OBLIGATIONS AND CONTRACTS CASE REVIEWER

E2020
A.Y. 2016-2017| PROF. LABITAG
Prepared by:
Abuda, Arcinas, Babasa, De Guzman, Fernandez, Mendiola, Miguel,
Odsey, Pasco, Soriano, Tan, Umali, Villangca, Zagala
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OBLIGATIONS
CASE NAME KEY FACTS AND ISSUES HOLDING/DOCTRINE
CHAPTER 1: GENERAL PROVISIONS
QUASI-DELICTS
BARREDO V. A criminal case was filed against a taxi driver. The Court held that quasi-delict or culpa aquiliana is a separate legal institution
GARCIA Thereafter, they filed civil case against the employer of under the civil code and is entirely distinct and independent from a delict or
the taxi driver. The employer argues that he cannot be crime under the Revised Penal Code. Hence, the employer can still be primarily
held responsible because his liability is governed by the liable from his negligence of hiring his employee.
RPC, hence his liability is only subsidiary. The issue
was WON the employer could in fact be sued.
MENDOZA V. A three-way vehicular accident gave rise to two criminal The Court held that petitioner is not barred from filing a civil case against Timbol
ARRIETA cases for Reckless Imprudence Causing Damage to since Timbol was not a party in the criminal cases filed. On the other hand, the
Property were filed by the petitioner. 1st case was Court held that a separate civil case cannot be filed against Salazar anymore
against truck-driver Montaya. 2nd case was against because under the facts of the case, Salazar was acquitted and cannot be held
jeep-driver Salazar. CFI found Montaya guilt, while liable for the damages sustained by the petitioner’s car. According to Sec 3c,
Salazar was acquitted of any liability since he was only Rule 111, “extinction of the penal action does not carry with it extinction of the
bumped from behind by Montaya. After the termination civil, unless the extinction proceeds from a declaration in a final judgment that
of the criminal cases, petitioner filed a civil case against the fact from which the civil might arise did not exist”. Hence, the fact from
Salazar and Timbol (owner of truck). The issue is which the civil liability might arise did not exist.
whether petitioner is barred from filing a separate civil
case.
PSBA VS CA Carlitos Bautista, junior college student, killed in a 2180 does not apply because assailants were not under custody of school.
stabbing incident in PSBA by assailants who were not Liability of school to the student cannot arise from quasi-delict. The death of the
members of school’s academic community student could be a breach of the implied contract in caring for the students
under the school’s custody. Remanded to find if there is negligence in providing
proper security measures.
AMADORA VS Amadora was shot by Pablito Daffon in auditorium of Court held that school is not liable under 2180 because they are not “arts and
CA Colegio de San Jose Recoletos trades” school. Principal/dean/teacher not liable because they were only
exercising general authority and not direct control. No teacher-in-charge
identified.
CHAPTER 2: NATURE AND EFFECTS OF OBLIGATIONS
SUBSTANTIAL AND CASUAL BREACH
SPOUSES The parities entered into a contract for a wedding Makati Shangri-La Hotel is liable for damages. Art. 1170. Those who in the
GUANIO VS reception. On the day of the event there were problems performance of their obligations are guilty of fraud, negligence or delay, and
MANILA in the delivery of service. Spouses Guanio asked for those who in any manner contravene the tenor thereof, are liable for damages.

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SHANGRI-LA damages in light of the misphap, the failure of Makati
HOTEL Shangri-La Hotel to correctly deliver the services
stipulated.
SONG FO V Hawaiian-Philippine Co. entered into an agreement with
HAWAIIAN Song Fo. & Co. wherein the former agreed to deliver
PHILS. 300k gallons of molasses on the condition that the latter
pay for the molasses every month following a table that
stated the date of delivery of the molasses, the amount
and date thereof, the date of receipt of account by
plaintiff, and date of payment. When Song Fo. & Co.
later delayed in its monthly payment, Hawaiian-
Philippine Co. cancelled and rescinded the contract
which led to the former incurred greater expense trying
to secure molasses from other sourcers. Song Fo. &
Co. then presented a complaint with 2 causes of action
for breach of contract against Hawaiian-Philippine Co.
The latter filed an answer and cross-complaint saying
that the plaintiff defaulted in payment. The issue then is
whether or not the Hawaiian-Philippine Co. has the right
to rescind the contract of sale made with Song Fo & Co.
due to the latter’s slight delay in its monthly payment.
VELARDE V. Petitioner Raymundo sold a parcel of land to the
RAYMUNDO Velarde spouses which was, at the time of the sale,
under lease. Aside from the payment the purchase
price, the condition of the sale for said parcel of land
was that the Velardes would assume the mortgage of
the land and continue paying for its corresponding
obligation amounting to P1.8M to the bank to which the
land was leased. The Velardes made an initial payment
of the purchase price, applied for an Assumption of
Mortgage to the bank and paid for the obligation for 3
In culpa contractual, the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. The
law, recognizing the obligatory force of contracts, will not permit a party to be
set free from liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof. The Court notes that the
respondent hotel could have done better, it being held in a high esteem in the
hotel industry.
No. Rescission will not be permitted for a slight or casual breach of the contract,
but only for such breaches as are so substantial and fundamental as to defeat
the object of the parties in making the agreement. In the present case, Song Fo
& Co. should have paid for the molasses delivered in December 1922 ,for which
accounts were received by it on January 5, 1923, not later than January 31 of
that year—payment was made on February 20,1923. The rest of the molasses
were paid for either on time or in advance. A delay in payment for a small
quantity of molasses for some 20 days is not such a violation of an essential
condition of the contract which warrants rescission for non-performance. The
general rule is that rescission will not be permitted for a slight or casual breach
of the contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in making the agreement.
Raymundo’s rescission of the contract was actually justified. According to Art.
1191, NCC: "The right to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payments of the damages in either case. He may also seek
rescission even after he has chosen fulfillment, if the latter should become
impossible” In this case, the breach petitioners committed was NOT just their
non-payment of the mortgage obligation but also, and more importantly, their
non-performance of the reciprocal obligation, which was to PAY the purchase
price of the contract. Although the respondents expressed their willingness to
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months, but their application was subsequently not pay the purchase price (with the condition that the property be delivered to them
approved. Hence, they stopped paying for the mortgage and the mortgage released), such was not an actual payment that would
and also failed to pay for the remaining purchase price constitute a faithful compliance of their reciprocal obligation. The breach they
stipulated in the contract. Raymundo rescinded the committed was NOT slight or casual, hence, the petitioner herein properly
contract and the Velardes filed an action for Specific exercised his right to rescind. Since there was rescission, there must also be
Performance. The action was initially dismissed by the mutual restitution, the Court thus ordered petitioner to return to the Velardes
trial court, but it was subsequently granted after a what they already paid.
change in the person of the presiding judge. They
appealed to the CA, where the trail court’s second
decision was set aside and the first one upholding the
rescission was reinstated. Hence this petition.
WOODHOUSE Plaintiff Woodhouse and Defendant Halili entered into a Plaintiff did make a misrepresentation which was partly discovered from the
V. HALILI written partnership agreement for the bottling and drafts made prior to the formal negotiation. The court ruled that the drafts were
distribution of softdrinks. Defendant agreed to share admissible because they are excluded from the parol evidence rule. Also, the
30% of the net profits with the plaintiff if he is able to misrepresentation was classified as an incidental fraud (dolo incidente) which,
secure an exclusive franchise for their business. As unlike causal fraud (dolo causante), could not nullify the partnership agreement.
such, plaintiff made a misleading representation in the However, this does not mean that the court could compel the defendant to hold
formal agreement in order to make the defendant his part of the bargain. As far as the civil code is concerned, refusal to uphold
believe that he was able to secure the services of the the contract could entitle the aggravated party to damages. In the end, the court
Mission Dry Corporation, when in fact, the exclusive ruled that the plaintiff is entitled to 15% share of net profits for as long as the
right was only given to him by the said Corporation for defendant uses the franchise from the Mission Dry Corporation.
only 30 days. The defendant later on discovered such
faulty misrepresentation and therefore refused to
execute the agreement. Thus, Woodhouse brought the
complaint before the CFI which ruled in favor of him.
Unsatisfied, both parties appealed the said ruling.
STANDARD OF CARE REQUIRED
DE GUIA V. Plaintiff Dr. De Guia was a passenger of a street-car The court held that there was negligence on the part of the motorman under the
MANILA owned by Defendant Manila Electric Railroad & Light employment of the company since the parties have a contractual relation of that
ELECTRIC Co. when the said car driven by employee of defendant of a carrier and a passenger. The defense of observing the diligence of a good
RAILROAD & had been derailed and thereby causing injuries upon Dr. father of a family to prevent damage is untenable as the obligation arose from a
LIGHT CO. De Guia. Both parties filed for an appeal from the Court contract and not a quasi-delict. In determining damages, the court held that
of First Instance decision which had awarded damages plaintiff cannot seek to recover those which are speculative.
to Dr. De Guia. The issue was WON Dr. De Guia was
entitled to the damages awarded.

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SARMIENTO V. Sarmiento had her friend’s pair of diamond earrings Art 1173 par 2. Diligence of a good father of a family. The fault or negligence of
SPS CABRIDO reset into two gold rings through Dingding’s Jewelry the obligor consists in the omission of that diligence which is required by the
Shop, owned by Cabrido. The goldsmith who has been nature of the obligation and corresponds with the circumstances of the persons,
in the trade for many years, used pliers, of the proper of the time and of the place. The jewelry shop failed to perform its obligation
tool (miniature wire saw) to remove the diamond by with the ordinary diligence required by the circumstances. Having found the
twisting the setting, breaking the gem in the process. diamond to be in order, its subsequent breakage in the hands of Santos could
ISSUE is W/N the Respondents observed the ordinary only have been caused by his negligence in using the wrong equipment. As a
diligence/ the diligence of a good father of a family goldsmith for 40 years he should’ve know the proper tools to use. Petitioner was
awarded damages
CRISOSTOMO Crisostomo contracted the services of Caravan to The court held that Caravan cannot be held liable for damages because it
V. CA arrange and facilitate her booking, ticketing, and performed the standard of care required of it, which was that of a standard of a
accommodation in a tour dubbed Jewels of Europe. good father of a family under ART 1173. Since it is not a common carrier, as
Without checking her delivered travel documents, she claimed by the petitioner, it is not required to observe extraordinary diligence.
arrived at NAIA, but her flight had already departed the
previous day. She asked for a reimbursement for the
sum she had paid.
GERALDEZ V. Petitioner and her sister bought a tour package Kenstar committed fraudulent misrepresentations amounting to bad faith, to the
KENSTAR (VOLARE 3) covering a 22-day European tour for prejudice of Geraldez and the members of the tour group when it promised to
$2,990. The brouchure for the tour package promised provide for certain amenities (as stipulated in its brochures) and failed to make
many things i.e. local tourist guide, first-class hotel good of such promise. Kenstar committed grave misrepresentation when it
accomodations, itenerary. However, during the said assured in its package that the hotels would provide the tourists complete
tour, petitioner and the other tourists were dismayed toamenities and were conveniently located along the way for the daily itineraries.
find out that the promised amenities were opposite of The fact that the tourists were to pay a lower amount does not justify a sub-
what they have been promised. standard form of service in return. Meanwhile, the issue of whether the private
respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour
group is irrelevant. Either way, it is indubitably liable for damages to petitioner.
MORA SOLVENDI
CETUS The respondents were lessees of a plot of land According to Section 2, Rule 70 of the Rules of Court, a landlord can only opt
DEVELOPMENT previously owned by Susana Realty. Susana Realty for court action against his tenant if the tenants must have failed to pay the rent
CORP VS CA eventually sold the plot of land to Cetus Development or comply with the conditions of his lease for a period of 15 days upon prior
Inc. Even after the land ownership changed, the demand made by the landlord. This condition has not occurred since the
respondents continue to stay and pay the rent, however lessees immediately paid upon demand
they failed to pay for 3 successive months because the
new owner of the land failed to send a collector.
Because of that, Cetus demanded that they pay in

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arrears and ordered them to evacuate the land. The

respondents paid but did not vacate the land. Cetus
then filed a case to evict the respondents which was
dismissed, hence this petition.
GEN MILLING Gen Milling had a contract with Ramos to supply broiler The Court held that GMC did not make a “demand” on Spouses Ramos but
CORP VS chickens. To secure their obligation to pay, Ramos merely requested them to go to GMC's office to discuss the settlement of their
RAMOS mortgaged their land with conjugal house and a surety account. If demand was not made, then the loans had not yet become due and
bond in favor of General Milling. Ramos failed to settle demandable. Absent the demand for the obligation, the foreclosure proceeding
accounts. General Millings sent letter, requesting for was not valid.
them to meet to discuss their accounts. General Milling
filed petition for extrajudicial foreclosure; land sold to
them in public auction.
ABELLA V. Facts: Defendant Francisco purchased lots from the Yes, the Court held that time was an essential element of the transaction
FRANCISCO government but was in arrears on installment payments considering the defendant entered into it because he had obligations due
due December 1928. He thus signed a document December 1928. In accordance with Art. 1124 of the Civil Code, the defendant
indicating receipt of P500 as payment for the lots from is entitled to resolve the contract for the plaintiff’s failure to pay the price within
plaintiff Abella, specifying that the balance would be due the time specified.
December 15, 1928 (extendible 15 days). However,
plaintiff was not able to pay on time, leading to the
rescission of the contract. Issue: WON time was an
essential element in the transaction, such that the
defendant was entitled to resolve the contract for the
plaintiff’s failure to pay the price within the time specified
MORA ACCIPENDI
VDA. DE Lessor and lessee entered into a contract. During the No. The dispossession of the lessee from the premises by the Japanese army
VILLARUEL, ET Japanese occupation, the Japanese army used the of occupation was not an act of mere trespass but one chargeable to the
AL. VS. MANILA premises leased as part of their quarters. Lessor wants lessors.
MOTOR CO., to hold lessee liable for rent during the time the
INC. AND premises were used by the Japanese army. Issue:
COLMENARES W/N Manila Motor (lessee) should be held liable for
rentals of the premises leased corresponding to the
lapse of time that they were occupied by the Japanese
army.
COMPENSATIO MORAE
CENTRAL Sulpicio Tolentino obtained an P80K loan from Island The loan implied reciprocal obligations, and when one party is willing and ready
BANK V. CA Savings Bank (ISB) by mortgaging his 100-hectare land to perform, the other does not occur in delay; insolvency, however, is not an

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as security, and a mere P17K partial release was made, excuse but is a breach of contract. When Tolentino executed the real estate
with Tolentino signing a promissory note therefor. An mortgage, he signified willingness to pay, but ISB was insolvent and the Central
advance interest was deducted from this partial release Bank prohibited it from doing further business. Since ISB was in default,
but was refunded to him after being informed there was Tolentino's only choice was to rescind the obligation (since the specific
no money yet for the P63K balance. The Monetary performance is not impossible due to the prohibition by Central Bank), but the
Board of the Central Bank found out that ISB was going recission only applies to the balance of P63K. The SC ruled that Tolentino is
bankrupt, and after failing to restore solvency, it was liable to pay the 17k back and only 21.25 hectares of land may be foreclosed in
prohibited from doing business in the Philippines. For case of insolvency.
the nonpayment of the P17K, ISB filed an application for
the foreclosure of a real estate mortgage, which
Tolentino opposed.
CONTRAVENTION OF THE TENOR
CHAVEZ VS. Chavez delivered his typewriter to defendant Gonzales Gonzales is liable for damages. Art. 1170. Those who in the performance of
GONZALES for a repair job. Defendant was not able to comply with their obligations are guilty of fraud, negligence or delay, and those who in any
the obligation and the plaintiff found his typewriter in a manner contravene the tenor thereof, are liable for damages.
worse condition with missing parts. Plaintiff got his
typewriter repaired by another person and then sued the In his obligation to repair the typewriter he was bound, but failed or neglected,
defendant for damages. to return it in the same condition it was when he received it. The cost of the
execution of the obligation in this case should be the cost of the labor or service
expended in the repair of the typewriter.
TELEFAST V Telefast failed to deliver a telegram sent by private Yes. In the present case, petitioner and private respondent Sofia entered into a
CASTRO respondent Sofia C. Crouch informing her father and contract. Petitioner failed to fulfill their obligation to send the telegram despite
siblings in America that their mother passed away in Sofia’s performance of her obligation to pay the required fees. Petitioner is
Pangasinan. The family was not able to attend the burial therefor guilty of contravening its obligation and is thus liable for damages.
because the telegram never reached them, they then Moral damages may be recovered if they are the proximate results of the
filed an action for breach of contract against Telefast in defendant's wrongful act or omission.
the Court of First Instance of Pangasinan. Telefast was Legal Basis:
found guilty of a breach of contract and was ordered to Art. 1170 of the Civil Code
pay moral damages aside from the fee Sofia paid them. Those who in the performance of their obligations are guilty of fraud, negligence
Telefast appealed contending that they should not be or delay, and those who in any manner contravene the tenor thereof, are liable
held liable for moral damages since their negligence for damages
was not due to fraud, malice, or recklessness but the Art. 2176 of the Civil Code
Court affirmed the trial court’s decision with Whoever by act or omission causes damage to another, there being fault or
modifications as to the amount of damages. Should negligence, is obliged to pay for the damage done.
Telefast be made liable for damages? Liability is not limited to actual or quantified damages
Art. 2217 of the Civil Code

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Moral damages include physical suffering, mental anguish, fright, serious

anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate results of the
defendant's wrongful act or omission.
ARRIETA V. Petitioner Arrieta won a bid called by NARIC for the Arrieta is entitled to compensation because it was NARIC’s fault that the space
NARIC supply of 20,000 metric tons of Burmese rice. Thus, the was closed and the 5% downpayment was forfeited by the supplier. Art. 1170 of
two parties entered into a contract where Arrieta would the NCC is applicable: “Those who in the performance of their obligation are
deliver the rice to NARIC and NARIC, in turn, would be guilty of fraud, negligence, or delay, and those who in any manner contravene
liable for a letter of credit (a letter issued by a bank to the tenor thereof, are liable in damages.” The phrase "any manner contravene
another bank, typically in a different country, to serve as the tenor" of the obligation includes any illicit act which impairs the strict and
a guarantee for payments made to a specified person faithful fulfillment of the obligation or every kind of defective performance. Given
under specified conditions) in favor of Arrieta and the this, it may be said that NARIC’s liability stems not only from its failure to satisfy
Burmese supplier. Arrieta told NARIC of the urgency in the requirements of the bank for the letter of credit, but also from its deliberate
opening the letter of credit since downpayment to the assumption of contractual obligations despite knowledge of its financial
supplier was necessary in keeping an allocated space incapacity (NARIC knew that it would not be able to meet the financial
on the ship for the importation of the rice. Despite requirement for the letter of credit but it still attempted to secure one).
Arrieta informing NARIC that the supplier in Rangoon
would keep the space open only until Aug. 4, 1952,
NARIC still failed to satisfy the requirements for the
letter of credit, and the Burmese supplier cancelled the
contract, which meant that the downpayment and the
space in the ship was also forfeited (costing Arrieta
approx.. P200,000). Arrieta tried to renegotiate the
contract with the Burmese supplier, to no avail. Arrieta
also offered NARIC an alternative: she will substitute
the supply with Thai rice, but NARIC declined, and now
Arrieta is asking for compensation for unrealized profit.



REMEDIES OF CREDITOR IN CASE OF BREACH
TANGUILIG V. Jacinto M. Tanguilig, doing business under J.M.T. Preponderance of evidence showed that the construction of a deep well is not
CA Engineering and General Merchandising, entered into a included in the contract, and that there is no force majeure in this case because
contract with Vicente Herce, Jr. to construct a windmill strong wind is not embraced under the provision. Therefore, Tanguilig should
system for a consideration of 60,000 php with a 1-year pay for the rebuilding of the windmill. Herce, Jr. could also not claim that Pili
guaranty from the date of completion and acceptance accepted his payment on behalf of Tanguilig because he law is clear on this
by Herce, Jr. of the project. As down payment, Herce, matter that: “(Art 1240 of NCC) payment shall be made to the person in whose

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Jr. paid 30,000 to Tanguilig, and also an installment favor the obligation has been constituted, or his successor in interest, or any
payment of 15, 000. Hence, there was still 15,000 PHP person authorized to receive it.” There was no indication that Pili and/or SPGMI
left in his balance. However, Herce, Jr. refused to pay was authorized. The contract being a reciprocal obligation, Herce, Jr. must pay
the balance because, as he argued, he already paid it to the remaining 15, 000 PHP of the balance, in exchange for Tanguilig to
Pili who will install the deep well connected to the reconstruct the windmill in accordance to the 1-year guaranty.
windmill system. Plus, the windmill collapsed because 4 requisites of the defense of force majeure:
of a defect in the construction that Tanguilig is liable for.
i) Cause of the breach of the obligation must be independent of the will of
Tanguilig did not agree, saying that the construction of the debtor
the deep well is not included in the contract, and that ii) The event must be either unforeseeable or unavoidable
the collapse of the windmill was caused by force iii) The event must be such as to render it impossible for the debtor to fulfill
majeure. his obligation in a normal manner
iv) The debtor must be free from any participation in or aggravation of the
injury to the creditor.
SUBSIDIARY REMEDIES OF CREDITOR
METROPOLITA Sacramento Steel Corp.(SSC) entered into a loan credit An accion pauliana, under Art. 1381 is an action to rescind contracts when a
N BANK & agreement with the International Exchange bank. As creditor is prejudiced by the fraud of a debtor. It is a last resort and can only be
TRUST CO., V. collateral SSC executed 5 deeds of chattel mortgage availed in the absence of any other legal remedy. Metrobank should not have
INTERNATIONA over equipment. SSC defaulted and did not comply with been allowed to intervene as it had not yet exhausted other remedies.
L EXCHANGE demands. RTC issued an injunction restraining IEB from
BANK foreclosing the mortgage. Metrobank, having interest in
the property of SSC, intervened and sought recession of
the chattel mortgages executed by SSC. RTC granted
Metrobank’s motion to intervene and operate the
machines. The Court of appeals reversed said decision
stating that Metrobank wrongly filed an accion pauliana.
The issue was WON Metrobank wrongly filed an accion
pauliana.
KHE HONG M/V PRINCE ERIC, carrying 3,400 bags of copra worth The SC held that despite the fact that the deeds of donation were executed
CHENG V. CA Php 354,000, sank, resulting in the total loss of the more than 4 years before the complaint of Philam, it was only during the time
shipment. American Home Insurance Company that Philam discovered that Khe Hong Cheng no longer had properties to his
instituted a civil case against petitioner to recover the name that it had exhausted all means to satisfy the RTC’s judgment in its favor.
money paid to the consignee based on breach of
contract of carriage. While the case was pending, Khe Accion pauliana must be of last resort and all the requisites must concur.
Hong Cheng instituted deeds of donations to his It presupposes:
children. The RTC rendered judgment against petitioner 1. A judgment;
and ordered him to pay American Home. However, the 2. The issuance by TC of a writ of execution for the satisfaction of the

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sheriff couldn’t find any property in the petitioner’s judgment; and

name, as he had donated the properties to his children. 3. The failure of the sheriff to enforce and satisfy the judgment of the court
Philam, one of Khe Hong Cheng’s other creditors, filed
a complaint with the RTC for the rescission of the deeds
of donation, as they were executed fraudulently. Both
the RTC and the CA ruled in favor of Philam.

