co-
owner or co-heir against his co-owners or co-heirs so long as he expressly or impliedly
recognizes the co-ownership." Insofar as the aspect of extinctive prescription referred to in this
article is concerned, it is but a restatement of Article 1965 of the Spanish Civil Code, which
provides: "As between co-heirs, co-owners, or proprietors of adjacent estates, the action to
demand the partition of the inheritance or of the thing held in common, or the survey of the
adjacent properties, does not prescribe." And from the standpoint of acquisitive prescription, or
prescription of ownership, this Court has held in numerous decisions involving fiduciary
relations such as those occupied by a trustee with respect to the cestui que trust that as a general-
rule the former's possession is not adverse and therefore cannot ripen into a title by prescription.
Adverse possession in such a case requires, the concurrence of the following-circumstances: (a)
that the trustee has performed unequivocal acts of repudiation amounting to an ouster of
the cestui que trust; (b) that such, positive acts of repudiation have been made known to
the cestui que trust and (c) that the evidence thereon should be clear and conclusive.

FABIAN VS. FABIAN


[G.R. NO. L-20449, JANUARY 29, 1968]

CASTRO, J.:

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Obligations and Contracts: Doctrines and Case Digests
FACTS:
Pablo Fabian bought from the Philippine Government lot 164 of the Friar Lands Estate in
Muntinlupa, Rizal. By virtue of this purchase, he was issued sale certificate 547. He died on
August 2, 1928, survived by four children, namely, Esperanza, Benita I, Benita II, and Silbina.

On October 5, 1928 Silbina Fabian and Teodora Fabian, niece of the deceased, executed an
affidavit. On the strength of this affidavit, sale certificate 547 was assigned to them.

The acting Director of Lands, on behalf of the Government, sold lot 164 to Silbina Fabian
Teodora Fabian. The vendees spouses forthwith took physical possession thereof, cultivated it,
and appropriated the produce. In that same year, they declared the lot in their names for taxation
purposes. In 1937 the RD of Rizal issued a TCT over lot 164 in their names. They later
subdivided the lot into 2 equal parts.

The plaintiffs filed the present action for reconveyance against the defendants spouses, averring
that Silbina and Teodora, through fraud perpetrated in their affidavit aforesaid. That by virtue of
this affidavit, the said defendants succeeded in having the sale certificate assigned to them and
thereafter in having lot 164 covered by said certificate transferred in their names; and that by
virtue also of these assignment and transfer, the defendants succeeded fraudulently in having lot
164 registered in their names. They further allege that the land has not been transferred to an
innocent purchaser for value. A reconveyance thereof is prayed for.

In their answer, the defendants spouses claim that Pablo Fabian was not the owner of lot 164 at
the time of his death on August 2, 1928 because he had not paid in full the amortizations on the
lot; that they are the absolute owners thereof, having purchased it from the Government, and
from that year having exercised all the attributes of ownership thereof up to the present; and that
the present action for reconveyance has already prescribed. The dismissal of the complaint is
prayed for.

The lower court rendered judgment declaring that the defendants spouses had acquired a valid
and complete title to the property by acquisitive prescription, and accordingly dismissed the
complaint. The latters motion for reconsideration was thereafter denied.

ISSUE:
Whether or not acquisitive prescription has applied

HELD:
It is already settled in this jurisdiction that an action for reconveyance of real property based
upon a constructive or implied trusts, resulting from fraud, may be barred by the statute of
limitations. the discovery in that case being deemed to have taken place when new certificates of
title were issued exclusively in the names of the respondents therein.

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Obligations and Contracts: Doctrines and Case Digests
Although, as a general rule, an action for partition among co-heirs does not prescribe, this is true
only as long as the defendants do not hold the property in question under an adverse title. The
statute of limitations operates, as in other cases, from the moment such adverse title is asserted
by the possessor of the property

Inasmuch as petitioners seek to annul the aforementioned deed of extra-judicial settlement


upon the ground of fraud in the execution thereof, the action therefor may be filed within four (4)
years from the discovery of the fraud. Upon the undisputed facts in the case at bar, not only had
laches set in when the appellants instituted their action for, reconveyance in 1960, but as well
their right to enforce the constructive trust had already prescribed.

