1-D OBLIGATIONS AND CONTRACTS CASE DIGESTS

ARTICLES 1156 TO 1178

ANG YU V. CA
December 02, 1994
Topic: Elements
FACTS:
Petitioner Ang Yu Asuncion and Keh Tiong leased a property of respondents Bobby Cu Unjieng, Rose Cu Unjieng
and Jose Tan in Binondo Manila. Respondents informed plaintiffs that they are offering to sell the premises and are
giving them priority to acquire the same. Respondents 6M for the property but petitioners offered 5M. Respondents
accepted and asked petitioners to put in writing the terms and conditions but the latter never provided such. When
defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell
the property to them. Court recognizes the right of first refusal of the petitioner. Notwithstanding the court’s decision,
respondent sold the property to Buen Realty and Development Corporation.

ISSUE:
Whether or not petitioners can demand specific performance to the respondents to sell to them the property.

HELD:
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted
upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b)
the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor)
subjects.

The petitioners never accepted the offer when they refused to make the terms and condition of the sale. As such,
respondents has the right to sell the property to other parties. Even if petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is
none to execute, but an action for damages in a proper forum for the purpose

PAGUIO v PLDT
December 03, 2002
Topics: Arts. 19 & 21

FACTS:
Petitioner Alfredo Paguio was appointed Head of PLDT’s Garnet Exchange. The PLDT implemented the Greater
Metro Manila Network Performance Assessment program covering 27 exchanges of the 5 centers. Petitioner wrote
the respondent, complaining that the rating and ranking of the Exchanges were unfair. Respondent furnished petitioner
with a blank assessment sheet with instruction to rate his own performance. Petitioner gave himself an “outstanding”
rating with a total statistical points of 976 based on Garnet’s performance, but respondent Santos reduced it to 958, in
turn lowering Garnet’s rank to number four. The respondent issued a memorandum reassigning petitioner to a position
in the Office of the GMM East Center Head for Special Assignments. The reassignment was based on the respondent’s
well founded conclusion that the petitioner is not a team player and cannot accept the decisions of management. As a
result, petitioner filed a complaint for illegal demotion and damages against respondents.

ISSUE:
Whether or not the reassignment of the petitioner, Paguio, was valid.

HELD:
NO. According to NLRC, the petitioner’s transfer was not justified by the circumstances. It noted that petitioner was
well intentioned in criticizing the management of the company and that even as he criticized the management
decisions, petitioner nevertheless complied with them. Under Art. 21 of the Civil Code, any person who willfully
causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate
the latter for the damage. The illegal transfer of petitioner to a functionless office was clearly an abuse by respondent
PLDT of its right to control the structure of its organization. Petitioner is entitled to an award of moral damages as he
suffered anxiety, sleepless nights, besmirched reputation and social humiliation by reason of the act complained of.

SOLEDAD CARPIO VS LEONORA A. VALMONTE

September 9, 2004
Topic: Arts. 19&21

FACTS:
Respondent Leonora Valmonte is a wedding coordinator. Michelle del Rosario and Jon Sierra engaged her services
for their church wedding. Valmonte went to the Manila Hotel where the bride and her family were billeted. When she
arrived, several persons were already there including the bride, the bride’s parents and relatives, the make-up artist
and his assistant, the official photographers, and the fashion designer. Among those present was petitioner Soledad
Carpio, an aunt of the bride who was preparing to dress up for the occasion.
Petitioner then ordered one of the ladies to search Valmonte’s bag. It turned out that after Valmonte left the room to
attend to her duties, petitioner discovered that the pieces of jewellery which she placed inside the comfort room in a
paper bag were lost.
Valmonte was allegedly bodily searched, interrogated and trailed by a security guard throughout the evening.
Valmonte was being interrogated by the police officers, petitioner kept on saying the words Siya lang ang lumabas ng
kwarto. Valmonte’s car which was parked at the hotel premises was also searched but the search yielded nothing.
20 February 1997, Valmonte filed a suit for damages against her before the Regional Trial Court (RTC) of Pasig City,
Branch 268. In her complaint, Valmonte prayed that petitioner be ordered to pay actual, moral and exemplary damages,
as well as attorney’s fees.

ISSUE: WON respondent Valmonte is entitled to damages

HELD:
Yes. In the sphere of our law on human relations, the victim of a wrongful act or omission, whether done wilfully or
negligently, is not left without any remedy or recourse to obtain relief for the damage or injury he sustained.
Incorporated into our civil law are not only principles of equity but also universal moral precepts which are designed
to indicate certain norms that spring from the fountain of good conscience and which are meant to serve as guides for
human conduct. First of these fundamental precepts is the principle commonly known as abuse of rights under Article
19 of the Civil Code. To find the existence of an abuse of right, the following elements must be present: (1) there is a
legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent or prejudicing or injuring another. When
a right is exercised in a manner which discards these norms resulting in damage to another, a legal wrong is committed
for which the actor can be held accountable. One is not allowed to exercise his right in a manner which would cause
unnecessary prejudice to another or if he would thereby offend morals or good customs. Thus, a person should be
protected only when he acts in the legitimate exercise of his right, that is when he acts with prudence and good faith;
but not when he acts with negligence or abuse. Complementing the principle of abuse of rights are the provisions of
Articles 20 and 21 of the Civil Code.

In the case at bar, petitioners verbal reproach against respondent was certainly uncalled for considering that by her
own account nobody knew that she brought such kind and amount of jewellery inside the paper bag. This being the
case, she had no right to attack respondent with her innuendos which were not merely inquisitive but out rightly
accusatory. By openly accusing respondent as the only person who went out of the room before the loss of the jewellery
in the presence of all the guests therein, and ordering that she be immediately bodily searched, petitioner virtually
branded respondent as the thief. True, petitioner had the right to ascertain the identity of the malefactor, but to malign
respondent without an iota of proof that she was the one who actually stole the jewellery is an act which, by any
standard or principle of law is impermissible. Petitioner had wilfully caused injury to respondent in a manner which
is contrary to morals and good customs. Her firmness and resolve to find her missing jewellery cannot justify her acts
toward respondent.

REGINO VS PANGASINAN COLLEGES

 November 18, 2004
Topic: Arts. 19&21
FACTS:
Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of
Science and Technology (PCST). During the second semester of school year 2001-2002, she enrolled in logic and
statistics subjects under Respondents Rachelle A. Gamurot and Elissa Baladad, respectively, as teachers.
In February 2002, PCST held a fund raising campaign dubbed the Rave Party and Dance Revolution, the proceeds of
which were to go to the construction of the schools tennis and volleyball courts. Each student was required to pay for
two tickets at the price of P100 each. The project was allegedly implemented by recompensing students who purchased
tickets with additional points in their test scores; those who refused to pay were denied the opportunity to take the
final examinations.
Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to
pay for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations in logic and
statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from taking
the tests. According to petitioner, Gamurot made her sit out her logic class while her classmates were taking their
examinations. The next day, Baladad, after announcing to the entire class that she was not permitting petitioner and
another student to take their statistics examinations for failing to pay for their tickets, allegedly ejected them from the
classroom. Petitioners pleas ostensibly went unheeded by Gamurot and Baladad, who unrelentingly defended their
positions as compliance with PCSTs policy.

ISSUE:
Whether or not Respondent Colleges abused its right by not permitting Petitioner to take the Final Exams

HELD:
Yes. Private respondents inhumanly punish students x x x by reason only of their poverty, religious practice or lowly
station in life, which inculcated upon [petitioner] the feelings of guilt, disgrace and unworthiness; as a result of such
punishment, she was allegedly unable to finish any of her subjects for the second semester of that school year and had
to lag behind in her studies by a full year. The acts of respondents supposedly caused her extreme humiliation, mental
agony and demoralization of unimaginable proportions in violation of Articles 19, 21 and 26 of the Civil Code.

NIKKO HOTEL MANILA GARDEN and RUBY LIM vs. ROBERTO REYES, a.k.a. "AMAY BISAYA"
February 28, 2005
Topics: Arts. 19 & 21
FACTS:
This is a petition for review on certiorari of the resolution and the decision of the Court of Appeals whereby making
the petitioners liable for moral and exemplary damages. Roberto Reyes, aka “Amay Bisaya”, was at the lobby of the
Nikko Hotel Manila Garden when a friend saw him and allegedly invited him to the party. He carried the basket full
of fruits being carried by his friend while they were going up the penthouse of the hotel where the party was being
held. When the coordinator, Ms. Ruby Lim, saw him, she asked him to just leave the place after eating as he was not
invited but he did not. Instead, he shouted at the coordinator. His version was that, in a loud voice, the coordinator
shouted at him telling him to leave. He refused as he was allegedly invited by one of the guests who later on denied
having invited him. Instead, the guest testified that he carried the basket but warned him not to join as he was not
invited, but still he went into the place. He sued the hotel, the coordinator and the guest for damages. The RTC
dismissed the complaint due to lack of cause of action. The Court of Appeals reversed, holding that the manner he
was asked to leave exposed him to ridicule, thus, held the defendants liable for damages. They appealed, contending
that pursuant to the doctrine of volenti non fit injuria, they cannot be made liable for damages as he assumed the risk
of being asked to leave and being embarrassed and humiliated in the process, as he was a gate-crasher.

ISSUE:
Whether or not the coordinator acted abusively in asking Roberto Reyes, a.k.a. “Amay Bisaya,” to leave the party
where he was not invited by the celebrant, thus, becoming liable under Articles 19 and 21 of the Civil Code.

HELD:
NO. The coordinator is not liable under Articles 19 and 21 of the Civil Code and was deemed to have acted within
the bounds of propriety and good faith.
Upon careful scrutiny of the multiple versions of the incident, it was ruled that it is unlikely to happen that the
coordinator exposed him to ridicule and shame because admittedly, Amay Bisaya stated that she was close enough for
them to kiss when she asked him to leave the party. This suggests that it was her intention that only he heard what she
had to say. It was his reaction to the request that must have made the other guests aware of what had transpired between
them.
The doctrine of volenti non fit injuria (“to which a person assents is not esteemed in law as injury”) refers to self-
inflicted injury or to the consent to injury which precludes the recovery of damages by one who has knowingly and
voluntarily exposed himself to danger, even if he is not negligent in doing so. This doctrine does not find application
to the case at bar because even if Reyes assumed the risk of being asked to leave the party, the defendants, under
Articles 19 and 21 of the New Civil Code, were still under obligation to treat him fairly in order not to expose him to
unnecessary ridicule and shame.
The petition was thus granted and the Decision of the Court of Appeals reversed and set aside. The coordinator did
not abuse her right in asking Reyes to leave the party to which he was not invited, hence, he cannot be made liable
under Articles 19 and 21 of the New Civil Code. The employer cannot likewise be liable.

SAGRADA ORDEN DE PREDICADORES DEL SANTISIMO ROSARIO DE FILIPINAS VS NATIONAL

COCONUT CORPORATION
June 30, 1952
Topic: Sources of Obligations
FACTS:
The case is an action to recover possession of a piece of real property, a land with warehouses, situated in Pandacan,
Manila, and the rentals for its occupation and use. The land belongs to the plaintiff Sagrada Orden, in whose name the
title was registered before the war. During the Japanese occupation, the land was acquired by Taiwan Tekkosho, a
Japanese corporation, for P140,000. After the liberation from the Japanese forces, the Alien Property Custodian of the
USA took possession, control and custody by reason that it belonged to an enemy national, pursuant to section 12 of
the Trading with the Enemy Act. Under a custodianship agreement with the US Alien Property Custodian, the property
was occupied by Copra Export Management Company. When the property was vacated, herein defendant NACOCO
occupied it after representations were made with the Office of the US Alien Property Custodian, by virtue of such
representation the defendant was authorized to repair the warehouse on the land. The defendant leased 1/3 of the
property in 1948 to Dioscoro Sarile at a monthly rental of P500, then later P1,000, but he was not able to pay such.
The plaintiff made an action to recover the land before the Alien Property Custodian, but the action was denied. The
plaintiff then elevated the action to court, with the subsequent ruling that, among other things, the plaintiff would have
a right to recover from the defendants rentals for its occupation and use of the premises. The court also ruled therein
for the cancellation of the title given to Taiwan Tekkosho there being threats, duress and intimidation in its execution,
as well as cancellation of all interests and rights of the Alien Property Custodian; and an ultimatum set for NACOCO
until it may be ejected from the property.

ISSUE:
Whether or not the plaintiff may recover such amounts from the defendant by virtue of its use and occupation of the
premises.

HELD:
NO. The defendant-appellant is not liable for the value of such use and occupation. If he would be liable at all, its
obligations must arise from any of the four sources of obligations (law, contract or quasi-contract, crime or
negligence). The defendant entered the premises and occupied it with the permission of the Alien Property
Administration, which had the legal control and administration thereof by express provision of law. The occupation
was without any negligence on the part of the defendant.

Another ground which would justify why claims for rentals cannot be made is because there was no express agreement
between the Alien Property Custodian and the defendant-appellant for such. The existence of an implied agreement
to that effect is contrary to the circumstances.

INTESTATE ESTATE OF THE LATE RICARDO PRESBITERIO VS COURT OF APPEALS

January 21, 1993
 Topic: Sources of Obligations
FACTS:
On 19 August 1981, Ricardo Presbitero, Sr. entered into two (2) written contracts with private respondent Leonardo
Cañoso. In the first, Presbitero retained the services of the later to negotiate with the Land Bank of the Philippines
(LBP) and the Ministry of Agrarian Reform (MAR) for the saleof Hacienda Maria, owned by the former. The hacienda
had been placed under Operation Land Transfer pursuant to Presidential Decree No. 27. The private respondent bound
himself "to finish the processing and submission of documents with in (sic) the period of One hundred (sic) Twenty
Days (120 days) to Manila, by the Land Bank of the Philippines and Ministry of Agrarian Reform Cotabato City and
shall be subjected to the delay of the approval of the DBP additional loan negotiated by RICARDO P. PRESBITERO
in Bacolod City . . . ." In the second contract, denominated as a "Contract of Service," Presbitero bound himself to
compensate the private respondent "for his efforts, services and other related expenses in making the necessary follow
up (sic) of the preparation, production of pertinent documents required," and "to effect the recovery of the proceed
(sic) of the land transfer payment from the Land Bank of the Philippines," in an amount equivalent to "Twenty Five
per cent (25%) of the gross total sales of my properties described above which is (sic) subject of Operation Land
Transfer."-- A third agreement was entered into with the private respondent in Bacolod City under which the latter's
original fee of 25% was reduced to 17 1/2%.
When his claim was finally approved, Presbitero sent two (2) letters to the LBP concerning the release of a part of the
proceeds to the private respondent. The first letter, dated 16 May 1983 and addressed to the LBP President, requested
that the "amount equivalent to Seventeen and One Half (17 1/2%) per cent be released in the name of Leonardo
Cañoso, proportionate to (sic) cash and Land Bank Bonds, on every releases (sic) until the final release of the claim."
The second, dated 14 June 1983, made reference to the LBP's letter of 6 June 1983 and requested that he (Presbitero)
be notified in writing upon receipt; the latter also informed the LBP that he will "personally release the cash and bonds
to Mr. Cañoso due to advances made by him during the processing of the documents." However, when a part of the
proceeds was released, the private respondent was not given his share as agreed upon. Hence, the latter filed a
complaint against Presbitero.
On 18 April 1988, the trial court handed down a decision in favor of the private respondent. Which was appealed to
CA. In its decision, respondent Court modified the decision appealed from by reducing the principal award to the
private respondent from 25% to 17 1/2% of the amount to be collected by Presbitero from the LBP.

ISSUE: Whether or not the respondent committed a breach of his obligation

HELD:
NO. Obligations arising from contracts have the force of law between the contracting parties and should be complied
with in good faith. Unless the stipulations in a contract are contrary to law, morals, good customs, public order or
public policy, the same are binding as between the parties.

In this case, the contracts entered into by the parties were valid contracts. The two (2) complementary instruments
gave rise to reciprocal obligations which are defined as those that arise from the same cause, and in which each party
is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.

In the interpretation of contracts, it is the general rule that if the terms thereof are clear as to the intention of the
contracting parties, the literal meaning of the stipulations shall control. Furthermore, subsequent or contemporaneous
acts of the contracting parties shall be considered in judging their intention.

And even if We are to assume that the private respondent breached the agreement by not fully accomplishing his
obligation within the stipulated period, said breach was not of a nature which would justify a rescission of the contract,
that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement; the question of whether a
breach of contract is substantial depends upon the attending circumstances.

In the case at bar, no substantial breach was committed by the private respondent sufficient enough to warrant a
rescission.

MMTC VS COURT OF APPEALS

August 1, 2002
Topic: Sources of Obligations
FACTS:
On December 24, 1986, Florentina Sabalburo along with her companions were on their way to Baclaran to buy food
for their Noche Buena. While crossing the street, the victims were hit by a passenger bus driven by Apolinario Ajoc
and owned by petitioner Metro Manila Transit Corporation (MMTC). The victims were taken to the hospital and were
given medical attention, but Florentina Sabalburo never recovered and died.
Private respondents filed a complaint for damages alleging that Ajoc had driven in a wanton and reckless manner
which caused the untimely death of the victim. Petitioners denied the complaint and contended that it was the victim’s
negligence that caused her own death for she darted across the road despite the green light traffic sign. Furthermore,
they presented their recruitment guidelines and company policies on safety as a defense that there was no negligence
on their part.
The trial court ruled in favor of the private respondents and ordered herein petitioner and driver Ajoc to jointly and
severally pay private respondents for damages (solidarily liable). Petitioner MMTC claimed that it should not be held
vicariously liable for it has observed diligence in the selection and supervision of its drivers, particularly with regard
to safety measures which can be inferred from their company policies and Ajoc's act of bringing the victim to the
hospital.

ISSUE:
Whether or not petitioner MMTC should be held solidarily liable for a quasi-delict committed by its employee?

HELD:
YES. Under Article 2180 of the Civil Code, “[t]he obligation imposed by Article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is responsible… [e]mployers shall be liable
for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry.”
The Court stated that “whenever an employee's negligence causes damage or injury to another, there instantly arises
a presumption juris tantum that there was negligence on the part of the employer, either in the selection of the employee
(culpa in eligiendo) or the supervision over him after the selection (culpa in vigilando). Hence, to escape solidary
liability for a quasi-delict committed by his employee, an employer must rebut the presumption by presenting
convincing proof that in the selection and supervision of his employee, he has exercised the care and diligence of a
good father of a family.”

In the case at bar, the Court ruled that mere showing of recruitment guidelines and company policies for safety were
not sufficient to exempt MMTC from the liability arising from the negligence of its employee. There must be
satisfactory showing that MMTC followed these guidelines in order to disprove the presumption of negligence on its
part.

MAKATI STOCK EXCHANGE, INC. VS MIGUEL CAMPOS

April 26, 2009
Topic: Sources of Obligations
FACTS:
SEC Case No. 02-94-4678 was instituted on February 10, 1194 by respondent Miguel V. Campos with the Securities,
Investigation and Clearing Department (SICD) of the Securities and Exchange Commission (SEC), a petition against
Makati Stock Exchange, Inc. (MKSE).

The petition sought to:

1. Nullify Resolution dated June 3, 1993 of the MKSE Board of Directors, which allegedly deprived him of his right
to participate equally in the allocation of the Initial Public Offerings (IPO) of corporations registered with MKSE
2. Deliver the IPO shares he was allegedly deprived of, for which he would pay the IPO prices
3. Pay 2 million pesos as moral damages, 1 million pesos as exemplary damages and 500,000 as attorney’s fees and
litigation expenses.
The SICD issued an order granting respondent’s petition for issuance of TRO to enjoin petitioners from implementing
the resolution of the MKSE Board of Directors. On March 11, 1994 petitioner’s filed a motion to dismiss on the
grounds that petition became moot and academic due to cancellation of MKSE license, SICD had no jurisdiction and
petition failed to state cause of action. The SICD denied the motion to dismiss. Petitioners challenged order of the
SICD before the SEC en banc through petition for certiorari. The SEC en banc nullified the order of the SICD and
dismissed respondent’s petition before the SICD.
The respondent filed a petition for Certiorari with the Court of Appeals and was granted. Petitioners filed a motion for
reconsideration but were denied. Thus, Petition for Review on Certiorari under Rule 45 seeking the reversal of the
Decision2 dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G.R. SP No.
38455 was brought to the Supreme Court for resolution.

ISSUE:
Whether or not the petition of the respondent, Miguel V. Campos, failed to state a cause of action.