ISSUE: WON the 4 year prescriptive period as provided

for in Art. 1389 for Philam to file its action for recission
of the deeds of donation had lapsed — NO
EFFECT OF CONCURRENT FAULT
JUAN NAKPIL Facts: Philippine Bar Association decided to construct general rule: no person shall be responsible for events which could not be
AND SONS V an office building in Manila. The constructor was United foreseen or which though foreseen, were inevitable (Article 1174, New Civil
PBA Construction, Inc. and the architect was Juan Nakpil & Code). One of the requisites to be exempt form liability under 1174 is that the
Sons. A little more than 2 years after the building was debtor must be free fron any participatuin in or aggravation of the injury of the
completed, a 7.3 magnitude earthquake hit Manila and creditor. If upon happening of a fortuitous event, there concurs a corresponding
the building sustained major damage while neighboring fraud, negligence, delay or violation or contravention in any manner of the tenor
buildings sustained minor to no damages. of the obligation which results in loss or damage, the obligor cannot escape
Commissioner reported that the damage sustained by liability. he earthquake was a fortuitous event but the defects in the construction
the PBA building was directly caused by the and in the plans and specifications were the proximate causes that rendered the
earthquake. However, there were defects in the plans PBA building unable to withstand the earthquake oand For this reason the
and specifications prepared by the architects, deviations petitioners cannot claim exemption from liability.
from said plans by the constructor and violations of the
terms of the contract. ]W/N Petitioner was concurrently
at fault or exhibited contributory negligenceà YES
REPUBLIC V. Barge L-1892 (owned by Stevedoring) was being towed Court ruled that in the case at bar the event was not a fortuitous one. Force
STEVEDORING by two tugboats down the Pasig River, when it rammed majeure are extraordinary events that are not 1) foreseeable and 2) avoidable.
against one of the wooden piles of the Nagtahan bailey Appellant was able to make preparations and adopt measures, appreciating the
bridge, causing it to list. A fortuitous event must not be perils of the situation. This proves that the possibility of the danger was not only
1) foreseeable and 2) avoidable. foreseeable, but actually foreseen, and thus not force majeure. Their
inadequate preparations do not entitle them to deny liability due to force
majeure.
DIOQUINO V. While Federico Laureano was using the car owned by Article 1174, Civil Code: "Except in cases expressly specified by the law, or
LAUREANO Atty. Dioquino, some ‘mischievous boys’ stoned the car when it is otherwise declared by stipulation, or when the nature of the obligation
which resulted to a broken windshield. Although the car requires the assumption of risk, no person shall be responsible for those events
was driven by the plaintiff’s driver, Laureano being only which could not be, foreseen, or which, though foreseen were inevitable.” In

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a passenger, Dioquino still proceeded against Laureano
to claim damages.
AUSTRIA VS CA Maria Abad was given a pendant to be sold on a
consignment basis. She robbed, and so the pendant
was stolen. The petitioner then filed and action against
the spouses Abad to recover the pendant or its value.
The Abad spouse raised the defense that the theft was
considered a fortuitous event and so they were not
liable. The court ruled in their favor. The petitioners then
appealed mainly arguing that no one was guilty of the
crime and so the crime was not proven to exist. The
main issue was if there needs to be a prior conviction of
robbery before the loss of the pendant can be
considered lost through a fortuitous event.
NPC VS CA Engineering Construction Inc. entered into a contract
with NAWASA whereby the former undertook to
construct a tunnel in Norzagaray, Bulacan. The
construction of the tunnel covered an area that included
the Ipo river where the Ipo Dam (Angat Dam) of
defendant NPC is located. One day, typhoon “Welming”
struck the project area and bringing with it heavy rains
and causing water in the reservoir of Angat Dam to
rapidly rise, reaching the danger level of 212 m above
sea level. To prevent overflow, NPC caused the
opening of the spillway gates. The opening of the gates
caused an extraordinary large volume of water to rush
out, hitting the installations and construction works of
ECI. Effectively washing away, damaging or destroying
its stockpile of materials and supplies, camp facilities,
permanent structures and accessories.
obligations arising from contracts where some extraordinary circumstance
independent of the will of the obligor arises, the law does not require diligence
beyond what human foresight can provide. What happened to the car was
clearly unforeseen — it was a fortuitous event resulting in a loss which must
then be borne by the owner of the car. Liability does not attach to the obligor
since this is an extraordinary event not forseeable or avoidable, an event that
could not be foreseen, or which, though foreseen, was inevitable.
For there to be fortuitous event:
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
It is not necessary that the person responsible be known or punished. The
emphasis of the law (Art 1174) is the event and not the agents or factors
responsible for them.
To be exempted from liability arising from damage caused during fortuitous
events, the person claiming exemption must be free from concurrent
negligence. Even though the typhoon was an act of God or force majeure, NPC
cannot escape liability because its negligence was the proximate cause of the
loss and damage. NPC is not exempt from liability by showing that the
immediate cause of the damage was the act of God. It was found that the
maintainers of the dam opened the gates when the typhoon was already at its
height, when they knew full well that it was far safer to open them gradually.
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YOBIDO V. CA Facts: The left front tire of a Yobido Liner bus exploded, No. The cause of the blow-out is not an unavoidable event if due to a factory
causing the bus to fall into a ravine and the death of Tito defect, improper mounting, or excessive tire pressure. In culpa contractual,
Tumboy. Petitioners filed a complaint for breach of once a passenger dies or is injured, the carrier is presumed to have been at
contract of carriage, alleging the failure of the bus driver fault or to have acted negligently. The Supreme Court affirmed the CA decision
to exercise the diligence required of the carrier in and held that the petitioners were liable as they failed to overcome the
transporting passengers safely to their place of disputable presumption of negligence by evidence that they had observed
destination. Defendants raise the defense of caso extraordinary diligence as prescribed by Art. 1733, 1755 and 1756 of the Civil
fortuito, an extraordinary circumstance independent of Code, or that the death or injury of the passenger was due to a fortuitous event.
their will. Issue: WON the explosion of a newly installed
tire of a passenger vehicle is a fortuitous event that
exempts the carrier from liability for the death of a
passenger
USURIOUS TRANSACTIONS
EASTERN Issue: W/N Manila Motor (lessee) should be held liable 6%. An award of interest in the concept of actual and compensatory damages,
SHIPPING for rentals of the premises leased corresponding to the the rate of interest, as well as the accrual thereof, is imposed, as follows:
LINES, INC. V. lapse of time that they were occupied by the Japanese 1. When the obligation is breached, and it consists in the payment of a sum of
CA army. money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court 24 at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and

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executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
SECURITY Respondent Magtanggol Eusebio failed to pay his The SC ruled that the RTC may NOT impose the rate of 12% as the Central
BANK V RTC promissory notes amounting to P265k @ 23% interest Bank Circular 905 (Date of effect Dec 22, 1982) was in effect which suspended
rate per annum upon maturity which prompted SBTC to the Usury Law which allows contracting parties to stipulate freely regarding any
file a collection case against him to collect the money. subsequent adjustment in the interest rate that shall accrue on a loan or
The RTC ruled in favor of SBTC but imposed a rate of forbearance of money, goods or credits.
12% pursuant to the Usury Law. (Usury laws are
regulations governing the amount of interest that can be
charged on a loan.)
NAKAR VS. Petitioner was illegally dismissed by respondents. He Judgments that have become final and executory prior to July 1, 2013 shall not
GALLERY won his case before the Labor Arbiter. Respondents be disturbed. In the absence of an express stipulation as to the rate of interest
FRAMES then sought appeal from the NLRC, CA, and eventually that would govern the parties, the rate of legal interest for loans or forbearance
the Supreme Court, which affirmed the illegality of of any money, goods or credits and the rate allowed in judgments shall no
dismissal and made the judgment final and executory. longer be twelve percent (12%) per annum, but will now be six percent (6%) per
Petitioner then asked for recomputation of the award, to annum effective July 1, 2013. (cf. MB No. 799)
reflect the award with the date of the SC’s decision, May
27, 2002. The finality of the illegal dismissal decision becomes the reckoning point instead
of the reinstatement that the law decrees.
CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS
CONDITIONAL OBLIGATIONS
GAITE V Gaite filed a case against appellants in the Court of First Yes. The obligation to pay Gaite P65,000 is one with a period which can be
FONACIER Instance of Manila after the bond executed between the seen from the words of the contract which express no uncertainty in the
2 parties expired on December 8, 1955 without any sale existence of the obligation to pay. It is only the maturity and demandability are
of the 24,000 tons of iron ore,delivered by Gaite, being deferred, not the existence. The fact that the defendant put up bonds is
sold or shipped by the appellants nor had any balance admittance of the existence of the obligation to pay. In an obligation subjected
of the price of said ore—P65,000—been paid to Gaite. to a period/term, the existence of the obligation is certain, it is the demandability
The defendants claim that up to the time of the filing of that is determined by the period/term but in an obligation subjected to a
the complaint, no sale of the iron ore had been made, condition, the efficacy/existence of the obligation depends on the
hence the condition had not yet been fulfilled; and that happening/fulfillment of that condition.
consequently, the obligation was not yet due and Legal Basis: In a conditional obligation its efficacy or obligatory force (as
demandable but the lower court held that the obligation distinguished from its demandability) is subordinated to the happening of a
is not a conditional obligation but one with a period or future and uncertain event; so that if the suspensive condition does not take
term. The main issue is whether or not the obligation of place, the parties would stand as if the conditional obligation had never existed

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Fonacier and his sureties to pay Gaite P65,000.00 is
one with a period or term and not one with a suspensive
condition.
GONZALES VS. Parties entered into a contract of Lease/Purchase.
HEIR OF Respondents argue that the petitioner’s not having
THOMAS AND exercised purchase of the property after the one-year
PAULA CRUZ lapse entitled them to rescind the contract. On the other
hand, petitioner Gonzales argues that he cannot be
compelled to purchase the property because
respondents have yet to comply with a paragraph in
their contract, which obligates them to obtain a separate
and distinct title in the respondent’s names. Par. 9 of
Contract of Lease/Purchase entered into by the
respondents and petitioner states that the lessors shall
obtain a separate Certificate of Title over the leased
portion of the lessee within a reasonable period of time
which shall not exceed four years, after which a new
contract shall be executed by the parties which shall be
the same with this contract of lease/purchase. Gonzales
did not exercise the purchase option, remained in
possession of the property without paying purchase
price and without paying rentals.
CATUNGAL V. Respondent Rodriguez filed for Damages and Injunction
RODRIGUEZ when the Conditional Deed of Sale he negotiated with
the parents of the petitioners (Catungals; the children
are the plaintiffs here because they substituted their
mother after she died while the case was pending) was
rescinded because of his failure to secure a road right-
of-way. The trial court ruled in favor of the respondent,
which was also affirmed by the CA upon appeal. Hence
this petition where the plaintiffs aver that the rescission
they effected was valid because the Conditional Deed of
Sale was void based on par. 1(b) and 5 which violated
the principle of mutuality of contracts (par. 1(b) — sale
of the property will be dependent on the vendee’s
(Rodriguez) successful negotiation of the road right-of-
while an obligation subjected to a period/term is subordinated to a future and
certain event and determines the demandability of the obligation
Paragraph 9 of the contract was a condition precedent. Art. 1181. In conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which
constitutes the condition.
The Paragraph required respondents to obtain a separate and distinct TCT in
their names and not in the name of petitioner, it logically follows that such
undertaking was a condition precedent to the latter’s obligation to purchase and
pay for the land. the obligation of the petitioner to buy the land cannot be
enforced unless respondents comply with the suspensive condition that they
acquire first a separate and distinct TCT in their names. The suspensive
condition not having been fulfilled, then the obligation of the petitioner to
purchase the land has not arisen.
The provisions of the contact that were in question were misread by the
plaintiffs because par. 1(b) of the Conditional Deed, stating that respondent
shall pay the balance of the purchase price when he has successfully
negotiated the right-of-way was NOT dependent solely on the will of the debtor
but ALSO on the will of the third person who owned the adjacent land with
whom the right-of-way shall be negotiated. It was also dependent on chance,
since there was no guarantee that Rodriguez and the third person owner would
reach an agreement regarding the right-of-way. Said provision was thus not
purely potestative but mixed, which Art. 1182 does not proscribe. As to par (5),
the intention of the parties for providing Rodriguez with the option to rescind the
sale was only limited to the contingency that Rodriguez shall not be able to
secure the road right of way. If the parties intended to give Rodriguez the
absolute option to rescind the sale at any time, the contract would have
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way in the adjacent land belonging to a third person,
failure in securing this gives him the option to rescind
the sale; par. 5 — vendee has the option to rescind the
sale after giving notice to vendor, vendor shall return
downpayments made by vendee).
ROMERO V. CA Romero was offered a parcel of land by the Alfonso
spouses in behalf of Enriqueta Ongsiong so he could
build his central warehouse. Alfonso found the land
suitable, however, there were squatters living in the
area. As such, Romero and Enriqueta entered in a
contract tagged as a “Deed of Conditional Sale” wherein
it was stipulated that Enriqueta will cause an ejectment
case against the squatters upon payment of P50,000 by
Romero. This was to be done within a 60-day period,
failure to do so would warrant the return of the money to
Romero. Hence, when Enriqueta failed to comply with
the deadline, she sought to return the money to Romero
and even rescinded the agreement. Romero refused to
take the money and even proposed that he shall take it
upon himself to eject the squatters. Prompted by this
refusal, Enriqueta brought the case before the court,
which, upon reaching the CA, ruled in her favor.
provided for the return of all payments made by Rodriguez and not only the
downpayment.
SC reversed the ruling, stating that the contract is absolute in nature and had
already in fact been perfected. The court went on to explain that from the
moment the contract is perfected, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good
faith, usage and law. Under the agreement, Enriqueta is obligated to evict the
squatters on the property. The ejectment of the squatters is a condition the
operative act of which sets into motion the period of compliance by Romero of
his own obligation (to pay the balance of the purchase price). Enriqueta’s failure
"to remove the squatters from the property" within the stipulated period gives
then Romero (the injured party) the right to either refuse to proceed with the
agreement or waive that condition in consonance with Article 1545 of the Civil
Code.
SC also made a relevant discussion on characterizing contracts: “A perfected
contract of sale may either be absolute or conditional depending on whether the
agreement is devoid of, or subject to, any condition imposed on the passing of
title of the thing to be conveyed or on the obligation of a party thereto...In
determining the real character of the contract, the title given to it by the parties
is not as much significant as its substance. For example, a deed of sale,
although denominated as a deed of conditional sale, may be treated as
absolute in nature, if title to the property sold is not reserved in the vendor or if
the vendor is not granted the right to unilaterally rescind the contract predicated
on the fulfillment or nonfulfillment, as the case may be, of the prescribed
condition.
“Condition" in a perfected contract of sale pertains to the compliance by one
party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal
obligations referred to would normally be, in the case of vendee, the payment of
the agreed purchase price and, in the case of the vendor, the fulfillment of
certain express warranties (which, in the case at bench is the timely eviction of
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PARKS V. George Parks brought an action against the Province of
PROVINCE OF Tarlac to be declared the absolute owner of a parcel of
TARLAC land. In 1910, the parcel of land was donated to the
Province of Tarlac by Concecion Cirer and James Hill
and was subject to the condition that said land would be
used exclusively as a school and park within a 6-month
period. In 1921, this same parcel of land was also sold
to plaintiff. Petitioners argue that the condition was not
met and therefore ownership has not vested upon
respondent. The main issue was WON the condition
imposed by the donors rendered the donation void for
failing to satisfy it.
CENTRAL Don Ramon Lopez Sr. executed a deed of donation in
PHILIPPINE favor of Central Philippine College (now Central
UNIVERSITY V. Philippine University), with three annotations that the
CA petitioners must comply with. Private respondents, who
are the heirs of Don Ramon Lopez Sr., filed an action
for the annulment of the donation, on the grounds that
CPU had not complied with the conditions of the
donation. The CA ruled in favor of the private
respondents.
ISSUE: WON the 3 annotations in the certificate of title
are resolutory conditions — YES
OSMENA V. Rama acknowledged her indebtedness to Osmena by
RAMA an indorsement which said that if her house in Pagina is
sold, she will pay her indebtedness to Osmena. W/N the
condition was void
HERMOSA V. Longara made three kinds of claims after the death of
LONGARA the intestate. The intestate had asked for the credit "on
the squatters on the property). In this case herein, it would be futile to challenge
the agreement as not being a duly perfected contract. A sale is at once
perfected when a person (the seller) obligates himself, for a price certain, to
deliver and to transfer ownership of a specified thing or right to another (the
buyer) over which the latter agrees.”
When a condition is imposed, and compliance cannot be done until the right is
deemed acquired, such is NOT A CONDITION PRECEDENT or Resolutory
condition. Compliance with the condition necessitates the giving of the land and
therefore it cannot be held to be resolutory. Had the action not prescribed,
proof of non-compliance with condition would have benefited petitioners.
Moreover, the court held that Parks has no cause of action and that his action
for revocation has also prescribed. The period for revocation is governed by the
law of contracts which is 10 years. Action for revocation arose in 1911 while the
complaint was presented in 1924. The action has prescribed.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
The SC held that the conditions in the certificate of title were in fact resolutory
conditions. The donation of the land had to be valid before the medical college
could be built, therefore the conditions set by the Don Ramon Lopez Sr. could
not have been suspensive, rather they were resolutory. In resolutory conditions,
the extinguishment or loss of rights already acquired shall depend upon the
happening of the event which constitutes the condition. Since there was no
fulfillment or compliance with the condition, the donation may be revoked by
Don Ramon’s heirs, and all rights which Central Philippine University may have
acquired under the donation shall be deemed lost and extinguished.
When the fulfillment of the condition depends upon the sole will of the debtor,
the conditional obligation shall be void. The condition imposed by RAMA in
stipulating that she will pay Osmena only when her house was sold was
deemed to depend upon her exclusive will and thus void.
The Court ruled that the condition was not only protestative, (depending
exclusively upon the will of the debtor) but a mixed one, because aside from
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condition that their payment should be made by
Fernando Hermosa, Sr. as soon as he receive funds
derived from the sale of his property in Spain."
TAYLOR V. UY Plaintiff Taylor contracted his sevices to defendant Tan
TIENG PIAO Liuan and Co., as superintendent of an oil factory to
which the latter will establish. Among the stipulations in
the contract is the clause wherein defendant can cancel
the contract with plaintiff if the machinery to be installed
in the said factory, for any reason thereof, fails to arrive
in Manila within a period of 6 months. Defendant availed
of this option to cancel since said machinery did not in
fact arrive. However, evidence showed that the
defendants either cancelled the order or were unable to
supply the needed capital to purchase said machinery.
Plaintiff now comes to the court stating that stipualtion is
illegal as contemplated in Articles 1256 and 1119 of the
Civil Code.
RUSTAN PULP Petitioners Rustan Pulp and Paper Mills Inc. (RPPMI),
AND PAPER entered into a contract with respondent company in that
MILL VS IAC the respondent company was to supply raw materials to
the petitioner. A stipulation in their contracts provides
that the petitioner may ask the respondent to stop
delivery if they deem that they have sufficient supplies.
The petitioner later stopped accepting raw materials
from the respondent as they allegedly had excess
materials. The respondent sued for breach of contract
ROMAN Spouses Eusebio de Castro and Martina Rieta
CATHOLIC (deceased during the time of the case) donated to the
ARCH OF Archbishop a parcel of land with the condition that it
MANILA VS CA should not be sold or otherwise disposed of for 100
years, lest the donation be voided. Despite the
condition, the Archbishop sold the land to the spouses
Ignaos.This prompted the respresentatives of the estate
depending on the will of the debtor to sell, it also depended partly on chance.
Aside from the will to sell, there were also other conditions that had to concur to
effect the sale i.e., the presence of a buyer who is ready, able, and willing to
purchase.
There is no breach of contract. The words “for any reason” stipulated in the
contract give defendants the right of cancellation that is broad enough to cover
any instance of the nonarrival of the machinery, due to whatever cause. Article
1256 contemplates a situation wherein the contract will be valid only if its
stipulated conditions arise (and such conditions are left to the will of one of the
parties). A condition once facultative and resolutory may be valid even though
the condition is made to depend on the will of the obligor. With regard to Article
1119 (where the obligor intentionally impedes the fulfillment of a condition which
would entitle the obligee to exact performance from the obligor; and an
assumption underlying the provision is that the obligor prevents the obligee from
performing some act which the obligee is entitled to perform as a condition
precedent to the exaction of what is due to him), the act that is considered
unwarranted and unlawful should involve a breach of the implied terms of the
contract. Article 1119 can have no application to an external contingency which,
like involved in this case, is lawfully within the control of the obligor.
The condition was dependent solely on the petitioner’s will since it is the
petitioners who can ascertain if they have enough material. The condition
therefore is a purely potestative condition. A purely potestative obligation should
be obliterated from the face of the contract without affecting the rest of the
stipulations considering that the condition relates to the fulfillment of an already
existing obligation and not to its inception.
Said condition constitutes an undue restriction on the rights arising from
ownership of petitioners and is therefore contrary to public policy. Court holds
that the prohibition in the deed of donation against the alienation of the property
for an entire century, being an unreasonable denial of an integral attribute of
ownership should be declared an illegal or impossible condition.
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of the deceased spouse to file for rescission and
reconveyance of the donated land to the estate.
PLDT V. Facts: Respondents Jeturian, prewar employees of
JETURIAN petitioner company PLDT, filed a petition in the CIR to
claim monetary benefits due them under a pension plan
discontinued by the company. Petitioner avers that the
establishment of the pension plan did not constitute a
binding contract and that the employees acquired no
vested right under the plan unless they complied with
the conditions established therein; thus, petitioner was
at liberty to cancel and discontinue the pension plan
before the employees met the said conditions. The CIR
ruled in favor of the respondents and ordered the
payment of pension in proportion to their respective
ages and length of service. Issue: WON the court a quo
erred in ordering the liquidation of the pension plan
HERRERA V. • L.P. Leviste obtained a loan from GSIS in the
L.P. LEVISTE amount of P 1,854,311.50
- As security, L.P. Leviste mortgaged two lots:
Parañaque Property, and Buendia Property
• L.P. Leviste sold to petitioner the Buendia
Property for P 3.75M, with the conditions that petitioner
would:
- (1) pay L.P. Leviste P 1,895,688.50
- (2) assume L.P. Leviste’s indebtedness of P
1,854,311.50 to the GSIS
- (3) substitute the Parañaque Property with his
own within a period of 6 months
• Stipulation: failure to comply with any of the
conditions contained therein, particularly the payment of
the scheduled amortizations on the dates herein
specified shall render this contract automatically
cancelled and any and all payments made shall be
forfeited in favor of the vendor and deemed as rental
and/or liquidated damages.
• Petitioner took possession of the Buendia
No. The SC affirmed the court below on the following grounds: 1) the pension
plan was not a mere offer of gratuity by the company, 2) the plan ripened into a
binding contract upon its implied acceptance of the employees, and 3) the
assailed award grants an indemnity to the employees for PLDT’s repudiation of
a contract upon which the employees had a right to rely on. That the right of the
beneficiaries to the pension should be subjected to a condition suspensive or
precedent and are not fully vested until the conditions are fulfilled, does not
authorize PLDT to disregard the plan at will. Pursuant to Art. 1186, if the
promisor voluntarily prevents the fulfillment of the condition, it shall be deemed
fulfilled.
• Petition denied on the following grounds:
• First,
- (a) The GSIS has not benefited in any way at the expense of petitioner. What
it received, by way of redemption from respondent Marcelo, was the mortgage
loan it had extended plus interest and sundry charges.
- (b) Neither has Marcelo benefited at the expense of petitioner. Said
respondent had paid to GSIS the amount P 3,232,766.94, which is not far below
the sum of P 3,750,000.00, which was the consideration petitioner would have
paid to L.P. Leviste had his contract been consummated.
- (c) L.P. Leviste had neither profited at the expense of petitioner, for Losing his
Buendia Property, all he had received was P 1,854,311.50 from GSIS less
amounts he had paid, plus P 1,895,688.00 paid to him by petitioner, the total of
which is substantially a reasonable value of the Buendia Property.
• Second, it is quite true that petitioner had lost the P 1,895,688.00 he had paid
to L.P. Leviste, plus P 300,000.00 he had paid to GSIS, less the rentals he had
received when in possession of the Buendia Property. That loss is attributable
to his fault in:
- (a) Not having been able to submit collateral to GSIS in substitution of the
Parañaque Property;
- (b) Not paying off the mortgage debt when GSIS decided to foreclose; and
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property, received rentals of P 21,000 monthly, and - (c) Not making an earnest effort to redeem the property as a possible
collected approximately P 800,000.00 from December redemptioner.
1971, up to March 1975. However, petitioner remitted a • Third, it cannot be validly said that petitioner had fully complied with all the
total of only P 300,000 to the GSIS. conditions of his contract with L.P. Leviste. For one thing, he was not able to
• Petitioner requested the GSIS for the restructuring substitute the Parañaque Property with another collateral for the GSIS loan.
of the mortgage obligation because of his own Moreover, as stated by the CA, "nowhere in the letter (of the GSIS) was
arrearages in the payment of the amortizations. GSIS mentioned that a final deed of sale must first be executed and presented before
replied that as a matter of policy, it could not act on his the assumption may be considered. For if it was really the intention of GSIS, the
request unless he first made proper substitution of requirement of Deed of Sale should have been stated in its letter."
property, updated the account, and paid 20% thereof to
the GSIS. There was no requirement by the GSIS for
the execution of a final deed of sale by L.P. Leviste in
favor of petitioner.
• GSIS sent notice to L.P. Leviste of its intention to
foreclose the mortgaged properties by reason of default
in the payment of amortizations.
• The foreclosed properties were sold at public
auction and a Certificate of Sale in favor of the GSIS, as
the highest bidder, was issued.
• L.P. Leviste assigned its right to redeem both
foreclosed properties to respondent Jose Marcelo, Jr.
• Marcelo redeemed the properties from the GSIS
by paying it the sum of P 3,232,766.94 for which he was
issued a certificate of redemption.
• The Parañaque Property was turned over by
Marcelo to L.P. Leviste upon payment by the latter of
approximately P 250,000. L.P. Leviste needed the
Parañaque Property as it had sold the same and suit
had been filed against it for its recovery.
• Petitioner wrote the GSIS informing the latter of
his right to redeem the foreclosed properties and asking
that he be allowed to do so in installments. GSIS had
not favorably acted thereon.
• Petitioner instituted suit against L.P. Leviste, but
the trial court dismissed the complaint for lack of basis.
It ordered that all payments made by petitioner to L.P.