It logically follows from the above disquisition that acquisitive prescription has likewise
operated to vest absolute title in the appellees, pursuant to the provisions of section 41 of Act 190
that:

Ten years actual adverse possession by any person claiming to be the owner for that time of any
land or interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or
otherwise, in whatever way such occupancy may have commenced or continued, shall vest in
every actual occupant or possessor of such land a full and complete title

Upon the foregoing disquisition, we hold not only that the appellants action to enforce the
constructive trust created in their favor has prescribed, but as well that a valid, full and complete
title has vested in the appellees by acquisitive prescription.

FERRER-LOPEZ VS. CA
[G.R. NO. L-50420 MAY 29, 1987]

PARAS, J.:

FACTS:
Petitioners are the children of the late Dominga Velasco who inherited Lot 12509 of the
Cadastral Survey of Malasiqui, Pangasinan. Petitioners contend that the area of said property was
originally 54 hectares but 10 hectares were sold by their mother so that what they inherited by
way of testamentary succession are the remaining 44 hectares. Petitioners maintain that private
respondents are encroaching on the portion of the land which belongs to them, that what the
father of private respondents bought from Damasa Catalan in 1935 was the adjoining western
portion of the land with only a total of 25,704 sq.m. or 2.5704 hectares and not a total area of
52,908 sq. m. as applied for by respondents in the registration of the land in 1957. Petitioners
allege that at the time of the Bureau of Lands Cadastral Survey in the year 1935 and 1936,
Ramon Puzon was then representing (2) two conflicting interests; namely, as overseer of
Dominga Velasco over her 54-hectare land and as overseer of his children in the land bought by
them from Damasa Catalan. Petitioners surmise that Ramon Puzon pointed to the surveyor the

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Obligations and Contracts: Doctrines and Case Digests
boundary between the lot bought by his children, and that of Dominga Velasco as well as the
places where the monuments would be placed. They contend that the ocular inspection report and
sketch of the Court's Commissioner clearly and patently show the intentional deviation of the
boundary line from the barrio road to the lower portion going towards the North which is more
than one kilometer in length and that the deviation is definitely against the land of Dominga
Velasco from whom the petitioners inherited. Petitioners claim that private respondents were
never in actual possession of the land in question and it was only sometime in February 1967 or a
total of more than 32 years that private respondents first attempted to claim ownership over the
alleged encroached portion of more than 2 1/2 hectares, which portion is part and parcel of the 44
hectares owned by Dominga Velasco. Petitioners maintain that they have been in successive,
continuous, public, peaceful and uninterrupted possession of said 44 hectares including the
questioned portion of more than 2 1/2 hectares, in the concept of absolute owners, with just and
valid title to the exclusion of all other person for more than 60 years and up to the
commencement of the litigation.

ISSUE:
Whether or not acquisitive prescription has set in

HELD:
The doctrine of implied trust asserted by petitioners finds no application in the case at bar,
because there are no proven facts to this effect. While an implied trust (of real or personal
property) does not require the formalities of an express trust over realty (which as mandated by
the law cannot be proved by oral evidence under Art. 1443 of the Civil Code, still there must be
proof that the trustor wanted to grant one party only the beneficial ownership of a parcel of land,
although said beneficiary may have legal title in himself. Implied trusts are exemplified in Arts,
1447-1456 of the Civil Code. Private respondents have been in possession of Lot. No. 12510 as
owners since its purchase in 1935 thru their late father Ramon Puzon. Ramon Puzon was the
overseer of petitioners' mother over another lot (Lot No. 12509) and not over the lot in question
(Lot No. 12510). It is therefore obvious that there could not have been any possible conflict of
interest in the role of private respondents' father. And even if indeed he had been the overseer of
both lots, there was also no such conflict of interest. Both lots had their own marked and natural
boundaries; both had their own separate registered titles of ownership; dominion over each was
exercised by two separate groups of owners.

Petitioners' claim of acquisitive prescription is unavailing against the conclusive and indefeasible
character of OCT 13505 covering Lot No. 12510 in the name of private respondents even if the
latter are not in actual possession of the premises. It is an elemental rule that the decree of
registration bars all claims or rights, which arose or may have existed prior to the decree of
registration.

In summary therefore, the evidence of the petitioners is grossly inadequate to overcome the
respondents' conclusive and indefeasible title and right of ownership and possession. We respect

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Obligations and Contracts: Doctrines and Case Digests
the findings of the trial court that the controversial piece of land was well within the titled
property of the private respondents as We find no vital facts which have been overlooked or
misappreciated.