HELD:
The respondent’s Petition in SEC Case No. 02-94-4678 should be dismissed for failure to state a cause of action. It
does not matter that the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds
by not limiting itself to the issue of whether respondent’s Petition before the SICD sufficiently stated a cause of action.
The SEC en banc may have been mistaken in considering extraneous evidence in granting petitioners’ Motion to
Dismiss, but its discussion thereof are merely superfluous and obiter dictum. In the main, the SEC en banc did correctly
dismiss the Petition in SEC Case No. 02-94-4678 for its failure to state the basis for respondent’s alleged right, to wit:
Private respondent Campos has failed to establish the basis or authority for his alleged right to participate equally in
the IPO allocations of the Exchange. He cited paragraph 11 of the amended articles of incorporation of the Exchange
in support of his position but a careful reading of the said provision shows nothing therein that would bear out his
claim. The provision merely created the position of chairman emeritus of the Exchange but it mentioned nothing about
conferring upon the occupant thereof the right to receive IPO allocations.

THE METROPOLITAN BANK AND TRUST COMPANY vs. ANA GRACE ROSALES AND YO YUK TO
January 13, 2014
Topic: Sources of Obligations

FACTS:
In 2000, respondents Ana Grace Rosales and Yo Yuk To opened a Joint Peso Account with petitioner Metropolitan
Bank and Trust Company's Pritil-Tondo Branch. In May 2002, respondent Rosales accompanied her client Liu Chiu
Fang to petitioner’s branch in Escolta to open a savings account. Since Liu Chiu Fang could speak only in Mandarin,
respondent Rosales acted as an interpreter for her. Respondents then opened a Joint Dollar Account. On July 2003,
the petitioner bank issued a "Hold Out" order against respondents’ accounts and filed a criminal case of estafa through
False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents against Rosales. Petitioner accused
respondent Rosales as the one responsible for the unauthorized and fraudulent withdrawal of from Liu Chiu Fang’s
dollar account. On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the
criminal case for lack of probable cause.
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint44 for Breach
of Obligation and Contract with Damages. Respondents assailed the validity of the "Hold Out" status issued by the
respondent bank on their accounts. Respondents alleged that they attempted several times to withdraw their deposits
but were unable to because petitioner had placed their accounts under "Hold Out" status. No explanation, however,
was given by petitioner as to why it issued the "Hold Out" order. On the other hand, petitioner alleged that respondents
have no cause of action because it has a valid reason for issuing the "Hold Out" order which is due to the fraudulent
scheme employed by respondent Rosales.
While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution reversing the
dismissal of the criminal complaint. An Information was then filed charging respondent Rosales with Estafa before
the RTC of Manila. The RTC rendered a Decision finding petitioner liable for damages for breach of contract. It ruled
that it is the duty of petitioner to release the deposit to respondents as the act of withdrawal of a bank deposit is an act
of demand by the creditor.
Aggrieved, petitioner appealed to the CA. The CA then affirmed the ruling of the RTC. Petitioner sought
reconsideration but the same was denied by the CA. Hence, this petition.

ISSUES:
a.) Whether petitioner breached its contract with respondents
b.) Whether petitioner is liable for damages
HELD:
a.) Yes. Petitioner claims that it did not breach its contract with respondents because it has a valid reason for issuing
the "Hold Out" order. Petitioner anchors its right to withhold respondents’ deposits on the Application and Agreement
for Deposit Account. However, the court held that Petitioner’s reliance on the "Hold Out" clause in the Application
and Agreement for Deposit Account is misplaced. The "Hold Out" clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed
by petitioner against respondent Rosales, this is not enough reason for petitioner to issue a "Hold Out" order as the
case is still pending and no final judgment of conviction has been rendered against respondent Rosales. In fact, it is
significant to note that at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet been
filed. Thus, considering that respondent Rosales is not liable under any of the five sources of obligation, there was no
legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the findings of the RTC and the
CA that the "Hold Out" clause does not apply in the instant case.
In view of the foregoing, the court find that petitioner is guilty of breach of contract when it unjustifiably refused to
release respondents’ deposit despite demand.

b.) Yes. Having breached its contract with respondents, petitioner is liable for damages. In cases of breach of contract,
moral damages may be recovered only if the defendant acted fraudulently or in bad faith,80 or is "guilty of gross
negligence amounting to bad faith, or in wanton disregard of his contractual obligations." In this case, a review of the
circumstances surrounding the issuance of the "Hold Out" order reveals that petitioner issued the order in bad faith.
The court find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner when
it refused to release the deposits of respondents without any legal basis.

GEORGE BACHELDER VS THE CENTRAL BANK OF THE PHILIPPINES

March 29, 1972
Topic: Article 1158

FACTS:
Monetary Board Resolution No. 857 requires Filipino and American resident contractors for constructions in U.S.
military bases in the Philippines to surrender to the Central Bank their dollar earnings under their respective contracts
but were entitled to utilize 90% of their surrendered dollars for importation at the preferred rate of commodities for
use within or outside said U.S. military bases. Resolution 695 moreover, denies their right to reacquire at the preferred
rate ninety per cent (90%) of the foreign exchange the sold or surrendered earnings to Central Bank for the purpose
of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as
dollar-to-dollar transactions or not.
George Batchelder, an American Citizen permanently residing in the Philippines who is engaged in the Construction
Business, surrendered to the Central Bank his dollar earnings amounting to U.S. $199,966.00. He compels Central
Bank of the Philippines to resell to him$170,210.60 at the preferred rate of exchange of two Philippine pesos for one
American dollar, more specifically P2.00375 which was denied by the court.
He then contended that said decision failed to consider that if there was no contract obligating the bank to resell to
him at the preferred rate, the judgment of the lower court can and should nevertheless be sustained on the basis of
there being such an obligation arising from law.

ISSUE:
Whether or not Central Bank has the obligation arising from law to resell theUS$154,094.56 to Batchelder at the
preferred rate?

HELD:
The Supreme Court ruled in the negative. As set forth in such pleading: "We contend that Monetary Board Resolution
No. 857, dated June 17, 1960, as amended by Monetary Board Resolution No. 695, dated April 28, 1961, does not
give right to Filipino and resident American contractors undertaking construction projects in U.S. military bases to
reacquire at the preferred rate ninety per cent (90%) of the foreign exchange sold or surrendered to defendant Central
Bank thru the authorized agent banks. Nor does said resolution serve as a general authorization or license granted by
the Central Bank to utilize the ninety per cent (90%) of their dollar earnings. M.B. Resolution No. 857, as amended,
merely laid down a general policy on the utilization of the dollar earnings of Filipino and resident American
contractors undertaking projects in U.S. military bases, ... ."Further, there is this equally relevant portion in such
motion to dismiss: "It is clear from the aforecited provisions of said memorandum that not all imports against proceeds
of contracts entered into prior to April 25, 1960 are entitled to the preferred buying rate of exchange. Only imports
against proceeds of contracts entered into prior to April 25, 1960, not otherwise classified as dollar-to-dollar
transactions, and are entitled to the preferred rate of exchange. It is for this reason that the contractor is required to
first file an application with defendant Central Bank (Import Department) thru the Authorized Agent Banks, for the
purpose of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are
classified as dollar-to-dollar transactions (which are not entitled to the preferred rate of exchange), or not (which are
entitled to the preferred rate of exchange), and that if said imports are entitled to the preferred rate of exchange,
defendant Central Bank would issue a license to the contractor for authority to buy foreign exchange at the preferred
rate for the payment of said imports."
Had there been greater care therefore on the part of the plaintiff to show why in his opinion he could assert a right in
accordance not with a contract binding on the Central Bank, because there is none, but by virtue of compliance with
rules and regulations of an administrative tribunal, then perhaps a different outcome would have been justified.

ARTURO PELAYO VS MARCELO LAURON

January 12, 1909
Topic: Article 1158

FACTS:
Oct. 13, 1906, nighttime – Arturo Pelayo, a physician based in Cebu, was called to the house of Marcelo Lauron &
Juana Abella (defendants) in San Nicolas. Their daughter-in-law was about to give birth & they requested him to
render medical assistance. Since it was a difficult birth, he had to perform a surgery to remove the fetus using forceps.
He also removed the afterbirth. He finished all of these until the following morning.
He visited the patient several times the following day. Just & equitable value for the services he rendered: P500.00.
Without any good reason, defendants refused to pay said amount. Thus he filed a case praying for a judgment in his
favor against defendants for the sum of P500.00 + costs along with other relief that may be deemed proper.
The Defendants alleged that their daughter-in-law died in consequence of the childbirth. Also, that their son &
daughter-in-law lived independently & her giving birth in their house was only accidental. They prayed that they be
absolved.
CFI: Defendants absolved due to lack of sufficient evidence to establish right of action.

ISSUE:
WON the defendants are bound to pay the bill for the services Pelayo has rendered.

HELD:
NO. CFI judgment affirmed. Rendering of medical assistance in case of illness is among the mutual obligations to
which spouses are bound by way of mutual support. (Arts. 142 & 143, CC) The party bound to give support should
therefore be liable for all the expenses including the fees of the physician. Thus, it is the husband’s obligation to pay
Pelayo and not the defendants. The husband would still be liable even if his parents were the one who called &
requested for Pelayo’s assistance. The defendants are not under any obligation to pay the fees claimed (An obligation
according to CC Art. 1089 is created by law, contracts, quasi-contracts, & by illicit acts & omissions or by those in
which any kind of fault/negligence occurs.). There was no contract between Pelayo & the defendants thus they can’t
be compelled to pay him.

RODOLFO MORLA vs. CORAZON NISPEROS BELMONTE, et al.

December 7, 2011
Topic: Art. 1159 – Obligations arising from contracts have the force of law.

FACTS:
Spouses Alfredo Nisperos and Esperanza Urbano (the Nisperos spouses) were the original homesteaders of a public
land known and identified as Lot No. 4353 of Pls. 62, by virtue of Original Certificate of Title (OCT) No. P-1542.
The Nisperos spouses executed a Partial Deed of Absolute Sale, wherein they sold a portion of Lot No. 4353 (subject
land) to the brothers Ramon and Rodolfo Morla (the Morla brothers). The Morla brothers acknowledged and
confirmed in writing (the 1988 contract) that they had bought from the Nisperos spouses the subject land, and that
they had agreed to give the Nisperos spouses a period of ten (10) years within which to repurchase the subject land
for the price of Two Hundred Seventy-Five Thousand Pesos (₱275,000.00). Thereafter the Nisperos spouses filed a
Complaint for Repurchase and/or Recovery of Ownership Plus Damages against the Morla brothers. They alleged that
the deed of sale was registered by the Morla brothers only when they had signified their intention to repurchase their
property. In response, the Morla brothers claimed that the Nisperos spouses had no cause of action, as the repurchase
of the subject land was improper for being outside the five-year period provided under Section 119 of Commonwealth
Act No. 141.

ISSUE:
Whether or not the repurchase of the Nisperos spouses of the land sold to the Morla brothers within a period of ten
(10) years was valid.

HELD:
Yes. The Court is in full accord with the clear findings and apt ruling of the lower courts. Nowhere in Commonwealth
Act No. 141 does it say that the right to repurchase under Section 119 thereof could not be extended by mutual
agreement of the parties involved. Neither would extending the period in Section 119 be against public policy as the
evident purpose of the Public Land Act, especially the provisions thereof in relation to homesteads, is to conserve
ownership of lands acquired as homesteads in the homesteader or his heirs. What cannot be bartered away is the
homesteaders right to repurchase the homestead within five years from its conveyance, as this is what public policy
by law seeks to preserve. This, in the Court’s opinion, is the only logical meaning to be given to the law, which must
be liberally construed in order to carry out its purpose.
Petitioner does not dispute that the 1988 contract was executed freely and willingly between him and his late brother,
and the Nisperos spouses. The freedom of contract is both a constitutional and statutory right, and the contracting
parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy. The 1988 contract neither shortens the period
provided under Section 119 nor does away with it. Instead, it gives the Nisperos spouses more time to reacquire the
land that the State gratuitously gave them. The 1988 contract therefore is not contrary to law; instead it is merely in
keeping with the purpose of the homestead law. Since the 1988 contract is valid, it should be given full force and
effect. In Roxas v. De Zuzuarregui, Jr., the Court held:

It is basic that a contract is the law between the parties. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith. Unless the stipulations in a contract are
contrary to law, morals, good customs, public order or public policy, the same are binding as between the parties.

Petitioner, who freely signed the 1988 contract, cannot now be allowed to renege on his obligation under it, simply
because he changed his mind. The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them. Petitioner is thus bound by the terms of the 1988 Contract, and must comply with it in
good faith. Since the right to repurchase was exercised by the Nisperos spouses before the expiration of the time given
to them by the Morla brothers, the lower courts correctly ruled in their favor.

FAUSTO BARREDO v. SEVERINO GARCIA and TIMOTEA ALMARIO.

08 July 1942
Topic: Article 1159
FACTS:
In the morning of 03 May 1936, the taxi cab driven by Pedro Fontanilla and a carratela guided by Pedro Dimapilis
had a head-on collision, and as a result, one of the passengers of the carratela, Faustino Garcia, suffered injuries from
which cause his death. A criminal action was filed against Fontanilla, and was later on convicted. Severino Garcia and
Timotea Almario, parents of the deceased, brought an action to court against Fausto Barredo, being the sole proprietor
of the taxi franchise and employer of Fontanilla.
ISSUE:
Whether or not plaintiffs may bring a separate civil action against Barredo, making him, therefore, primarily and
directly responsible under Article 1903 of the Civil Code.
HELD:
Yes. The Court affirmed the decision of the Court of Appeals which ruled that the liability sought to be imposed upon
Barredo in this action is not a civil obligation arising from a felony, but an obligation imposed in Article 1903 of the
Civil Code by reason of his negligence in the selection or supervision of his servant or employee. A quasi-delict or
culpa aquiliana is a separate legal institution under the Civil Code, with a substantivity all its own, and individuality
that is entirely apart and independent from a delict or crime. Upon this principle, and on the spirit of Article 1903 of
the Civil Code, the primary and direct responsibility of employers may be safely anchored.

FGU INSURANCE CORPORATION VS. G.P. SARMIENTO TRUCKING CORPORATION

August 6, 2002
Topic: Culpa Contractual

FACTS:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on June 18, 1994, 30 units of Condura S.D. white
refrigerators aboard its Isuzu truck driven by Lambert Eroles, to the Central Luzon Appliances in Dagupan City. While
traversing the North Diversion Road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with
an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes.
FGU, an insurer of the shipment, paid the value of the covered cargoes (P204,450.00) to Concepcion Industries, Inc.,.
Being subrogee of CII’s rights & interests, FGU, in turn, sought reimbursement from GPS. Since GPS failed to heed
the claim, FGU filed a complaint for damages & breach of contract of carriage against GPS and Eroles with the RTC.
In its answer, respondents asserted that GPS was only the exclusive hauler of CII since 1988, and it was not so engaged
in business as a common carrier. Respondents further claimed that the cause of damage was purely accidental.
GPS filed a motion to dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed
to prove that it was a common carrier.
The RTC granted the motion to dismiss on April 30, 1996. It subsequently dismissed the complaint holding that GPS
was not a common carrier defined under the law & existing jurisprudence. The subsequent motion for reconsideration
having been denied, FGU interposed an appeal to the CA. The CA rejected the FGU’s appeal & ruled in favor of GPS.
It also denied petitioner’s motion for reconsideration.
ISSUES:
Whether or not GPS, either as a common carrier or a private carrier, may be presumed to have been negligent when
the goods it undertook to transport safely were subsequently damaged while in its protective custody & possession.
HELD:
GPS cannot escape from liability. In culpa contractual, the mere proof of the existence of the contract & the failure
of its compliance justify, prima facie, a corresponding right of relief. The law will not permit a party to be set free
from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof.
A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been
lost/suffered
Agreements can accomplish little unless they are made the basis for action. The effect of every infraction is to create
a new duty, or to make recompense to the one who has been injured by the failure of another to observe his contractual
obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence (normally that of
the diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case of common
carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his ensuing
liability.
A default on, or failure of compliance with, the obligation gives rise to a presumption of lack of care & corresponding
liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so.
Eroles, on the other hand, may not be ordered to pay petitioner without concrete proof of his negligence/fault. The
driver, not being a party to the contract of carriage between petitioner’s principal and defendant, may not be held liable
under the agreement. A contract can only bind the parties who have entered into it or their successors who have
assumed their personality/juridical position. Consonantly with the axiom res inter alios acta aliis neque nocet prodest,
such contract can neither favor nor prejudice a third person. Petitioner’s civil action against the driver can only be
based on culpa aquiliana, which would require the claimant for damages to prove the defendant’s negligence/fault.

VILLANUEVA vs DOMINGO
September 20, 2004
Topic: Culpa Aquiliana

FACTS:
This is a petition to review the decision made by Court of Appeals in the above case which affirming Notradamus
Villanueva (petitioner) to be held liable with the respondents Leandro Luis and Priscilla Domingo for the damages.
On October 22, 1991 at about 9:45pm in the evening, Priscilla R. Domingo together with Leandro Luis R. Domingo
Domingo was cruising along the middle lane of South Superhighway at moderate speed from north to south. Suddenly,
towards their path was also a car darted directly in their direction causing the hitting and bumping the left front portion
of their car. As a result of the impact, the said car also hit three parked vehicles at the roadside. It found out that the
car was driven by Renato Ocfemia with an expired license and also positive for alcoholic breath.
Upon filing the case made by the respondents, it appears that the owner of the car driven by Ocfemia was registered
under the name of Nostradamus Villanueva. Under the law, the registered owner of the car is also liable to pay for the
damages. The court ordered that Villanueva, as the owner of the car, should also liable for the damages made by
Ocfemia through the accident. Villanueva claimed that he was no longer the owner of the car at the time of the mishap
because it was swapped with a Pajero owned by Albert Jaucian (an agent of Auto Palace Car Exchange). It was also
found out that there still no transferring of ownership happened between the two, and according to Motor Vehicle
Registration, the car is still registered under Nostradamus Villanueva.

ISSUE:
Whether or not the registered owner of a motor vehicle be held liable for damages arising from a vehicular accident
involving his motor vehicle while being operated by the employee of its buyer without the latters consent and
knowledge?
HELD:
YES. It has been consistently ruled that the registered owner of any vehicle is directly and primarily responsible to
the public and third persons while it is being operated. The rationale behind such doctrine was explained way back in
1957 in Erezo vs. Jepte:
The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service
Law, the public has the right to assume or presume that the registered owner is the actual owner thereof, for it would
be difficult for the public to enforce the actions that they may have for injuries caused to them by the vehicles being
negligently operated if the public should be required to prove who the actual owner is. How would the public or third
persons know against whom to enforce their rights in case of subsequent transfers of the vehicles? We do not imply
by his doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his
liability to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon
any public highway unless the same is property registered. It has been stated that the system of licensing and the
requirement that each machine must carry a registration number, conspicuously displayed, is one of the precautions
taken to reduce the danger of injury to pedestrians and other travelers from the careless management of automobiles.
And to furnish a means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed
and operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be registered and that no
motor vehicles are to be used or operated without being properly registered for the current year, but that dealers in
motor vehicles shall furnish thee Motor Vehicles Office a report showing the name and address of each purchaser of
motor vehicle during the previous month and the manufacturers serial number and motor number. (Section 5(c), Act
No. 3992, as amended.)
Registration is required not to make said registration the operative act by which ownership in vehicles is transferred,
as in land registration cases, because the administrative proceeding of registration does not bear any essential relation
to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use
and operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended). The main aim of
motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is
caused by the vehicle on the public highways, responsibility therefore can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to
pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries
caused on public highways:
One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case
of accident; and another is that the knowledge that means of detection are always available may act as a deterrent from
lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the
rules of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and
the displayed number becomes a share and delusion, if courts would entertain such defenses as that put forward by
appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of
negligence, if they should be allowed to pace a middleman between them and the public, and escape liability by the
manner in which they recompense servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. 278, 279.)
The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any
accident, damage or injury caused by the vehicle. Easy identification prevents inconvenience and prejudice to a third
party injured by one who is unknown or unidentified. To allow a registered owner to escape liability by claiming that
the driver was not authorized by the new (actual) owner results in the public detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to
determining the liability of the registered owner. This must be so if we are to comply with the rationale and principle
behind the registration requirement under the motor vehicle law.