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Leviste forfeited in favor of the latter pursuant to their

contract providing for automatic forfeiture "in the event
of failure to comply with any of the conditions contained
therein, particularly the payment of the scheduled
amortizations."
• Trial court decision was affirmed by the appellate
court.
• Petitioner seeks reconsideration on the contention
that affirmance of the Appellate Court's Decision would
result in patent injustice as he would not only forfeit the
Buendia Property to Marcelo, but would also lose the
amount of P 1,895,688.50 and P 300,000.00, which he
paid to L.P. Leviste and the GSIS, respectively; that it
would result in the unjust enrichment of L.P. Leviste;
and that L.P. Leviste as well the GSIS and Marcelo
would be benefiting at petitioner's expense.
• ISSUE: W/N petition should be granted vis-à-vis
w/n petitioner has right to redeem the foreclosed
properties
RECIPROCAL OBLIGATIONS
BOYSAW V Solomon Boysaw signed a contract with Interphil to fight The Court ruled that the contract may be rescinded because the contract in
INTERPHIL Flash Elorde. However, Boysaw violated some of the question gave rise to reciprocal obligations, which are obligations that arise from
conditions in the contract so Interphil filed a claim for the same cause and in which each party is the debtor and creditor of the other,
rescission. . The stipulations of the contracted stated such that the obligation of one is dependent upon the obligation of the other.
that Boysaw was not allowed to enter any other match Also, the power to rescind is given to the injured party; thus, the violations of the
before the fight but he did in June 19 1961 against Louis terms of the original contract by Boysaw vested Interphil with the right to rescind
Avila in Las Vegas. and repudiate the contract.
UP V DE LOS UP entered into a Logging Agreement with respondent, Yes. UP and ALUMCO had expressly stipulated in the "Acknowledgment of
ANGELES ALUMCO. The latter incurred an unpaid account of Debt and Proposed Manner of Payments" that, upon default by the debtor
P219,362.94 but executed an “Acknowledgment of Debt ALUMCO, the UP has "the right and the power to consider the Logging
and Proposed Manner of Payments” dated December Agreement as rescinded without the necessity of any judicial suit. If the other
9,1964 approved by the UP President. In the said party denies that rescission is justified, it is free to resort to judicial action in its
document, it states that if ALUMCO fails to comply with own behalf, and bring the matter to court:
any of its promises or undertakings in the document, UP (1) The party who deems the contract violated may consider it resolved or
shall have the right and the power to consider the rescinded, and act accordingly, without previous court action, but it proceeds at
Logging Agreement rescinded without the necessity of its own risk

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any judicial suit and UP shall be entitled to collect
P50,000 as liquidated damages. ALUMCO again
incurred an unpaid account which resulted UP
automatically rescinding the contract. ALUMCO
contends that the rescission must be done only by a
final court decree declaring the contract rescinded for
violation of its terms that U.P. could disregard
ALUMCO's rights under the contract and treat the
agreement as breached and of no force or effect. The
main issue is whether or not petitioner U.P. can treat its
contract with ALUMCO rescinded, and may disregard
the same before any judicial pronouncement to that
effect.
DE ERQUIAGA De Erquiaga sold 100% of his shares to a hacienda in
V. CA Irosin, Sorsogon to respondent- Reynoso. The
agreement stipulated that the payment will be made in
installments to paid on set dates. Respondent failed to
pay on multiple dates, and the so petitioner rescinded
the contract formally. The CFI rendered final judgement
ordering the respondent to return the shares of the
stock and to render an accounting for the fruits of the
shares and also ordering petitioner to return the
purchase price given by respondent plus its legal
interest. This was appealed to the CA and the CA
resolved that the CFI acted with grave abuse, and
ordered that a deed be executed returning the shares to
petitioner and petitioner to return to respondent the
purchase price with legal interest.
HEIRS OF The Plaza, Inc. entered into a contract with Rhogen
RAMON GAITE Builders, represented by Ramon Gaite for the
V. THE PLAZA construction of a restaurant building. Before the project
commenced, the Plaza paid 1,155,000 PHP to Rhogens
for its surety bond. However, the construction barely
reaching halfway, an order by the Municipality of Makati
ordered Gaite to cease and desist from further
continuing the construction for violation of the National
(2) It is only the final judgment of the corresponding court that will conclusively
and finally settle whether the action taken was or was not correct in law
(3) Practical effect of the stipulation being merely to transfer to the defaulter the
initiative of instituting suit, instead of the rescinder
Legal Basis: There is nothing in the law that prohibits the parties from entering
into agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention (Article 1191 of the Civil
Code in Froilan vs. Pan Oriental Shipping Co., et al.)
The SC found no reversible error in the CA decision directing the clerk of court
of the CFI to execute a deed of conveyance in favor of petitioner to reaquire
1,600 shares of stock of the corporation, which was still in respondent’s name
(this is in accordance with Sec. 10, Rule 39 of the ROC). Furthemore,, the order
of the CA for Erquiaga to return the purchase price plus legal interest as well as
the order for the Reynosos to return the shares of stock with the fruits to
Erquiaga is IN FULL ACCORD with Art. 1385 of the Civil Code ("Rescission
creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may
be obliged to restore") since this is a mutual rescission.
By appeal to the SC, the court ruled in favor of the Plaza, and held that being
the injured party, it is the Plaza which has the right to rescind the reciprocal
obligation, and not Rhogens (as provided by Article 1191 of the NCC). The court
held that it was the contractual undertaking of Rhogens to ensure the lifting of
the stoppage order and not the Plaza’s since it already paid for the
downpayment. Further, Rhogens did not follow the approved design of the
building therefore his liability falls under Art. 1167 of NCC (if a person obliged to
do something fails to do it, the same shall be executed at his cost).
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Building Code. This prompted Gaite, among other

things, to terminate the contract with the Plaza which
then sued him with Rhogens and FGU (the insurance
company who execute the surety bond) for
nonperformance of the obligation. However, pending the
case, Ramon Gaite died and so the CA allowed his
heirs to substitute for him
OBLIGATION WITH A PERIOD
PONCE DE Jose Ponce De Leon purchased land from PNB. In It was held that Ponce de Leon did not meet the requisites for consignation of
LEON V. order to pay the same, he got a loan from a Santiago his payment and that he is liable to Syjuco. The debtor has cannot force a
SYJUCO Syjuco. Contrary to the stipulated payment schedule, creditor to receive payment that is not yet due and demandable. It was held
Ponce De Leon urged Syjuco to accept his payment of that the payment of Ponce de Leon must be in the Peso denomination as per
his loan including interest. Syjuco refused, therefore, stipulation in the agreement, notwithstanding the change in currency
Ponce de Leon filed a complaint and deposited the
payment in consignation with the Clerk of Court. After
the war, Ponce de Leon reconstituted the land titles
under his name and thereby mortgaged the same land
with PNB without notice to the bank of the land’s
encumbrance to Syjuco. The main issue was WON the
consignation was valid and WON the currency that
Ponce de Leon may be in Japanese War Notes pay
Syjuco.
BUCE V. CA Petitioner leased a parcel of land from private Art. 1196 – Whenever in an obligation a period is designated, it is presumed to
respondents, for a period of 15 years, “subject to have been established for the benefit of both the creditor and the debtor, unless
renewal for another 10 years, under the same terms from the tenor of the same or other circumstances it should appear that the
and conditions.” Private respondents refused to accept period has been established in favor of one of the other.
petitioner’s payment of monthly rentals for Php 400
each, as according to them, the rent should be The SC held that it was not specifically indicated in the contract between the
increased pursuant to the Rent Control Law. Petitioner parties who may exercise the option to renew, therefore the respondents may
filed with the RTC, a complaint for specific performance not be compelled to execute a new contract when the old contract had already
with prayer for consignation. Respondents informed terminated on June 1, 1994. There is nothing in the stipulations in the contract
petitioner that their lease contract had already expired and the parties’ actuation that shows that the parties intended an automatic
during the pendency of the controversy, and she is renewal or extension of the term of the contract. It was not specifically indicated
liable to pay for rentals in arrears. The RTC ruled that who may exercise the option to renew, neither was it stated that the option was
the lease contract was automatically renewed for 10 given for the benefit of herein petitioner. Thus, pursuant to the Fernandez ruling
years. The CA reversed the RTC’s decision, and

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ordered the petitioner to vacate the premises. and Article 1196 of the Civil Code, the period of the lease contract is deemed to
have been set for the benefit of both parties.
ISSUE: WON the parties intended an automatic renewal
of the lease contract when they agreed that the lease
shall be for a period of fifteen years “subject to renewal
for another 10 years” — NO
ARANETA V. JM Tuason and Co. (owned by Araneta) sold a track of 1197. Court held that what the lower court should have done was determine
PHILIPPINE land to the respondent on a condition that the latter will whether the “reasonable time” has elapsed. Assuming that there was no period,
SUGAR build the Sto. Domingo Church and Convent, and that the lower court had no basis in setting it at 2 years and that it was not a period
ESTATE JM Tuason will construct streets on the NE, NW and contemplated by the parties. “Reasonable time” refers to when all the squatters
DEVELOPMENT SW sides “within a reasonable time”. The church and are evicted, which can be deduced from the fact that the parties were fully
CO. convent were constructed but the streets were not aware the there were squatters when they entered the contract.
because there were squatters. Respondent sued JMT
for specific performance and damages. JM Tuason’s
defense: action is premature since obligation to
construct the street was without a definite period and a
proper suit should be filed first for the court to fix the
period. Lower court fixed a period of 2 years. W/N the
court may fix a period for Petitioner to comply with their
obligations
SOLIDARY OBLIGATIONS
INCHAUSTI V. Teodoro Yulo borrowed money from Inchausti & The court ruled that the plaintiffs may file a case against Gregorio alone. The
YULO Company, and when he died, this was continued by his new instrument signed by the three siblings does not erase the solidary nature
children. In 1909, six of the Yulo children executed a of the first contract. Solidarity may exist even though the debtors are not bound
document admitting to their indebtedness to Inchausti in in the same manner and for the same periods and under the same conditions.
the sum of P253,445.42. When they defaulted in the Other things to note: 1. The clause in the contract of Ynchausti with the Yulos,
payment of their installments, Inchausti filed a case indicating that the whole amount would be due upon failure to pay one of the
against one of the children, Gregorio Yulo. After which, installments is called an acceleration clause. 2. In the case at bar, court ruled
three of the six siblings filed another contract with that there was no novation. It is never presumed. For novation to exist, it must
different stipulations, particularly, that the debt would be a) be expressly indicated or b) the new contract must be incompatible and must
reduced to P225,000. show the intent to novate. 3. If the 2nd contract wasn’t due, but they weren’t
able to get Mariano’s signature, would there be a breach? a. Yes. Because
getting Mariano’s signature was a resolutory condition under the 1st contract. b.
But assuming that it is not stipulated, it is still a breach. Not getting Mariano’s
signature would be a violation of paragraph 4 of ART 1199. Thus they lose the
benefit of a suspensive period, and the debt becomes due immediately. 4. Why

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LAFARGE Lafarge entered into a contract to buy cement from
CEMENT V. Continental Cement, the latter having a pending case
CONTINENTAL against APT. The contract stipulated that if Continental
CEMENT loses in the litigation, part of the payment to be given to
Continental will be given to APT. Continental filed a
case of preliminary attachment against Lafarge, the
latter filing a compulsoty counterclaim ad cautelam
against Continental, Gregory Lim (President), and
Anthony Mariano (Secretary).
JAUCIAN VS Dayandante and Rogero produced a document that
QUEROL says that they were “jointly and severally” indebted to
Jaucian. Roelio died sometime after that. Jaucian went
after the estate of Rogero after finding that Dayandante
was insovent.
RFC VS CA Jesus Anduiza and Quintana Cano incurred a loan from
RFC worth P13,800 with 6% interest, to be paid in 10
yearly installments. It was secured by a mortgage on a
parcel of land. Both failed to pay for the years 1942-
1943. Estelito Madrid offered to pay for their
indebtedness with P10,000. Alleging default, the RFC
refused to release the mortgage. However, Madrid
points out that because of his payment, Anduiza should
now be considered released from his obligation. RFC
replied, saying that the payment was not yet due and
demandable when Madrid paid the P10,000, and that
they only held the P10,000 as a deposit, subject to
Anduiza’s rejection or acceptance. At the trial court
did the second contract redound to the benefit of Gregorio? a. Answers as
discussed in class: Since the obligation is solidary, ART 1222 and ART 1215
apply. Gregorio may use the defense that any remission made by the creditor
with any one of the debtors will necessarily benefit the other debtors. So the
stipulations in the 2nd contract will also apply to the siblings who were not part
in the signing of it, and only half of the total amount due would be demandable.
Article 1207, Civil Code: “Obligations are generally considered joint, except
when otherwise expressly stated or when the law or the nature of the obligation
requires solidarity. However, obligations arising from tort are, by their nature,
always solidary.” If respondents’ liability due to fraud is proven, they are
solidarily liable. The fact that the liability sought against the CCC is for specific
performance and tort, while that sought against the individual respondents is
based solely on tort does not negate the solidary nature of their liability for
tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is
explicit on this point: “Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same periods and
conditions.”
In common law, a joint contract actually refers to a solidary obligation; when we
say that 2 or more people are “joint and severally liable” it actually means that
they are solitarily liable. Since “jointly and severally liable” actually meant
solitarily liable, the estate of the deceased should be primarily liable for the
whole obligation if the creditor so demands.
Anduiza had impliedly accepted the payments by Madrid by joining him in
appeling in the decision of the trial court. RFC issued receipts acknowledging
the payment without qualification. The payment should be accepted by the RFC,
as payment can be made by any person, with or without the debtor’s consent.
This was actually a payment consented to by the debtor (Anduiza). While he
questioned the payment earlier, he joined Madrid for the appeal.
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level, Anduiza claimed the payment was made without

his consent but later joined Madrid for the appeal.

QUIOMBING V. A "Construction and Service Agreement" was No. The Court reversed the appellate court’s decision, holding that although
CA concluded, whereby Nicencio Tan Quiombing and Biscocho signed the original Construction and Service Agreement, there was no
Dante Biscocho jointly and severally bound themselves need for him to be included as a co-plaintiff in the complaint. It did not matter
to construct a house for private respondents Francisco who filed the complaint, because the private respondents were liable to either of
and Manuelita Saligo, for the contract price of the two as solidary creditors for the full amount of the debt. The complaint
P137,940.00. Petitioner Quiombing filed a complaint for having been filed by the petitioner, whatever amount is awarded against the
recovery of the amount when private respondents failed debtor must be paid exclusively to him, pursuant to Art. 1214 of the Civil Code.
to pay despite repeated demands, but the trial court Thus, Quiombing could sue for the recovery of the contract price by himself
(and later, affirmed by respondent CA) dismissed the alone.
petition on the ground that Biscocho was not included
as a co-plaintiff despite being an indispensable party.
Issue: WON Biscocho needs to be included as a co-
plaintiff in the complaint filed by the petitioner against
the private respondents
INCIONG JR. V. CA affirmed RTC decision for collection of sum of Yes. Petitioner signed the promissory note as a solidary co-maker and NOT as
CA money and damages: Inciong, Jr. is adjudged solidarily a guarantor.
liable and ordered to pay to the Phil. Bank of A solidary or joint and several obligation is one in which each debtor is liable for
Communications the amount of 50,000 pesos with the entire obligation, and each creditor is entitled to demand the whole
interests. Petitioner's liability resulted from the obligation.
promissory note in the amount of 50,000 pesos which Relevant provisions are Articles 1207 and 2047 of the Civil Code.
he signed with Naybe and Pantanosas, holding
themselves jointly and severally liable to respondent
Phil. Bank of Communications. ISSUE: W/N petitioner
is liable to pay pursuant to w/n he is a solidary debtor.
ALIPINO V CA Romero Jaring , a lessee, subleased a part of a There was an error in the judgement of the trial court as it did not even say if the
fishpond to the spouses Alipio and spouses Manuel Alipio's and the Manuel's were jointly or solidarily liable. Since it is silent, joint
wherein all 4 sugned the contract. There was a failure to liability will be presumed. The SC ruled that Jaring cannot sue Purita Alipio in an
pay the second installment hence Jaring filed for ordinary proceeding because her husband had died before he filed the case.
collection against the 4 sublessees which was granted Jaring should have filed a money claim suit to the estate of Placido Alipio.
OBLIGATIONS WITH A PENAL CLAUSE
CONTINENTAL Petitioner delivered its drive motor to the respondent to The Petitioner is entitled to the penalties. Art. 1226 – In obligations with a penal
CEMENT CORP. be repaired. Respondent repeatedly failed and because clause, the penalty shall substitute the indemnity for damages and the payment
V. ASEA of such failure petitioner allegedly suffered losses. of interests in case of noncompliance, if there is no stipulation to the contrary.