MORALES VS. CA
[G.R. NO. 117228 JUNE 19, 1997]

DAVIDE, JR., J.:

FACTS:
Ranulfo and Erlinda Ortiz claim that they are the absolute and exclusive owners of the premises
in question (318 sq.m. land located at corner Umbria St. and Rosales Blvd. Brgy. Central,
Calbayog City) through their purchase of the said property from Celso Avelino and stated the
following: The property was purchased by Celso Avelino (the Ortiz's predecessor in interest)
when he was still a bachelor and a city fiscal of Calbayog city from Alejandra Mendiola and
Celita Bartolome through an "Escritura de Venta." After the purchase, he caused the transfer of
the title as well as the tax declarations in his name. He faithfully paid the taxes and kept the
receipts thereof. He also caused a survey of the premises in question with the Bureau of Lands
and built a residential house thereon. He took his parents Rosendo Avelino and Juana Ricaforte
and his sister Aurea to live in his property until their death. Celso Avelino then became an
Immigration Officer and later a Judge of the Court of First Instance in Cebu so he left his
property under the care of his sister, Aurea. Without his knowledge, his nephew Rodolfo Morales
(a son ofhis other sister, Priscilla) constructed a beauty shop on the premises in question. Celso
thereafter sold the property to Ranulfo and Erlinda Ortiz (Celso's neighbors), they paid the
purchase price and a deed of absolute sale was executed. Rodolfo Morales, however, refused to
vacate the premises unless he is reimbursed P35,000. He also occupied the residential building
on the property, took in paying boarders and even claimed ownership of the premises in question.
Rodolfo Morales contends that his grandparents Rosendo Avelino and Juana Ricaforte originally
owned the premises in question. The property was allegedly bought by Celso Avelino who was
entrusted by Rosendo with the money to buy it. They caused the name of the property to be
under Celso Avelino being the only son. When Rosendo Avelino and Juana Ricaforte died, their
children: Celso Avelino, Trinidad Cruz, Concepcion Peralta, Priscilla Morales and Aurea Avelino
succeeded as owners thereof.

ISSUE:

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Whether or not Celso Avelino acquired the property as a mere trustee.

HELD:
Trusts are either express or implied. Express trusts are created by the intention of the trustor or of
the parties, while implied trusts come into being by operation of law, either through implication
of an intention to create a trust as a matter of law or through the imposition of the trust
irrespective of, and even contrary to, any such intention. In turn, implied trusts are either
resulting or constructive trusts. Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest and are presumed
always to have been contemplated by the parties. They arise from the nature or circumstances of
the consideration involved in a transaction whereby one person thereby becomes invested with
legal title but is obligated in equity to hold his legal title for the benefit of another. On the other
hand, constructive trusts are created by the construction of equity in order to satisfy the demands
of justice and prevent unjust enrichment. They arise contrary to intention against one who, by
fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought
not, in equity and good conscience, to hold.

A resulting trust is exemplified by Article 1448 of the Civil Code, which reads:

Art. 1448. There is an implied trust when property is sold, and the legal estate is
granted to one party but the price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust is
implied by law, it being disputably presumed that there is a gift in favor of the
child.

The trust created under the first sentence of Article 1448 is sometimes referred to as
a purchase money resulting trust. The trust is created in order to effectuate what the law
presumes to have been the intention of the parties in the circumstances that the person to
whom the land was conveyed holds it as trustee for the person who supplied the purchase
money.

To give rise to a purchase money resulting trust, it is essential that there be:

1. an actual payment of money, property or services, or an equivalent, constituting


valuable consideration;

2. and such consideration must be furnished by the alleged beneficiary of a


resulting trust.

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There are recognized exceptions to the establishment of an implied resulting trust. The first is
stated in the last part of Article 1448 itself. Thus, where A pays the purchase money and title is
conveyed by absolute deed to A's child or to a person to whom A stands in loco parentis and who
makes no express promise, a trust does not result, the presumption being that a gift was intended.
Another exception is, of course, that in which an actual contrary intention is proved. Also where
the purchase is made in violation of an existing statute and in evasion of its express provision, no
trust can result in favor of the party who is guilty of the fraud.