HERMANA R. CEREZO VS. DAVID TUAZON

March 23, 2004
Topic: Employee/employer solidarily liable

FACTS:
Noontime, June 26, 1993 -- A Country Bus Lines passenger bus collided with a tricycle in Pampanga. The driver of
the tricycle Tuazon filed a complaint for damages against Mrs. Cerezo, the owner of the bus lines, her husband, Atty.
Cerezo, and bus driver Foronda. According to the facts alleged in the complaint, Tuazon was driving on the proper
lane. There was a "Slow Down" sign which Foronda ignored. After the complaint was filed, alias summons was served
upon the person of Atty. Cerezo, the Tarlac Provincial Prosecutor. In their reply, Mrs. Cerezo contended that the trial
court did not acquire jurisdiction because there was no service of summons on Foronda. Moreover, Tuazon failed to
reserve his right to institute a separate civil action for damages in the criminal action.
ISSUE:
Whether or not Mrs. Cerezo is liable for damages?
HELD:
YES. Mrs. Cerezo's contention is wrong. Tuazon's case is not based on criminal law but on quasi-delict under the
Civil Code. The same negligent act may produce civil liability arising from a delict under Art. 103, RPC, or may give
rise to an action for quasi-delict under Art. 2180, C.C. An aggrieved party may choose between the two remedies. An
action based on quasi-delict may proceed independently from the criminal action. There is, however, a distinction
between civil liability arising from a delict and civil liability arising from a quasi-delict. The choice of remedy whether
to sue for a delict or a quasi-delict, affects the procedural and jurisdictional issues of the action.
Tuazon's action is based on quasi-delict under Art. 2180: Employer's liability. Foronda is not an indispensable party,
contrary to Mrs. Cerezo's contention. An indispensable party is one whose interest is affected by the court's action in
the litigation, and without whom no final resolution of the case is possible. However, Mrs. Cerezo's liability as an
employer in action for quasi-delict is not only solidary, it is also primary and direct.
The responsibility of two or more persons who are liable for a quasi-delict is solidary. Where there is a solidary liability
on the part of the debtors, as in this case, each debtor is liable for the entire obligation. Hence, each debtor is liable to
pay for the entire obligation in full. There is no merger or renunciation of rights, but only mutual representation. Where
the obligation of the parties is solidary, either of the parties is indispensable, and the other is not even a necessary
party because complete relief is available from either. Therefore, jurisdiction over Foronda is not even necessary as
Tuazon may collect from Mrs. Cerezo alone.
Moreover, an employer's liability based on a quasi-delict is primary and direct, while the employer's liability based on
a delict is merely subsidiary. The word “primary and direct,” as contrasted with “subsidiary,” refers to the remedy
provided by law for enforcing the obligation rather than to the character and limits of the obligation. Although liability
under Art. 2180 originates from the negligent act of the employee; the aggrieved party may sue the employer directly.
When an employee causes damage, the law presumes that the employer has himself committed an act of negligence
in not preventing or avoiding the damage. This is the fault that the law condemns. While the employer is civilly liable
in a subsidiary capacity for the employee's criminal negligence, the employer is also civilly liable directly and separate
for his own civil negligence in failing to exercise due diligence in selecting and supervising his employee. The idea
that the employer's liability is wholly subsidiary is wrong.
The action can be brought directly against the person responsible (for another) without including the author of the act.
The action against the principal is accessory in the sense that it implies the existence of a prejudicial act committed
by the employee, but is not subsidiary in the sense that it cannot be instituted till after the judgment against the author
of the act or at least, that it is subsidiary to the principal action; action for responsibility (of the employer) is in itself
a principal action.
In contrast, an action based on a delict seeks to enforce the subsidiary liability of the employer for the criminal
negligence of the employee as provided in Art. 103, RPC. To hold the employer liable in a subsidiary capacity under
a delict, the aggrieved party must initiate a criminal action where the employee's delict and corresponding primary
liability are established. If the present action proceeds from a delict, then the trial court's jurisdiction over Foronda is
necessary.
However, the action filed by Tuazon was based on a quasi-delict, which is separate and independent from an action
based on a delict. Hence, there was no need to reserve the filing of a separate civil action. The purpose of allowing the
filing of an independent action based on quasi-delict against the employer is to facilitate the remedy for civil wrongs.

LRTA VS NATIVIDAD
February 6, 2003
Topic: Employer/employee solidarily liable

FACTS:
The case before the Court is an appeal from the decision and resolution of the Court of Appeals, exonerating Prudent
Security Agency (Prudent) from liability and finding Light Rail Transit Authority (LRTA) and Rodolfo Roman liable
for damages on account of the death of Nicanor Navidad.
On 14 October 1993, about half an hour past seven o’clock in the evening, Nicanor Navidad, then drunk, entered the
EDSA LRT station after purchasing a "token" (representing payment of the fare). While Navidad was standing on the
platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area approached Navidad. A
misunderstanding or an altercation between the two apparently ensued that led to a fist fight. No evidence, however,
was adduced to indicate how the fight started or who, between the two, delivered the first blow or how Navidad later
fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman,
was coming in. Navidad was struck by the moving train, and he was killed instantaneously.
ISSUE:
Whether or not LRTA and Roman should be liable according to the contract of carriage.
HELD:
The law requires common carriers to carry passengers safely using the utmost diligence of very cautious persons with
due regard for all circumstances. Such duty of a common carrier to provide safety to its passengers so obligates it not
only during the course of the trip but for so long as the passengers are within its premises and where they ought to be
in pursuance to the contract of carriage. The statutory provisions render a common carrier liable for death of or injury
to passengers (a) through the negligence or wilful acts of its employees or b) on account of wilful acts or negligence
of other passengers or of strangers if the common carrier’s employees through the exercise of due diligence could
have prevented or stopped the act or omission.
In case of such death or injury, a carrier is presumed to have been at fault or been negligent, and by simple proof of
injury, the passenger is relieved of the duty to still establish the fault or negligence of the carrier or of its employees
and the burden shifts upon the carrier to prove that the injury is due to an unforeseen event or to force majeure. In the
absence of satisfactory explanation by the carrier on how the accident occurred, which petitioners, according to the
appellate court, have failed to show, the presumption would be that it has been at fault,an exception from the general
rule that negligence must be proved.

The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from
the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the
discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or
avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common
carrier is not relieved of its responsibilities under the contract of carriage.
This Court is concluded by the factual finding of the Court of Appeals that "there is nothing to link (Prudent) to the
death of Nicanor (Navidad), for the reason that the negligence of its employee, Escartin, has not been duly proven x
x x." This finding of the appellate court is not without substantial justification in our own review of the records of the
case.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or omission,
he must also be absolved from liability. Needless to say, the contractual tie between the LRT and Navidad is not itself
a juridical relation between the latter and Roman; thus, Roman can be made liable only for his own fault or negligence.

VIRON TRANSPORTATION CO. VS ALBERTO DELOS SANTOS

November 22, 2000
Topic: If employer sued, employee not indispensable party
FACTS:
Viron set of Facts: On August 16, 1993, at around 2:30 in the afternoon, the Viron Transit Bus, owned by Viron
Transportation Co., driven by Wilfredo Villanueva along MacArthur Highway within the vicinity of Tarlac coming
from the North going to Manila.
It was following the Forward Cargo Truck proceeding from the same direction then being driven by Alberto delos
Santos. The cargo truck swerved to the right shoulder of the road and, while about to be overtaken by the bus, again
swerved to the left to occupy its lane. It was at that instance that the collision occurred, the left front side of the truck
collided with the right front side of the bus causing the two vehicles substantial damages.
Santos set of Facts: At about 12:30 in the afternoon of August 16, 1993, Santos was driving said truck along the
National Highway within the vicinity of Tarlac. The Viron bus, tried to overtake his truck, and he swerved to the right
shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving
was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite
direction.
The lower court dismissed Viron’s complaint and sustained Santos’ counterclaim for damages. It ordered the petitioner
to pay the following amounts: (1) P19,500.00, with interest thereon at 6% per annum from the date of complaint, as
actual damages, until the same shall have been fully paid and satisfied; (2) P10,000.00 as additional compensatory
damages for transportation and accommodations during the trial of this case; (3) P10,000.00 for and as attorney’s fees;
and (4) Costs of suit
ISSUE:
Whether or not Viron Transportation Co. was liable for damages caused by their driver?
HELD:
VIRON TRANSCO IS LIABLE EVEN IF THEY EXERCISED DILIGENCEOF A GOOD FATHER OF THE
FAMILY IN SELECTING ANDSUPERVISING THEIR EMPLOYEES.
Transportation Co., Inc., as the registered owner of the bus involved in the vehicular accident originally brought the
action for damages against Santos. We find that the counter claim of Santos alleges the ultimate facts constituting their
cause of action. It is not necessary to state that petitioner was negligent in the supervision or selection of its employees,
as its negligence is presumed by operation of law.
As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primary liable for
the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That
presumption, however, is only juris tantum, not juris et de jure. Their only possible defense is that they exercised all
the diligence of a good father of a family to prevent the damage. Article 2180 reads as follows:
“The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those
of persons for whom one is responsible.

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope
of their assigned tasks, even though the former are not engaged in any business or industry.

PLEYTO VS LOMBOY
June 16, 2004
Topic: Employee’s fault or negligence presumed
FACTS:
Petitioner Philippine Rabbit Bus Lines, Inc. (PRBL), with principal office at Tarlac City, Tarlac, is a public carrier,
engaged in carrying passengers and goods for a fare. It serviced various routes in Central and Northern Luzon.
Petitioner Ernesto Pleyto was a bus driver employed by PRBL at the time of the incident in question.
At approximately 11:30 a.m., PRBL Bus No. 1539, with Plate No. CVD 556, driven by petitioner Pleyto, was traveling
along MacArthur Highway in Gerona, Tarlac bound for Vigan, Ilocos Sur. It was drizzling that morning and the
macadam road was wet. Right in front of the bus, headed north, was the tricycle with Plate No. CX 7844, owned and
driven by one Rodolfo Esguerra.
According to a witness and one of the bus passengers, Pleyto tried to overtake Esguerras tricycle but hit it instead.
Pleyto then swerved into the left opposite lane. Coming down the lane,Mitsubishi Lancer car, driven by Arnulfo
Asuncion. The car was headed for Manila with some passengers. PRBL Bus No. 1539 smashed head-on the car, killing
Arnulfo and Ricardo instantly. Carmela and Rhino suffered injuries.
ISSUE:
Whether or not PRBL is liable for damages
HELD:
YES. The negligence and fault of appellant driver is manifest. The Court of Appeals found PRBL liable for Pleytos
negligence pursuant to Article 2180 in relation to Article 2176 of the Civil Code. Under Article 2180, when an injury
is caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent
either in the selection or in the supervision of that employee. This presumption may be overcome only by
satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the
selection and the supervision of its employee.
Thus, in the selection of prospective employees, employers are required to examine them as to their qualifications,
experience and service records. With respect to the supervision of employees, employers must formulate standard
operating procedures, monitor their implementation and impose disciplinary measures for breaches thereof. These
facts must be shown by concrete proof, including documentary evidence.

VICTORY LINER VS. HEIRS OF MALECDAN

December 27, 2002
Topic: Employer’s fault/negligence presumed

FACTS: Malecdan was a 75 year-old farmer. While crossing the National Highway on his way home from the farm,
a Dalin Liner bus on the southbound lane stopped to allow him and his carabao to pass. However, as Andres was
crossing the highway, a bus of petitioner Victory Liner, driven by Joson bypassed the Dalin bus. In so doing,
respondent hit the old man and the carabao on which he was riding. As a result, Malecdan was thrown off the carabao,
while the beast toppled over. The Victory Liner bus sped past the old man, while the Dalin bus proceeded to its
destination without helping him.
The incident was witnessed by Malecdan's neighbor, Lorena, who was resting in a nearby waiting shed after working
on his farm. Malecdan sustained a wound on his left shoulder, from which bone fragments protruded. He was taken
by Lorena and another person to the Hospital where he died a few hours after arrival.a lso died soon afterwards.
Subsequently, a criminal complaint for reckless imprudence resulting in homicide and damage to property was filed
against the Victory Liner bus driver Joson.
Private respondents brought this suit for damages in the Regional Trial Court, which, in a decision rendered on July
17, 2000, found the driver guilty of gross negligence in the operation of his vehicle and Victory Liner, Inc. also guilty
of gross negligence in the selection and supervision of Joson, Jr. Petitioner and its driver were held liable for damages.
ISSUE:
Whether or not Victory Liner as employer of the driver Joson is vicariously liable for the heirs of the victim, Malecdan.
HELD:
The Court held that Article 2180 provides for the solidary liability of an employer for the quasi-delict committed by
an employee. The responsibility of employers for the negligence of their employees in the performance of their duties
is primary and, therefore, the injured party may recover from the employers directly, regardless of the solvency of
their employees.
Employers may be relieved of responsibility for the negligent acts of their employees acting within the scope of their
assigned task only if they can show that "they observed all the diligence of a good father of a family to prevent
damage." For this purpose, they have the burden of proving that they have indeed exercised such diligence, both in
the selection of the employee and in the supervision of the performance of his duties.
In the selection of prospective employees, employers are required to examine them as to their qualifications,
experience and service records. With respect to the supervision of employees, employers must formulate standard
operating procedures, monitor their implementation and impose disciplinary measures for breaches thereof. These
facts must be shown by concrete proof, including documentary evidence.
In the instant case, petitioner presented the results of Joson, Jr.'s written examination, actual driving tests, x-ray
examination, psychological examination, NBI clearance, physical examination, hematology examination, urinalysis,
student driver training, shop training, birth certificate, high school diploma and reports from the General Maintenance
Manager and the Personnel Manager showing that he had passed all the tests and training sessions and was ready to
work as a professional driver. However, as the trial court noted, petitioner did not present proof that Joson, Jr. had
nine years of driving experience.

ESTACION VS. BERNARDO

February 27, 2006
Topic: Culpa Aquilina, Employer’s Fault Or Negligence Is Presume

FACTS:
Respondent Noe was going home to Dumaguete from Cebu boarded a Ford Fiera passenger jeepney driven by
respondent Geminiano Quinquillera, owned by respondent Cecilia Bandoquillo, and was seated on the extension seat
placed at the center of the Fiera. Respondent offered his seat to an old lady, since there were no seats left. Respondent
hung/stood on the left rear carrier of the vehicle. While the vehicle was picking up passengers, a truck owned and
driven by Gerosano hit the rear end of the vehicle where the respondent was staying. As a result of the incident,
respondent’s leg was amputated. A complaint for damage through quasi-delict was filed by the respondent against
Gerosano.
ISSUE:
Whether or not the petitioner alone is liable for the damage caused
HELD:
No. It is the negligent act of petitioner’s driver of driving the cargo truck at a fast speed coupled with faulty brakes
which was the proximate cause of respondent Noe’s injury. However, we agree with petitioner that respondent Noe’s
act of standing on the rear carrier of the Fiera exposing himself to bodily injury is in itself negligence on his part. We
find that the trial court and the CA erred when they failed to consider that respondent Noe was also guilty of
contributory negligence.
Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has
suffered, which falls below the standard to which he is required to conform for his own protection. Respondent
Quinquillera’s act of permitting respondent Noe to hang on the rear portion of the Fiera in such a dangerous position
creates undue risk of harm to respondent Noe. Quinquillera failed to observe that degree of care, precaution and
vigilance that the circumstances justly demand. Thus, respondent Noe suffered injury. Since respondent Quinquillera
is negligent, there arises a presumption of negligence on the part of his employer, respondent Bandoquillo, in
supervising her employees properly. Such presumption was not rebutted at all by Bandoquillo.
Thus, the CA erred in affirming the dismissal of the third party complaint filed by petitioner against respondents
Quinquillera and Bandoquillo. As the employer of Gerosano, petitioner is primarily and solidarily liable for the quasi-
delict committed by the former. Petitioner is presumed to be negligent in the selection and supervision of his employee
by operation of law and may be relieved of responsibility for the negligent acts of his driver, who at the time was
acting within the scope of his assigned task, only if he can show that he observed all the diligence of a good father of
a family to prevent damage. A plaintiff who is partly responsible for his own injury should not be entitled to recover
damages in full but must bear the consequences of his own negligence. The defendant must thus be held liable only
for the damages actually caused by his negligence.

SYKI VS. BEGASA

October 23, 2003
Topic: Employee & employer solidary liable: presumption is rebuttable by proof of due diligence
FACTS: Respondent Salvador Begasa suffered physical injuries when the truck owned by petitioner Ernesto Syki
and driven by Elizalde Sablayan bumped the rear end of the passenger jeepney where the respondent was then
boarding. The trial court awarded actual and moral damages to the respondent. Petitioner Syki and his driver appealed
to the Court of Appeal which, however, affirmed in toto the decision of the trial court.
Thus, petitioner filed this petition for review arguing that the appellate court erred in ruling that he failed to observe
the diligence of a good father of a family in the selection and supervision of his driver. He asserts that he presented
sufficient evidence to prove that he observed the diligence of a good father of a family in selecting and supervising
the said employee, thus he should not be held liable for the injuries sustained by respondent.

ISSUE: Whether or not petitioner Syki is liable for the injuries sustained by the respondent.

HELD: YES. The Court held that when an injury is caused by the negligence of an employee, a legal presumption
instantly arises that the employer was negligent in the selection and/or supervision of said employee. The said
presumption may be rebutted only by a clear showing on the part of the employer that he exercised the diligence of a
good father of a family in the selection and supervision of his employee. If the employer successfully overcomes the
legal presumption of negligence, he is relieved of liability. In other words, the burden of proof is on the employer.
Petitioner’s evidence consisted entirely of testimonial evidence. The unsubstantiated and self-serving testimonies of
petitioner and his mechanic were, without doubt, insufficient to overcome the legal presumption that petitioner was
negligent in the selection and supervision of his driver.
Since the negligence of petitioner's driver was the sole and proximate cause of the accident, petitioner is liable to pay
damages to respondent Begasa for the injuries sustained by him.

DELSAN VS C&A CONSTRUCTION

2003
Topic: Employee & employer solidary liable: presumption is rebuttable by proof of due diligence; Quasi-
Delict

FACTS: C & A construction, construct a deflector wall at the Vitas reclamation Area in Tondo, Manila it was not
formally turnover to National Housing Authority though it was completed in 1994. On 12:00 midnight of October 20,
1994 Captain Demetrio T. Jusep of M/V Delsan Express receive a report that that a typhoon was going to hit Manila
after eight (8) hours. At 8:35 a.m. he tried to seek shelter but it was already congested. At 10:00 a.m. Capt. Jusep drop
the anchor at the vicinity of Vitas mouth, the waves were already reaching 8 to 10 feet. The ship was dragged by the
wind toward the Napocor power barge Capt. Jusep ordered a full stop of the vessel to avoid the collision but when the
engine was re-started, it hit the deflector wall constructed by the respondent. P456,198.24 was the damaged cause by
the incident. C & A construction demanded payment of the damages from Capt. Jusep but the latter refused to pay due
to the cause of the incident was by a fortuitous event. The trial court ruled that Captain Jusep was not guilty of
negligence in applying the “emergency rule” because it had taken necessary precautions to avoid accident. The Court
of Appeals reversed & set aside the decision of the trial court. Captain Jusep was found guilty of negligence in
transferring the vessel only at 8:35 a.m. of October 21,1994 and held liable for damages in waiting until 8:35 a.m.
before transfering the vessel to sought shelter.

ISSUES:
(1) Whether or not Capt. Jusep was negligent.
(2) Whether or not the petitioner is solidarily liable under Art. 2180 of the Civil Code for Quasi-Delict.

HELD:
(1) The court finds Captain Jusep is guilty of negligence, the failure to take immediate and appropriate action under
the circumstances, despite the knowledge that there is typhoon but he waited for the lapse of eight (8) hours instead.
Captain Jusep showed an inexcusable lack of care and caution which an ordinary prudent person would have observed
in the same situation. The trial court erred in applying the emergency rule because the danger where Captain Jusep
found himself was caused by his own negligence.
(2) The court finds the petitioner liable for the negligent act of Capt. Jusep. Whenever an employee’s negligence
causes damage to another, it instantly arise a presumption that the employer failed to exercise the care and diligence
of supervision of his employee. In Fabre ,jr. v Court of Appeals held that due diligence requires consistent compliance
of rules & regulation for the guidance and actual implementation of rules. But the petitioner fails to give any evidence
that its rule are strictly implemented and monitored in compliance therewith petitioner is therefore liable for the
negligent act of Capt. Jusep. The amount of P 456, 198.27 due earn 6% interest per annum from October 3, 1995 until
the finality of the decision.

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM vs. THE COURT OF
APPEALS and MAURICE McLOUGHLIN
February 17, 2005
Topic: Quasi-Delictual Liability May Arise Even Where There Is An Existing Contractual Relationship.