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BROWN Petitioner is to be indemnified for the damages for the
BOVERI non-compliance of the obligation.
MAKATI Makati Development Corp. sold a lot in Urdaneta Village
DEVELOPMENT to Rodolfo P. Andal on the condition that he shall
CORP. V construct a house or complete at least 50% of it on the
EMPIRE property within 2 years. To insure compliance, Andal
INSURANCE gave a surety bond with Empire Instance Co. as surety.
CO. Instead of building, he sold the lot to Juan Carlos and
when neither of them built the house upon the expiration
of the 2-year period, Makati Development Corp.
demanded the payment of P12,000 as indicated in the
surety bond from Empire who refused to pay. While no
building has actually been constructed before the target
date even before that date the entire area was already
fenced with a stone wall and building materials were
also stocked in the premises which is a clear indicia of
the owner's desire to construct his house with the least
possible delay. Juan Carlos states that by the end of
April 1961, he had finished more than the required 50%.
Makati filed an action against Empire in the CFI of Rizal
while Empire filed a third-party complaint against Andal.
The trial court ruled in favor of Makati Development
Corp. but lessened the penalty from P12,000 to P1,500
so Makati Development Corp. appealed. The main issue
is whether or not the trial court has the authority to
reduce Andal's liability.
ANTONIO TAN Petitioner obtained loans from respondent but was not
V. CA able to pay the amount due. Thereafter, he executed a
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced
only when it is demandable in accordance with the provisions of this Code.
The penalty clause takes the place of indemnity for damages and the payment
of interests in case of non-compliance with the obligation, unless there is a
stipulation to the contrary. In this case, since there is no stipulation to the
contrary, the penalty in the amount of P987.25 per day of delay covers all other
damages (i.e. production loss, labor cost, and rental of the crane) claimed by
petitioner.
Yes. The provision for the P12,000 penalty is a penal obligation which takes
place of payment of damages and interest when there is non-compliance. MDC
is entitled to such penalty without proving the damages incurred, but the court
may reduce the amount of damages due to the partial performance of Juan
Carlos, although a little delayed. Although through Art. 1226 the parties may,
through stipulation, include a penal clause in their agreement which will take
place of payment of damages and interest due to non-compliance, the court can
lower this amount due to partial fulfillment based on Art. 1229.
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable.
Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance,
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promissory note which restructured the loan and also
included an accelerating clause and a penal clause. He
also failed to defaulted on his obligations under the
restructured loan. Hence, his loan started gaining
interest and the penal interest on the surcharge came
into effect based on a penalty clause (“with interest at
the rate of FOURTEEN per cent (14%) per annum from
the date hereof until paid. PLUS THREE PERCENT
(3%) SERVICE CHARGE”). Petitioner contended that
the penal interest should not be imposed on him
because it found no basis in law and accruing of
interests on penalties was not expressly sanctioned by
the Civil Code.
COUNTRY Lessor Oscar Ventanilla Enterprises Corporation
BANKERS' (OVEC), leased to Enrique Sy 3 theaters for 6 years.
INSURANCE V. However, because Sy could not adequately pay the
CA theaters’ accrued tax liability to the City Government of
Cabanatuan, OVEC seized back its theaters by
padlocking the gates and preventing Sy from further
using the leased premises. Consequently, the matter
was brought before the trial court where Sy alleged that
the repossession through force done by OVEC was
illegal, and so he is entitled to damages and to the
reformation of the lease agreement. The trial court,
however, ruled in favor of OVEC and held that the
cancellation of contract, the repossession and forfeiture
clause were all lawfully stipulated in their agreement.
Hence, the instant appeal by the petitioner. Sy mainly
contested that the forfeiture clause stipulated would
unjustly enrich OVEC, contrary to public policy and, so it
must be held invalid.
if there is no stipulation to the contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation. The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
In the case at bar, the promissory note for the restructured loan expressly
provided that default of the debtor in the payment of any part of the loan would
render all installments of his obligation immediately due and demandable plus
the interest and the penalties stipulated therein would be imposed. The
stipulated 14% per annum interest charge until full payment of the loan
constitutes the monetary interest on the note and is allowed under Article 1956.
On the other hand, the stipulated 2% per month penalty is in the form of penalty
charge which is separate and distinct from the monetary interest on the principal
of the loan.In decided cases, the Court has ruled that the NCC permits an
agreement upon a penalty apart from the monetary interest. If the parties
stipulate this kind of agreement, the penalty does not include the monetary
interest, and as such the two are different and distinct from each other and may
be demanded separately.
SC ruled otherwise and said that the forfeiture clause is a valid penal clause
which the parties attach to a principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a special prestation in case the
obligation is not fulfilled or is irregularly or inadequately fulfilled. As a general
rule, the penalty shall substitute the indemnity for damages and the payment of
interests in case of noncompliance, but there are exceptions (provided for in
Article 1226, par. 1, New Civil Code).
EXCEPTIONS to the general rule:
i) when there is a stipulation to the contrary
ii) when the obligor is sued for refusal to pay the agreed penalty
iii) when the obligor is guilty of fraud (Article 1226, par. 1, New Civil Code).
In this case, SC held that the trial court did not err in awarding damages to
OVEC for the losses it suffered in rentals after a writ of injunction was secured
by Sy throughout the course of this suit.
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CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS

REQUISITES OF PAYMENT OR PERFORMANCE
KALALO V. LUZ Alfredo Luz (Appellant) is an architect who contracted The court held the ff: 1) that the requisites for estoppel are not present. 2) That
the services of Octavio Kalalo (Appellee) to render the 28k USD payable to Kalalo, pursuant to RA 529, should be converted to
engineering designs for a fee. There are two main Pesos using the rate of exchange that was prevailing at the time of payment
contracts involved: 1) The fees for the 10 projects AND NOT the preferred rate and 3) The trial court had not erred in amending
which, according to the statement of account, amounted the Commissioner’s ruling on Attorney fees. Said law states that obligation
to 116,565 Pesos and 2) The IRRI deal involving 20% of incurred before its enactment should be exchanged at the rate at the time the
the 140k USD which is 28k USD payable to Kalalo. The obligations was incurred. However, it is silent as to obligations incurred after its
main issue was WON payment in currency other than enactment, which is the situation in the case at bar. Logical conclusion is that
Philippine currency is prohibited under RA 529. rate of exchange should be at the time of payment of this judgement, rather
than that at the time of the breach.
PAPA V. AV Papa, administrator of the estate of one Butte, allegedly Art. 1249. The payment of debts in money shall be made in the currency
VALENCIA sold to respondent Pearroyo a parcel of land owned by stipulated, and if it is not possible to deliver such currency, then in the currency
the late Butte. The property was mortgaged to the which is legal tender in the Philippines.
Associated Banking Corp., who refused to release the
title to the subject property until all other properties of The delivery of promissory notes payable to order, or bills of exchange or other
Butte were redeemed. When the title to the property mercantile documents shall produce the effect of payment only when they have
was released to respondents, they discovered that the been cashed, or when through the fault of the creditor they have been impaired.
mortgage rights had been assigned to the late Parpana, It was undisputed that respondents had given Papa P5000 in cash, and
administrator of the Estate of Ramon Papa, Jr. The RTC P40,000 in check payment of the purchase price of the lot, because Papa had
and CA both ruled in favor of respondents, and ordered admitted to receiving the amounts and issued receipts. After more than 10 years
Papa to deliver the title of the property to the from receiving the check, the presumption is that the check has been cashed.
respondents in exchange for the purchase price. Granting that he never encashed it, his failure to do so undoubtedly resulted in
Petitioner Papa, in this appeal to the SC, claims that he the impairment of the check through his unreasonable and unexplained delay.
never cashed the check given to him by the respondent,
and therefore, the sale was never consummated.

ISSUE: WON the alleged sale of the property to the

respondents had been consummated — YES
PAL V. CA CFI Manila rendered judgment against PAL and ordered
it to indemnify Amelia Tan. It ordered a Writ of
Execution in favor of Tan and duly referred it to Deputy
Sheriff Reyes. PAL filed a motion to quash said Writ on
the bases that it had already paid the obligation through
a check payable to Reyes, as evidenced by the cash
a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment. Mere
delivery of checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code, par.
3)Acceptance by the sheriff of petitioner’s check does not, per se, operate as a

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vouchers and receipts. Said sheriff absconded with the discharge of a judgment debt The checks drawn against the name of the
check and could not be found. W/N the check had the Sherriff’s is comparable to the situation where Tan was issued bouncing checks.
effect of extinguishing the judgement debts The theory under the two situations is that she has received no value for what
had been awarded her. Therefore, she can seek other properties of PAL
APPLICATION OF PAYMENTS
REPARATIONS The Reparations Commission awarded Universal 6 Court rules that this is not so. ART 1254 only applies to persons owing several
COMMISSION trawl boats which were delivered two at a time. For each debts to one creditor. Universal had an obligation that was both contingent and
V. UNIVERSAL delivery, Manila Surety acted as surety for the first singular. Universal needed to pay a “first installment” (which was 10% purchase
DEEP SEA installments of the payments. Defendant defaulted in price) and after which, 10 yearly equal installments. Thus, although the amount
FISHING said payments, and so Reparations filed an action to of P10,000 was deducted as the amount paid for the “first installment”, Surety
recover. Manila Surety claims that ART 1254 applies also had to be liable for the default in the 10 equal yearly installments. Given
and its liability should be reduced by P10,000 because that both the "first installment" and the first 10 yearly installments have both
Universal paid such amount as downpayment. accrued, Universal cannot choose that the P10,000 payment be applied to just
one of them.
PACULDO V. Petitioner leased several properties from respondent. Court ruled that petitioner’s silence does not amount to consent. Article 1252 of
REGALADO Petitioner also purchased 8 heavy equipment from the New Civil Code clearly states a debtor who has many obligations to the
respondent. Respondent applied several of the same creditor, may declare at the time of making the payment, to which of them
petitioner’s payments to his other obligations which was the same must be applied. Only when the debtor failed to choose which
contrary to the latter’s wishes. The issue at hand is obligation is to be satisfied first may the creditor exercise his right to apply the
whether respondent’s application of payment is valid payments to the other obligations of the debtor subject still to the latter’s
despite petitioner’s lack of clear and definite consent to consent. When creditor exercises his right to apply the payments, it must be
such. remebered that payment is not to be made to a debt that is not yet due, and that
payment has to be applied first to the debt most onerous to the debtor.
DATION IN PAYMENT
DBP VS CA Lydia Cuba obtained a 3 loans from DBP in which she The assignment of the property was in the nature of a mortgage and was
offered her property (fishpond). She failed to pay her therefore merely a security and not a satisfaction of indebtedness. There was
loan and so the DBP appropriated the property without therefore no dation.
a forclosure proceeding. She tried to negotiate a
repurchase of the property . The DBP however sold the
property to Agripina Caperal. Cuba then filed a case to
question the sale. The court ruled that there was no
foreclosure, and thus was violative of Art 2088 of NCC.
There was an appeal. CA ruled in favor of DBP. Hence
this petition.
FILINVEST Phil. Acetylene bought a 1969 Chevrolet from one The Court held no. The mere return of the mortgaged motor vehicle by the
CREDIT CORP Alexander Lim for P55,247.80. PA paid P20,000 as a mortgagor does not constitute dation in payment. The evidence on the record

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VS PHIL downpayment and is obligated to pay P1,000 for 34 fails to show that the Filinvest consented, or at least intended, that the mere
ACETYLENE monthly installments. As security, PA executed a chattel delivery to, and acceptance by him, of the mortgaged motor vehicle be
mortgage on the same car in favor of Lim. Lim later on construed as actual payment, more specifically dation in payment or dacion en
assigned his rights to Filinvest Credit Corp. When PA pago. In the absence of clear consent of appellee to the preferred special mode
defaulted, FCC offered to let PA turn in the car to them of payment, there can be no transfer of ownership of the mortgaged motor
to extinguish his obligation. PA did so. However, FCC vehicle from appellant to appellee.
could not sell the car due to unpaid taxes. FCC now
opted to return the Chevy to PA and ask for the
defaulted payment. However, PA did not want to accept
the car, believing that dacion en pago took place and
that his obligation was extinguished. The issue is
whether there was dation in payment that extinguished
Phil Acetylene’s obligation.
TENDER OF PAYMENT AND CONSIGNATION
DE GUZMAN V. Facts: Petitioners and private respondent executed a Yes. The Court ruled that there was substantial compliance with the terms and
CA Contract to Sell covering two parcels of land owned by conditions of the compromise agreement when private respondent deposited
petitioners. After a compromise agreement was settled, the amount of P30,000.00 with the cashier of the Office of the Clerk of the CFI
petitioners filed a motion for the issuance of a writ of of Rizal, Pasay City Branch 2 days late, as the failure to deliver to petitioners
execution, alleging that private respondent failed to the full amount on the agreed date was the fault of the petitioners.
abide by its terms and pay the amount specified within
the period stipulated. Issue: WON the private
respondent complied with the compromise agreement
MEAT PACKING MPCP entered into a lease purchase agreement with MPCP’s ground for refusal of tender of payment is the rescission clause.
CORP. V. PIMECO, which stipulates that the contract However, since PCGG’s tender and consignation of P5M was approved by
SANDIGANBAY is automatically deemed cancelled and forfeited upon Sandiganbayan, and is therefore a valid tender, the accumulated back rental
AN default in payments of rentals were reduced to around P7M, which is less than 3 years’ worth of installments.
equivalent to the cumulative sum total of 3 annual As such, rescission cannot lie.
payments. In 1986, PCGG sequestered
all assets of PIMECO including the leased property.

MPCP sent PIMECO a notice of rescission for

nonpayment of rentals. PCGG tendered to MPCP
checks amounting to ₱5M which the former refused,
arguing that agreement already
rescinded since outstanding debt of more than ₱12M is

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already more than 3

years’ worth of installments.
PABUGAIS V. Petitioner sold a parcel of land in Forbes Park to All essential requisites of a valid consignation were present. Amount tendered
SAHIJWANI respondent for P15M, P600,000 of which the latter paid is sufficient since it is only the option fee plus interest which are stated in
as option/reservation fee and the remaining balance to the default clause. Also, manager’s check was deemed to be valid since
be paid within 60 days, simultaneous with petitioner’s respondent did not object to the form.
delivery of necessary documents. Agreement also
included a penal clause which states that failure of
respondent to pay balance would forfeit the reservation
fee in favor of petitioner and nondelivery of documents
would obligate petitioner to return P600, 000 + 18%
annual interest. Petitioner failed to deliver so he twice
tried to tender his payment to respondent but latter
refused to accept, arguing that it did not include the
monthly interest and attorney’s fees that they orally
agreed upon. Because of refusals, petitioner sent notice
that he is consigning amount with Makati RTC
IMPOSSIBILITY OF PERFORMANCE
OCCEÑA VS. Petitioners who are landowners had a subdivision Tropical Homes Inc.’s complaint for modification of contract cannot be granted.
COURT OF contract with Tropical Homes Inc, for the development Art. 1267 – When the service has become so difficult as to be manifestly
APPEALS of their land. Tropical Homes filed a complaint for beyond the contemplation of the parties, the obligor may also be released
modification of the terms and conditions of their therefrom, in whole or in part.
contract, alleging that due to the increase in the price of
oil and its derivatives and the concomitant worldwide Such cannot be granted for it is not provided for by Art 1267. Performance is not
spiralling of prices of all commodities including basic excused by the fact that the contract turns out to be hard and improvident,
raw materials for the development work, the cost of unprofitable or impracticable, ill-advised or even foolish, or less profitable, or
development has risen to levels which are unexpectedly burdensome, since in case a part desires to be excused from
unanticipated, unimagined, and not within the remotest performance in the event of such contingencies arising, it is his duty to provide
contemplation of the parties at the time the agreement therefore in the contract.
was made, such that the conditions and factors which
formed the original basis of the contract have been
totally changed.
NAGA The parties entered into a contract for the use by Yes. The aforesaid contract has become inequitous or unfavorable or
TELEPHONE NATELCO of CASURECO’s electric light posts in Naga disadvantageous to the plaintiff with the expansion of the business of
CO. V CA City. In consideration, petitioners agreed to install, free NATELCO and the increase in the volume of its subscribers in Naga City and
of charge, 10 telephone connections for the use by environs through the years. This made the stringing of more and bigger

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CASURECO. “That the term or period of this contract
shall be as long as NATELCO has need for the electric
light posts of the party of CASURECO it being
understood that this contract shall be terminated when
for any reason whatsoever, CASURECO is forced to
stop, abandon its operation as a public service and it
becomes necessary to remove the electric lightpost.”
CASURECO filed a petition for reformation of contract
with the RTC of Naga City on the ground that the
agreement it entered into with NATELCO has become
one-sided, inequitous and disadvantageous to the
former. The trial court ruled in favor of CASURECO.
The CA affirmed the trial court’s decision but on a
different legal basis—Article 1267 of the Civil Code and
ruling that the contract contains a purely potestative
prestation making that stipulation void. The Court
affirmed the decision of the CA but ruled that the
supposed purely potestative stipulation is a mixed
prestation and is therefore valid. Is Art. 1267
applicable?
PNCC V. CA Private respondents leased a parcel of land to PNCC, to
be used as premises for a rock crushing plant and field
office. The lease was to run for five years, with rent at a
monthly rate of P20k, paid yearly in advance. To begin
the rock crushing project, PNCC required industrial
clearance from the Ministry of Human Settlement, but it
was only able to obtain a Temporary Use Permit, valid
for two years unless revoked sooner by the Ministry.
Respondents then requested the first annual rental of
P240k. PNCC refused to pay, reasoning that the
payment of rental would begin from the date of issuance
of the industrial clearance, and not from the date of the
signing of the contract. It also expressed the intention to
terminate the contract, because financial and technical
difficulties had forced it to discontinue the rock crushing
project.
telephone cable wires by appellant to plaintiff's electric posts necessary without
a corresponding increase in the 10 telephone connections given by appellant to
plaintiff free of charge in the agreement as consideration for its use of the
latter's electric posts in Naga City. It is not a requirement that the contract be for
future service w/future unusual change. It states the doctrine of unforeseen
events, based on the principle of rebus sic stantibus. Under this theory, parties
stipulate in light of certain prevailing conditions, and once these conditions
cease to exist, the contract also ceases to exist. (Karichi)
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.
Art. 1266 states that the debtor in obligations to do shall also be released when
the prestation becomes legally or physically impossible without the fault of the
obligor. PNCC only stated the alleged uncertainties in government policies on
infrastructure projects, and failed to identify specifically the circumstances
brought about by the change in political climate. The unforeseen event and
causes mentioned by PNCC are not the legal/physical impossibilities
contemplated by Art. 1266. The principle of rebus sic stantibus is said to be the
basis for Art. 1267, which enunciates the doctrine of unforeseen events.
However, this is not an absolute application. The parties to the contract are
presumed to have assumed the risks of unfavorable developments; therefore,
only absolutely exceptional changes of circumstance are considered under this
article. Mere pecuniary inability to fulfill an engagement does not discharge a
contractual obligation; neither is it a defense to an action for specific
performance. Regarding the fact that PNCC s purpose for the lease contract the
use of the premises as a site for a rock crushing plant not materializing, this also
does not invalidate the contract. The cause or essential purpose in a lease
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SO V. FOOD Food Fest Land Inc. entered into a Contract of Lease
FEST LAND, with Daniel T. So over a commercial space in San
INC. Antonio Village, Makati City for a period of 3 years to
operate a Kentucky Fried Chicken carry out branch.
FFLI also entered into a preliminary agreement wherein
it was stipulated that the lease contract shall not be
binding unless FFLI gets the necessary permit from the
government. In 1999, FFLI was able to get the license,
but was not able to operate, then in 2000, the
application was held in abeyance, causing FFLI to
inform So of its decision to terminate the contract. So
opposed, filed a case, and demanded payment of
rentals from FFLI.
CONDONATION OR REMISSION
OLIVER V. Petitioner had a loan agreement with Manphil
PSBANK Investment Corp for 300k. They claim to have secured
from the president of private respondent corporation a
condonation of the remaining debt of 266k as well as
the penalties. Petitioners paid 410,854 pesos as the
total sum of the debt including interest. The main issue
was WON the condonation was valid.
COMPENSATION
BPI AND Reyes fraudulently claimed and deposited a US
ROMERO V. Treasury Warrant on behalf of his (already deceased)
REYES grandmother. The check was dishonored when the US same time a principal creditor of the other;
Department of Treasury got word that his grandmother
had passed away 3 days prior to its issuance. Reyes
then verbally authorized BPI to debit from his joint
account the amount stated in the dishonored US
Treasury Warrant. Thereafter, he filed a suit for
damages against BPI before the RTC of Quezon City,
demanding for restitution for the debited amount. The
contract is the use or enjoyment of the thing. Thus, the party’s purpose for
contracting does not affect the validity of the contract, or its existence. The fact
that its purpose did not arise does not mean PNCC is entitled to a release from
its obligation.
So could not get unrealized profits and renovation expenses of the lease from
FFLI because sufficient evidences were not proffered. So, however, is not
without recourse under the terms of the lease contract. On this note, FFLI
argued that the lease contract is rendered functus officio by virtue of Art. 1267
(which explains the doctrine of unforeseen events). FFLI claims its failure to get
the necessary licenses rendered the impossibility of its purpose in contracting
lease. The court held otherwise and emphasized that FFLI was actually able to
secure the licenses when it first entered the contract, therefore, the contract is
not an impossibility and has in fact, already been perfected and binding to both
parties.
The condonation was void as it was not made in writing pursuant to Article 748,
par. 3 which provides that donations of a movable worth more than 5,000 Pesos
must be made in writing. Such credit of petitioners is considered movable
property. Moreover, the president had no real authority to grant such
condonation.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
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RTC dismissed his suit, but the CA reversed the RTC

ruling. The SC ruled in favor of BPI, finding not only that Reyes had indeed verbally
authorized BPI to debit the amount, but that the requisites of legal
ISSUE: WON the CA erred when it failed to rule that compensation under Art. 1279 were present in this case. BPI was a debtor to
legal compensation is proper in this case — YES Reyes as the latter was a depositor, but at the same time BPI was a creditor to
Reyes for the amount of the dishonored Treasury check. Their mutual
obligations to each other must be considered extinguished, and Reyes’s suit for
restitution has no cause of action.
SILAHIS Facts: De Leon sold various items of merchandise to Compensation takes place when two persons, in their own right, are creditors
MARKETING Silahis for P 22,913.75; latter failed to pay. De Leon and debtors to each other. Article 1279 requires that in order that legal
CORP. V. IAC filed complaint for collection. Silahis filed counterclaim, compensation shall take place, "the two debts be due" and "they be liquidated
presenting a Debit Memo for P22,200 as unrealized and demandable." Compensation is likewise not proper where the claim of the
profit for supposed commission that he should have person asserting the set off against the other is neither clear nor liquidated;
received from De Leon for the sale of sprockets made compensation cannot extend to unliquidated, disputed claim existing from
directly to Dole Philippines. W/N De Leon liable to breach of contract. It can’t be said that the debit memo was a contract binding
Silahis for the commission or margin for the direct sales between the parties considering that the same was not signed by private
respondent nor was there any mention therein of any commitment by the latter
to pay any commission to the former involving the sale of sprockets to Dole
Philippines, Inc. in the amount of P 111,000.00.
MIRASOL V. CA Mirasols’ sugar production was financed by PNB, under The court rules that the alleged compensation does not fall under the
which was a chattel mortgage, in which the latter was requirements for just compensation set by ART 1278 and ART 1279 of the civil
allowed to sell Mirasols’sugar and apply proceeds to the code. First of all, neither are mutual creditors and debtors of each other. And
payment of their obligation. PD 579 was passed, second, compensation could not take place because one of the claims was still
directing that the profits that PNB made be remitted to a the subject of litigation, as it cannot be deemed liquidated.
special fund of the government. Mirasols defaulted in
their payment and tried to argue that they had fully paid
by virtue of legal compensation, since their debt was
offset by unliquidated amounts that PNB failed to
release to them.
NOVATION
MAGDALENA Appellant spouses Rodriguez purchased a parcel of There was no condonation. Appellee did not protest when it accepted the
ESTATE V. land from Magdalena Estates, Inc. Appellants instituted payment of P5,000 from Luzon Surety because he knew that that was the
RODRIGUEZ a promissory note for its unpaid balance of P5,000 with liability undertaken by the surety as stated in the bond contract. Liability of the
9% interest. On the same day, appellants and Luzon surety is not extended, by implication, beyond the terms of his contract.
Surety Co. executed a bond in favor of appellees Likewise, there was no novation. Novation by presumption is not favored. The
whereby they bound themselves to be liable to the obligation to pay is not novated in a new instrument wherein the old contract is