PNB VS. CA
[G.R. NO. 97995 JANUARY 21, 1993]

ROMERO, J.:

FACTS:

Private Respondent B.P. Mata & Co. Inc. (Mata), a private corporation engaged in providing
goods and services to shipping companies. has acted as a manning or crewing agent for Star Kist
Foods, Inc., USA (Star Kist). Mata makes advances for the crew's expenses, fees, and basic
personal needs. Subsequently, Mata sends monthly billings to Star Kist, which in turn reimburses
Mata by sending a telegraphic transfer through banks for credit to the latter's account.

In 1975, Security Pacific National Bank (SEPAC) of Los Angeles transmitted a cable message to
the International Department of Philippine National Bank to pay the amount of US$14,000 to
Mata by crediting the latter's account with the Insular Bank of Asia and America (IBAA), per
order of Star Kist. PNB's International Department noticed an error and sent a service message to
SEPAC Bank. The latter replied with instructions that the amount of US$14,000 should only be
for US$1,400. A cashier's check in the amount of US$1,400 representing reimbursement from
Star Kist, was issued by the Star Kist for the account of Mata on February 25, 1975 through the
Insular Bank of Asia and America (IBAA).

However, a few days later, PNB effected another payment in the amount of US$14,000
purporting to be another transmittal of reimbursement from Star Kist, private respondent's
foreign principal. Six years later, (in 1981), PNB requested Mata for refund of US$14,00 after it
discovered its error in effecting the second payment.

On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against Mata
arguing that based on a constructive trust under Article 1456 of the Civil Code, it has a right to
recover the said amount it erroneously credited to respondent Mata.

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After trial, the Regional Trial Court of Manila rendered judgment dismissing the complaint
ruling that the instant case falls squarely under Article 2154 on solutio indebiti and not under
Article 1456 on constructive trust. The lower court ruled out constructive trust, applying strictly
the technical definition of a trust as "a right of property, real or personal, held by one party for
the benefit of another; that there is a fiduciary relation between a trustee and a cestui que trustas
regards certain property, real, personal, money or choses in action." The appellate court, in
affirming the lower court, concluded that petitioner's demand for the return of US$14,000 cannot
prosper because its cause of action had already prescribed under Article 1145, paragraph 2 of the
Civil Code which states that action upon quasi-contract must be commenced within 6 years. This
is because petitioner's complaint was filed only on February 4, 1982, almost seven years after
March 11, 1975 when petitioner mistakenly made payment to private respondent.

Petitioner naturally opts for an interpretation under constructive trust as its action filed on
February 4, 1982 can still prosper, as it is well within the prescriptive period of ten (10) years as
provided by Article 1144, paragraph 2 of the Civil Code.

ISSUE:
Whether or not petitioner may still claim the US$14,000 it erroneously paid private respondent
under a constructive trust.

HELD:
Although the Court is aware that only seven (7) years lapsed after petitioner erroneously credited
private respondent with the said amount and that under Article 1144, petitioner is well within the
prescriptive period for the enforcement of a constructive or implied trust, the Court rule that
petitioner's claim cannot prosper since it is already barred by laches. It is a well-settled rule now
that an action to enforce an implied trust, whether resulting or constructive, may be barred not
only by prescription but also by laches.

While prescription is concerned with the fact of delay, laches deals with the effect of
unreasonable delay. It is amazing that it took petitioner almost seven years before it discovered
that it had erroneously paid private respondent.

TIGNO VS. CA
[G.R. NO. 110115. OCTOBER 8, 1997]

PANGANIBAN, J.:

FACTS:
Sometime in January, 1980, Bienvenido Sison, Remedios Sison and the heirs of Isaac Sison,
namely: Manuel Sison, Gerardo Sison and Adelaida Sison appointed Dominador Cruz as agent to
sell three (3) parcels of land adjoining each other located at Padilla St., Lingayen, Pangasinan.

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Sometime in April 1980, Rodolfo Tigno learned that the abovedescribed properties were for
sale. Accordingly, he approached Cruz and told the latter to offer these parcels of land to his
brother, Eduardo Tigno, herein appellant.

Having reached an agreement of sale, appellant then instructed Cruz to bring the owners of these
parcels of land to his ancestral house at Guilig Street, Lingayen, Pangasinan on May 2, 1980, as
he will be there to attend the town fiesta

On May 2, 1980, Cruz, together with Bienvenido Sison, Manuel Sison, Adelaida Sison and
Remedios Sison went to appellants house at Guilig Street, Lingayen, Pangasinan. At around 5:00
o clock in the afternoon, the abovenamed persons and appellant went to Atty. Modesto Manuels
house at Defensores West Street, Lingayen, Pangasinan for the preparation of the appropriate
deeds of sale.