FACTS: Maurice Peaches McLoughlin is an Australian businessman-philanthropist who used to stay at the Sheraton
Hotel during his trips to the Philippines prior to 1984. He met Brunhilda Mata-Tan who befriended him and showed
him around. Tan convinced Mcloughlin to transfer to the Tropicana from the Sheraton where afterwards he stayed
during his trips from Dec 1984 to Sept 1987. On 30 Oct 1987, McLoughlin arrived from Australia and registered with
Tropicana. He rented a safety deposit box as his usual practice. The box required two keys, the guest had one and one
from the management. He placed US $10,000 in one envelope and US$5,000 in another , AU$10,000 in another
envelope and other envelopes with his passport and credit cards. On 12 Dec 1987, he took from the box the envelope
with US$5,000 and the one with AU$10,000 to go to Hong Kong for a short visit, because he was not checking out.
When he arrived in HK, the envelope with US$5,000 only contained US$3,000, but because he had no idea if the
safety deposit box has been tampered, he thought it was just bad accounting. After returning to Manila, he checked
out of the Tropicana on 18 Dec 1987 and left for Australia. When he arrived he discovered that the envelope with
US$10,000 was short of US$5,000. He also noticed that the jewelry he bought in Hong Kong which he stored in the
safety deposit box upon his return to Tropicana was likewise missing, except for a diamond bracelet. He went back to
the PH on 4 Apr 1988 and asked Lainez (who had custody of the management key) if some money was missing or
returned to her, to which the latter answered there was not. He again registered at the Tropicana and rented a safety
deposit box. He placed an envelope containing US$15,000, another of AU$10,000. On 16 Apr, he opened his safety
deposit box and noticed that US$2,000 and AU$4,500 was missing from the envelopes. He immediately confronted
Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to McLoughlin.
McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen
McLoughlin’s key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez. Lopez
also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. McLoughlin
requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for a meeting
with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin at
Tropicana and thereat, Lopez wrote on a piece of paper a promissory note. He made Lopez and Tan sign a promissory
note for him for the loss. However, Lopez refused liability on behalf of the hotel, reasoning that McLoughlin signed
an "Undertaking for the Use of
46

Safety Deposit Box" which disclaims any liability of the hotel for things put inside the box. On 17 May 1988
McLoughlin went back to AU and consulted his lawyers. They wrote a letter addressed to Pres. Cory Aquino which
was pushed back to the DOJ and the Western Police District. He went back from the PH to AU several times more to
attend business and follow up but the matter was only filed on 3 Dec 1990 since he was not there to personally follow
up. McLoughlin filed an action against YHT Realty Corporation, Lopez, Lainez, Payam and Tan. The RTC rendered
judgment in favor of McLoughlin. The CA modified only the amount of damages awarded. Tan and Lopez, however,
were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as
defendants.
ISSUES:
1. Whether or not there was gross negligence on the part of the innkeepers.
2. Whether or not the "Undertaking for the Use of the Safety Deposit Box" is null and void.
HELD:
1. Yes. Payam and Lainez, who were employees of Tropicana, had custody of the master key of the management when
the loss took place. They even admitted that they assisted Tan on three separate occasions in opening McLoughlin’s
safety deposit box.
The management contends that McLoughlin made its employees believe that Tan was his spouse for she was always
with him most of the time. The evidence on record is bereft of any showing that McLoughlin introduced Tan to the
management as his wife. Mere close companionship and intimacy are not enough to warrant such conclusion. They
should have confronted him as to his relationship with Tan considering that the latter had been observed opening
McLoughlin’s safety deposit box a number of times at the early hours of the morning.
Art 2180, par (4) of the same Code provides that the owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions. Given the fact that the loss of McLoughlin’s money was consummated
through the negligence of Tropicana’s employees both the employees and YHT, as owner of Tropicana, should be
held solidarily liable pursuant to Art 2193.
2. Yes, it is null and void. Art. 2003[1] is controlling. This is an expression of public policy that the hotel business
like common carriers are imbued with public interest. This responsibility cannot be waived away by any contrary
stipulation in so-called "undertakings" that ordinarily appear in prepared forms imposed by hotel keepers on guests
for their signature. The CA (former case) even ruled before that hotelkeepers are liable even though the effects are not
delivered to them or their employees, but it is enough that the effects are within the hotel or inn. Pars. 2 and 4 of the
undertaking manifestly contravene Art. 2003 of the NCC. Meanwhile, the defense that Art. 2002 exempts the hotel-
keeper from liability if the loss is due to the acts of the guest, family or visitors falls because the hotel is guilty of
negligence as well. This provision presupposes that the hotel-keeper is not guilty of concurrent negligence or has not
contributed in any degree to the occurrence of the loss.
• Damages awarded by the lower court sustained
• US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;
• Air fares for a total of 11 trips + transpo expense
• Hotel payments
• Moral 50K
• ED 10K
• AF 200K

AMERICAN EXPRESS INTERNATIONAL V. CORDERO

October 14, 2005
Topic: Quasi-delictual liability may arise even where there is an existing contractual relationship

FACTS: Noel Cordero, the respondent applied for and was issued by a charge card by American Express, the
petitioner, a foreign corporation that issues charge cards to its customers which can be used by the customers to
purchase goods and services at accredited merchants worldwide. An extension charge card was also issued to Noel
Cordero which he also signed.
Upon respondent and his family’s three-day holiday trip to Hong Kong, they went to Watsons Chemist Shop where
he bought some goods and handed to the sales clerk his American Express extension charge card to pay for his
purchase. The store manager had confiscated the card after the sales clerk had called the petitioner’s office In Hong
Kong. Respondent claimed that the happening caused him embarrassment and humiliation considering it was done in
front of his family and other customers lined up at the counter. Respondent’s wife was informed that his card was
placed under petitioner's Inspect Airwarn Support System.
When the Watsons sales clerk called up petitioners Hong Kong Office, its representative said he wants to talk to
respondent in order to verify the latter’s identity but the respondent refused. The petitioner’s representative was unable
to establish the identity of the cardholder which led to the confiscation of the respondent’s card.

ISSUE: Whether or not the lower courts gravely erred in attributing the public humiliation allegedly suffered by
Cordero to Amex based on Article 2176 of the Civil Code.

HELD: Yes. In this case, the inference made by the courts below is manifestly mistaken. Respondent anchors his
cause of action on Article 2176. In order that an obligation based on quasi-delict may arise, there must be no pre-
existing contractual relation between the parties. But there are exceptions. There may be an action for quasi-delict
notwithstanding that there is a subsisting contract between the parties. A liability for tort may arise even under a
contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of
contract would have itself constituted the source of a quasi-delictual liability, the contract can be said to have been
breached by tort, thereby allowing the rules on tort to apply.
Significantly, paragraph 16 of the Cardmember Agreement signed by respondent provides that the card remains as
their property. The petitioner can revoke respondents card without notice, as was done here. It bears reiterating that
the subject card would not have been confiscated and cut had respondent talked to petitioners representative and
identified himself as the genuine cardholder. It is thus safe to conclude that there was no negligence on the part of
petitioner and that, therefore, it cannot be held liable to respondent for damages.

SHELL PETROLEUM CORP. VS JOHN BORDMAN LTD. OF ILOILO

October 14, 2005
Topic: Employee and Employer Solidarily liable: Quasi-delictual liability may arise where there is an existing
contractual relationship

FACTS: Petitioner Pilipinas Shell Petroleum Corporation (Pilipinas Shell) is a corporation engaged in the business
of refining and processing petroleum products. The invoicing of the products was made by Pilipinas Shell, but delivery
was effected through Arabay, Inc., its sole distributor at the time material to the present case. From 1955 to 1975,
Respondent John Bordman Ltd. of Iloilo, Inc. (John Bordman) purchased bunker oil in drums from Arabay. When
Arabay ceased its operations in 1975, Pilipinas Shell took over and directly marketed its products to John Bordman.
John Bordman demanded Pilipinas Shell short deliveries of fuel oil since 1955. Respondent alleges that Shell
andArabay had billed it at 210 liters per drum while other oil companies operating in Bacolod had billed their
customers at 200 liters per drum.
A volumetric test showed that the drum could only contain 187. 5 liters. On February 1, 1975, John Bordman requested
from Pilipinas Shell that 640,000 liters of fuel oil, representing the latters alleged deficient deliveries, be credited to
the formers account. The volume demanded was adjusted to 780,000 liters, upon a realization that the billing rate of
210 liters per drum had been effective since 1966.
Petitioner avers that respondents action -- a claim for damages as a result of over-billing -- has already prescribed.
Respondents claim supposedly constitutes a quasi-delict, which prescribes in four years.

ISSUE: Whether or not respondent has a cause of action for claim for damages based on contract?

HELD: Yes. It is elementary that a quasi-delict, as a source of an obligation, occurs only when there is no preexisting
contractual relation between the parties. The action of respondent for specific performance was founded on short
deliveries, which had arisen from its Contract of Sale with petitioner, and from which resulted the formers obligation
in the present case. Any action to enforce a breach of that Contract prescribes in ten years.

To the mind of this Court, the cause of action in the present case arose on July 24, 1974, when respondent discovered
the short deliveries with certainty. Prior to the discovery, the latter had no indication that it was not getting what it
was paying for. There was yet no issue to speak of; thus, it could not have brought an action against petitioner. It was
only after the discovery of the short deliveries that respondent got into a position to bring an action for specific
performance. Evidently then, that action was brought within the prescriptive period when it was filed on August 20,
1980.
Actions based upon a written contract should be brought within ten years from the time the right of action accrues.
This accrual refers to the cause of action, which is defined as the act or the omission by which a party violates the
right of another.
Jurisprudence is replete with the elements of a cause of action: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not
to violate the right; and (3) an act or omission on the part of the defendant violative of the right of the plaintiff or
constituting a breach of an obligation to the latter. It is only when the last element occurs that a cause of action arises.
Applying the foregoing elements, it can readily be determined that a cause of action in a contract arises upon its breach
or violation. Therefore, the period of prescription commences, not from the date of the execution of the contract, but
from the occurrence of the breach.

EQUITORIAL REALTY DEVELOPMENT INC VS MAYFAIR THEATER INC

November 21, 2001
Topic: Article 1164

FACTS: Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two 2-storey buildings
constructed thereon, located at Claro M. Recto Avenue, Manila. On June 1, 1967, Carmelo entered into a Contract of
Lease with Mayfair Theater Inc. (Mayfair) for a period of 20 years. Two years later, on March 31, 1969, Mayfair
entered into a second Contract of Lease with Carmelo for the lease of another portion of the latters property -- namely,
a part of the second floor of the two-storey building, with a floor area of about 1,064 square meters; and two store
spaces on the ground floor and the mezzanine, with a combined floor area of about 300 square meters. In that space,
Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of
20 years.
Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However,
on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty
Development, Inc. (Equatorial) for the total sum of P11,300,000, without their first being offered to Mayfair.As a
result Mayfair filed a Complaint before the Regional Trial Court of Manila (Branch 7) and the lowered court rendered
a Decision in favor of Carmelo and Equatorial. On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals
(CA) completely reversed and set aside the judgment of the lower court. Meanwhile, on September 18, 1997 — barely
five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Branch 7 — Equatorial
filed with the Regional Trial Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair,
claiming payment of rentals or reasonable compensation for the defendant's use of the subject premises after its lease
contracts had expired.

ISSUE: Whether or not Equatorial is entitled to back rentals

HELD: No. The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery.
Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when
by other means it is shown that such delivery was not effected, because a third person was actually in possession of
the thing. In the latter case, the sale cannot be considered consummated.

However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to
the fruits of the thing sold from the time the obligation to deliver the property to petitioner arose. That time arose upon
the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale
may reciprocally demand performance. Does this mean that despite the judgment rescinding the sale, the right to the
fruits belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative, because "[r]escission creates the obligation to
return the things which were the object of the contract, together with their fruits, and the price with its interest; x x x"
Not only the land and building sold, but also the rental payments paid, if any, had to be returned by the buyer.
At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, this general
principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive
is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual
environment of this controversy as found by this Court in the mother case, Equatorial was never put in actual and
effective control or possession of the property because of Mayfair's timely objection.

THE FIDELITY AND DEPOSIT COMPANY OF MARYLAND V. WILLIAM A. WILSON, ET AL.

March 15, 1907
Topic: Article 1164

FACTS: The respondent was a disbursing officer of the Bureau of Coast Guard and Transportation. For the security
of the Government of the Philippines, the petitioner and the American Surety Company of New York, became sureties
on the official bond of the respondent for the sum of $ 15,000. When the respondent defaulted in the sum of $ 8,931.80,
the two surety companies each paid $ 4,465.90 upon demand of the Government of the Philippines. When the
respondent was apprehended in Montreal, Canada for the defalcation of said sum, he had on his person the sum of $
785 in gold. The said sum was turned over to the custody of the Insular Treasurer, Mr. Branagan.
In a complaint filed by the petitioner against Wilson and The American Surety Company, the trial court ruled that
H.D. Terrell, an intervenor in the case claiming the right of ownership in and to the said sum and asks that the same
be delivered to him as the legitimate owner to the exclusion of the other parties in the case, became the owner and
with the right to the possession of said $785 even before the commencement of such petition and still has the right to
the possession of the same. H.D. Terrell claimed that all of the rights of the respondent to the said $785 was ceded
and transferred to him as payment for the professional services that he rendered as an attorney for respondent Wilson,
and that Treasurer Branagan was duly notified on the 17th day of October, 1904 of such transfer. This transfer is made
literally in the following terms:
MANILA, P.I., September 3, 1904.
To whom it concerns:
For value received, I hereby transfer and cede to Judge H. D. Terrell all my rights, title, and interest in the following-
described property belonging to me and now in the hands of Frank A. Branagan, Treasurer of the Philippine
Archipelago, under the attachment of the court of Manila. (Here appears the description of the bank bills transferred,
hereinabove described.)
(Signed) W.A. WILSON.
The petitioner now questioned the court’s decision in favor of Terrell.

ISSUE: WON the ownership to a thing is transferred to the creditor when the thing to be delivered has not been
delivered to him yet.

HELD: NO. In our Civil Code, it is a fundamental principle in all matters of contracts and a well-known doctrine of
law that "non mudis pactis, sed traditione dominia rerum transferuntur." In conformity with said doctrine as established
in paragraph 2 of article 609 of said code, that "the ownership and other property rights are acquired and transmitted
by law, by gift, by testate or intestate succession, and, in consequence of certain contracts, by tradition." And as the
logical application of this disposition article 1095 prescribes the following: "A creditor has the rights to the fruits of a
thing from the time the obligation to deliver it arises. However, he shall not acquire a real right." (and the ownership
is surely such) "until the property has been delivered to him."
Terrell claimed that by virtue of the said transfer, the ownership of Wilson in and to the funds was transferred to him
in fact and in law. However, the Court ruled that the transfer by itself, and afterwards the notification of the same of
Treasurer Branagan, did not produce nor could it produce the effect of transfer to Terrell of the ownership of the funds
so transferred and which were then in the possession of the said Treasurer. To have this effect, it would have been
necessary that the delivery of the funds had been made directly Terrell, which fact has not been proved at any time.
The funds were in the possession of Branagan and afterwards were transferred to the possession of the depositary
appointed, by the court where such funds now are, and this without their ever having been taken possession of the
intervenor Terrell. It is not alleged, nor is it claimed by Terrell, that the delivery of the funds was ever made in any
manner recognized by the law. He claims the right of ownership from the mere fact of having derived the same, not
from the fact of any delivery, but from the very fact of the transfer and of his subsequent notification to Treasurer
Branagan, it being, in addition, very clear that such notification does not constitute, in any manner, the fact of delivery
as established by articles 1462, 1463, and 1464 of the Civil Code, all of which cover, in full this subject-matter.
Therefore, by reason of the non-delivery Terrell did not acquire the ownership of the property transferred to him by
Wilson. It is only the jus ad rem, and not the jus in re, that was acquired by Terrell by virtue of the transfer, made by
the consent of the transferor and the transferee but not consummated by the delivery which never came to pass and
which delivery was the object of such transfer. But if Terrell could not be considered as the owner of said funds in
question, it is undeniable that he had rights with regard to the same as a creditor by virtue of that transfer. The same
right, that of a creditor, and no other is the right of the appellant in that it has not been contradicted that the rights of
the Government, in its judicial relation to Wilson, had not been subrogated to the appellant.

JIMMY CO, doing business under the name & style DRAGON METAL MANUFACTURING vs. COURT
OF APPEALS and BROADWAY MOTOR SALES CORPORATION
June 22, 1998
Topic: Article 1165

FACTS: On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model to private respondent - which is
engaged in the sale, distribution and repair of motor vehicles - for the following job repair services and supply of parts:
- Bleed injection pump and all nozzles;
- Adjust valve tappet;
- Change oil and filter;
- Open up and service four wheel brakes, clean and adjust;
- Lubricate accelerator linkages;
- Replace aircon belt; and
- Replace battery[2]
Petitioner paid in full the repair bill in the amount of P1,397.00. Private respondent promised to return the vehicle on
July 21, 1990. However, the delivery of the car was rescheduled to July 24, 1990 or three (3) days later because battery
was not installed. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was
carnapped earlier that morning while being road-tested.
Petitioner filed a suit for damages against private respondent anchoring his claim on the latter’s alleged negligence.
For its part, private respondent contended that it has no liability because the car was lost as a result of a fortuitous
event - the carnapping.

ISSUE: WON the respondent is liable.

HELD: The Court resolves the query in favor of the customer. First, on the technical aspect involved. The question
of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it
is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties, i.e. who will
bear the loss and whether there was negligence. It is a not a defense for a repair shop of motor vehicles to escape
liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping.
Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken
from another’s rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event.
To be considered as such, carnapping entails more than the mere forceful taking of another’s property. It must be
proved and established that the event was an act of God or was done solely by third parties and that neither the claimant
nor the person alleged to be negligent has any participation.
Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot
escape liability. Article 1165[11] of the New Civil Code makes an obligor who is guilty of delay responsible even for
a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was
supposed to deliver petitioner’s car three (3) days before it was lost. Petitioner’s agreement to the rescheduled delivery
does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot
be construed as waiver of petitioner’s right to hold private respondent liable because the car was unusable and thus,
petitioner had no option but to leave it.
Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if “the
nature of the obligation requires the assumption of risk”.[14] Carnapping is a normal business risk for those engaged
in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was
entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry
(DTI)[15] and to secure an insurance policy for the “shop covering the property entrusted by its customer for repair,
service or maintenance” as a pre-requisite for such registration/accreditation.
Moreover, on the assumption that private respondent’s repair business is duly registered, it presupposes that its shop
is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it
would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the
shop is not registered, then the presumption of negligence applies.

TESTACY OF MAXIMA SANTOS VDA. DE BLAS ROSALINA SANTOS (EXECUTRIX) VS. FLORA
BLAS DE BUENAVENTURA (LEGATEE)
September 22, 1966
Topic: Article 1166

FACTS: On October 22, 1956, Rosalina Santos filed a petition with the Court of First Instance of Rizal for the probate
of the last will allegedly executed on September 22, 1956 by the deceased Maxima Santos Vda. de Blas. The nearest
of kin of the deceased were her brothers and a sister, nephews and nieces. Rosalinda Santos is one of said nieces.
Among the legatees — or more accurately, devisees — mentioned in the will is Flora Blas de Buenaventura. She is
not related by blood to the deceased.
Flora Blas de Buenaventura and Justo Garcia filed on November 28, 1956 an opposition to the probate of said will.
Among the grounds for the opposition of were that the will was not executed in accordance with law; that undue and
improper pressure was exerted upon the testatrix Maxima Santos in the execution thereof; that the signature of Maxima
was secured through fraud; and that at the time of the execution of the will Maxima was mentally incapable of making
a will.
After the probate court had received the evidence for both the petitioner and oppositors, but before the latter could
close their evidence, Flora Blas on November 6, 1957 filed a manifestation that she is withdrawing her opposition to
the probate of the will.

ISSUE: Did Flora's actuations, under the facts and circumstances herein, amount to a violation of the "no-contest and
forfeiture" clause of the will?

HELD: NO. Above all, the factor that preponderates in favor of appellant is that, after realizing her mistake in
contesting the will — a mistake committed in good faith because grounded on strong doubts — she withdrew her
opposition and joined the appellee in the latter's petition for the probate of the will. She must not now be penalized for
rectifying her error. After all, the intentions of the testatrix had been fulfilled, her will had been admitted and allowed
probate within a reasonably short period, and the disposition of her property can now be effected.
It should be pointed out that, contrary to the translation accorded to Paragraph Fourteen of the will, the testatrix enjoins
not a mere contest or opposition to its probate, but a contest or opposition to the probate of the will and the carrying
out of its provisions. This is so because the questioned clause speaks of "pagpapatibay at pag-bibigay-bisa" instead of
"pagpapatibay o pag-bibigay-bisa."9 This furnishes a significant index into the intention of the testatrix, namely, that
she was more concerned in insuring the carrying out of her testamentary provisions than in precluding any contest or
opposition to it. By the withdrawal of the contest which appellant brought in good faith, no prejudice has been done
into the intention of the testatrix. The dispositions of her will can now be safely carried out.
From the foregoing premises it cannot be said that Flora's actuations impaired the true intention of the testatrix in
regard to the "no-contest and forfeiture" clause of the will. Flora's act of withdrawing her opposition before she had
rested her case contributed to the speedy probation of the will. Since the withdrawal came before Flora had rested her
case, it precluded the defeat of the probate upon the strength of Flora's evidence. Through said withdrawal, Flora
conformed to the testatrix's wish that her dispositions of her properties under the will be carried out. It follows that,
taken as a whole, Flora's actuations subserved rather than violated the testatrix's intention.