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amount of P5,000 when it becomes due and
demandable. Luzon Surety did in fact paid the P5,000.
Appellees now come to the court for appellants’ failure
to pay the accrued interests due amounting to P655.80
which corresponds to the 9% interest. Appellants
contend that there was a novation of the contract
because of the bond contract making them no longer
liable to the accrued interests.
REYES VS AFP-MBAI bought securities from Eurotrust, however
SECRETARY Eurotrust borrowed these securities (fraudulently) back
OF JUSTICE in order to comply with a loan it entered with Bermic.
Bermic then gave post-dated checks to comply with
loan. Bermic learned that the funds they obtained
belonged to AFP-MBAI so it entered into an agreement
with Eurotrust that it would directly fulfill the obligation
with AFP-MBAI on a condition that Eurotrust would not
encash the issued post-dated checks any more.
Apparently, Eurotrust gave these checks AFP-MBAI.
The checks bounced due to the order of Bermic. Both
Bermic and AFP-MBAI filed complaints against
Eurotrust.
COCHINGYAN PAGRICO was granted a P400,000 increase in its line
VS RB SURETY of credit with PNB. It has to secure a bond worth that
amount which was issued by R&B Surety, who bound
themselves jointly and severally to comply with the
terms and conditions of the advance line. PNB had the
right under the surety to proceed directly against R&B
without exhausting the assets of PAGRICO.
Subsequently, two identical indemnity agreements were
entered by R&B with Cochingyan and PAGRICO. Under
both agreements, the indemnitors bound themselves
jointly and severally to R&B Surety to pay an annual
premium of P5,103.05 and for the faithful compliance of
the terms and conditions set forth in said SURETY
BOND until the same is CANCELLED and/or
DISCHARGED. 2 years after, a Trust Agreement was
deemed ratified by changing only the terms of payment and adding other
obligations not incompatible with the old one. The mere fact that the creditor
receives a guaranty when there is no agreement that the first debtor shall be
released from responsibility does not constitute novation. The surety bond is
only an accessory obligation of the promissory note and is not to be treated as a
new and separate contract.
According the court, the previous court erred in ruling that there was a novation
when Bermic agreed to settle the obligation with the real owners of the funds.
For a novation to take place, there are 4 requirements:
1.there must be a previous valid obligation,
2.there must be an agreement of the parties concerned to a new contract,
3.there must be the extinguishment of the old contract, and
4.there must be the validity of the new contract.
The last 3 requirement are absent in this case, therefore there was no novation.
ADDITIONAL: Novation is never presumed. of the Civil Code (Art 1300)
provides that conventional subrogation must be clearly established in order that
it may take effect.
The Trust Agreement does not expressly terminate the obligation of R & B
Surety under the Surety Bond. Under the Trust Agreement, "TRUSTOR, is
therefore bound to comply with his obligation under the indemnity agreements
aforementioned executed by him in favor of R&B...and in order to forestall
impending suits by the BENEFICIARY against said companies, he is willing as
he hereby agrees to pay the obligations of said companies in favor of the
BENEFICIARY in the total amount of P1.3M..." xxxx
"9.This agreement shall not in any manner release the R&B..from their
respective liabilities under the bonds mentioned above..
On the contrary, the Trust Agreement expressly provides for the continuing
subsistence of that obligation by stipulating that it shall not in any manner
release" R & B Surety from its obligation under the Surety Bond. What the trust
agreement did was, at most, merely to bring in another person to assume same
obligation that R&B was bound to perform under Surety Bond. There'd now be 3
solidary obligors bound to PNB: PAGRICO, R&B and the Trustor Neither can
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made between Jose and Susana Cochingyan as the petitioners anchor their defense on implied novation. Absent an unequivocal
Trustors, Tomas Besa of PNB as Trustee and PNB as declaration of extinguishment of a pre-existing obligation, a showing of complete
beneficiary. PAGRICO failed to comply with Principal incompatibility between the old and the new obligation (and nothing else) would
Obligation to PNB -> PNB demanded payment from sustain a finding of novation by implication.
R&B for P400k-> R&B made series of payments to PNB
totaling P70K. R&B in turn sent formal demand letters to
Conchingyan and Villanueva for reimbursement of the
payments made by it to PNB as well as the discharge of
its liability to PNB under surety bond. R&B thereafter
brought suit against those who signed the Indemnity
Agreements.
BROADWAY Facts: Petitioner Broadway and respondent Tropical No. The will to novate, whether totally or partially, must appear by express
CENTRUM V. executed a Lease Contract on Nov. 28, 1980. However, agreement of the parties, by their acts too clear and unequivocal to be
TROPICAL HUT due to financial difficulties of respondent Tropical, mistaken. The Apr. 20, 1992 letter-agreement was a provisional and temporary
Broadway agreed to a "provisional and temporary agreement to a reduction of Tropical's monthly rental. Likewise, the formal
agreement" on Apr. 20, 1982 reducing Tropical’s notarized Nov. 28, 1990 Lease Contract made it clear that a temporary and
monthly rental, but stipulating that such provisional provisional concessional reduction of rentals which Broadway might grant to
arrangement is not an amendment to the Lease Tropical was not to be construed as alteration or waiver of any of the terms of
Contract they entered into. When Broadway increased the Lease Contract itself. Thus, the SC held that the Apr. 20, 1982 letter-
Tropical’s monthly rental once again, the RTC ruled in agreement did not constitute a novation, whether partial or total, of the Nov. 28,
favor of Tropical because the Lease Contract was 1980 Lease Contract.
partially novated. Issue: WON the letter-agreement
dated Apr. 20, 1982 novated the Lease Contract of Nov.
28, 1980
CALIFORNIA Delta applied for financial assistance from SIHI for No. The restructuring agreement between Delta and CBLI did not expressly
BUS V. STATE P25M. CBLI purchased 35 buses and 2 conversion stipulate that such would novate the promissory notes, hence, only a showing of
INVESTMENT engines from Delta. To secure payment, CBLIE and Mr. incompatibility would sustain novation. Such incompatibility isn’t present in the
Llama executed 16 promissory notes in favor of Delta case. The agreement merely provided for a new schedule of payment and a
(P2.3M each). CBLI also executed chattel mortgages security clause. Where the parties to the new obligation recognize the
over the 35 buses in Delta’s favor. When CBLI continuing existence and validity of the old one, there could be no novation.
defaulted, it entered into a restructuring agreement with
Delta: provided for a new schedule of payments and a
security clause that in case of default, Delta would have
the authority to take over the management of CBLI.
Delta executed a Deed of Continuing Assignment of
Receivables in favor of SIHI as security. CBLI had

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trouble meeting its obligations to Delta, so the latter filed

action to enforce takeover clause. Delta executed a
Deed of Sale, assigning to SIHI 5 of the 16 promissory
notes from CBLI. Delta and CBLI entered into a
compromise agreement. CBLI agreed that Delta would
exercise its right to extrajudicial foreclosure on the
chattel mortgages over the 35 bus units.

Issue: W/N the restructuring agreement novated the

promissory notes.
GARCIA V. Romeo Garcia and Eduardo de Jesus borrowed No novation. The check couldn’t have extinguished the obligation since it
LLAMAS P400,000 in solidum from Dionisio Llamas. They bounced. There was no express declaration of novation, nor
executed a promissory note where they bound incompatibility between the promissory note and the check. Subjective
themselves jointly and severally to pay the loan on or novation must release the old debtor and a third person must assume it"
before Jan 23, ’97 with a 5% interest per month. Garcia didn’t show that he was released and there was no express
The two failed to pay despite demands from consent from the creditor. Also, de Jesus wasn’t a third party to the
Respondent. Garcia claims that: he assumed no obligation since they were solidary debtors who could only be released
liability under the promissory note because he signed it upon extinguishment of obligation.
merely as an accommodation party and that he is
relieved from any liability since the load has been
paid by de Jesus by means of a check. He claims
that the acceptance of the check novated the loan.
However, said check bounced.
QUINTO VS Quinto was indicted for the crime of estafa. She No novation. The extinguishment of the old obligation by the new one is a
PEOPLE received from Aurelia Cariaga pieces of jewelry valued necessary element of novation which may be effected either expressly or
at P36,000.00. She was supposed to sell it and give the impliedly. Adding to the number of persons liable does not necessarily imply the
proceeds to Aurelia or return the jewelry if not sold after extinguishment of the liability of the first debtor. Neither would the fact alone
5 days. When the 5-day period given to her had lapsed, that the creditor receives guaranty or accepts payments from a third person who
Leonida requested for and was granted additional time has agreed to assume the obligation, constitute an extinctive novation absent
within which to vend the items. Leonida failed to an agreement that the first debtor shall be released from responsibility.
conclude any sale and, about six (6) months later,
Aurelia asked that the pieces of jewelry be returned.
She has sold jewelry from Aurelia to a Mrs. Camacho
who paid part of the price in installments directly to
Aurelia. Another customer, Mrs. Ramos, was also said
to pay directly to Aurelia. Quinto argues that the

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agreement between petitioner and private complainant
was effectively novated when the latter consented to
receive payment on installments directly
LICAROS V Licaros invested in Anglo-Asean Bank but after having
GATMAITAN trouble collecting interest, profit, and initial investment
he asked Gatmaitan for help which resulted in
Gatmaitan undertaking to pay Licaros the debt of Anglo-
Asean on the condition that Licaros transfer the right to
collect from Anglo-Asean to Gatmaitan. They then
entered into a Memorandum of Agreement and as
stipulated Gatmaitan executed a non-negotiable
promissory note. Upon failure of Gatmaitan to collect
from Anglo-Asean, he refused to pay Licaros the
amount stated in the promissory note. Licaros filed a
case against him in the RTC of Makati which ruled in his
favor treating the MoA as an assignment of credit but
when Gatmaitan appealed, the CA reversed the
decision of the RTC treating the MoA as a conventional
subrogation. The Court affirmed the CA’s ruling saying
that based on the stipulations of the MoA it is a
conventional subrogation which requires the consent of
Anglo-Asean (the debtor) and because this is lacking
the MoA is not binding on the parties. Is the MoA one of
assignment of credit or of a conventional subrogation?
ASTRO V. FLGC Astro was granted several loans by Philtrust in the
amount of P3M with interest, secured by 3 promissory
notes. Petitioner Roxas signed the instruments twice:
both as President of Astro and in his personal capacity.
Phil Guarantee (respondent) with consent of Astro,
guaranteed in favor of Philtrust the payment of 70% of
Astro’s loan, subject to the condition that upon payment
it shall be proportionally subrogated to the rights of
Philtrust against Astro. Since Astro failed to pay,
Philguarantee paid 70% of the loan and proceeded file a
It is a conventional subrogation. The agreement between them is a conventional
subrogation and not a transfer of credit. Anglo-Asean’s (debtor) consent is
necessary and it extinguished the obligation and gave rise to a new one. Nullity
of an obligation may be cured, such that the new obligation will be perfectly
valid. In this case, the crucial distinction deals with the necessity of he consent
of the debtor in the original transaction. In the wherease clause of their
agreement, they stipulate tat their agreement is conditioned on the express
conformity of Anglo-Asean. Also, they reserved a spot for Anglo-Asean’s
signature. Absent Anglo-Asean’s consent, the Memorandum did not become
valid and effective. A crucial distinction between Assignment of credit and
Subrogation is the necessity of the debtor’s consent. The former does not
require such consent but the latter does.
Legal Basis:
Assignment of Credit
Debtor’s consent is necessary
Refers to the same right which passes from one person to another
Nullity of an obligation is not remedied by the assignment of the creditors right
to another
Subrogation:
Debtor’s consent not required
Extinguishes the obligation and gives rise to a new one
The nullity of an old obligation may be cured by subrogation, such that a new
obligation will be perfectly valid
Roxas is solidarily liale with Astro. The promissory notes signed by Roxas twice
were valid and binding. Signatures covered portions of the typewritten words
show that the typewritten words were already existing when Roxas signed it.
Given this, Philguarantee has all the rights to proceed against Roxas and Astro
and to be subrogated to the rights of Philtrust. Roxas’ consent isn’t necessary
for subrogation to take place because the case is one of legal subrogation
which occurs by operation of law and without the need of debtor’s knowledge.
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complaint against Astro and Roxas for sum of money.

Roxas disclaims any liability on the instrument because
he allegedly signed the instruments in blank, and the
words “in his personal capacity” were fraudulently
added after.

CONTRACTS
CHAPTER 1: GENERAL PROVISIONS
MUTUALITY
GSIS V. CA GSIS conducted a lottery draw for the allocation of lots SC affirmed the decision of the lower courts, stating that it was no trier of facts.
and housing units in Project 8-C. Herein petitioner It gave credence to the testimony of the spouses that the phrase was originally
Leuterio spouses won and was issued a Certificate of not there, and also quoted answers of the GSIS in its pleadings admitting to the
Acknowledgement to purchase the subject house and error made by the clerk. More importantly, the court held that GSIS could not
lot. The parties then entered into a Deed of Conditional unilaterally change the price and cited Article 1473 of the Civil Code as basis.
Sale wherein it was stipulated that upon the full Said provision provides that "the fixing of the price can never be left to the
payment of the spouses of the purchase price of 19,740 discretion of one of the contracting parties.”
PHP, a final deed of sale will be executed in their favor.
However, when the land construction was done, GSIS
increased the overall purchase price such that when the
spouses informed GSIS of its compliance, GSIS took no
action to execute the final deed of sale for the reason
that the spouses have not yet paid the additional price.
GSIS argued that the sudden change of price is valid as
the marginal notation of the contract states that the
price is "subject to adjustment pending approval of the
Board of Trustees." The spouses, on the other hand,
claimed that the phrase was not in the contract when
they signed it. The case was brought before the court,
and both RTC and CA ruled in favor of the spouses.
Hence, the instant case.
PHILIPPINE Respondent spouses owned lands in Tondo, Manila. The supreme court found for the respondents and held that the escalation
SAVINGS BANK They mortgaged said properties with Philippine Savings clauses do not contravene public policy however they must contain a de-
Bank for a loan of 2.5M Pesos. The promissory note escalation clause. It was likewise held that such unilateral adjustment of interest

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V. SPS. expressly stipulated that the bank had the discretion to rates cannot be done without mutual assent. Petitioner PSBank ordered to
CASTILLO increase or decrease the interest rates of the said loan refund amount of interest illegally imposed upon respondent.
at any period. Petitioners decreased the rates to 15.5%
and raised it to 29% over the course of the loan.
Respondents neither gave their confirmation thereto nor
did they formally question the changes. Respondents
had defaulted and petitioners foreclosed the property,
thereby causing respondents to file a case in the courts
questioning such foreclosure. The lower court granted
the petition of the respondents and found the unilateral
interest rates of PSBank as excessive. PSBank
appealed questioning the ruling and arguing that
respondents had acquiesced and recognized the
changes to interest rates.
RELATIVITY
MANILA The steamship Alicante, owned by the Compañia On appeal, the Court ruled that: first, the Steamship Company was liable to the
RAILROAD CO. Transatlantica de Barcelona, arrived at Manila with 2 Railroad Company for damages, as the former was liable under their contract of
V LA locomotive boilers belonging to the Manila Railroad transportation to deliver the boiler to the latter in a proper condition. Second,
COMPANIA Company. They employed the services of the Atlantic that the Atlantic Company was not liable to the Railroad Company, but is rather
TRANSATLANTI Gulf and Pacific company to help them transfer the liable to the Steamship Company for the amount of damages paid to the
CA boilers from the steamship to the port. Due to the Railroad Company. Lastly, that the Atlantic Company cannot be held directly
negligence of a foreman from the Atlantic Company, liable for damages to the Railroad Company under Art. 1257 (now Art. 1311).
one of the boilers fell and had to be sent back to
England for repairs. The Railroad Company instituted
an action to recover the damages that they incurred
from the repair against the Steamship Company and the
Atlantic Company. The CFI rendered judgment in favor
of the Railroad Company against the Atlantic Company,
but absolved the Steamship Company of liability.
DKC HOLDINGS DKC entered into a Contract of Lease with Option to Victor is bound by the Contract of Lease with Option to Buy. In this case, there
V CA Buy with Encarnacion Bartolome, whereby DKC was is neither contractual stipulation nor legal provision making the rights and
given the option to lease or lease with purchase a land obligation under the contract intransmissible. More importantly, the nature of the
belonging to Encarnacion, which option must be rights and obligations therein are, by their nature, transmissible. Where the
exercised within 2 years from the signing of the service or act is of such a character that it may be performed by another, or
Contract. DKC undertook to pay Php 3,000 a month for where the contract, by its terms, shows the performance by others was
the reservation of its option. DKC regularly paid the contemplated, death does not terminate the contract or excuse

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monthly Php 3,000 until Encarnacion’s death. nonperformance. The contract was not by its nature intransmissible and
Thereafter, DKC coursed its payment to Victor, the son therefore terminated at the death of one of the parties because there was no
and sole heir of Encarnacion. However, Victor refused personal act that was required of Encarnacion Bartolome and the prestation of
to accept these payments. Meanwhile, Victor executed the contract may be performed by Victor
an Affidavit of Self?Adjudication over all the properties
of Encarnacion, including the subject lot. Thus, a new
TCT was issued in the name of Victor. Later, DKC gave
notice to Victor that it was exercising its option to lease
the property tendering the amount of Php 15,000 as
rent. Again, Victor refused to accept the payment and to
surrender passion of the property. DKC thus opened a
savings account in the name of Victor and deposited
therein the rental fee. Issue is whether or not the
Contract of Lease with Option to Buy entered into by the
late Encarnacion Bartolome with petitioner was
terminated upon her death or whether it binds her sole
heir, Victor, even after her demise.
GUTIERREZ Jose Duran, nephew of Orense, sold the latter’s Court rules that Orense's testimony in the estafa case was a confirmation of the
HMNOS V. property with his knowledge and consent to Gutierrez power of agency he had conferred to his nephew. As a principal, he must
ORENSE Hermanos, reserving the right to repurchase the same therefore fulfill all the obligations contracted by his agent, who had acted within
land within a period of four years. After the lapse of four the scope of his authority. Furthermore, his statements of affirmation legally
years, Gutierrez asked Orense to deliver the property to excuse the lack of written authority.
the company and to pay rentals for the use of the
property. Orense refused, claiming that he had given his
consent to Jose Duran. A case for estafa against Duran
was filed and later on dismissed because Orense
himself admitted that he had given consent to the selling
of the property.
FREEDOM TO CONTRACT
GABRIEL V. Gabriel is employed as an appraiser of jewels in the In order to declare a contract void as against public policy, there must be a
MONTE DE Monte de Piedad pawnshop. He executed a chattel finding that the contract as to the consideration or thing to be done, has a
PIEDAD mortgage to secure the payment of the deficiencies tendency to injure the public, is against the public good, or contravenes some
which resulted from his erroneous appraisal of the established interests of society, or is inconsistent with sound policy and good
jewels pawned to the appellee, amounting to morals, or tends clearly to undermine the security of individual rights, whether of
P14,679.07, with six percent (6%) interest. In this personal liability or of private property. In the case at bar, the Court ruled that
chattel mortgage, the appellant promised to pay to the there are no instances present which would render the contract void as against

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appellee the sum of P300 a month until the sum of public policy. It aslo ruled that there is substantial compliance with the Chattel
P14,679.07, with interest is fully paid. According to Mortgage Law with regard to form.
petitioner, the said chattel mortgage is void because it is
contrary to law, morals and public policy. Hence, his
obligation under said contract is ineffective.
PAKISTAN PIA hired the respondents as employees. The contract The rule in Article 1306, of our Civil Code is that the contracting parties may
INTERNATIONA indicated that the agreement is for 3 years, that PIA can establish such stipulations as they may deem convenient, "provided they are
L AIRLINES VS terminate them at any time by giving notice, and that the not contrary to law, morals, good customs, public order or public policy." In this
OPLE governing laws with regards to the contract itself are the case, since the contract says that it can remove employees at will, it violates
laws of Pakistan. At some point, the petitioners were security of tenure (Art 280) guaranteed by the Labor Code
terminated. They filed a complaint with the Ministry of
Labor and Employment. Their petition was granted. The
PIA filed for certiorari saying that they could terminate
the employees as per the provision of the contract and
that the Labor code is not applicable here
CONTRARY TO PUBLIC POLICY
CUI VS Cui was granted scholarship in Arellano University. For The Court found this condition to be against public policy, and hence void
ARELLANO the last semester of his law school, he transferred to because scholarships are awarded in recognition of merit and to help gifted
another law school, Abad Santos University. So, he students in whom society has an established interest or a first lien, and not to
requested the transcript of records from Arellano keep outstanding students in school to bolster its prestige and increase its
university as it is one of the requirements to take the bar business potential.
exams. Arellano agreed on the condition that he signs a
contract that he will not be refunded of the scholarship
granted to him while he was in Arellano.
FILIPINAS CFI Manila rendered a decision declaring Art. 22 of the NO. The Court held that to determine the validity of the provision, one must look
COMPAÑIA DE Constitution of the Philippine Rating Bureau is neither at its purpose. The Court finds nothing unlawful, or immoral, or unreasonable, or
SEGUROS V. contrary to law nor against public policy. Respondent contrary to public policy either in the objectives thus sought to be attained by
MANDANAS inists that the Article in question constitutes an illegal or the Bureau, or in the means availed of to achieve said objectives, or in the
undue restraint of trade and, hence, null and void. consequences of the accomplishment thereof.
ISSUE: W/N the provision in question (Art. 22) is
contrary to morals, good customs, public order, and
public policy.