However, despite the fact that no deed of sale was prepared by Atty. Manuel, Remedios Sison,
Bienvenido Sison and Manuel Sison asked appellant to pay a fifty percent (50%) downpayment
for the properties. The latter acceded to the request and gave Five Thousand Pesos (P5,000.00)
each to the 3 abovenamed persons for a total of Fifteen Thousand Pesos (P15,000.00) (TSN,
Sept. 5, 1989, pp. 19-20).This was witnessed by Cruz and Atty. Manuel. After giving the
downpayment, appellant instructed Cruz and Atty. Manuel to place the name of Rodolfo Tigno as
vendee in the deeds of sale to be subsequently prepared. This instruction was given to enable
Rodolfo Tigno to mortgage these properties at the Philippine National Bank (PNB), Lingayen
Branch, for appropriate funds needed for the development of these parcels of land as fishponds.

On April 29, 1989, Rodolfo Tigno, without the knowledge and consent of appellant, sold to
Spouses Edualino Casipit and Avelina Casipit 508.56 square meters of the land previously owned
by Bienvenido Sison. At the time of sale, the Casipits were aware that the portion of the land
they bought was owned by appellant, not Rodolfo Tigno.

On May 24, 1989, the plaintiff filed Civil Case No. 16673 for Reconveyance, Annulment of
Document, Recovery of Possession and Damages against Rodolfo M. Tigno and defendant
spouses Edualino Casipit and Avelina Estrada.

ISSUE:
Whether or not there was implied trust

HELD:
As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and
such proof must be clear and satisfactorily show the existence of the trust and its elements. While
implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by
the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral evidence can easily be fabricated.

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From the foregoing, it is clear that the name of Rodolfo Tigno appeared in the deeds of sale not
for the purpose of transferring ownership to him but only to enable him to hold the property in
trust for his brother, herein private respondent.

ARLEGUI VS. CA
[G.R. NO. 126437. MARCH 6, 2002]

YNARES-SANTIAGO, J.:

FACTS:
The object of a controversy is a residential apartment unit which was formerly owned by Serafia
Real Estate Inc. and leased to spouses Genguyon. Thereafter the spouses were informed that
Serafia and its assets had been assigned to A. B. Barreto enterprises, which was subsequently
sold to Mateo Tan Lu. Spouses Genguyon continued to make payments for the rental of the
aforementioned apartment. Before the sale to Mateo Tan Lu and to Arlegui, the Genguyon
Spouses expressed their desire to purchase the said apartment unit from A. B. Barreto
Enterprises; offers for this was made through Barreto Apartments Tenant Association, with
Mateo Tan Lu and Arlegui made officer s in this association. The sale of the property was done
after Arlegui and Tan Lu were made officers in the aforementioned association.

ISSUE:
Whether or not Mateo Tan Lu and Josue Arlegui cannot be considered innocent purchasers for
value for violating the trust reposed upon them by the spouses Genguyon when they
surreptitiously purchased the object property.

HELD:
It can be gainsaid that Arlegui violated the constructive trust that was created when Tan Lu and
the Petitioner appropriated for themselves the property for which they were negotiating for in
behalf of the Association. There is the presence of abuse of confidence. Petitioner avers that there
was no constructive trust created; however, constructive trusts do not only arise from fraud or
duress, but also by abuse of confidence, in order to satisfy the demands of justice. There is ample
documentary and testimonial evidence to establish the existence of a fiduciary relationship
between them, and those subsequent acts of the petitioner betrayed the trust and confidence
reposed on him. Petitioner cannot argue that the spouses Genguyon should and could have
negotiated directly with the Barretos after he had already accepted the responsibility and
authority to negotiate in their behalf. American jurisprudence provides precedent rulings that a
constructive trust is an appropriate remedy against unjust enrichment; it is raised by equity in

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respect of property, although acquired originally without fraud, it is against equity that it should
be retained by the person holding it.

An action for reconveyance of registered land on an implied trust prescribes in 10 years


even if the decree of registration is no longer open to review.

III. PRESCRIPTION
1. ARTS. 1106 TO 1155

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