RESOLUTION:
Flora Blas De Buenaventura contends, first, that she is entitled to and should be awarded, not only the devised
fishpond, but all the fruits or rents of said property from the death of the testatrix on October 5, 1956 up to the time
said property will be delivered to her. Appellant, it be noted, did not expressly seek recovery of fruits or rents in her
petition for delivery of specific legacy (devise) filed below. She started to mention also the fruits or rents in her
amended motion for reconsideration of the court a quo's denial of said petition. And, thereafter she has raised the point
in her third assignment of error in the present appeal.
This notwithstanding, We believe that appellant should receive the fruits of the property given to her in devise. The
provisions of law regarding devised proper are emphatic in stating that a devise of a specific things includes its fruits
and income accruing after the testator's death, ordering that these shall be delivered with the thing devised under Art.
948 and 951 of the Civil Code.
Furthermore, since fruits or rents are accessions (Arts. 441, 442, Civil Code), strictly speaking, there was really no
need to mention them in the petition or the decision. Article 1166 of the Civil Code applies: "The obligation to give a
determinate thing includes that of delivering all its accessions and accessories, even though they may not have been
mentioned." To remove doubts on the matter, however, We here expressly state that appellant is also entitled to, and
appellee should deliver to her, the fruits or rents of the devised fishpond accruing after the testatrix's death. The precise
determination of the same, however, should be threshed out in the court below, before which appellee must render an
accounting.

CONTINENTAL CEMENT CORP VS FILIPINAS SYSTEMS INC

August 4, 2009
Topic: Article 1169 (Delay)

FACTS: Plaintiff-appellee Continental Cement Corporation (CCC) entered into a construction agreement with
defendant-appellant Filipinas Systems, Inc. (FILSYSTEMS) for the civil works construction for its Cement Plant
Expansion Project at Bo. Bigte, Norzagaray, Bulacan for and in consideration of P82,300,00.00 (sic). Under the
contract, the period for the project’s completion should be 300 days from 22 February 1993 or up to 18 December
1993. However, on 3 September 1993, CCC filed an action for Specific Performance with TRO and/or Preliminary
Mandatory Injunction against FILSYSTEMS to prevent the latter from pulling out its equipment from the site and
stopping the construction of the project. While the suit was pending, the parties entered into a Compromise Agreement
which was approved by the trial court on 14 October 1993. Among others, the said agreement provided for new terms
and conditions of payment. However, FILSYSTEMS claimed that CCC failed to comply while CCC advanced that
FILSYSTEMS failed to finish the project after one hundred nine (109) days.

ISSUES: W/N time is of the essence in the Construction Contract, and that FILSYSTEMS’ delay thus make CCC is
entitled to the full amount of liquidated damages.

HELD:FILSYSTEMS has not shown that it was CCC’s delay that caused the former to fail to complete the project.
On the contrary, it appears that despite CCC’s delays, FILSYSTEMS was able to accomplish 92.83% of the work.
This proves that the completion of the project was not entirely dependent on CCC’s payment – or prompt payment –
of its obligation. FILSYSTEMS’ failure to finish the project is, therefore, unjustified. Accordingly, it must be held
liable for the cost of completing the project. Article 1167 of the Civil Code provides that if a person obliged to do
something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.
FILSYSTEMS should not be made to pay the entire cost CCC paid to CE Construction, which finished the project. It
has been shown that at the time FILSYSTEMS stopped work, the project was 92.83% finished, although such work
was accomplished beyond the initial deadline of 23 January 1993. But, as already discussed above, FILSYSTEMS
was entitled to time extensions equivalent to the delay in the payment of its progress billings. Hence, FILSYSTEMS
must be held liable only for the remaining 7.17% of the project. To make it answer for more would unjustly enrich
CCC, which has already benefited from the former’s work.

HEIRS OF RAMON GAITE VS THE PLAZA, INC.

January 26, 2011
Topic: Article 1169 (Delay)

FACTS: The Plaza Inc., a corporation engaged in the restaurant business, entered into a contract with Rhogen Builders
as represented by Ramon Gaite for the construction of a restaurant building in Greenbelt, Makati for the price of P7.6
million. Engr. Gonzales informed Gaite that the building permit for the construction of the restaurant was revoked for
non-compliance with the provisions of the National Building Code and for the additional temporary construction
without permit. Ramon Gaite informed The Plaza that he is terminating their contract based on the Contractors Right
to Stop Work or Terminate Contracts as provided for in the general Conditions of the Contract. Additionally, Gaite
demanded the payment of P63,058.50 from The Plaza representing the work that has already been completed by
Rhogen. The respondent countered that it will hold Gaite and Rhogen fully responsible for failure to comply with the
terms of the contract and to deliver the finished structure on the stipulated date.

ISSUE: Whether or not Ramon Gaite is liable for the breach of contract with The Plaza, Inc.

HELD: YES. Having failed to complete the project within the stipulated period and comply with its obligations,
Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170
and 1167 of the Civil Code. The Plaza cannot now be demanded to comply with its obligation under the contract since
Rhogen already failed to comply with its own contractual obligation. Thus, The Plaza had every reason not to pay the
progress billing as a result of Rhogen’s inability to perform its obligations under the contract. Also, Rhogen was found
to have executed the works not in accordance with the approved plans. Article 1167 of the Civil Code is explicit on
this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

CONTINENTAL CEMENT CORPORATION vs. ASEA BROWN BOVERI, INC

October 17, 2011
Topic: Art. 1169 (Delay)

FACTS: Sometime in July 1990, petitioner Continental Cement Corporation (CCC), a corporation engaged in the
business of producing cement obtained the services of respondents Asea Brown Boveri, Inc. (ABB) and BBC Brown
Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor)
On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed with
Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint for sum of money and damages

ISSUE:Is ABB liable to damages plus the amount of penalty stipulated in the contract?

HELD: Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to
Articles 1167, 1170, and 2201 of the Civil Code, which state:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be
decreed that what has been poorly done be undone.
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall
be those that are the natural and probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.
Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the execution
of the obligation plus damages. Though entitled, petitioner in this case is not claiming reimbursement for the repair
allegedly done by Newton Contractor but is instead asking for damages for the delay caused by respondent ABB.

RODOLFO G. CRUZ and ESPERANZA IBIAS VS. ATTY. DELFIN GRUSPE

March 13, 2013
Topic: Article 1169 (Delay)

FACTS: This is a petition for review on certiorari of the resolution and the decision of the Court of Appeals which
granted respondent Atty. Delfin Gruspe's claim for payment of sum of money against petitioners Rodolfo G. Cruz and
Esperanza Ibias. The mini bus owned and operated by Cruz and driven by one Arturo Davin collided with the Toyota
Corolla car of Gruspe; Gruspe's car was a total wreck. Cruz, along with Leonardo Q. Ibias apologized for the incident,
and executed a Joint Affidavit of Undertaking promising jointly and severally to replace the Gruspe's damaged car in
20 days, or until November 15, 1999, of the same model and of at least the same quality; or, alternatively, they would
pay the cost of Gruspe's car amounting to P350,000.00, with interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid. Cruz and Leonardo however failed to do so, thus Gruspe filed a complaint for
collection of sum of money against them. They also both denied Gruspe's allegation, claiming that they were deceived
into signing the Joint Affidavit of Undertaking, thinking it was the only way for the release of their minivan, having
believed that it had been impounded. Leonardo died during the pendency of the case and was substituted by his widow,
Esperanza. Meanwhile, Gruspe sold the wrecked car for P130,000.00. Eventually the RTC ruled in favor of Gruspe
and ordered Cruz and Leonardo to pay P220,000.00, 6 plus 15% per annum from November 15, 1999 until fully paid,
and the cost of suit.

ISSUE: Whether or not the Joint Affidavit of Undertaking is valid and enforceable.

HELD: YES. A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains
stipulations characteristic of a contract. These, as read by the CA, are very simple terms that both Cruz and Leonardo
could easily understand. There is also no merit to the argument of vitiated consent. An allegation of vitiated consent
must be proven by a preponderance of evidence; Cruz and Leonardo failed to support their allegation. If they truly
believed that the vehicle had been illegally impounded, they could have refused to sign the Joint Affidavit of
Undertaking and filed a complaint, but they did not.
The Court chose to uphold the Joint Affidavit of Undertaking, thus making petitioners liable for the delay in payment.
However, it also modified certain terms in the contract wherein it imposed an interest rate on a per annum basis,
instead of the per month basis that was stated in the Joint Affidavit of Undertaking, finding the agreed upon rate
excessive.
 ELISEO FAJARDO JR AND MARISSA FAJARDO VS FREEDOM TO BUILD INC
August 1, 2000
Topic: Article 1168: Obligations not to do (Remedy)

FACTS: The controversy arose when petitioners, despite repeated warnings from respondent, extended the roof of
their house to the property line and expanded the second floor of their house to a point directly above the original front
wall.
Freedom To Build, Incorporated, an owner-developer and seller of low-cost housing, sold to petitioner-spouses, a
house and lot designated Lot No. 33, Block 14, of the De la Costa Homes in Barangka, Marikina, Metro Manila. The
Contract to Sell executed between the parties, contained a Restrictive Covenant providing certain prohibitions, to wit:
"Easements. For the good of the entire community, the homeowner must observe a two-meter easement in front. No
structure of any kind (store, garage, bodega, etc.) may be built on the front easement.
"x x x.............................x x x.............................x x x
"Upward expansion. A second storey is not prohibited. But the second storey expansion must be placed above the
back portion of the house and should not extend forward beyond the apex of the original building.
"x x x.............................x x x.............................x x x
"Front expansion: 2nd Storey: No unit may be extended in the front beyond the line as designed and implemented
by the developer in the 60 sq. m. unit. In other words, the 2nd floor expansion, in front, is 6 meters back from the front
property line and 4 meters back from the front wall of the house, just as provided in the 60 sq. m. units."

ISSUE:
Whether or not Petitioners are to abolish the constructed extensions in violation of the Contract to Sell

HELD:
There appears to be no cogent reasons for not upholding restrictive covenants aimed to promote aesthetics, health,
and privacy or to prevent overcrowding. Petitioners argue that for lack of a specific provision, prescribing the penalty
of demolition in the "Restrictive Covenant" in the event of a breach thereof, the prayer of respondent to demolish the
structure should fail. This argument has no merit; Article 1168 of the New Civil Code states: "When the obligation
consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense."

SOLAR HARVEST VS DAVAO CORRUGATED CARTON CORP

July 26, 2010
Topic: Article 1169 (Delay)

FACTS: In the first quarter of 1998, petitioner Solar Harvest Inc entered into an agreement, albeit not formalized in
writing, with respondent Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes
specifically designed for use of petitioner’s business of exporting bananas, at US $1.10 each. The petitioner deposited
US$40,150.00 as full payment in respondent’s US Dollar Savings Account with Westmount Bank to get production
underway. However, no delivery of the boxes was made. As such, petitioner wrote a demand letter to respondent,
asking for reimbursement of the deposit made, to which the respondent replied that the boxes had been completed
beforehand and that petitioner failed to pick up the boxes from their warehouse as agreed upon. Further, respondent
also mentioned that petitioner placed an additional order of 24,000 boxes. 14,000 of those boxes were manufactured
without initial deposit from petitioner. Respondent then demanded for the petitioner to pay for the costs of the
additional boxes and storage fees as well as for the petitioner to remove the boxes from their warehouse.
Petitioner then filed for a Complaint for sum of money and damages against respondent, averring that the parties
agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver
boxes within such time, and that despite repeated follow-up, the defendant would only show sample boxes and make
repeated promises as to the delivery of the boxes. Respondents again denied such, and averred that the petitioner’s
representative, Bobby Que, went to the factory once and saw that the boxes were ready for pick-up, and then visited
again and advised respondent to sell the boxes to recoup the costs of the additional boxes because the petitioner’s
shipment of bananas to China did not materialize.
During the trial, Que testified that he ordered the boxes and deposited the money as payment. When he visited the
factory, he saw that the boxes had no logo. He then asked his partner Alfred Ong to cancel the order as it was too late
to deliver shipments to China. The ship from Chinese company China Food Zero did not proceed to get the bananas,
and at the time, the bananas from Tagum Agricultural Development Corporation were already there. Bienvenido
Estanislao testified for the respondent and said that he met Que when the latter was visiting the factory to get samples
of the boxes. Que told him that he cannot pick the boxes up because the ship from the Chinese company, China Food
Zero, did not arrive. Jaime Tan, President of respondent company, also testified to such as being the reason why the
boxes were not picked up. Both the RTC and the CA on appeal denied the petition.

ISSUE: Whether or not petitioner may claim reimbursements from respondent because of the delay in the fulfillment
of obligation

HELD: No. Without a previous demand for the fulfillment of the obligation, as is evident in the instant petition when
Que only made ‘follow-ups’ and not ‘demands’, petitioner would not have a cause for rescission against respondent
as the latter would not yet be considered in breach of contractual obligations.
The claim for reimbursement by petitioner is actually one for rescission or resolution of contract, governed by Article
1191 of the Civil Code. The right to rescind a contract arises once the party defaults in the performance of his
obligation. This must be taken in conjunction with Article 1169. In reciprocal obligations, as in a contract of sale, the
general rule is that the fulfillment of the parties’ respective obligations should be simultaneous. However, when
different dates are set for the performance of the obligations, the default for each must be determined according to the
first paragraph of 1169. Thus, the party would incur in delay only from the moment the other party demands fulfillment
of the obligation. Demand would be necessary upon the obligee in such cases before the obligor can be considered in
default and before a cause of action for rescission will accrue.

SANTOS VENTURA HOCORMA FOUNDATION, INC VS ERNESTO SANTOS & RIVERLAND, INC
November 5, 2004
Topic: Article 1169 (Delay)

FACTS: On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending
litigations. The pertinent portions of the Agreement, include the following: (1) Defendant Foundation shall pay
Plaintiff Santos P14.5 Million on (a) P1.5 Million immediately upon the execution of this agreement and (b) The
balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation,
within a period of not more than two years from the execution of this agreement; (2) Immediately upon the execution
of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of
Civil Cases; (3) Failure of compliance of any of the foregoing terms and conditions by either or both parties to this
agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the
enforcement of this agreement.
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil
cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner
SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million.
On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of
P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial
Court of Makati City, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991.
The RTC granted the writ. Petitioner, however, filed numerous motions to block the enforcement of the said writ. The
challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts,
however, were futile.
On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said
auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real
properties subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale
of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale
issued for both properties provided for the right of redemption within one year from the date of registration of the said
properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging that there
was delay on the part of petitioner in paying the balance of P13 million.

ISSUE: Whether the respondents are entitled to legal interest.

HELD: Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of
obligations. It is the non-fulfillment of the obligation with respect to time. In the case at bar, the obligation was already
due and demandable after the lapse of the two-year period from the execution of the contract. The two-year period
ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the
obligation was already due and demandable. Furthermore, the obligation is liquidated because the debtor knows
precisely how much he is to pay and when he is to pay it.
In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially
approved on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual
contract became binding between the parties upon its execution and not upon its court approval. From the time a
compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The
purpose of the compromise is precisely to replace and terminate controverted claims.
As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous.
It provides that the balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion
of the Foundation, within a period of not more than two (2) years from the execution of this agreement.

LORENZO SHIPPING CORP. VS BJ MARTHEL INTERNATIONAL INC

November 19, 2004
Topic: Article 1169 (Delay)

FACTS: From 1987 up to the filling of the case, respondent supplied spare parts to petitioner, a domestic corporation
engaged in coastwise shipping. Sometime in 1989, petitioner asked respondent for a quotation for various machine
parts; on May 31, 1989, respondent provided a quotation which stated, along with the items and prices, the following:
delivery - within 2 months after receipt of firm order, terms- 25% upon delivery, balance payable in 5 bi-monthly
equal and installment[s] not to exceed 90 days.
After approximately 6 months, petitioners issued a purchase order for one set of cylinder liner valued at P477,000, to
be used for M/V Dadiangas Express. In the purchase order, it was indicated that the term of payment shall be “25%
down payment”, but it did not state the date of the cylinder liner's delivery. Instead of paying the down payment,
petitioner issued 10 postdated checks as full payment. On 15 January 1990, petitioner issued another purchase order
for another set of cylinder liner, and said purchase order also did not have delivery date.
Respondent encountered issues with the postdated checks as the first one was dishonored due to insufficiency of funds.
After returning the 9 remaining postdated checks to petitioner, respondent opened a letter of credit and placed an order
to its principal supplier in Japan. On 20 April 1990, the two sets of cylinder liners were delivered to petitioner’s
warehouse. The payment for the two cylinder liners remained unsettled, and respondent issued a demand letter to
which petitioner responded by stating that it would only pay P150,000 because of the delay in delivery.
Respondent filed a case because petitioner refused to settle its obligation. Petitioner countered by claiming that time
was of the essence in the delivery of the cylinder liners, and respondent failed to comply with the "within two (2)
months after receipt of firm order" stipulation; thus, there was a cancellation of orders, and the contract was validly
rescinded by petitioner.
The trial court ruled in favor of petitioner, but the Court of Appeals reversed the ruling and held that there was no
incurred delay in the delivery of cylinder liners for there was no demand, judicial or extrajudicial pursuant to Article
1169 of the Civil Code.

ISSUES:
1. Whether or not respondent incurred delay in performing its obligation under the contract of sale
2. Whether or not said contract was validly rescinded by petitioner.

HELD:
1. No, the respondent did not incur delay. The Court held that time is not of the essence in the contract, as inferred
from the lack of delivery date in both purchase orders issued by petitioner. Furthermore, the petitioner did not advise
the respondent of the target date of maintenance of M/V Dadiangas Express which was supposed to be on the later
part of December 1989 to early January 1990. The Court reiterated its ruling in Smith, Bell & Co., Ltd. v. Matti which
stated that “[w]hen the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the
essence of the contract…” In such cases, the delivery must be made within a reasonable time in the absence of any
showing that an immediate delivery was intended. The Court held that respondent’s delivery of the cylinder liners
were considered as “within reasonable time” given that the principal supplier was in Japan, and the respondent was
facing volume of work.

2. No, the Supreme Court held that "[e]ven where time is of the essence, a breach of the contract in that respect by
one of the parties may be waived by the other party's subsequently treating the contract as still in force." Petitioner,
despite claiming that it had already considered the orders cancelled and the contract rescinded, still received the
cylinder liners delivered to its warehouse which shows that the contract was still considered as subsisting up to that
point. The Court stated that if petitioner cancelled the order, it had no reason to receive said delivery and by receiving
said cylinders, “petitioner indisputably waived the claimed delay in the delivery of said items.”

TITAN CONSTRUCTION CORPORATION vs UNI-FIELD ENTERPRISES, INC.,

March 1, 2007
Topic: Article 1169 (Delay)

FACTS: Petitioner Titan Construction Corporation is engaged in the construction business, while respondent Uni-
Field Enterprises, Inc. is engaged in the business of selling various construction materials. From 1990 to 1993,
petitioner purchased on credits various construction supplies and materials from respondent. Petitioner’s purchases
amounted to P7,620,433.12 but petitioner was only able to pay P6,215,795.70, leaving a balance of P1,404,637.42.
On 19 October 1994, respondent sent a demand letter to petitioner. But the balance remained unpaid.
On 26 June 1995, respondent filed with the trial court a complaint for collection of sum of money with damages
against petitioner. In its Answer dated 18 August 1995, petitioner admitted the purchases but disputed the amount
claimed by respondent. Petitioner also interposed a counterclaim and sought to recover P204,527.99 from respondent
based on damaged vinyl tiles, non-delivery of materials, and advances for utility expenses, dues, and insurance
premiums on the condominium unit turned over by petitioner to respondent.
On 9 September 1997, the trial court rendered judgment in favor of respondent, based on the following grounds: 1)
The principal amount of P1,404,114.00; 2) Interest Charges in the amount of P504,114.00 plus accrued interest charges
at 24% per annum compounded yearly reckoned from July, 1995 up to the time of full payment; 3) Liquidated
Damages in the amount of P324,147.94; 4) Attorney’s Fees equivalent to 25% of whatever amount is due and payable
and accumulated appearance fees at P1,000.00 per hearing; and 5) Costs of suits.Petitioner asks the Court to review
the records of the case and re-examine the evidence presented before the trial court and the Court of Appeals.