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ARROYO V. Plaintiff Arroyo filed a complaint alleging the failure of The Court upheld the dismissal of the complaint on the ground that the
BERWIN defendant Berwin to comply with an agreement consideration as stipulated in the contract was contrary to public policy and the
involving the dismissal of the prosecution of a criminal due administration of justice.
case in exchange for a consideration.

BUSTAMANTE Petitioner Bustamante entered into a loan agreement in The court ruled that the petitioners did not fail to pay the loan on time and that
V. ROSEL March 8, 1987 with spouses Rosel to borrow the contract was invalid for violating the rule on pactum commissorium
Php100,000. Petitioners agreed to an 18% p.a. Interest (prohibited by Art 2088: The creditor cannot appropriate the things given by way
rate to be paid March 1, 1989. The petitioners also used of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null
70 sq.m. of their 423 sq.m. lot along Congressional Ave and void.). In summation, a creditor cannot stipulate for automatic appropriation
as a guarantee with an option to buy it for Php 200,000 of the mortgaged thing for the non-payment of a principal loan.
in case petitioners fail to pay. The petitioners asked for
an extension but it was denied and offered to pay on the
date of maturity but the respondents refused payment
instead pushed for the sale of the property
INOMINATE CONTRACTS
DIZON VS Dizon assigned his rights to the property to Gaborro The true intention of the parties is that respondent Gaborro would assume and
GABOORRO after executing a conditional sale of the former’s pay the indebtedness of petitioner Dizon to DBP and PNB, and in consideration
mortgaged properties and assumption of the latter of the therefor, respondent Gaborro was given the possession, the enjoyment and use
former’s indebtedness. Afterwards, Dizon offered to of the lands until petitioner can reimburse fully the respondent the amounts paid
reimburse Gaborro of anything the latter has paid to the by the latter. The agreement between petitioner Dizon and respondent Gaborro
banks contending that the transaction they entered into is one of those inanimate contracts under Art. 1307 of the New Civil Code
was one of antichresis. Gaborro did not accede to the whereby petitioner and respondent agreed "to give and to do" certain rights and
demands of Dizon. obligations respecting the lands and the mortgage debts of petitioner which
would be acceptable to the bank. but partaking of the nature of the antichresis
insofar as the principal parties, petitioner Dizon and respondent Gaborro, are
concerned
STIPULATIONS IN FAVOR OF THIRD PERSONS
FLORENTINO V Both petitioner-appellants (MIGUEL FLORENTINO, No. In the present case, the Church accepted the stipulation in its favor before it
ENCARNACION ROSARIO ENCARNACION de FLORENTINO, was sought to be revoked by some of the co-owners. From the time of the will of
MANUEL ARCE, JOSE FLORENTINO, VICTORINO Doña Encarnacion Florentino in 1941, as had always been the case since time
FLORENTINO, ANTONIO FLORENTINO, REMEDION immemorial up to a year before the filing of their application in May 1964, the
ENCARNACION and SEVERINA ENCARNACION) and Church had been enjoying the benefits of the stipulation which is regarded to be
Oppositors (SALVADOR ENCARNACION, SR., an implied acceptance. Salvador, Jr. and Angel Encarnacion are also bound to

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SALVADOR ENCARNACION, JR., and ANGEL
ENCARNACION) applied for the registration of a parcel
of land in Ilocos Sur which turned out to have a
stipulation embodied in the Deed of Extrajudicial
Partition saying that the products of the land have long
been used to pay for expenses for religious expenses.
Miguel Florentino (one of the petitioner-appellants)
asked that this encumberance be annotated in the title
to be issued, but the Oppositors did not agree. The trial
court confirmed the title to the applicants but did not
annotate the stipulation on the title of the oppositors
since they ruled that the stipulation is a stipulation pour
autrui and the church (3rd Person) did not convey
acceptance before they revoked the stipulation but the
Appellate Court ruled that the stipulation should be
binding on all the applicants and that the Church
impliedly accepted the stipulation prior to revocation.
The main issue is whether or not the stipulation is just
an arrangement stipulation, or grant revocable at the
unilateral option of the co-owners.
COQUIA V. Petitioners here are the parents of a driver employed by
FIELDMEN'S the Manila Yellow Taxicab Co., which had a common
INSURANCE carrier accident insurance policy with Fieldman’s
CO. Insurance Company Inc. The policy stipulated that the
insurance company would be liable to pay the taxi
company sums of money in respect of death or bodily
injury to any passenger, including the driver conductor,
and inspector in the event of an accident. A taxicab of
the taxi company met a vehicular accident , and as a
result of which, the driver of the taxi died (herein
petitioners’ son). The taxi company together with herein
petitioners filed a claim for money, but plaintiffs were
rejected by the insurance company for lack of cause of
action (they allegedly did not have any contractual
relation with the Insurance company, only the taxi
company was covered by the insurance). The insurance
the agreement. Being subsequent purchasers, they are privies or successors in
interest; it is axiomatic that contracts are enforceable against the parties and
their privies. They were shown to have given conformity by the fact that they
kept their peace in 1962 and 1963, having already bought their respective
shares of the subject land but did not question the enforcement of the
agreement as against them and they are also shown to have knowledge of
Exhibit O1 as they had admitted in a Deed of Real Mortgage executed by them
on March 8, 1962 involving their shares of the subject land.
Art. 1311. — Contracts take effect only between the parties, their assigns and
heirs, except in cases where the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation or by provision of law. The
heir is not liable beyond the value of the property he received from the
decedent.
If a contract should contain a 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.
The provision of the insurance policy was a contract of pour atrui, 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 said
party’s favor has been revoked by the contracting parties. This is supported by
Par. 2, Art. 131 of the CC. Furthermore, the deceased driver paid fifty percent
(50%) of the corresponding premiums, which were deducted from his weekly
commissions.This means that the plaintiffs in this case, 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.
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company then offered a compromise, which the taxi

company refused. The parties failed to reach an
agreement, hence a complaint against the insurance
company was filed by the parents of the deceased
driver.
CONSTANTINO Constantino conveyed to Espiritu by a fictitious deed of (YES) the contract between Constantino and Espiritu was a contract pour autrui,
V. ESPIRITU absolute sale a 2-storey house and 4 subdivision lots hence, the 3rd person for whose benefit the contract was entered into may also
with an understanding that Espiritu would hold the demand its fulfillment provided he had communicated his acceptance thereof to
properties in trust for Constantino and Geukeko’s the obligor before the stipulation in his favor is revoked. Following that line of
unborn illegitimate son. Espiritu however, violated this thought, it is argued that the amended complaint submitted by Constantino to
agreement by subjecting the properties to 2 different the lower court impleaded the beneficiary under the contract as a party co-
contracts of mortgage and later by trying to sell them. plaintiff. As a result, the 3 parties concerned therewith would, be before the
Action was then commenced to compel Espiritu to court and the latter's adjudication would be complete and binding upon them. As
comply with their agreement by executing the such, SC set aside the appealed order and remanded the case to the lower
corresponding deed of conveyance in favor of their court for further proceedings.
minor son, and to desist from further doing any act
prejudicial to the interests of the latter. At first, the
complaint did not include the son as co-plaintiff, and so
Constantino filed an amended complaint. Espiritu
opposed and argued that the amendment was not an
inclusion but a substitution of the party plaintiff. As the
latter had no interest whatsoever in the subject matter of
the case, it was argued that the substitution was not
allowed. Hence, the sole issue in this case is WON the
amended complaint can be accepted by the court?
INTEGRATED Petitioner Integrated Packaging Corp. had a contract of SC held that the contract was not one of Pour Autrui and thereby could not
PACKING sale with respondent Fil-Anchor Paper Company, Inc. affect third parties. The contract could not affect third persons because of the
CORPORATION with fixed delivery and payment stipulations. Petitioner basic civil law principle of relativity of contracts which state that contracts can
V. CA subsequently entered into another contract with Philacor only bind the parties who entered into it, and it cannot favor or prejudice a third
to create books for the latter. Petitioner failed to pay person, even if he is awar of such contract and has acted with knowledge
respondents so respondents ceased deliveries thereby thereof. Moreover, the paper involved in the contract is different form which
causing petitioners to breach their contract with petitioner had purchased from respondent Fil-Anchor. CA decision was
Philacor. RTC granted compensatory damages for both affirmed.
parties, Respondents for balance and Petitioners for
unrealized profits. CA Reversed this decision.

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Petitioners argue that the contract was one of Pour

Autrui.
INTERFERENCE BY THIRD PERSONS
DAYWALT V. Endencia obligated herself to convey to Daywalt a tract 1. The Court ruled that the Recoletos Fathers, in advising Endencia not to push
LA of land. She became reluctant to deliver the land after through with the contract, acted in good faith, but that they were still liable for
CORPORACION the Recoletos Fathers, Father Sanz in particular, damages, as “malice” in the sense of ill-will or spite is not essential in cases of
DE LOS advised her against delivery because the land involved interference. One who buys something which he knows has been sold to some
PADRES in the sale contained a greater area than what Endencia other person can be restrained from using that thing to the prejudice of the
AGUSTINOS originally thought. Daywalt sued the Fathers for person having the prior and better right. In this case, the Recoletos Fathers
RECOLETOS damages, and the lower court ruled in favor of Daywalt. used the property with notice that Daywalt had a prior and better right.
He appealed to the SC, asking for a greater sum of
damages due to the fact that the Fathers allegedly 2. The stranger to the contract cannot become more extensively liable in
intervened in his contract for their own gain. damages for the non-performance of the contract than the party in whose behalf
he intermeddles. In the instant case, as Endencia was the party directly bound
ISSUES: by the contract, it is obvious that the liability of the defendant corporation can in
1. WON a person who is not a party to a contract for the no event exceed hers. The damages Daywalt is praying for cannot be recovered
sale of land makes himself liable for damages to the from Endencia because these are special damages which were not within
vendee, beyond the value of the use and occupation, by contemplation of the parties when the contract was made. Moreover, said
colluding with the vendor and maintaining him in an damages are too remote to be the subject of recovery.
effort to resist an action for specific performance — YES

2. WON the damages which Daywalt seeks are too

remote and speculative to be the subject of recovery —
YES
SO PING BUN V Facts: Tek Hua Trading (Trading) entered into
CA agreements with DeeC. Chua & Sons Inc. (DCCSI) for
the lease of several premises which Trading used to
store its textiles. The successor of Trading, Tek Hua
Enterprising (Enterprising), allowed So Ping Bun, the
grandson of the managing partner of Trading, to use the
premises to store his own textiles. Later, one of of the
members of Enterprising, asked So Ping Bun via a letter
to vacate the premises since he needed it for his textile
business. So Ping Bun refused to vacate. Instead, So
Ping Bun entered into lease contracts with DCCSI over
the same premises. Enterprising and Manuel Tiong filed
there is tort interference when So Ping Bun prevailed upon DCCSI to lease the
warehouse to his enterprise at the expense of Enterprising. However, So Ping
Bun still cannot be held liable for damages. Though he took interest in the
property of Enterprising and benefited from it, nothing on record imputes
deliberate wrongful motives or malice on him. The business desire is there to
make some gain to the detriment of the contracting parties. Lack of malice,
however, precludes damages. But it does not relieve So Ping Bun of the legal
liability for entering into contracts and causing breach of existing ones. Thus,
the appellate court correctly confirmed the permanent injunction and nullification
of the contracts between DCCSI and Trendsetter, without awarding damages

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an action to nullify the contracts between So Ping Bun

and DCCSI and also claimed damages against So Ping
Bun for unlawful interference in the lease contracts .
Issue is whether or no theere was unlawful interference.
CHAPTER 2: ESSENTIAL REQUISITES OF CONTRACTS
OFFER AND ACCEPTANCE
ROSENSTOCK Elser began negotiations with Burke for the purchase of Court rules that this was not a definite offer to purchase the yacht. To convey a
V. BURKE the latter’s yacht (Bronzewing). An agreement was resolution to purchase, a man of ordinary intelligence and common culture
struck about the sale of the yacht to be paid in would instead have used the words “I want to purchase, I offer to purchase, I
installments. This was not accepted by Elser, but am in position to purchase,” or other similar language of easy and unequivocal
eventually he sent another letter (April 3) to Burke meaning. The word “entertain” does not mean resolution to perform such an act,
stating the following: “I am in position and am willing to but simply a position to deliberate for deciding to perform or not to perform said
entertain the purchase of the yacht.” act. It cannot be interpreted as a definite offer to purchase the yacht but a mere
invitation to a proposal being made to him, which may or may not be accepted.
Furthermore, they ruled that a proposition to accept could be made to depend
on other circumstances. Thus one may say that a determinate proposition is
acceptable, and yet he may not be in a position to accept the same at the
moment.
MALBAROSA V. Petitioner tendered his resignation to respondent There is no contract since petitioner failed to meet the requirements of a valid
CA corporation, reiterating his request for the payment of acceptance: (1) may be expressed or implied, (2) must be absolute,
his incentive compensation. Respondent, through unconditional, and without variance of any sort from the offer, (3) must be made
President Da Costa, relayed its offer on March 16, 1990 known to the offeror, and (4) must be made in the manner prescribed by the
as to how the said incentive would be complied with. offeror. Petitioner Malbarosa communicated his acceptance only after
Petitioner did not accept nor reject said offer. After more respondent's withdrawal of the offer. Petitioner should have transmitted his
than two weeks, respondent withdraws its offer on April acceptance while the offer was subsisting.
4, 1990. Petitioner now claims that he had affixed his
conformity to the letter-offer on March 28, 1990 but
failed to communicate said conformity until April 7,
1990.
JARDINE Because of the energy crisis, Purefoods planned to For there to be a perfected contract, there needs to be an offer and acceptance.
DAVIES VS CA install generators, so it conducted a bidding to find For there to be a valid acceptance:
someone to install/deliver the generators. Femsco won 1.It can be made expressly or impliedly
the bid so Purefoods sent a letter which said that it 2.the acceptance must not qualify the terms of the offer.
awarded the contract to Femsco. Sometime after, 3.the acceptance must be made known to the offeror
Purefoods unilaterally cancelled the contract and 4. the acceptance can be withdrawn or revoked before it is made known to the
awarded the contract to Jardine instead. Femsco filed offeror.

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an action against both Purefoods and Femsco. The
main issue was if there was already a perfected contract
between Purefoods and Femsco.
SANCHEZ VS Rigos executed an option to purchase in favor of
RIGOS Sanchez for a parcel of land, with 2-year period to
exercise option. Sanchez paid w/in period, but Rigos
refused. Sanchez deposited payment. Is Rigos
compelled to accept?
"ART. 1354. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such
withdrawal, except when the option is founded upon
consideration as something paid or promised."
"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 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."
ADELFA Petitioner and private respondents executed an
PROPERTIES, “Exclusive Option to Purchase” the latter’s land, subject
INC. V. CA to the condition that petitioner pays the balance on or
before a stipulated date. However, petitioner failed to
comply, causing private respondents to cancel the
transaction. Petitioner failed to surrender the certificate
of title, hence private respondents filed a case before
the RTC of Pasay City for annulment of contract with
damages. The RTC held that the agreement entered
into by the parties was merely an option contract, and
that the suspension of payment by petitioner constituted
a counter-offer tantamount to a rejection of the option.
The CA affirmed upon appeal.
In this case, the offer was constituted by the invitation of Purefoods to bid which
was governed by the Terms and Conditions of the Bidding disseminated by the
Purefood. The acceptance of the offer was constituted by Purefood’s sending
and Femsco’s receiving of the letter which awarded the project to Femsco.
The Court ruled that 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. However, pending notice of its withdrawal, his accepted promise
partakes of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
In this case, Sanchez offered P1510 before any withdrawal from the contract
has been made by Rigos. Since Rigos’ offer to sell was accepted by Sanchez,
before she could withdraw her offer, a bilateral reciprocal contract—to buy and
to sell was generated.
The SC held that the agreement between the parties is a contract to sell, and
not an option contract or a contract of sale. It was clear that the parties never
intended to transfer ownership to petitioner except upon the full payment of the
purchase price. However, while there was a valid suspension of payment of the
purchase price by said petitioner, the Court still held that private respondents
may not be compelled to sell and deliver the property to petitioner because a)
the latter failed to duly effect the consignation of the purchase price after the
disturbance had ceased, and b) the contract to sell had been validly rescinded
by private respondents.
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VICES OF CONSENT
THEIS V. CA Respondent sold land to petitioner. However, the land NO. Such situation is contemplated under mistake of fact pursuant to Articles
was covered by a wrong TCT, resulting from an 1390 and 1331 of the Civil Code. The private respondent obviously committed
erroneous survey conducted. Therefore, the land that an honest mistake. It is quite impossible for said private respondent to sell the
was sold does not really belong to respondent. But lot in question as the same is not owned by it. The good faith of the private
petitioner insists that what respondent really sold was respondent is evident in the fact that when the mistake was discovered, it
the land which was covered by the wrong TCT. immediately offered two other vacant lots to the petitioners or to reimburse them
Respondent then filed an annulment of the deed of sale with twice the amount paid. That petitioners refused either option left the private
and reconveyance of the properties thereof. RTC and respondent with no other choice but to file an action for the annulment of the
CA decided in favor of respondent based on mistake of deed of sale on the ground of mistake.
fact. ISSUE: W/N the CA erred in affirming the RTC
decision.
HEIRS OF Filomena Almirol De Sevilla died intestate leaving 4 The court ruled that the petitioners did not sufficiently prove that the donation
WILLIAM parcels of land to be distributed among her heirs. One was obtained fraudulently and therefor remains valid. A subsequent document
SEVILLA V. parcel, which Filomena co-owned with her two sisters, was executed by Felisa to partition her share among selected siblings only but
LEOPOLDO was contested by some of her children. Felisa, her this was later declared VOID AB INITIO as she no longer had the authority to do
SEVILLA sister, donated her share of the property to Leopoldo so since she no longer owned the property after executing the deed of donation
Sevilla (son of Filomena) but his siblings alleged that in favor of Leopoldo.
the donation was obtained fraudulently. The allegation
was that the Deed of donation and Deed of Extra-
judicial partition were done with FRAUD taking
advantage of the 81-year old Felisa who, as they allege,
was of UNSOUND MIND and the partition void for not
having their consent.
KATIPUNAN V Respondent, Braulio Katipunan, filed a complaint for an Yes. In the present case, as seen from the Q and A part of the case between
KATIPUNAN Annulment of a Deed of Sale which was obtained from Atty. Sarmiento and respondent, there was undue influence exerted upon him
(2002) him by the Petitioners (MIGUEL KATIPUNAN, by Miguel and Inocencio and Atty. Balguma and they didn’t explain to him the
INOCENCIO VALDEZ, EDGARDO BALGUMA and nature and contents of the document and they deprived him of a reasonable
LEOPOLDO BALGUMA, JR.) when they took freedom of choice. Even the trial court recognized his slow comprehension
advantage of his low IQ and the fact that he is slow in when the trial court had to clarify certain matters because he was either
comprehending. While the trial court ruled in favor of the confused, forgetful or could not comprehend. Dr. Revilla’s testimony was not
petitioners, the CA reversed this decision and held that even rebutted by the petitioners whilr the respondent really didn’t receive the
there was a vitiation of consent due to the failure of the purchase price which is evident in the fact that his testimony was not
petitioners to read and/or explain the contract to the controverted by Miguel and the fact that Atty. Balguma admitted that it was
respondent, who is illiterate, according to Art. 1332 of Miguel who received the money from him.
the Civil Code. The main issue in the case is whether or Art. 1332: When one of the parties is unable to read, or if the contract is in a