ISSUES:
a) Whether or not the Court of Appeals erred in finding legal basis for awarding liquidated damages, attorney’s fees
and Interest in favor of respondent?
b) Whether or not the Court of Appeals erred by overlooking certain facts or circumstances of weight and influence
which if considered would alter the results of the case?

HELD:
As a rule, only questions of law may be appealed to the Court by petition for review. The Court is not a trier of facts,
its jurisdiction being limited to errors of law. Moreover, factual findings of the trial court, particularly when affirmed
by the Court of Appeals, are generally binding on this Court. In this case, the factual findings of the trial court and the
Court of Appeals were based on substantial evidence which were not refuted with contrary proof by petitioner. The
Court thus found no reason to disturb the factual findings of the trial court and the Court of Appeals.
Petitioner insists that the trial court and the Court of Appeals had no legal basis to award interest, liquidated damages,
and attorney’s fees because the delivery receipts and sales invoices, which served as the basis for the award, were not
formally offered as evidence by respondent. Petitioner also alleges that the delivery receipts and sales invoices were
in the nature of contracts of adhesion and petitioner had no option but to accept the conditions imposed by respondent.
On the allegation that the delivery receipts and sales invoices are in the nature of contracts of adhesion, the Court has
repeatedly held that contracts of adhesion are as binding as ordinary contracts. Those who adhere to the contract are
in reality free to reject it entirely and if they adhere, they give their consent. It is true that on some occasions the Court
struck down such contract as void when the weaker party is imposed upon in dealing with the dominant party and is
reduced to the alternative of accepting the contract or leaving it, completely deprived of the opportunity to bargain on
equal footing.
Considering that petitioner and respondent have been doing business from 1990 to 1993 and that petitioner is not a
small time construction company, petitioner is "presumed to have full knowledge and to have acted with due care or,
at the very least, to have been aware of the terms and conditions of the contract.” The Court, therefore, upholds the
validity of the contract between petitioner and respondent.
However, the Court will reduce the amount of attorney’s fees awarded by the trial court and the Court of Appeals. In
this case, aside from the award of P324,147.94 as liquidated damages, the trial court and the Court of Appeals also
ordered petitioner to pay respondent attorney’s fees "equivalent to 25% of whatever amount is due and payable."
Articles 1229 and 2227 of the Civil Code empower the courts to reduce the penalty if it is iniquitous or unconscionable.
The determination of whether the penalty is iniquitous or unconscionable is addressed to the sound discretion of the
court and depends on several factors such as the type, extent, and purpose of the penalty, the nature of the obligation,
the mode of breach and its consequences.
The Court notes that respondent had more than adequately protected itself from a possible breach of contract because
of the stipulations on the payment of interest, liquidated damages, and attorney’s fees. The Court finds the award of
attorney’s fees "equivalent to 25% of whatever amount is due and payable" to be exorbitant because it includes (1)
the principal of P1,404,114.00; (2) the interest charges of P504,114.00 plus accrued interest charges at 24% per annum
compounded yearly reckoned from July 1995 up to the time of full payment; and (3) liquidated damages of
P324,147.94. Moreover, the liquidated damages and the attorney’s fees serve the same purpose, that is, as penalty for
breach of the contract. Therefore, we reduce the award of attorney’s fees to 25% of the principal obligation, or
P351,028.50. 76

SSS VS MOONWALK DEVELOPMENT AND HOUSING CORPORATION

April 7, 1993
Topic: Art. 1169 (Delay)

FACTS: On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the Court of First
Instance of Rizal against Moonwalk Development & Housing Corporation, Moonwalk for short, alleging that the
former had committed an error in failing to compute the 12% interest due on delayed payments on the loan of
Moonwalk — resulting in a chain of errors in the application of payments made by Moonwalk and, in an unpaid
balance on the principal loan agreement in the amount of P7,053.77 and, also in not reflecting in its statement or
account an unpaid balance on the said penalties for delayed payments in the amount of P7,517,178.21 as of October
10, 1979.
Plaintiff SSS approved the application of Defendant Moonwalk for a loan of P30,000,000 for the purpose of
developing and constructing a housing project. Out of P30,000,000 approved loan, the sum of P9,595,000 was released
to defendant Moonwalk. A third Amendment Deed of Mortgage was executed for the payment of the amount of
P9,595,000. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700. After
settlement of the account, SSS issued to Moonwalk the release of Mortgage for Moonwalk’s Mortgaged properties.
In letter to Moonwalk, SSS alleged that it committed an honest mistake in releasing defendant. That Moonwalk has
still 12% penalty for failure to pay on time the amortization which is in the penal clause of the contract. Moonwalk’s
counsel told SSS that it had completely paid its obligation to SSS and therefore there is no recovery of any penalty.

ISSUE: Whether or not penalty demandable even after the extinguishment of the principal obligation

HELD: No. There has been a waiver of the penal clause as it was not demanded before the full obligation was fully
paid and extinguished. Default begins from the moment the creditor demands the performance of the obligation. In
this case, although there were late amortizations there was no demand made by SSS for the payment of the penalty,
hence, Moonwalk is not in delay in the payment of the penalty. No delay occurred and there was no occasion when
the penalty became demandable and enforceable. Since there was no default in the performance of the main obligation
-payment of the loan- SSS was never entitled to recover any penalty. If the demand for the payment of the penalty
was made prior to the extinguishment of the obligation which are: 1. the principal obligation; 2. The interest of 12%
on the principal obligation; and 3. The penalty of 12% for late payment for after demand, Moonwalk would be in
delay and therefore liable for the penalty.

BRICKTOWN DEVT CORP VS AMOR TIERRA DEVT CORP

December 12, 1994
Topic: Article 1169 (Delay)
FACTS:
Bricktown Development Corporation, represented by its President and co-petitioner Mariano Z. Velarde, executed
two Contracts to Sell in favor of Amor Tierra Development Corporation, represented in these acts by its Vice-
President, Moises G. Petilla, covering a total of 96 residential lots at the Multinational Village Subdivision, La Huerta,
Parañaque, Metro Manila.

The total price of P21,639,875.00 was stipulated to be paid by private respondent in such amounts and maturity dates,
as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31 December 1981;
and the balance of P11,500,000.00 to be paid by means of an assumption by private respondent of petitioner
corporation's mortgage liability to the Philippine Savings Bank or, alternately, to be made payable in cash. On date,
March 31, 1981, the parties executed a Supplemental Agreement, providing that private respondent would additionally
pay to petitioner corporation the amounts of P55,364.68, or 21% interest on the balance of down payment for the
period from 31 March to 30 June 1981, and of P390,369.37 representing interest paid by petitioner corporation to the
Philippine Savings Bank in updating the bank loan for the period from 01 February to 31 March 1981.

Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21. However, the parties
continued to negotiate for a possible modification of their agreement, but nothing conclusive happened. And on
October 12, 1981, petitioner’s counsel sent private respondent a “Notice of Cancellation of Contract” because of the
latter’s failure to pay the agreed amount.

Several months later, private respondent’s counsel, demanded the refund of private respondent's various payments to
petitioner corporation, allegedly "amounting to P2,455,497.71," with interest within fifteen days from receipt of said
letter, or, in lieu of a cash payment, to assign to private respondent an equivalent number of unencumbered lots at the
same price fixed in the contracts. When the demand was not heeded, Amor Tierra filed an action with the court a quo
which rendered a decion in its favor. The decision of the lower court was affirmed in toto by the Court of Appeals.
Hence, this petition.

ISSUE:
1. Whether or not the contract was properly rescinded?
2. Whether or not Bricktown properly forfeited the payments of Amor Tierra?

HELD:

1. The Supreme Court ruled in the affirmative. The cancellation of the contracts to sell by petitioner corporation
accords with the contractual covenants of the parties, and such cancellation must be respected. It may be noteworthy
to add that in a contract to sell, the non-payment of the purchase price (which is normally the condition for the final
sale) can prevent the obligation to convey title from acquiring any obligatory force

2. The Supreme Court ruled in the negative. In fine, while we must conclude that petitioner corporation still acted
within its legal right to declare the contracts to sell rescinded or cancelled, considering, nevertheless, the peculiar
circumstances found to be extant by the trial court, confirmed by the Court of Appeals, it would be unconscionable,
in our view, to likewise sanction the forfeiture by petitioner corporation of payments made to it by private respondent.
Indeed, in the opening statement of this ponencia, we have intimated that the relationship between parties in any
contract must always be characterized and punctuated by good faith and fair dealing. Judging from what the courts
below have said, petitioners did fall well behind that standard. We do not find it equitable, however, to adjudge any
interest payment by petitioners on the amount to be thus refunded, computed from judicial demand, for, indeed, private
respondent should not be allowed to totally free itself from its own breach.

TITAN-IKEDA CONSTRUCTION VS PRIMETOWN PROPERTY

February 12, 2008
Topic: Article 1169

FACTS: Respondent Primetown Property Corporation entered into construction contract with petitioner Titan-Ikeda
Construction Corporation for the structural works the structural works of its 32-storey Makati Prime Tower (MPT).
Upon the completion of MPT’s structural works, respondent awarded the P130,000,000 contract for the tower’s
architectural works (project) to petitioner. In 1994, respondent executed a deed of sale covering 114 condominium
units and 20 parking slots of the MPT collectively valued by the parties at P112,416,716.88 in favor of petitioner
pursuant to the “full-swapping” payment provision of the supplemental agreement. Respondent had allegedly
constructed almost one third of the project and sold some units to third persons unknown to the petitioner. Meanwhile,
Integrated Inc. took over the project, thus, the petitioner is demanding for the return of its advanced payment in the
amount of P2, 000,000.00 as well as the keys of the unit.

ISSUE: Whether or not there was legal delay in the performance of petitioner in the performance of its obligation.

HELD: There was none. Respondent never made any judicial or extrajudicial demand in order to place petitioner in
default. It never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate,
slippage. If delay had truly been the reason why respondent took over the project, it would have sent a written demand
as required by the construction contract. 81

CATHAY PACIFIC AIRWAYS, LTD. vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA
MADRIGAL VAZQUEZ
March 14, 2003
Topic: Article 1171

FACTS: Cathay is a common carrier engaged in the business of transporting passengers and goods by air. As part of
its marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The members enjoy
several privileges, such as priority for upgrading of booking without any extra charge whenever an opportunity arises.
Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if the Business Class
Section is fully booked. Respondent-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez
together with two friends went to Hong Kong for business and pleasure. On their return flight to Manila, they were
booked on Cathay Pacific’s flight CX-905. Upon boarding, Dr. Vazquez was informed by ground attendant Ms. Chiu
that they were being upgraded to First Class from Business Class because Business Class was fully booked. Dr.
Vazquez refused the upgrade, explaining that it would not look good for them as hosts to travel in First Class while
their guests remained in the Business Class section. Moreover, they were going to discuss business matters during the
flight. He also told Ms. Chiu that she could have other passengers transferred to the First Class Section instead of
them. Ms. Chiu informed them that since they were Marco Polo Club members they are priority to be upgraded to
First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail of the privilege, they
would not be allowed to take the flight. Eventually, Dr. Vazquez gave in and proceeded to the First Class.

ISSUE: Whether or not the upgrading of booking of Sps. Vazquez was tainted with fraud or bad faith.

HELD: No. The Supreme Court are not, however, convinced that the upgrading or the breach of contract was attended
by fraud or bad faith. The Court finds no persuasive proof of fraud or bad faith in this case. The Vazquezes were not
induced to agree to the upgrading through insidious words or deceitful machination or through willful concealment of
material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class
in view of their being Gold Card members of Cathays Marco Polo Club. She was honest in telling them that their seats
were already given to other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed
to consider the remedy of offering the First Class seats to other passengers. But, the Court finds no bad faith in her
failure to do so, even if that amounted to an exercise of poor judgment. 82

Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson,
the First Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from
the cabin crew. Needless to state, an upgrading is for the better condition and, definitely, for the benefit of the
passenger.
The Court is not persuaded by the Vazquezes argument that the overbooking of the Business Class Section constituted
bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as
amended, provides:
Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of
flights or portions of flights originating from or terminating at, or serving a point within the territory of the Republic
of the Philippines insofar as it denies boarding to a passenger on a flight, or portion of a flight inside or outside the
Philippines, for which he holds confirmed reserved space. Furthermore, this Regulation is designed to cover only
honest mistakes on the part of the carriers and excludes deliberate and willful acts of non-accommodation. Provided,
however, that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be considered as a
deliberate and willful act of non-accommodation.
It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and
therefore does not amount to bad faith. Here, while there was admittedly an overbooking of the Business Class, there
was no evidence of overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was
refused to board the aircraft.

COCA-COLA BOTTLES PHILIPPINES, INC., VS. THE HONORABLE COURT OF APPEALS and MS.
LYDIA GERONIMO.
18 October 1993
Topic: Article 1171

FACTS: Private respondent filed a case against petitioner. She alleged that she was a proprietress of an enterprise
engaged in the sale of soft drinks and other goods. Further alleging, that on or about 12 August 1989 some parents
complained about foreign substances being present in the soft drinks which she was selling. Upon the discovery of
such foreign substances in the beverages, her sale plummeted and as a result incurred losses. As a result of her losses,
she had to lose the shop and, thus, became jobless and destitute.

ISSUE: Whether or not private respondent may seek to annul the contract between her and the petitioner on the basis
of fraud?

HELD: Yes. The High Tribunal provided that the vendee is given the right to ask for the annulment of the contract
upon proof of error or fraud, in which case the ordinary rule on obligations shall be applicable. Under the law on
obligations, responsibility arising from fraud is demandable in all obligations and any waiver of an action for future
fraud is void. Responsibility arising from negligence is also demandable in any obligation, but such liability may be
regulated by the courts, according to the circumstances. Those guilty of fraud, negligence, or delay in the performance
of their obligations and those who in any manner contravene the tenor thereof are liable for damages.

YAMBAO VS ZUIGA
December 11, 2003
Topic: Article 1173 (Negligence)

FACTS: Petitioner Cecilia Yambao is the registered owner of Lady Cecil and Rome Trans passenger bus with Plate
No. CVK 606, with a public transport franchise to ply the Novaliches-via Quirino-Alabang route. The bus owned by
the petitioner was being driven by her driver, one Ceferino G. Venturina along the northbound lane of Epifanio delos
Santos Avenue (EDSA), within the vicinity of Bagong Barrio, Kalookan City. With Venturina was the bus conductor,
Fernando Dumaliang. Suddenly, the bus bumped Herminigildo Zuiga, a pedestrian. Zuiga was rushed to the Quezon
City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed
shortly thereafter.
Private respondents, as heirs of the victim, filed a Complaint against petitioner and her driver, Venturina, for damages.
The complaint essentially alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in
violation of traffic rules and regulations, without due regard to public safety, thus resulting in the victims premature
death.
The petitioner vehemently denied the material allegations of the complaint. She tried to shift the blame for the accident
upon the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was
chasing him. She further alleged that she was not liable for any damages because as an employer, she exercised the
proper diligence of a good father of a family, both in the selection and supervision of her bus driver.

ISSUE: Whether petitioner exercised the diligence of a good father of a family in the selection and supervision of her
employees, thus absolving her from any liability.

HELD: NO. When an employee, while performing his duties, causes damage to persons or property due to his own
negligence, there arises the juris tantum presumption that the employer is negligent, either in the selection of the
employee or in the supervision over him after the selection. For the employer to avoid the solidary liability for a tort
committed by his employee, an employer must rebut the presumption by presenting adequate and convincing proof
that in the selection and supervision of his employee, he or she exercises the care and diligence of a good father of a
family. In the instant case, we find that petitioner has failed to rebut the presumption of negligence on her part. 85

Her allegation that before she hired Venturina she required him to submit his drivers license and clearances is
worthless, in view of her failure to offer in evidence certified true copies of said license and clearances. Bare
allegations, unsubstantiated by evidence, are not equivalent to proof under the rules of evidence.
Case law teaches that for an employer to have exercised the diligence of a good father of a family, he should not be
satisfied with the applicants mere possession of a professional drivers license; he must also carefully examine the
applicant for employment as to his qualifications, his experience and record of service. Petitioner failed to present
convincing proof that she went to this extent of verifying Venturinas qualifications, safety record, and driving history.
The presumption juris tantum that there was negligence in the selection of her bus driver, thus, remains unrebutted.
Nor did petitioner show that she exercised due supervision over Venturina after his selection. For as pointed out by
the Court of Appeals, petitioner did not present any proof that she drafted and implemented training programs and
guidelines on road safety for her employees. In fact, the record is bare of any showing that petitioner required
Venturina to attend periodic seminars on road safety and traffic efficiency.Hence, petitioner cannot claim exemption
from any liability arising from the recklessness or negligence of Venturina.

EASTERN SHIPPING LINES VS CA

July 12, 1994
Topic: Article 1173 (Negligence)

FACTS: Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a
marine policy. Upon arrival in Manila unto the custody of metro Port Service, which accepted the one drum, said to
be in bad order and which damage was unknown the Mercantile Insurance Company. Allied Brokerage Corporation
received the shipment from Metro, one drum opened and without seal. Allied delivered the shipment to the consignee’s
warehouse. The latter accepted the one drum which contained spillages while the rest of the contents was
adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so that it became subrogated
to all the rights of action of consignee against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The
insurance company filed before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay
the former with present legal interest of 12% per annum from the date of the filing of the complaint. On appeal by
defendants, the appellate court denied the same and affirmed in toto the decision of the trial court.

ISSUES:
1. Whether or not the applicable rate of legal interest is 12% or 6%.

2. Whether or not the payment of legal interest on the award for loss or damage is to be computed from the time the
complaint is filed from the date the decision appealed from is rendered.

HELD:
1. The Court held that the legal interest is 6% computed from the decision of the court a quo. 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 at the rate of 6% per annum. No interest shall be adjudged on unliquidated claims
or damages except when or until the demand can be established with reasonable certainty. When the judgment of the
court awarding a sum of money becomes final and executor, the rate of legal interest shall be 12% per annum from
such finality until satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of money.
The interest due shall be 12% per annum to be computed from default.

2. From the date the judgment is made. Where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extra judicially 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 of judgment
of the court is made.

NATIONAL POWER CORPORATION VS. COURT OF APPEALS

March 8, 2005
 Topic: Article 1174 (Fortuitous Event)

FACTS: On 15 November 1973, the Office of the President of the Philippines issued Memorandum Order No. 398
instructing the NPC to build the Agus Regulation Dam at the mouth of Agus River in Lanao Del Sur, at a normal
maximum water level of Lake Lanao at 702 meters elevation. Pursuant thereto, petitioner built and operated the said
dam in 1978. Private respondents Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Ali Langco and Diamael
Pangcatan own fishponds along the Lake Lanao shore. In October and November of 1986, all the improvements were
washed away when the water level of the lake escalated and the subject lakeshore area was flooded. Private
respondents blamed the inundation on the Agus Regulation Dam built and operated by the NPC in 1978. They
theorized that NPC failed to increase the outflow of water even as the water level of the lake rose due to the heavy
rains.

ISSUE: Whether or not the Court of Appeals erred in affirming the trial court’s verdict that petitioner was legally
answerable for the damages endured by the private respondents.

HELD: Memorandum Order No. 398 clothes the NPC with the power to build the Agus Regulation Dam and to
operate it for the purpose of generating energy. Twin to such power are the duties: (1) to maintain the normal maximum
lake elevation at 702 meters, and (2) to build benchmarks to warn the inhabitants in the area that cultivation of land
below said elevation is forbidden.
With respect to its job to maintain the normal maximum level of the lake at 702 meters, the Court of Appeals, echoing
the trial court, observed with alacrity that when the water level rises due to the rainy season, the NPC ought to release
more water to the Agus River to avoid flooding and prevent the water from going over the maximum level. And yet,
petitioner failed to do so, resulting in the inundation of the nearby estates. Consequently, even assuming that the
fishponds were erected below the 702-meter level, NPC must, nonetheless, bear the brunt for such damages inasmuch
as it has the duty to erect and maintain the benchmarks precisely to warn the owners of the neighboring properties not
to build fishponds below these marks. Without such points of reference, the inhabitants in said areas are clueless
whether or not their improvements are within the prohibited area. Conversely, without such benchmarks, NPC has no
way of telling if the fishponds, subject matter of the present controversy, are indeed below the prescribed maximum
level of elevation. Due to NPC’s negligence in the performance of its duties, it shall be held liable for the resulting
damages suffered by private respondents.

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION vs. GLOBE TELECOM, INC.