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not the Deed of Sale is voidable due to a vitiation of
consent.
MARTINEZ V. Plaintiff’s husband was being sued by his former
HSBC company in civil and criminal cases because of certain
fraudulent transactions. Pursuant to the case, his
property as well as his wife’s (plaintiff) property were
being eyed for execution. The wife, herein plaintiff,
objected on the grounds that her property was not liable
for her husband’s debts. She allowed her counsel to
conduct multiple negotiations so that a settlement may
be reached and the charges against her husband be
dropped. Eventually, a settlement was reached, which
she ratified. She then filed an action for the annulment
of the settlement on the grounds that she ratified it
under duress.
RURAL BANK A Deed of Absolute Sale with Assumption of Mortgage
OF STA. MARIA was executed between Manuel Behis as
V. CA vendor/assignor and Rayandayan and Arceño as
vendees/assignees for the sum of P250,000.00. On the
same day, the parties also executed another Agreement
embodying the real consideration of the sale of the land
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully
explained to the former.
Art. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in
court, they are susceptible of ratification Article 1330 of the Civil Code, consent
may be vitiated by any of the following: (1) mistake, (2) violence, (3)
intimidation, (4) undue influence, and (5) fraud.The presence of any of these
vices renders the contract voidable.
Art. 1399: When the defect of the contract consists in the incapacity of one of
the parties, the incapacitated person is not obliged to make any restitution,
except when he has been benefited by the things or price received by him.
There was no duress in this case, as plaintiff acted based on her judgement at
all times. She was given choices, and she made her decisions based on her
judgement, and not out of fear or intimidation. First offers of compromise were
made by the plaintiff herself through her representatives. Second, there were at
no time during the course of these negotiations for settlement any direct
personal relations or communications between the parties to this action. Third,
the plaintiff by means of the negotiations and settlement in question was
engaged partly at least in the settlement of her own suits and controversies.
Fourthly, the plaintiff never at any time stood alone in the negotiations. There
was never a moment when she did not have interposed between her and the
defendants the counsel of skilled attorneys and of interested relatives. Lastly,
plaintiff took advantage of said contract after its execution and required the
complete fulfilling of every one of its provisions favorable to herself.
No, non-disclosure to the bank of the purchase price of the sale of the land
between private respondents and Manuel Behis cannot be the "fraud"
contemplated by Article 1338 of the Civil Code. Pursuant to Article 1339 of the
Civil Code, silence or concealment, by itself, does not constitute fraud, unless
there is a special duty to disclose certain facts, or unless according to good faith
and the usages of commerce the communication should be made. The bank
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in the sum of P2,400,000.00. Thereafter, Rayandayan had other means and opportunity of verifying the financial capacity of private
and Arceño negotiated with the principal stockholder of respondents and cannot avoid the contract on the ground that they were kept in
the bank for the assumption of the indebtedness of the dark as to the financial capacity by the non-disclosure of the purchase price.
Manuel Behis and the subsequent release of the
mortgage on the property by the bank. Rayandayan and
Arceño did not show to the bank the Agreement with
Manuel Behis providing for the real consideration of
P2,400,000.00 for the sale of the property to the former.
Subsequently, the bank consented to the substitution of
plaintiffs as mortgage debtors in place of Manuel Behis
in a Memorandum of Agreement between private
respondents and the bank with restructured and
liberalized terms for the payment of the mortgage debt.
Instead of the bank foreclosing immediately for non-
payment of the delinquent account, petitioner bank
agreed to receive only a partial payment of P143,000.00
by installment on specified dates. After payment thereof,
the bank agreed to release the mortgage of Manuel
Behis; to give its consent to the transfer of title to the
private respondents; and to the payment of the balance
of P200,000.00 under new terms with a new mortgage
to be executed by the private respondents over the
same land. The bank now questions WON
Memorandum of Agreement is voidable on the ground
that its consent to enter said agreement was vitiated by
fraud because private respondents withheld from
petitioner bank the material information that the real
consideration for the sale with assumption of mortgage
of the property by Manuel Behis to Rayandayan and
Arceño is P2,400,000.00, and not P250,000.00 as
represented to petitioner bank?
LAURETA Laureta Trinidad offered to purchase house and lot from The CA ruling was reversed by the SC insofar as it found that there was no
TRINIDAD V. Francisco in installments. Come the 3rd year of paying misrepresentation by Francisco since Trinidad had the opportunity to verify the
IAC the annual installments, the said house and lot was claims of having “fixed” the flooding problem. Moreover, the SC held that the
flooded and Trinidad refused to pay the remaining non-payment of Trinidad does not justify rescission of the contract. There was
balance and sued Francisco. The RTC granted the

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petition and declared the contract annulled and ordered
payments of damages however, the CA reversed it and
dismissed the complaint. Trinidad appealed arguing that
Francisco had misrepresented himself and thereby
justified rescission.
SONGCO V. Sellner purchased the sugar cane of Songco and
SELLNER executed three promissory notes. Action was instituted
by Songco to recover the third. The lower court
rendered judgment in favor of Songco, and Sellner
appealed, claiming that the promissory note was
obtained by Songco by means of a false
misrepresentation with respect to the quantity of uncut
cane.
ISSUE: WON the promissory note in question was
obtained from the defendant by means of certain false
and fraudulent representations — NO
MERCADO V Petitioners allege that they were minors at the time of
ESPIRITU the execution of the contract where the respondent
induced and fraudulently succeeded in getting
petitioners to sign a deed of sale of the land left by their
mother for the sum of P400 notwithstanding the fact that
the land was valued at P3795. Respondents claim that
petitioners represented themselves of legal age and
executed a notarial document ratifying the said sale.
Issue is whether a person who is really and truly a minor
and, notwithstanding, attests that he is of legal age, can,
after the execution of the deed and within legal period,
ask for the annulment of the instrument executed by
him, because of some defect that invalidates the
contract, so that he may obtain the restitution of the land
sold
BRAGANZA V. Braganza and her two sons (Rodolfo and Guillermo,
VILLA ABRILLE who were both minors at the time) obtained a loan from
Abrille amounting to the sum of P70,000. She executed
a document to such effect.When they failed to pay at
not enough evidence to overturn the presumption of good faith of Francisco. CA
Decision was affirmed
The Court ruled that a misinterpretation upon a mere matter of opinion is not an
actionable deceit, nor is it a sufficient ground for avoiding a contract as
fraudulent.
The law allows considerable latitude to seller's statements, or dealer's talk; and
experience teaches that it is exceedingly risky to accept it at its face value.
It is not every false representation relating to the subject matter of a contract
which will render it void. It must be as to matters of fact substantially affecting
the buyer's interest, not as to matters of opinion, judgment, probability, or
expectation.
Court held that the sale of real estate, made by minors who pretend to be of
legal age, when in fact they are not, is valid, and they will not be permitted to
excuse themselves from the fulfillment of the obligations contracted by them, or
to have them annulled and the judgment that holds such a sale to be valid and
absolves the purchaser from the complaint filed against him does not violate the
laws relative to the sale of minors' property, nor the juridical rules established in
consonance therewith.
Just because the two children had failed to disclose their minority in the
promissory note, does not mean that they will not be permitted to assert it
afterwards. They cite Corpuz Juris Secundum: “In order to hold infant liable,
however, the fraud must be actual and not constructure. It has been held that

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their agreed deadline, Villa Abrille sued them. CFI his mere silence when making a contract as to age does not constitute a fraud
Manila ruled that Braganza and her sons were required which can be made the basis of an action of deceit”. Since there was only
to solidarily pay Abrille. passive (silence) and not active (deliberate lying), then the Braganza borthers,
being minors at the time, could not be legally bound by their signatures.
However, the minors are still not absolved of their responsibilities. Under ART
1340, they must make restitution to the extent that they have profited by the
money they received. In this case, there was proof that the funds loaned from
Abrille were used for their support.
RODRIGUEZ V. Petitioner transfered her property to her daughter for The Court ruled for the defendants — (1) there is no evidence of violence or
RODRIGUEZ P2,500. In turn, the daughter transferred said property intimidation vitiating petitioner’s consent, (2) contracts are not simulated or
to petitioner and her stepfather (Domingo) for P3,000. fictitious since the means employed were able to achieve the result desired
After Domingo's death, petitioner, together with the heirs (which is to transfer half of the property to Domingo since the law does not allow
of Domingo from his previous marriage, executed a spouses to donate against each other), (3) contracts are not void because
deed of partition, dividing their respective shares in the consideration was proven to be present, (4) even though cause is illegal
conjugal properties from Domingo’s estate. After 28 because the spouses circumvented the legal prohibition against donations
years, petitioner now comes to the court assailing the between spouses contained in Article 1334, paragraph 1, of the Civil Code of
validity of the conveyances contending that she was 1889, appellant still cannot claim invalidity because Article 1306 of the Civil
forced and pressured by her deceased husband to Code states that when both parties are guilty, neither of them can recover what
convey her properties to the conjugal partnership. he may have given by virtue of the contract, or enforce the performance of the
undertaking of the other party, (5) the actions of appellant (contracting several
agreements with the other heirs even after the death of her husband) placed her
in estoppel.
SUNTAY VS CA Federico tried to apply as a miller contractor, but NARIC The court considered:
did not accept him because of his outstanding debts, so 1. there existed a familial relationship between the two,
he hatched a plan with his nephew Federico: Federico 2. there was complete absence of an attempt in any manner on the part of the
was to “sell” his land to Rafael and the Rafael would be late Rafael to assert his rights of ownership over the land and rice mill in
the one to enter into an agreement with NARIC. Rafael question
would then sell the land back to Federico. Rafael, 3. Rafael never declared his ownership of the subject property in his annual
however, never gave the land back to Rafael. Hence Statement of Assets And Liabilities.
this petition. The main issue was if there was a Considering these factors, the court found that the parties did not intend to be
simulated contract. legally bound at all. The contract was deemed absolutely simulated and
fictitious and therefore null and void
BLANCO VS. Elizalde owned a house and lot situated on a 2,500 In order to determine whether or not the sale-lease-back agreement is
QUASHA square-meter parcel of land in Forbes Park, Makati. She simulated, there is a need to look into the true intent or agreement of the
entered into a Deed of Sale over the property in favor of parties. Court ruled that Elizalde’s continued occupancy of the premises even
Parex Realty Corporation. Parex executed a Contract of after she sold it to Parex constitutes valuable consideration which she received

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Lease with Elizalde, whereby the same parcel of land as compensation for the sale. Thus, the contract is valid and binding upon the
was leased to the latter for a term of 25 years. A parties.
transfer of title was made in 1975. But despite of the
transfer of title, she continued to pay the Forbes Park
Association dues and garbage fees. When she died,
petitioners argue that the sale of the property was
absolutely simulated and fictitious and, therefore, null
and void.
OBJECT OF CONTRACTS
BLAS V. Plaintiffs filed an action to secure a judicial declaration The SC ruled that the agreement in Exhibit “A” is not void under Art. 1271 of the
SANTOS that 1/2 of the properties left by Maxima Santos Vda. de old Civil Code, as what is prohibited to be the subject matter of a contract is
Blas was promised by the deceased to be delivered "future inheritance." Considering that the properties subject of Exhibit "A" were
upon her death and in her will to the plaintiffs, and well defined properties existing at the time of the agreement, the SC reversed
prayed that said properties be adjudicated to them. the lower court’s decision and ordered the defendant to convey and deliver 1/2
However, said properties have already been included in of the properties to plaintiffs.
the inventory of the estate of deceased Simeon Blas
and partitioned and conveyed to his heirs. On the basis
of a document (Exhibit “A”) relied upon by plaintiffs, the
CFI dismissed the complaint and found that said
document cannot be considered as a valid and
enforceable contract for lack of consideration and
because it deals with future inheritance.
TANEDO V. CA Lazaro executed a deed of sale of a future inheritance NO. Sale of future inheritance is invalid except in cases authorized by law. In
(land) in favor of his brother and his wife. Lazaro later this case however, the invalid sale no longer holds water because of two
sold the same property to his children. ISSUE: W/N the relevant deeds of sale executed to both petitioners and respondents. Pursuant
sale of the future inheritance is valid. to Art. 1544, the property in question should belong to the respondents because
they registered the deed of sale. Petitioners have not registered the sale to
them at all.
CAUSE OF CONTRACTS
LIGUEZ V. CA Salvador Lopez, who was married and had a family, The SC upheld this ruling since the conveyance of the property was based on
donated a parcel of land to 16 year old Conchita Liguez. an illegal causa. Salvador only donated the property in order to cohabit and
Upon his death, Conchita filed a complaint against the have sexual relations with Conchita. The court however ruled that despite the
heirs of Salvador for the recovery of the donated parcel illegal causa, Conchita may still claim part of the parcel of land which does not
of land. The CA ruled that the deed of donation was null prejudice Salvador’s window since Conchita and Salvador were NOT of equal
and void for having an illegal causa and that Salvador guilt in the donation given the age difference and that her acceptance was
could not donate conjugal property. made while she was a minor. The donation was valid to the extent it prejudiced

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Maria Ngo since Lopez if still alive could not plead the donation was illegal and
therefor his heirs cannot plead it as well so as to not afford them better rights
than Lopez himself.
CARANTES VS Mateo Carantes was the original owner of a lot in The Court held that the Deed of Assignment is not void. Only the total absence
CA Baguio City. His wife and 6 children survived him. Part of cause or consideration renders a contract absolutely void and inexistent. In
of the land was sold to the government; the rest this case, P1 wasn't the only consideration. Mateo had expressed that he willed
remained with the family. Assignment of Right to Maximino to be the exclusive owner of the land. This acknowledgement by the
Inheritance was executed by the children, selling the signatories definitely constitutes valuable consideration for the contract.
land to Maximo (one of the sons and also the appointed
administrator of the land) for a consideration of P1. The
document also contained a recital, stating that
respondents have agreed to cede their rights to inherit
the remaining lots to Maximino and that Mateo has
expressed verbally during his lifetime that they rightly
and exclusively belong to a particular heir, Maximino.
Maximino sold parts of the land to the government and
the rest, he titled to himself. The respondents now
allege that they were made to believe the agreement
only empowered Maximino to represent them in
conveying the lot. In the proceedings, CA ruled against
Maximino stating that the P1 consideration is shocking
to the conscience and is therefore void.
SPS. Plaintiffs are suing their parents and other siblings for The Court said that plaintiffs have no cause of action since their parents are still
BUENAVENTUR the sale of properties in the parents’ estate in favor of alive and their cause of action for the delivery of legitimes will only arise when
A V. CA some siblings because they believe that said sale their parents die. Furthermore, the Deeds of Sale were not void for lack of
reduced their legitimes. They posited that there was no consideration, since the petitioners failed to show that it was simulated and
actual valid consideration for the deeds of sale over the there was not meeting of the minds between the vendor and vendee as to the
properties in this case and even assuming that there price. Lastly, the Deeds of Sale cannot be voided for gross inadequacy of price
was consideration in the sums reflected in the since the instances in Art. 1355 and Art. 1470 (fraud, mistake, undue influence,
questioned deeds, the properties are more than three- defect in consent) were not proven.
fold times more valuable than the measly sums
appearing therein. Given this, the deeds of sale
allegedly did not reflect and express the true intent of
the parties.

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CHAPTER 3: FORM OF CONTRACTS

HERNAEZ V. DE Petitioner Dauden-Hernaez, a motion picture actress, the court below abused its discretion in ruling that a contract for personal
LOS ANGELES had filed a complaint against Hollywood Far East services involving more than P500.00 was either invalid or unenforceable under
Productions, Inc., and its President and General the last paragraph of Article 1358 of the Civil Code of the Philippines. The
Manager, Ramon Valenzuela, to recover P14,700.00 GENERAL RULE is contracts are valid and binding from their perfection
representing a balance allegedly due to her for her regardless of form whether they be oral or written. Exception: 1) when the law
services as leading actress in 2 motion pictures requires that a contract be in some form in order that it may be valid or
produced by the company, and to recover damages. enforceable; 2) that a contract be proved in a certain way, that requirement is
The respondent court dismissed the motion, hence absolute and indispensable. The contract for personal services does not fall
Dauden-Hernaez sought a reconsideration and also under the exceptions.
filed a motion to amend the complaint for alleged
violation of Article 1356 and 1358 of the Civil Code.
Court again denied on the ff. grounds: 1) Violation of
Art. 1356 because the proposed amended complaint did
not vary in any material respect from the original
complaint except in minor details, and suffers from the
same vital defect of the original complaint"; 2) violation
of Article 1358 because the writing was absolute and
indispensable, as the amount involved exceeds five
hundred pesos; and 3) the 2nd motion for
reconsideration did not interrupt the period for appeal,
because it was not served on three days' notice. Hence,
the instant case before the SC.
CHAPTER 4: REFORMATION OF INSTRUMENTS
GARCIA V. A complaint was filed against Bisaya claiming that he The Supreme Court affirmed that the action had prescribed but went further
BISAYA had misrepresented himself in executing a deed of sale and stated that reformation is the incorrect remedy for misrepresentation of a
to Garcia. Garcia demanded that corrections be made vendor, and that it should be annulment. Moreover, the court held that petitioner
and that he had no knowledge about the error until failed to allege the real agreement of an instrument which is fatal to an action of
recently. The lower court held that the action had reformation.
prescribed.
BENTIR V. Leyte Gulf Traders entered into a contract of lease with SC ruled that reformation, in a way, makes an oral agreement legally effective, it
LEANDA Bentir in 1968. After the contract expired, Bentir sold the must thus be exercised by the courts sparingly and with great caution.
leased premises. 1989: Traders filed a complaint for Moreover, the remedy is subject to limitations, among which is laches. Under
reformation, alleging that its lawyer inadvertently ART 1144, the prescriptive period for reformation of an instrument is ten years.
omitted to incorporate in the contract of lease the verbal In the case at bar, Traders had ten years from 1968, the time when the contract
agreement that in the event Bentir leases or sells the

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property after expiration of the lease, Traders should
have the right to equal the highest offer.
ATILANO VS Eulogio II bought a plot of land from Eulogio I. 39 years
ATILANO later, it was found that Eulogio II had been occupying
the wrong plot and had accidentally switched with
Eulogio I (Lot 535-E, instead of 535-A). Eulogio II’s heirs
now want to exchange lands with Eulogio I’s heirs to
correct the mistake. Eulogio I’s heirs refused stating that
lot to be exchanged is smaller, and that Eulogio I really
intended to sell them that lot.
SARMING V. DY Descendants of Jose Flores entered into a contract with
Alejandra Delfino for the sale of the one-half share of
Lot 4163 to the latter. However, the owner of the other
one-half share of Lot 4163, Silveria Flores, delivered the
Original Certificate of Title covering another lot (Lot
5734) instead. Plaintiff Alejandra Delfino thus filed a
complaint for reformation of instrument against
defendant Silveria Flores before the RTC of Negros
Oriental, with the trial court ruling in favor of plaintiff.
Upon appeal, the CA affirmed the finding of the trial
court that the real intention of the parties was for the
sale of Lot 4163 which Alejandra had been occupying,
and the designation of Lot 5734 in the deed was a
mistake in the preparation of the document.
CHAPTER 5: INTERPRETATION OF CONTRACTS
BORROMEO V. Jose Villamor frequently borrowed money from his
CA friend Canuto Borromeo. Jose once borrowed 7,220 to
pay his other obligation to Mr. Miller but was eventually
unable to pay both obligations. Jose executed a note to
pay back the obligation and waiving his rights against to
prescriptions or "even after the lapse of ten years". The
of lease was executed, to file an action for reformation. Instead, it did so only
twenty-four years after, hence it is time-barred.
When one sells or buys real property, one sells or buys the property as he sees
it, in its actual setting and by its physical metes and bounds, and not by the
mere lot number assigned to it in the certificate of title. Eulogio II had already
built his house on the smaller lot even before Eulogio I executed the deed of
sale, showing that the intent really was to it to him.
Reformation is available if the true intention is not expressed in the instrument
by reason of mistake, fraud, inequitable conduct or accident.
In this case, although there was mistake, the deed of sale need not be
reformed. The parties have retained possession of their respective properties
conformably to the real intention of the parties to that sale, and all they should
do is to execute mutual deeds of conveyance.
The SC upheld the lower courts, ruling that reformation of the subject deed is
proper by reason of mistake in designating the correct lot number. Pursuant to
Art. 1359 of the Civil Code, an action for reformation of instrument may prosper
only upon the concurrence of the following requisites: a) There must have been
a meeting of the minds of the parties to the contract, b) The instrument does not
express the true intention of the parties, and c) The failure of the instrument to
express the true intention of the parties is due to mistake, fraud, inequitable
conduct or accident. The SC found that all of the requisites were present in the
case, considering that there was a meeting of the minds between the parties to
the contract, but the deed did not express the true intention of the parties due to
mistake in the designation of the subject lot.
The SC reversed the CA's decision noting that its interpretation of the note was
too literal and that the intent of the note was different. The SC ruled that Canuto
did not waive his right to demand but instead allowed for a 10-year period from
1933 before the prescriptive period can begin to be counted.
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CFI ruled in favor of the petitioners but the CA reversed
it stating "persons cannot renounce future prescription".
KASILAG V. Petitioner was granted possession of the land by way of
RODRIGUEZ homestead by herein respondents’ mother. They
commenced a civil case against him to recover
possession of the land plus payment. CFI held that the
contract was one of sale and petitioner validly
possessed the land. However, the CA declared that the
contract petitioner entered into with respondent/s was
null and void. Still, petitioner says that the is entitled to
the land because the contract was an absolute sale.
CHAPTER 6: RESCISSIBLE CONTRACTS
UNIVERSAL Franscisco, Sr. discovered the MAFRAN sauce which
FOOD CORP. V. was trademarked under his name. However, due to lack
CA of sufficient capital to finance the expansion of the
business, in 1960, he secured the financial assistance
of Pres. Reyes of UFC who, after a series of
negotiations, executed with him a "Bill of Assignment".
Under said Bill, the use of the formula was ceded to
UFC for as long as 2% of the royalties would be given to
Fransciso, Sr., plus he would be appointed as Chief
Chemist of the company. Soon thereafter, UFC alleged
that due to scarcity and high prices of raw materials,
only Supervisor Ricardo Francisco should be retained in
the factory and that the salary of Francisco, Sr., should
be stopped for the time being until the corporation
should resume its operation. A series of Memoranda
The Court ruled that in interpreting the contract, one will see that it is a contract
of antichresis, which was null and void because it was prohibited by law. The
Court arrived at this conclusion by applying Article 1281 of the Civil Code: if the
terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal sense of its stipulations shall be followed; and if
the words appear to be contrary to the evident intention of the contracting
parties, the intention shall prevail. In this case, the letter of the contract was
clear: it is a contract of mortgage of the improvements on the land acquired as
homestead, to secure the payment of the indebtedness of petitioner for P1,000
and the stipulated interest thereon. HOWEVER, the contract was modified by a
verbal agreement between petitioner and the deceased contracting party where
petitioner was authorized to take possession of the land, to receive the fruits
thereof and to introduce improvements thereon, provided that he would
renounce the payment of stipulated interest and he would assume payment of
the land tax.
The contract was thus converted into a contract of antichresis, which was
prohibited by law. The contract was VALID except as to the part with the
stipulations on antichresis.
SC affirmed the decision of the CA with modifications. It ruled that the rescission
was the proper course undertaken by the respondent as 1) there is no
controversy that the provisions of the Bill of Assignment are reciprocal in nature
(UFC violated the Bill of Assignment by terminating the services of Francisco,
Sr., without lawful and justifiable cause); and there was compliance of the
GENERAL RULE (rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement) since dismissal of
Francisco, Sr. as the permanent chief chemist of the corporation is a
fundamental and substantial breach of the Bill of Assignment.
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were then issued directing said Francisco to keep

producing the MAFRA Sauce even without Fransciso,
Sr., causing the latter to institute the action for the
rescission of the Bill. The CA ruled in favor of
Franscisco, Sr. hence the instant petition for Certiorari
brought by the UFC.
ORIA V. Oria Hermanos & Co. owed Gutierrez Hermanos a total The Court held that the contract was attended by badges of fraud (Art. 1381)
MCMICKING of 160k. However, the owners of the company sold it to and therefore rescissible. The SC affirmed the decision of the lower court
herein plaintiff, also one of the sons of the co-owners for dismissing the complaint.
274k. The CFI decided in favor of Gutierrez in his action
to demand payment and thereby ordered Oria
Hermanos & Co. to pay the 160k. They failed to do so
thereby causing the sheriff to levy upon their property,
namely a steamship and sold it in an auction. Herein
plaintiff alleges that he owns the steamship because he
had purchased Oria Hermanos & Co. and therefore
invalidating the levy upon it.
SIGUAN V. LIM Lim executed a deed of donation conveying several The court ruled that the deed of donation was not done in fraud. Under 1387,
parcels of land in favor of her children. Siguan filed an the presumption of fraud will exist if the donor did not reserve sufficient property
accion pauliana, claiming that the deed was done in to pay all debts contracted before the donation. In the case at bar, petitioner's
fraud of Lim’s creditors. alleged credit existed only a year after the deed of donation was executed. She
cannot, therefore, be said to have been prejudiced or defrauded by such
alienation. Additionally, the evidence disclosed that Lim still had other properties
when she executed the deed of donation.
CHAPTER 7: VOIDABLE CONTRACTS
FELIPE V. Gimena Almosara sold conjugal property to the spouses The Court held that the sale was voidable, having been made by a party
HEIRS OF Felipe without the consent of her husband Maximo incapable of giving consent thereto. As Gimena was responsible for the defect,
ALDON Aldon. After the latter’s death, Gimena and their children she could not ask for the annulment of the sale. However, the action was valid
Sofia and Salvador filed a complaint against the as to Sofia and Salvador because they stood to suffer deprivation of their
spouses Felipe to recover the land. hereditary rights.