May 25, 2004
Topic: Article 1174 (Fortuitous Event)

FACTS: On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to
establish, operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use
of the USDCA. The term of the contract was for 60 months, or five (5) years.In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.
At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the
Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of
the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to
concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements
that was supposed to extend the term of the use by the US of Subic Naval Base, among others.
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and
attorney’s fees. However, Globe refused to heed Philcomsat’s demand.
Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the latter be ordered
to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorney’s fees and costs of
suit.Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the
termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship
and Cooperation, which events constituted force majeure under the Agreement. Globe explained that the occurrence
of said events exempted it from paying rentals for the remaining period of the Agreement. 90
ISSUES: Whether or not (1) the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements constitutes force majeure which exempts Globe from complying with its
obligations under the Agreement
(2) Globe is not liable to pay the rentals for the remainder of the term of the Agreement

HELD: The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present
in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces
and personnel from Cubi Point in December 1992.
The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term
without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such
fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled
to perform its corresponding obligation under the Agreement.

Notes:
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events
constituting force majeure one of which is Any law, order, regulation, direction or request of the Philippine
Government; the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is
nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses,
terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs,
public order or public policy.
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith."28 Courts cannot stipulate for the parties nor amend
their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to
do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force
and effect thereto. Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the
Agreement which Philcomsat and Globe freely agreed upon has the force of law between them.

FGU Insurance Corp vs CA

March 31, 2005
Topic: Article 1174 (Fortuitous Event)

FACTS:
Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping business
operating two common carriers: M/T ANCO tugboat and D/B Lucio barge - no engine of its own, it could not
maneuver by itself and had to be towed by a tugboat for it to move from one place to another.
September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for
towage by M/T ANCO: 25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMC’s Beer Marketing
Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo; 15,000 cases Pale Pilsen and 200 cases Cerveza Negra
- consignee SMC’s BMD-San Jose Beer Sales Office, San Jose, Antique
September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived and M/T ANCO left the barge immediately.
The clouds were dark and the waves were big so SMC’s District Sales Supervisor, Fernando Macabuag, requested
ANCO’s representative to transfer the barge to a safer place but it refused so around the midnight, the barge sunk
along with 29,210 cases of Pale Pilsen and 500 cases of Cerveza Negra totalling to P1,346,197. When SMC claimed
against ANCO it stated that they agreed that it would not be liable for any losses or damages resulting to the cargoes
by reason of fortuitous event and it was agreed to be insured with FGU for 20,000 cases or P858,500
ANCO filed against FGU
FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the diligence of a good father of the family
in the care and supervision of the cargoes
RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes
CA affirmed
ISSUE: Whether or not FGU should be exempted from liability to ANCO for the lost cargoes because of a fortuitous
event and negligence of ANCO

HELD: This Court does not find any reason to deviate from the conclusion drawn by the lower court, as sustained by
the Court of Appeals, that ANCOs representatives had failed to exercise extraordinary diligence required of common
carriers in the shipment of SMCs cargoes. Such blatant negligence being the proximate cause of the loss of the cargoes
amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that the blatant negligence of
ANCOs employees is of such gross character that it amounts to a wrongful act which must exonerate FGU from
liability under the insurance contract.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999 is hereby
AFFIRMED with MODIFICATION dismissing the third-party complaint.SO ORDERED.

NOTE:
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable. In fact, the
other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance which prompted
SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio
had no engine and could not maneuver by itself. Even if ANCOs representatives wanted to transfer it, they no longer
had any means to do so as the tugboat M/T ANCO had already departed, leaving the barge to its own devices. The
captain of the tugboat should have had the foresight not to leave the barge alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not escape
liability to respondent SMC. The records clearly show the failure of petitioners representatives to exercise the
extraordinary degree of diligence mandated by law. To be exempted from responsibility, the natural disaster should
have been the proximate and only cause of the loss. There must have been no contributory negligence on the part of
the common carrier.

SCHMITZ TRANSPORT & BROKERAGE CORPORATION VS. TRANSPORT VENTURE, INC.

April 22, 2005
Topic: Article 1174 (Fortuitous Event)

FACTS: Schmitz Transport and Brokerage Corporation (STBC), petitioner, was engaged by the consignee, Little
Giant Steele Pipe Corp. (Little Giant), to secure the required clearances, to receive the cargoes from the shipside and
to deliver them to the consignee’s warehouse at Cainta, Rizal, hired the services of Transport Venture Inc. (TVI) to
send a barge and tugboat at shipside. The cargoes were 545 hot rolled steel sheets in coil. By 12:30 AM of October
27, 1991, 37 coils were unloaded from the vessel unto the barge but no tugboat came to pull the barge to the pier. Due
to the strong waves and upcoming storm, the crew abandoned the barge, which eventually capsized washing the 37
coils into the sea.
Little Giant filed a formal claim on which Industrial Insurance paid Php 5,246,113.11. Thereafter, Little Giant
executed a subrogation receipt in favor of Industrial Insurance which later filed a complaint against STBC, TVI and
Black Sea. The trial court held all defendants solidarily liable.

ISSUE: Whether or not the loss of the cargoes was due to a fortuitous event

HELD: The Court held that the loss of the cargoes was not due to a fortuitous event. The proximate cause of the loss
was TVI’s failure to provide a tugboat. To be considered a fortuitous event, however, (1) the cause of the unforeseen
and unexpected occurrence, or the failure of the debtor to comply with his obligation must be independent of human
will; (2) it must be impossible to foresee the event which constitute the case fortuitous, or if it can be foreseen it must
be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation
in any manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.

NATIONAL DEVELOPMENT CORP VS CA

August 19, 1988
Topic: Article 1174 (Fortuitous Event)
FACTS: There was a collision between the vessel “Dona Nati” of NDC which contained American raw cotton to be
delivered to Manila and the vessel “SS Yasushima Maru“ of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of
Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil. The
said collision happened at Ise Bay, Japan and as a result of which 550 bales of aforesaid cargo of American raw cotton
were lost and/or destroyed.

ISSUE: Whether or not Philippine law will govern a collision outside of Philippine waters

HELD: This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC to which the goods
are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration"
(Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the
Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said
Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by laws (Article
1766, Civil Code).
In the case at bar, it has been established that the goods in question are transported from San Francisco, California and
Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to have been caused by
the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of
the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay,
Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public
policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code,
in all other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault
or to have acted negigently, unless it proves that it has observed the extraordinary diligence required by law.

PHILIPPINE FREE PRESS INC. V. COURT OF APPEALS

October 24, 2005
Topic: Article 1174 (Fortuitous Event)

FACTS: A case of annulment of sale of the Free Philippine Press to Liwayway Publishing during the regime of martial
law was filed by the petitioner through Teodoro Locsin Sr. in 1987. The petitioner asserts that the sale in 1973 was
invalid, because of vitiated consent and gross inadequacy of the purchase price.

ISSUE: Whether or not the action for annulment has prescribed

HELD: YES. Article 391 of the Civil Code pertinently reads “The action for annulment shall be brought within four
years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of consent
ceases x x x”. [The Supreme Court] can not accept the petitioners’ contention that the period during which
authoritarian rule was in force had interrupted prescription and that the same began to run only on February 25, 1986,
when the Aquino government took power. It is true that under Article 1154 [of the Civil Code] xxx fortuitous events
have the effect of tolling the period of prescription. However, [the Supreme Court] can not say, as a universal rule,
that the period from September 21, 1972 through February 25, 1986 involves a force majeure. Plainly, [the Supreme
Court] can not box in the “dictatorial” period within the term without distinction, and without, by necessity, suspending
all liabilities, however demandable, incurred during that period, including perhaps those ordered by this Court to be
paid.

OSMENA VS SSS
September 13, 2007
Topic: Article 1174 (Fortuitous Event)

FACTS: Senator Sergio R. Osmeña III and four (4) other members of the Philippine Senate, joined by Social Security
System (SSS) members Luis F. Sison and Patricia C. Sison, specifically seek in this original petition for certiorari and
prohibition the nullification of Resolution Nos. 428 and 485 of respondent Social Security Commission (SSC).
Resolution No. 428 approved the proposed sale of the entire equity stake of the SSS in what was then the Equitable
PCI Bank, Inc. (EPCIB) through the Swiss Challenge bidding procedure. Under the Swiss Challenge format, one of
the bidders is given the option or preferential "right to match" the winning bid. Resolution No. 485 approved the
Timetable and Instructions to Bidder.
Sometime in 2003, SSS, a government financial institution placed under the direction and control of SSC, took steps
to liquefy its long-term investments and diversify them into higher yielding and less volatile investment products.
Among its assets determined as needing to be liquefied were its shareholdings in EPCIB. The shares in question have
substantially declined in value and the SSS could no longer afford to continue holding on to them at the present level
of EPCIB's income. Albeit there were other interested parties, only Banco de Oro Universal Bank (BDO) and its
investment subsidiary, respondent BDO Capital, appeared in earnest to acquire the shares in question. Both Resolution
Nos. 428 and 485 were passed. Thereafter, SSS advertised an Invitation to Bid for the block purchase of the Shares.
The Invitation to Bid expressly provided that the "result of the bidding is subject to the right of BDO Capital . . . to
match the highest bid."
Petitioners assert, in gist, that a public bidding with a Swiss Challenge component is contrary to COA Circular No.
89-296 and public policy which requires adherence to competitive public bidding in a government-contract award to
assure the best price possible for government assets. Accordingly, the petitioners urge that the planned disposition of
the Shares through a Swiss Challenge method be scrapped. Pending consideration of the petition, BDO made public
its intent to merge with EPCIB which resulted with a merger. BDO, or BDO-EPCI, Inc. to be precise, has since issued
BDO common shares to respondent SSS corresponding to the number of its former EPCIB. In net effect, SSS, once
the owner of a block of EPCIB shares, is now a large stockholder of BDO-EPCI, Inc.

ISSUE: Whether or not there would be an actual substantial relief which the petitioners are entitled to. 98

HELD: NO. The case has become moot and academic for interrelated reasons. The shares, as a necessary consequence
of the BDO-EPCIB merger which saw EPCIB being absorbed by the surviving BDO, have been transferred to BDO
and converted into BDO common shares. As thus converted, the subject shares are no longer equity security issuances
of the now defunct EPCIB, but those of BDO-EPCI, which, needless to stress, is a totally separate and distinct entity
from what used to be EPCIB. In net effect, therefore, the EPCIB common shares are now lost or inexistent. And in
this regard, the Court takes judicial notice of the disappearance of EPCIB stocks from the local bourse listing. Instead,
BDO-EPCI Stocks are presently listed and being traded in the PSE.
Under the law on obligations and contracts, the obligation to give a determinate thing is extinguished if the object is
lost without the fault of the debtor. A thing is considered lost when it perishes or disappears in such a way that it
cannot be recovered. In a very real sense, the interplay of the ensuing factors: a) the BDO-EPCIB merger; and b) the
cancellation of subject Shares and their replacement by totally new common shares of BDO, has rendered the EPCIB
shares of SSS "unrecoverable."

JIMMY CO v. COURT OF APPEAL and BROADWAY MOTOR SALES CORPORATION

G.R. NO. 124922 June 22, 1998

FACTS:
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model to private respondent - which is engaged in
the sale, distribution and repair of motor vehicles - for the following job repair services and supply of parts:
Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the
job contract. After petitioner paid in full the repair bill in the amount ofP1,397.00, private respondent issued to him a
gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not release the vehicle as
its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby
and delivered it to private respondent for installation on the same day. However, the battery was not installed and the
delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car
in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by
private respondent’s employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the
incident was reported to the police.
Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against
private respondent anchoring his claim on the latter’s alleged negligence. For its part, private respondent contended
that it has no liability because the car was lost as a result of a fortuitous event - the carnapping.
Issue:
W/N Private respondent is negligent
Held:
On the merits. It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage
or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as
a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another’s rightful possession, as in
cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails
more than the mere forceful taking of another’s property. It must be proved and established that the event was an act
of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any
participation. In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous
event rests on him who invokes it- which in this case is the private respondent. However, other than the police report
of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident
was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice
to established the carnapping. Neither does it prove that there was no fault on the part of private respondent
notwithstanding the parties’ agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the
possibility of fault or negligence on the part of private respondent.
Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot
escape liability. Article 1165 of the New Civil Code makes an obligor who is guilty of delay responsible even for a
fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was
supposed to deliver petitioner’s car three (3) days before it was lost. Petitioner’s agreement to the rescheduled delivery
does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot
be construed as waiver of petitioner’s right to hold private respondent liable because the car was unusable and thus,
petitioner had no option but to leave it.
Assuming further that there was no delay, still working against private respondent is the legal presumption under
Article 1265 that its possession of the thing at the time it was lost was due to its fault. This presumption is reasonable
since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner
has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact
that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent’s
possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present
controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances -
earthquake, flood, storm or other natural calamity - when the presumption of fault is not applicable do not concur in
this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the exceptions,
private respondent is answerable for the loss.

JL INVESTMENT AND DEVELOPMENT, INC. vs. TENDON PHILIPPINES, INC., J. STA. MARIA
CONSTRUCTION CORPORATION, and JAIME T. STA. MARIA, JR
2007
Topic: Article 1175
FACTS: Petitioner hired respondent SMCC to undertake the structural and architectural work for the first 12 floors
of a 16-floor building (JLID Building) in Kalaw corner Cortada Streets, Ermita, Manila. Under the Construction
Agreement (Agreement) between petitioner and SMCC, petitioner agreed to pay SMCC P63,333,085.84 for the
project. The Agreement also required SMCC to submit monthly progress billings to petitioner. To supply the concrete
piles needed for the structural work, SMCC subcontracted respondent TPI, a local manufacturer of pre-cast concrete
products. Accordingly, TPI delivered 142 pieces of concrete piles to SMCC worth P4,118,000 payable on installment
basis. By early August 1996, SMCC, using the concrete piles that TPI supplied, finished the pile driving work for the
first 12 floors of the JLID Building. On 13 September 1996, petitioner paid SMCC for the pile driving work as
indicated in SMCCs seventh progress billing dated 30 August 1996. Claiming that SMCC did not fully pay for the
concrete piles, TPI sought payment of the balance from petitioner. Petitioner ignored TPIs demand. Thus, TPI sued
SMCC, SMCCs President, respondent Sta. Maria, and petitioner (respondents) in the Regional Trial Court of Pasig
City, Branch 167 (trial court), to collect the unpaid balance of P1,389,330. TPI prayed that the trial court hold
respondents solidarily liable for the balance with interest, attorneys fees, and the costs of suit.

ISSUE: Whether or not the petitioner is solidarily liable with SMCC and Sta. Maria to TPI for the unpaid balance
under the contract between SMCC and TPI, and, if in the negative.

HELD: The petition is partly meritorious. Although petitioner is solidarily liable with SMCC and Sta. Maria to TPI
for the balance under TPI’s contract with SMCC, petitioner has a right to reimbursement under its cross-claim against
SMCC.
Article 1729 of the Civil Code provides:
Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action
against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the
following shall not prejudice the laborers, employees and furnishers of materials:
1. Payments made by the owner to the contractor before they are due;
2. Renunciation by the contractor of any amount due from the owner.
This article is subject to the provisions of special laws.
This provision imposes a direct liability on an owner of a piece of work in favor of suppliers of materials (and laborers)
hired by the contractor "up to the amount owing from the [owner] to the contractor at the time the claim is made."
Thus, to this extent, the owner’s liability is solidary with the contractor, if both are sued together. By creating a
constructive vinculum between suppliers of materials (and laborers), on the one hand, and the owner of a piece of
work, on the other hand, as an exception to the rule on privity of contracts, Article 1729 protects suppliers of materials
(and laborers) from unscrupulous contractors and possible connivance between owners and contractors. As the Court
of Appeals correctly ruled, the supplier’s cause of action under this provision, reckoned from the time of judicial or
extra-judicial demand, subsists so long as any amount remains owing from the owner to the contractor. Only full
payment of the agreed contract price serves as a defense against the supplier’s claim.
Here, petitioner resists TPI’s suit on the ground that it had fully paid, if not overpaid, SMCC at the time TPI demanded
payment on 3 December 1996. However, as the Court of Appeals found, petitioner failed to substantiate its claim.
What petitioner submits as proof of its alleged full or over payment, namely, its answer to TPI’s interrogatories and
the testimony of one of its witnesses, are no more than mere uncorroborated allegations. The only proof of payment
on record are the official receipt, voucher, and check for the seventh progress billing dated 30 August 1996, nearly
four months before TPI sought payment from petitioner on 3 December 1996. Allegation of payments, advance or
otherwise, is no substitute for proof of such fact. Thus, absent incontrovertible proof of payment such as receipts,
checks, cash disbursement vouchers, and the like, petitioner’s claim of full or over payment remains only that. At any
rate, Article 1729 clearly provides that "payments made by the owner to the contractor before they are due" do not
prejudice suppliers of materials.
Therefore, petitioner JL Investment and Development, Inc. and respondents J. Sta. Maria Construction Corporation
and Jaime T. Sta. Maria, Jr. to pay solidarily respondent Tendon Philippines, Inc. P1,389,330, with interest at 6% per
annum computed from the time of the filing of respondent Tendon Philippines, Inc.’s complaint, and attorney’s fees
equivalent to 10% of the principal obligation. Upon finality of this judgment, the entire obligation shall earn interest
at 12% per annum until its satisfaction.

NEW SAMPAGUITA BUILDERS, INC. vs. PNB

July 30, 2004
Topic: Article 1175

FACTS: Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos, mortgaging the properties of
Sampaguita’s president and chairman of the board. Sampaguita also executed several promissory notes due on
different dates (payment dates). The first promissory note had 19.5% interest rate. The 2nd and 3rd had 21.5%. a
uniform clause therein permitted PNB to increase the rate “within the limits allowed by law at any time depending on
whatever policy it may adopt in the future x x x,” without even giving prior notice to petitioners. There was also a
clause in the promissory note that stated that if the same is not paid 2 years after release then it shall be converted to
a medium term loan – and the interest rate for such loan would apply. Later on, Sampaguita defaulted on its payments
and failed to comply with obligations on promissory notes. Sampaguita thus requested for a 90 day extension to pay
the loan. Again they defaulted, so they asked for loan restructuring. It partly paid the loan and promised to pay the
balance later on. AGAIN they failed to pay so PNB extrajudicially foreclosed the mortgaged properties. It was sold
for 10M. PNB claimed that Sampaguita owed it 12M so they filed a case in court asking Sampaguita to pay for
deficiency. RTC found that Sampaguita was automatically entitled to the debt relief package of PNB and ruled that
the latter had no cause of action against the former. CA reversed, saying Sampaguita was not entitled, thus ordered
them to pay the deficiency – Appeal = Went to SC. Sampaguita claims the loan was bloated so they don’t really owe
PNB anymore, but it just overcharged them!
ISSUES:
1. Whether or not the loan accounts are bloated.
2. Whether PNB could unilaterally increase interest rates.
3. Whether petitioner is bound to accept payment by means of credit card.
HELD:
1. YES. There is no deficiency; there is actually an overpayment of more than 3M based on the computation of the
SC.
2. NO. Sampaguita’s accessory duty to pay interest did not give PNB unrestrained freedom to charge any rate other
than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It would be the zenith
of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the
agreement. The “unilateral determination and imposition” of increased rates is “violative of the principle of mutuality
of contracts ordained in Article 1308 of the Civil Code.” One‐sided impositions do not have the force of law between
the parties, because such impositions are not based on the parties’ essential equality. Although escalation clauses are
valid in maintaining fiscal stability and retaining the value of money on long‐term contracts, giving respondent an
unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the
“right to assent to an important modification in their agreement” and would also negate the element of mutuality in
their contracts. The clause cited earlier made the fulfillment of the contracts “dependent exclusively upon the
uncontrolled will” of respondent and was therefore void. Besides, the pro forma promissory notes have the character
of a contract d’adhésion, “where the parties do not bargain on equal footing, the weaker party’s [the debtor’s]
participation being reduced to the alternative ‘to take it or leave it.’” Circular that lifted the ceiling of interest rates of
usury law did not authorize either party to unilaterally raise the interest rate without the other’s consent. The interest
ranging from 26 percent to 35 percent in the statements of account ‐‐ “must be equitably reduced for being iniquitous,
unconscionable and exorbitant.” Rates found to be iniquitous or unconscionable are void, as if it there were no express
contract thereon. Above all, it is undoubtedly against public policy to charge excessively for the use of money. It
cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for
loan restructuring or from their lack of response to the statements of account sent by respondent. Such request does
not indicate any agreement to an interest increase; there can be no implied waiver of a right when there is no clear,
unequivocal and decisive act showing such purpose. Besides, the statements were not letters of information sent to
secure their conformity; and even if we were to presume these as an offer, there was no acceptance. No one receiving
a proposal to modify a loan contract, especially interest ‐‐ a vital component ‐‐ is “obliged to answer the proposal.”
Besides, PNB did not comply with its own stipulation that should the loan not be paid 2 years after release of money
then it shall be converted to a medium term loan.
*Court applied 12% interest rate instead for being a forbearance of money (there were some pieces of evidence
presented by PNB in court that Sampaguita objected to. Lower courts overruled the objections but SC said the
objections were correct and the evidence should not have been admitted. I.e. contract wasn’t signed by the parties, a
part of the contract wasn’t properly annexed/no reference was made in the main contract. In addition to the preceding
discussion, it is then useless to labor the point that the increase in rates violates the impairment clause of the
Constitution, because the sole purpose of this provision is to safeguard the integrity of valid contractual agreements
against unwarranted interference by the State in the form of laws. Private individuals’ intrusions on interest rates is
governed by statutory enactments like the Civil Code.