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SINGSONG V. Isabela Sawmill partners Garibay and Tubungbanua
ISABELA executed a chattel mortgage in favor of Saldajeno, a
SAWMILL former partner, after they decided to dissolve their
partnership. Garibay and Tubungbanua, however,
continued business as usual; no liquidation or winding
up took place. The properties subject of the mortgage
were later foreclosed and sold to Saldajeno. Singsong
and other creditors of Isabela Sawmill assailed the
chattel mortgage as having been made in fraud of
creditors and without valuable consideration.
SAMAHAN NG In relation to an application for retention and award of
MAGSASAKA V. land under RA 6657, the Court upheld the validity of the
VALISNO redemption of mortgaged property made at a time when
three of the four Valisnos who redeemed it were minors.
MALABANAN V. Gaw Ching, a lessee of a house and lot owned by
GAW CHING Malabanan, sought to annul the sale of said property to
Senolos on the ground of fraud, deceit, and bad faith
which caused damage to Gaw Ching. Malabanan had
thrice offered to sell the property to him, but he rejected
the offer each time.
ARMENIA V. In this case, petitioner Laurentino assailed the deed of
PATRIARCA sale which his sister Marta (who died intestate and
without forced heirs) executed in favor of Erlinda
Patriarca and Florencia Someciera. It was argued that
the sale was simulated and void as well as fraudulently
executed, and if not so, it was voidable because
Patriarca and Someciera were minors (13 and 20 years
old, respectively) at the time of the sale.
The Court held the creditors were indeed prejudiced in their rights, having been
misled into thinking that whatever credit lent to Garibay and Tubungbanua could
be enforced against the properties of Isabela Sawmill. As such, they could bring
an action for nullity although they were not parties to the assailed contract.
Such redemption was merely voidable and not void ab initio, as it was a contract
to which the three minors were incapable of giving consent. The action to annul
could only be instituted by the minors themselves, being the aggrieved parties.
Such transaction was held to be valid, having never been assailed by any of the
redeemers, all of whom had long since reached legal age.
The Court held that he could not bring the action for annulment, as he was a
stranger to assailed contract and did not fall under any possible exception to the
rule that only parties to the contract may ask for annulment. Being a mere
lessee, he had no preferred right to purchase such property, and even if he did
by reason of long-time tenancy, he suffered no prejudice as he consistently
refused to buy it when it was offered to him.
The Court held that Laurentino could not institute an action for annulment for
fraud because he is not a forced heir of Marta and therefore has no cause of
action to annul the sale. Marta was free to dispose of her properties as she
pleased, subject to the sole limitation that she could not dispose of such in fraud
of creditors. Forced heirs and creditors have similar rights, which may be
protected by an action not of nullity, but of rescission. That the vendees were
minors was immaterial as it would only make the sale annullable by them.
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CADWALLADE Pacific Export Lumber shipped 581 piles of lumber to The Court ruled that the contract of sale to Peabody for $12 apiece was
R V. SMITH Peabody & Co., for which the consignees were to founded on fraud and subject to annullment, and so ordered mutual restitution.
BELL receive a commission of 50% money obtained over $15 The commission upon the 213 piles sold under the original agency was allowed,
for each pile before storage and 5% of the price of the but that which was obtained under the contract of $12 was ordered to be given
piles sold after storage. After arrival, Peabody wrote to Cadwallader with legal interest.
Pacific that the piles would have to be sold at less than
$15 for lack of demand, and so they agreed upon $12
instead. Apparently, Peabody had earlier entered into
negotiations with the government resulting in a sale of
the piles at $19 apiece, but they concealed this from
Pacific and its assignee Cadwallader.

INES V. CA The spouses Ines filed to annul a deed of sale over their The Court held that the seeking of affirmative relief was irrelevant; the award of
conjugal house and lot in favor of the spouses legal interest (computed from the time of the rendition of the decision of the
Geronimo. The sale was declared void in its entirely for RTC) is a necessary consequence of the finding that the contract of sale was
lack of the consent of David Ines, an indispensable void.
party. As a result, the spouses Geronimo were made to
return the entire property subject to the return to them of
the P150,000 they had paid, with legal interest. The
RTC did not award interest, but the CA did upon appeal
thereto. The lone error the spouses Ines assigned was
that the award of legal interest should not have been
granted to the spouses Geronimo as they did not appeal
from the trial court’s decision and should not be given
any further affirmative relief.

ARRA REALTY The spouses Arguelles hired Peñaloza to construct a The court implicitly held that the agreement had been annulled for the fraud on
V. GUARANTEE building with an agreement that the latter would occupy the part of Arra for mortgaging the property without Peñaloza’s knowledge. But
DEV’T CORP. a portion of any floor of her choice in consideration of a because the property had passed to a buyer in good faith, the only remedy she
deferred payment plan. Without Peñaloza’s knowledge, had was a refund of the amount paid to Arra.
Arra Realty mortgaged the property to China Banking
which acquired it upon foreclosure. Arra then redeemed
the property and sold it to GDCIA. Peñaloza asked for
specific performance, or, if not possible, restitution plus
interest and damages.

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CHAPTER 8: UNENFORCEABLE CONTRACTS
LIMKETKAI Limketkai Sons Milling and BPI entered into
SONS MILLING negotiations for the sale of a parcel of land. They
INC VS CA agreed on the purchase price and the terms under
which it would be paid, only for payment to be later
refused by BPI on the ground that authority to sell the
land had been withdrawn from the unit with which
Limketkai negotiated.
SWEDISH Respondents filed before RTC of Pasig a complaint for
MATCH V. CA specific performance against herein petitioners, praying
that the latter be enjoined from selling or transferring
Phimco shares in favor of any person/entity other than
respondents. The RTC dismissed respondents’
complaint, ruling that there was no perfected contract of
sale between petitioners and respondents. On appeal,
the CA reversed the decision of the trial court, ruling
that the series of written communications between
petitioners and respondents collectively constituted a
sufficient memorandum of their agreement under Art.
1403 of the Civil Code.
CARBONNEL V. Carbonnel purchased land from Poncio through an oral
PONCIO contract and executed a document alowing Poncio to
remain the property of one year without payment.
Poncio subsequently refused to execute a deed of
conveyance and sold the property to the Infante's.
Petitioner filed a complain in the CFI Rizal to have her
declared as the owner of the land and for the execution
of the deed of conveyance. The respondents argue that
petitoner may not make such a claim by invoking the
statute of frauds making the oral contract
unenforceable.
CHAPTER 9: VOID OR INEXISTENT CONTRACTS
URADA V. Respondent judge was charged with grave misconduct
MAPALAD because she failed to inhibit herself, and actually
decided a criminal case involving her brother-in-law.
She acquitted him based on the pari delicto doctrine
The Court held that there was a perfected contract of sale between the parties,
and that the evidence adduced by the petitioner Limketkai was admissible
notwithstanding the fact that the contract, as a sale of real property, was under
the Statute of Frauds, because counsel for BPI cross-examined Limketkai’s
witnesses at length on the contract itself and thereby waived the defense of the
Statute of Frauds.
The SC held that the CA erred in reversing the trial court’s decision dismissing
the complaint for being unenforceable under the Statute of Frauds, as the
exchange of correspondence between the parties hardly constitutes the note or
memorandum within the context of Art. 1403 of the Civil Code. The purpose of
the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged. For a note or memorandum to satisfy
the Statute, it must be complete in itself. The SC held that the assailed
correspondence in the case at hand was not complete in itself, as it does not
indicate at what price the shares were being sold, nor state the mode of
payment of the price
The CFI ruled for Poncio but the SC disagreed stating that partially or totally
performed contracts are not covered by the statute of frauds. In proving that
partial performance was indeed executed, the court determined this based on
the evidence presented to determine whether or not the allegations made by
petitioner were true and that she did partially pay for the property.
The Court held that respondent was guilty of grave misconduct because of her
failure to inhibit in the criminal case involving her brother-in-law, she was also
found to have violated the 90-day reglementary period for deciding cases. As
for her decision in the criminal case, the court held that the application of the
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because of long-standing “bad-blood” between the
accused and the complainant in the criminal case.
MODINA V. CA Ramon Chiang executed a deed of sale for several
parcels of land (sold to him by his wife, Merlinda) in
favor of Modina. Subsequently, Merlinda sought the
declaration of nullity of said deed because said lands
were never legally transferred to her husband and
therefore, was only possessed by him through fraud.
Further, said lands were the subject of a lease contract
with the other respondents. So, MODINA brought a
Complaint for Recovery of Possession with Damages
against the Ramon and Merlinda spouses, and other
respondents before the RTC Iloilo City. The RTC and
CA ruled in favor of Merlinda, and declared null and void
the deed of sale. Hence, the current petition for review
on certiorari in which it is argued that a) the 1st sale
(Merlinda to Ramon) is null and void for being violative
of Article 1490, NCC which prohibits sales between
spouses; b) what is applicable is Article 1412 on the
principle of in pari delicto, which leaves both guilty
parties where they are, and keeps undisturbed the
rights of 3rd persons to whom the lots involved were
sold.
RELLOZA V. Land was sold to an alien in violation of the constitution
GAW CHEEN and a Japanese Military Administration Seirei No. 6.
HUM The same land was subject to a lease wherein the
Petitioner Rellosa retained possession. Petitioner
sought annulment of the sale alleging that it failed to
satisfy the condition of acquiring approval of the
Japanese Military Administration. The lower courts
upheld the validity of the sale. Petitioner Relloza argued
that the sale should be null and void.
pari delicto doctrine was “strange” as said doctrine was not applicable to
criminal cases nor could it be used against the State (People). However, the
court did not find respondent guilty of knowingly rendering unjust judgement,
since there was no convincing evidence that she knew that the judgement was
completely unjust. She is guilty only of gross ignorance of the law.
The sale between the spouses was indeed null and void, however, in contrast to
Modina’s argument that his rights must remain undisturbed, the court held that
such is untenable because the principle of in pari delicto non oritur action
(denying all recovery to the guilty parties inter se) is inapplicable because the
contract is INEXISTENT in the first place. Hence, Articles 1411 and 1412 of the
New Civil Code are inapplicable. In so arguing, the court clarifies further that in
pari delicto doctrine applies only to contracts with illegal consideration or subject
matter, whether the attendant facts constitute an offense or misdemeanor or
whether the consideration involved is merely rendered illegal. As the case in
here involves a void contract, it produced no effect hence MERLINDA can
recover the property from MODINA who never acquired title thereover.
The Supreme Court affirmed the decision, applying the doctrine of In Pari
Delicto wherein parties to an illegal contract have no cause of action against
each other. The court however, discussed the other remedies of escheat to the
estate and for reversion which are available to the Petitioner in order to remedy
the violation of the constitutional provision that aliens may not own land without
necessarily doing violence to the doctrine of In Pari delicto.
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PHILIPPINE Justina Santos executed a contract of lease for 50 (later
BANKING amended to 99) years and an option to buy property of
CORPORATION land, in favor of Wong, who was Chinese.
V. LUI SHE
FRENZEL VS Alfred Frenzel married a Filipina. He separated from her
CATITO without obtaining a divorce. He eventually fell in love
with a Filipino masseuse named Ederlina Catito who
herself was married to a German national. Alfred bought
a number of properties and named Ederlina as buyer of
the properties knowing that he himself couldn’t buy
them. When Ederlina and Alfred’s relationship started to
sour, Ederlina claimed ownership over the properties.
NATURAL OBLIGATONS
VILLAROEL V. The original debtor and creditors entered into a loan
ESTRADA (Exhibit A) of P1,000 payable after 7 years. However,
both parties died, leaving as sole heirs the defendant
and plaintiff, respectively. Defendant signed a document
(Exhibit B) declaring himself as owing plaintiff the
amount of P1,000, with the CFI of Laguna later ordering
defendant to pay claimant plaintiff the said amount.
FISHER V. John Robb met A.O. Fisher in Shanghai and sold him
ROBB shares to the Philippine Grayhound Club. As soon as
Petitioner Fisher paid the second installment of his
shares, the business was changed to "The Philippine
Racing Club" and Fisher had lost his investment. Robb
sent numerous letters apologizing for the loss and tried
his best to recover the money but failed.
ESTOPPEL
MANILA LODGE The City of Manila was granted rights to a reclaimed
NO. 761 V. CA portion of the Manila Bay, which it then sold to Manila
Lodge No. 761 (herein plaintiff) with a right to
The court ruled that, although taken singly, the contracts show nothing that is
necessarily illegal, but considered collectively, they reveal an insidious pattern
to subvert by indirection what the Constitution directly prohibits. To be sure, a
lease to an alien f
only a lease of, but also an option to buy, to last for 50 years, then the
arrangement becomes a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land but also of the
right to dispose of it—rights the sum total of which make up ownership. Thus,
under ART 1416, the assailed documents are void.
The Court held that Alfred is not entitled to recover the properties. Even if the
sales were entered into by him as the real vendee, the said transactions were in
violation of the constitution and thus void ab initio. The petitioner is a party to an
illegal contract. He cannot thus come into a court of law and ask to have his
illegal objective carried out. Moreover, the petitioner was fully aware that he was
disqualified from acquiring and owning lands under Philippine law even before
he purchased the properties in question.
The SC held that the action to recover is still enforceable, notwithstanding the
fact that the action to recover the original debt of his mother already prescribed
by the time plaintiff filed the present claim. Such claim is not based on the
prescribed original obligation contracted by defendant’s mother (Exhibit A), but
on defendant voluntarily signing Exhibit B, which created an enforceable moral
obligation for defendant to pay the P1,000 to plaintiff.
The Court ruled although there was a moral obligation, Robb's letters did not
constitute an express promise and therefor the contract to return the money
lacked the requisite of consideration making and could not be enforced by the
petitioner.
The reclaimed property was not the patrimonial property of the City of Manila,
hence, it could not validly sell such land to the plaintiff, and the plaintiff also
could not have validly sold the land to the third person. As for estoppel, the
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repurchase annotated to the TCT. Plaintiff then also
sold it to a third person, but the right to repurchase of
the City of Manila was not annotated in the TCT
produced in this subsequent sale. City of Manila filed a
complaint to have its right to repurchase recognized, the
third person and plaintiff countered.
MIGUEL V. Miguel et.al. brought a suit in the name of one
CATALINO Bacaquio, a long-deceased illiterate non-Christian
resident of Mountain Province, for recovery of a land.
They argued that they are the children and heirs of the
original registered owner, and that Catalino, without
their knowledge or consent, had unlawfully taken
possession of the land. However, it appears that
Bacaquio, before his death actually sold the land to
Agyapao, the father of defendant Catalino. Ventura, son
of Bacaquio even sold anew the land to Catalino for a
consideration of 300 pesos, leading the CFI to rule in
favor of Catalino. Hence, this direct appeal.
TRUSTS
SALAO V. Plaintiffs and defendants were all relatives in this case.
SALAO The plaintiffs instituted action for a piece of land that
was registered in the names of the defendants in
Bataan, alleging belatedly that the property was only
held in trust by Ambrosia and Juan.
Court found that THERE WAS NO ESTOPPEL, since estoppel does not obtain
against the government for the error of its agents. Furthermore, if the court held
that there was estoppel, then the decision would be tantamount to a validation
of the illegal sail made by the City of Manila of the reclaimed land, which is also
tantamount to enabling it to do indirectly what it cannot do directly.
The 1928 sale (Bacaquio to Agyapao, the father of Catalino), is void because
the sale lacks executive approval as expressly required by the law. Hence,
Bacaquio remained, in law, the owner of the land until his death in 1943, when
his title passed on, by the law on succession, to his heirs. However, despite this
finding, the court holds that Catalino is still the owner by virtue of laches. In
ruling so, the court notes that Bacaquio allowed the latter to enter, possess and
enjoy the land in question without protest, from 1928-1943 until his death and a
ppellants, in turn, succeeding the deceased, also remained inactive, without
taking any step to reivindicate the lot from 1944 to 1962. Laches applies as the
4 requisites are present: (a) 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 complaint seeks a remedy; (b) delay in asserting the
complainant's rights, the complainant having had knowledge or notice, of the
defendant's conduct and having been afforded an opportunity to institute a suit;
(c) 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 (d) injury or prejudice to
the defendant in the event relief is accorded to the complainant, or the suit is
not held to be barred.
The court first defines express and implied trusts. To establish an express trust,
no particular words are required, it being sufficient that a trust is clearly
intended. These are created by direct and positive acts of the parties, by some
writing or deed, or will, or by words either expressly or impliedly evincing an
intention to create a trust. Implied trusts are those which, without being
expressed, are deducible from the nature of the transaction as matters of intent,
or which are superinduced on the transaction by operation of law as matter of
equity, independently of the particular intention of the parties. They are either
resulting or constructive trusts. In the case at bar, there was neither an express
or implied trust established.
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FABIAN VS Pablo Fabian bought a portion of the Friar Lands Estate
FABIAN from the Philippine Government. He died several years
later. One of his children and a niece of his executed an
affidavit stating that Pablo has no other heirs (he had 3
other children). Defendants took physical possession of
the land and cultivated it. Plaintiffs (other children) now
file an action for reconveyance against defendants.
BUENO V. Plaintiffs (heirs of Jorge Bueno) and defendant
REYES Francisco H. Reyes entered into an agreement,
whereby the latter was to file the answer in a cadastral
proceeding and obtain the title thereto for and in behalf
of the plaintiffs. 23 years later, upon discovering that
defendant, in bad faith or by mistake, filed an answer in
the cadastral proceedings and obtained title thereto in
his own name and brothers Mateo and Juan instead,
plaintiffs filed an action for reconveyance. The
defendants refused and raised the defense that the
action for reconveyance was predicated on the
existence of an implied trust, and such action prescribes
in 10 years. On the other hand, plaintiffs contended that
prescription could not hold, as the trust involved was an
express trust. The CFI dismissed the plaintiffs’
complaint, but the SC reversed the lower court and
remanded the case for further proceedings.
TAMAYO V. Spouses Tamayo sold a piece of land to Fernando
CALLEJO Domantay, who took possession of the land. When
Vicente died after the sale and his widow waived her
rights to the remaining portion of the property to their
children Mariano and Marcos, the two brothers applied
to register the land in their name, saying they inherited it
from their father, including the part that was sold to
Domantay. In 1918 Domantay sold the land to Callejo.
In 1940 Mariano Tamayo sold the land to Estacio,
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.
But in constructive trusts, the rule is that laches is a bar to an action to enforce
a constructive trust, and no repudiation is required, unless there is a
concealment of the facts giving rise to the trust. The appellants are not only
barred by laches because it took them 32 years to enforce the constructive
trust, there has also been a failure to prove that there had been a fraud or that
the defendants had concealed facts.
The SC held that pursuant to Art. 1456 of the Civil Code, the trust involved
herein was an implied one (a constructive trust), which justified an action for
reconveyance. While the Court agreed that the action for reconveyance was
subject to prescription in 10 years, it found that the action herein has not
prescribed. The cause of action upon such trust is deemed to have accrued
only upon the discovery of such bad faith or mistake, when the plaintiffs
discovered that Francisco H. Reyes violated the agreement by obtaining
registration of the property in his name and his brothers (which was in the same
year the plaintiffs filed the present action for reconveyance). The cadastral
proceeding, by virtue of its nature as a proceeding in rem, cannot be considered
as constructive notice to the plaintiffs, as the defendants may not invoke the
constructive-notice rule on the basis of their own breach of the agreement.
Though there was no clear evidence to create a trust, ruling out an express
trust, the admission of the sale in a public document turned the implied trust into
an express one. An express trust, the court held, was a “continuing and
subsisting trust” until repudiated, in which case the period of prescription begins
to run only from the time of repudiation
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whose surveyor went to the land in 1952 to segregate it;

that same year Callejo registered his adverse claim to
the land. Tamayo pleaded the statute of limitations as
defense, but the court found that in 1918, when they
had the land registered in their name, Mariano Tamayo,
on his behalf and that of his brother, executed a public
document acknowledging that his deceased parents
had sold a parcel of the land to Domantay.

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