3. YES. Mandarin Villa Seafood Village is affiliated with BANKARD. Mandarin and BANKARD entered into
agreement which states that The MERCHANT shall honor validly issued PCCCI credit cards presented by their
corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date
has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and canceled
PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face of the credit card. While
De Jesus may not be a party to the said agreement, the above‐quoted stipulation conferred a favor upon DE Jesus, a
holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour auturi and under Article 1311
of the Civil Code, De Jesus may demand its fulfillment provided he communicated his acceptance to Mandarin before
its revocations. IN the case at bar, De Jesus’ offer to pay by means of his BANKARD credit card constitutes not only
as an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor. In addition,
the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that "Bankard is accepted
here. This representation is conclusive upon the petitioner which it cannot deny or disprove as against De Jesus, the
party relying thereon. Mandarin, therefore, cannot disclaim its obligation to accept De Jesus' BANKARD credit card
without violating the equitable principle of estoppel.

PILIPINAS BANK v. COURT OF APPEALS

August 12, 1993
Topic: Article 1175
FACTS: Private respondent Lilia Echaus filed a complaint against the petitioner, Pillipinas Bank and its president,
Constantino Bautista, for collection of a sum of money.
The trial court ruled in favor of private respondent. It ordered Pilipinas Bank and its co-defendant, jointly and
severally, to pay private respondent the total amount assigned by Greatland plus legal interest, total actual damages
suffered by the plaintiff plus legal interest until fully paid, moral, exemplary and nominal damages, attorney’s fees
and costs of suits.
The Court of Appeals in a Resolution clarified that the legal interest of the principal award should be 12% per annum.
In appeal, the petitioner claims that the CA erred: (1) In ruling that the legal rate of interest on the amount on the
principal amount by petitioner to private respondent is 12% per annum (2) In not holding that the refund to which
petitioner is entitled should earn interest at the rate of 12% per annum.
The Court of Appeals was of the theory that the action in Civil Case No. 239-A filed by private respondent against
petitioner "involves forbearance of money, as the principal award to plaintiff-appellee. Applying Central Bank
Circular No. 416, the Court of Appeals held that the applicable rate of interest is 12% per annum.
Petitioner argues that the applicable law is Article 2209 of the Civil Code, not the Central Bank Circular No. 416. The
legal interest is six percent per annum.

ISSUE: Whether or not the legal interest applicable in the transaction of Pilipinas Bank and the respondent is at 6%
per annum.

HELD: Yes. Article 1175 provides that, “Usurious transactions shall be governed by special laws.” The said amount
was a portion of the P7,776,335.69 which petitioner was obligated to pay Greatland as consideration for the sale of
several parcels of land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by Greatland in favor
of private respondent. The said obligation therefore arose from a contract of purchase and sale and not from a contract
of loan or mutuum. Hence, what is applicable is the rate of 6% per annum as provided in Article 2209 of the Civil
Code of the Philippines and not the rate of 12% per annum as provided in Circular No. 416. 105

SUNGA-CHAN VS COURT OF APPEALS

June 25, 2008
Topic: Article 1175

FACTS: In 1977, Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum
gas. For convenience, the business, pursued under the name, Shellite Gas Appliance Center (Shellite), was registered
as a sole proprietorship in the name of Jacinto, albeit the partnership arrangement called for equal sharing of the net
profit. After Jacintos death in 1989, his widow, petitioner Cecilia Sunga, and married daughter, petitioner Lilibeth
Sunga-Chan, continued with the business without Chuas consent. Chuas subsequent repeated demands for accounting
and winding up went unheeded, prompting him to file on June 22, 1992 a Complaint for Winding Up of a Partnership
Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment. After
another lengthy proceedings, petitioners, on September 24, 2002, submitted their own CPA-certified valuation and
accounting report. In it, petitioners limited Chuas entitlement from the winding up of partnership affairs to an
aggregate amount of PhP 3,154,736.65 only. Chua, on the other hand, submitted a new computation, this time applying
simple interest on the various items covered by his claim. Under this methodology, Chuas aggregate claim went down
to PhP 8,733,644.75. Petitioner sought reconsideration but was denied by the RTC. Then, they went to the CA on a
petition for certiorari. CA denied the petitioner and ruled that the 12% interest added on the amounts due is proper as
the unwarranted keeping by petitioners of Chuas money passes as an involuntary loan and forbearance of money. The
CA ruled that the imposition of interest is not based on par. 3 of the October 7, 1997 RTC decision as the phrase shares
and interests mentioned therein refers not to an imposition of interest for use of money in a loan or credit, but to a
legal share or right. The appellate court also held that the imposition of interest on the partnership assets falls under
par. 2 in relation to par. 1 of the final RTC decision as the restitution mentioned therein does not simply mean
restoration but also reparation for the injury or damage committed against the rightful owner of the property.
Petitioners, citing Article 2213 of the Civil Code, fault the trial court for imposing, in the execution of its final
judgment, interests on what they considered as unliquidated claims. Among these was the claim for goodwill upon
which the RTC attached a monetary value of PhP 250,000. Petitioners also question the imposition of 12% interest on
the claimed monthly profits of PhP 35,000, reckoned from 1988 to October 15, 1992. To petitioners, the imposable
rate should only be 6% and computed from the finality of the RTCs underlying decision, i.e., from December 20,
2001. 106
Third on the petitioners list of unliquidated claims is the yet-to-be established value of the one-half partnership share
and interest adjudicated to Chua, which, they submit, must first be determined with reasonable certainty in a judicial
proceeding. And in this regard, petitioners, citing Eastern Shipping Lines, Inc. v. Court of Appeals, would ascribe
error on the RTC for adding a 12% per annum interest on the approved valuation of the one-half share of the assets,
inclusive of goodwill, due Chua.

ISSUE: Whether or not the Regional Trial Court can impose interest on a final judgment of unliquidated claims?

HELD: Petition partly granted. The legal interest at 12% per annum under Central Bank (CB) Circular No. 416 shall
be adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment of
indemnities in the concept of damages arising from default in the performance of obligations in general and/or for
money judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 2209
of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum.
The term forbearance, within the context of usury law, has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then
due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods,
or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in general, with the application
of both rates reckoned from the time the complaint was filed until the [adjudged] amount is fully paid. In either
instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the
condition that the courts are vested with discretion, depending on the equities of each case, on the award of interest.

The award to Chua of the amount representing earned but unremitted profits, i.e.. PhP 35,000 monthly, from January
1988 until May 30, 1992, must earn interest at 6% per annum reckoned from October 7, 1997, the rendition date of
the RTC decision, until December 20, 2001, when the said decision became final and executory. Thereafter, the total
of the monthly profits inclusive of the add on 6% interest shall earn 12% per annum reckoned from December 20,
2001 until fully paid, as the award for that item is considered to be, by then, equivalent to a forbearance of credit.
Likewise, the PhP 250,000 award, representing the goodwill value of the business, the award of PhP 50,000 for moral
and exemplary damages, PhP 25,000 attorneys fee, and PhP 25,000 litigation fee shall earn 12% per annum from
December 20, 2001 until fully paid.
Anent the impasse over the partnership assets, we are inclined to agree with petitioners assertion that Chuas share and
interest on such assets partake of an unliquidated claim which, until reasonably determined, shall not earn interest for
him. As may be noted, the legal norm for interest to accrue is reasonably determinable, not, as Chua suggested and
the CA declared, determinable by mathematical computation. Considering that Chuas computation of claim, as
approved by the trial court, was submitted only on October 15, 2002, no interest in his favor can be added to his share
of the partnership assets.

RIZAL COMMERCIAL BANKING CORPORATION vs

PEDRO P. BUENAVENTURA
G.R. No. 176479 October 06, 2010
Topic: Article 1176 - Receipt of Principal and Later Installments

FACTS:
This is a petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner Rizal Commercial Banking
Corp. (RCBC) assails the decision dated November 21, 2006 and the resolution dated January 30, 2007 of the Court
of Appeals (CA) in CA-G.R. CV No. 82079.

Respondent Pedro P. Buenaventura and his first wife (now deceased) owned a townhouse unit in Casa Nueva Manila
Townhouse, Quezon City. On December 27, 1994, they obtained a loan from petitioner. As security for the loan, they
mortgaged the townhouse to petitioner. Under the loan agreement, respondent was to pay RCBC a fixed monthly
payment with adjustable interest for five years. For this purpose, respondent opened an account with RCBC’s Binondo
branch from which the bank was to deduct the monthly amortizations.

On April 19, 1999, respondent received a Notice of Public Auction of the mortgage townhouse unit on which RCBC
had emerged as the highest bidder on May 25, 1999. The sale was registered September 28, 2000. Because of this,
respondent filed a suit against petitioner on September 18, 2001 praying that the extra-judicial foreclosure and public
sale to be annulled and cancel the Certificate of Sale as well as award for damages. RTC ruled in favor of respondent
Buenaventura; they found that the respondent made regular payments of the monthly amortizations as they fell due,
as evidenced by his passbooks and the various deposit slips acknowledged by RCBC. The RTC also found that
RCBC’s own computer-generated amortization schedule showed that no balance was due respondent after his last
payment on March 27, 2000.

RCBC appealed the decision to the CA, which affirmed the decision of the RTC to which it noted that “September
1996, RCBC sent respondent a letter informing the latter of past due accounts since January 27, 1996, which would
warrant the application of the acceleration clause. The CA, however, deemed the same to have been "cured" by a
subsequent Amortization Schedule given by the bank to respondent stating that, as of March 27, 2000, he no longer
had an unpaid balance on his loan. The CA said this clearly suggests the uninterrupted receipt by RCBC of the
installments, thus, negating the claim that respondent was in default.” Thus, this petition in the SC.

ISSUE:
W/N RCBC’s petition holds merit that the extra-judicial foreclosure of the property was made lawfully.

HELD:
The Supreme Court affirmed the decision of the RTC and CA; noting that the respondent’s passbooks indicate that
RCBC continued to receive the respondent’s payments even after it made demands for him to pay his past due
accounts, and even after the auction sale. To which Article 1176 of the Civil Code will apply, “xxx The receipt of a
later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such
installments have been paid.”

GOLD STAR MINING CO., INC. vs. MARTA LIM-JIMENA, CARLOS JIMENA, GLORIA JIMENA,
AURORA JIMENA, JAIME JIMENA, DANTE JIMENA, JORGE JIMENA, JOYCE JIMENA, as legal heirs
of the deceased VICTOR JIMENA, and JOSE HIDALGO
October 26, 1968
Topic: Article 1177

FACTS: Ananias Lincallo bound himself in an equal sharing arrangement in writing to turn to Victor Jimena one-
half (1/2) of the proceeds from all mining claims that he would purchase with the money to be advanced by the latter
among others. Apparently, the mining rights over part of the claims were assigned by Lincallo to Gold Star Mining
Co., Inc., sometime before World War Il because in 1950 the corporation paid him P5,000 in consideration of, and as
a quitclaim for, pre-war royalties.
On several occasions thereafter, the mining claims in question were made subject-matter of contracts entered into by
Lincallo in his own name and for his benefit alone. On September 19, 1951, Lincallo and Alejandro Marquez entered
into an agreement regarding the allotment to Lincallo of 45% of the royalties due from the corporation. Four months
later, a lease contract was entered into by Lincallo, Marquez and Congressman Panfilo Manguerra leasing certain
mining claims to Jacob Cabarrus, who then transferred to Marinduque Iron Mines Agents, Inc., his rights under the
lease contract. By virtue of another contract executed by the said lessors on 29 February 1952, 43% of the royalties
due from Marinduque Iron Mines Agents, Inc., were agreed upon to be paid to Lincallo.
From August, 1939 to September, 1952, Jimena repeatedly apprised Gold Star Mining Co., Inc., and Marinduque Iron
Mines Agents, Inc., of his interests over the mining claims so assigned and/or leased by Lincallo. Both corporations,
however, ignored Jimena's demands. Payment of the P5,800 advanced for the purchase of the mining claims, as well
as the one-half share in the royalties paid by the two corporations, were also repeatedly demanded by Jimena from
Lincallo. Despite his promise to fulfill his obligations, Lincallo transferred 35 of his 45% share in the royalties due
from Gold Star Mining Co., Inc., to one Gregorio Tolentino for an alleged consideration of P10,000.00.
On 2 September 1954, Jimena filed a suit against Lincallo for recovery of his advances and his one-half share in the
royalties. Jimena and Tolentino died successively during the pendency of the case in the trial court and were,
accordingly, substituted by their respective widows and children. The lower court rendered a decision condemning
inter alia the defendants Gold Star and Marinduque Iron Mines to pay direct to plaintiffs said 1/2 shares of the royalties
until said contracts are terminated.
Upon appeal, the Court of Appeals rendered a decision sustaining in its entirety that of the trial court. The motion for
reconsideration of Gold Star Mining Co., Inc., was denied. In its appeal, the petitioner contended inter alia that there
is no privity of contract between Gold Star and Jimena.

ISSUE: WON Jimena has the right to the mining claims and royalties he sought to recover from the corporations

HELD: YES. The Court upheld in toto the decision of the trial court. It was held that in this case Jimena sought for
the direct payment to himself of his share of the royalties, and evidence show that Jimena made prewar and postwar
demands upon Gold Star for the payment of his 1/2 share of the royalties but all in vain so he (Jimena) was constrained
to implead Gold Star because it refused to recognize his right. Under Article 1177, new Civil Code which provides
that "creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter (debtor) for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor may have done to defraud them (1111)."
Furthermore, the trial court ruled that it can be said that Lincallo, in transferring the mining claims to Gold Star
(without disclosing that Jimena was a co-owner although Gold Star had knowledge of the fact as shown by the proofs
heretofore mentioned) acted as Jimena's agent with respect to Jimena's share of the claims. Under such conditions,
Jimena has an action against Gold Star, pursuant to Article 1883, New Civil Code, which provides that the principal
may sue the person with whom the agent dealt with in his (agent's) own name, when the transaction "involves things
belonging to the principal."

ANCHOR SAVINGS BANK (FORMERLY ANCHOR FINANCE AND INVESTMENT CORPORATION),

vs HENRY H. FURIGAY, GELINDA C. FURIGAY, HERRIETTE C. FURIGAY and HEGEM C.
FURIGAY,
March 13, 2013
Topic: Article 1177

FACTS: On April 21, 1999, ASB filed a verified complaint for sum of moneyand damages with application for
replevin against Ciudad Transport Services, Inc. (CTS), its president, respondent Henry H. Furigay; his wife,
respondent Gelinda C. Furigay; and a “John Doe.”
While Civil Case No. 99-865 was pending, respondent spouses donated their registered properties in Alaminos,
Pangasinan, to their minor children, respondents Hegem G. Furigay and Herriette C. Furigay. Claiming that the
donation of these properties was made in fraud of creditors, ASB filed a Complaint for Rescission of Deed of Donation,
Title and Damages against the respondent spouses and their children. RTC dismissed the complaint for failure of ASB
to pay the correct docket fees and for prescription. On appeal, the CA agreed with ASB that its complaint should not
have been dismissed on the ground that it failed to pay the correct docket fees.
ISSUE: WON the complaint for rescission should prosper?
HELD: NO. The remedy of rescission is subsidiary in nature; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.
Article 1177 of the New Civil Code provides: The creditors, after having pursued the property in possession of the
debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose,
save those which are inherent in his person; they may also impugn the actions which the debtor may have done to
defraud them.
Consequently, following the subsidiary nature of the remedy of rescission, a creditor would have a cause of action to
bring an action for rescission, if it is alleged that the following successive measures have already been taken: (1)
exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor,
except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those
personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their
rights (accion pauliana).

A cursory reading of the allegations of ASB’s complaint would show that it failed to allege the ultimate facts
constituting its cause of action and the prerequisites that must be complied before the same may be instituted. ASB,
without availing of the first and second remedies, that is, exhausting the properties of CTS, Henry H. Furigay and
Genilda C. Furigay or their transmissible rights and actions, simply undertook the third measure and filed an action
for annulment of the donation. Petition is denied.

ELENITA M. DEWARA, represented by her Attorney-in-Fact, FERDINAND MAGALLANES vs SPOUSES

RONNIE AND GINA LAMELA and STENILE ALVERO
G.R. No. 179010 April 11, 2011
Topic: Remedies Available to Creditors for the Satisfaction of Their Claims

FACTS:
Eduardo Dewara (Eduardo) and petitioner Elenita Magallanes Dewara (Elenita) were married before the enactment of
the Family Code. Thus, the Civil Code governed their marital relations. Husband and wife were separated-in-fact
because Elenita went to work in California, United States of America, while Eduardo stayed in Bacolod City.

On January 20, 1985, Eduardo, while driving a private jeep registered in the name of Elenita, hit respondent Ronnie
Lamela (Ronnie). Ronnie filed a criminal case for serious physical injuries through reckless imprudence against
Eduardo before the Municipal Trial Court in Cities (MTCC), Branch IV, Bacolod City. The MTCC found Eduardo
guilty of the charge and sentenced him to suffer the penalty of imprisonment of two (2) months and one (1) day to (3)
months, and to pay civil indemnity of Sixty-Two Thousand Five Hundred Ninety-Eight Pesos and Seventy Centavos
(P62,598.70) as actual damages and Ten Thousand Pesos (P10,000.00) as moral damages. On appeal, the RTC
affirmed the decision of the MTCC and it became final and executory.

The writ of execution on the civil liability was served on Eduardo, but it was returned unsatisfied because he had no
property in his name. Ronnie requested the City Sheriff, respondent Stenile Alvero, to levy on Lot No. 234-C, Psd.
26667 of the Bacolod Cadastre, with an area of 1,440 square meters, under Transfer Certificate of Title (TCT) No. T-
80054, in the name of Elenita M. Dewara, to satisfy the judgment on the civil liability of Eduardo. The City Sheriff
served a notice of embargo on the title of the lot and subsequently sold the lot in a public auction. In the execution
sale, there were no interested buyers other than Ronnie. The City Sheriff issued a certificate of sale to spouses Ronnie
and Gina Lamela to satisfy the civil liability in the decision against Eduardo. Ronnie then caused the consolidation of
title in a Cadastral Proceeding before the RTC, which ordered the cancellation of TCT No. T-80054 in the name of
Elenita and the issuance of a new certificate of title in the name of respondent spouses.

The levy on execution, public auction, issuance of certificate of sale, and cancellation of title of the lot in the name of
Elenita were done while Elenita was working in California. Thus, Elenita, represented by her attorney-in-fact,
Ferdinand Magallanes, filed a case for annulment of sale and for damages against respondent spouses and ex-officio
sheriff Alvero before the RTC of Bacolod City. Petitioner claimed that the levy on execution of Lot No. 234-C was
illegal because the said property was her paraphernal or exclusive property and could not be made to answer for the
personal liability of her husband. Furthermore, as the registered owner of the property, she received no notice of the
execution sale.

On the other hand, respondent spouses averred that the subject lot was the conjugal property of petitioner Elenita and
Eduardo. On September 2, 1999, having declared that the property was the paraphernal property of Elenita, the RTC
ruled that the civil liability of Eduardo, which was personal to him, could not be charged to the exclusive property of
his wife.
On appeal, the CA reversed the decision of the RTC. Hence, this petition.

ISSUE:
Whether or not the property may be subject to levy and execution sale to answer for the civil liability adjudged
against Eduardo in the criminal case for serious physical injuries.

HELD:
Yes. The Supreme Court ruled that according to Article 160 of the Civil Code, all property of the marriage is presumed
to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.
Registration in the name of the husband or the wife alone does not destroy this presumption. The separation-in-fact
between the husband and the wife without judicial approval shall not affect the conjugal partnership. In this case, there
is no dispute that the subject property was acquired by spouses Elenita and Eduardo during their marriage. Their
marital relations are governed by the conjugal partnership of gains, since they were married before the enactment of
the Family Code and they did not execute any prenuptial agreement as to their property relations. Thus, the legal
presumption of the conjugal nature of the property applies to the lot in question. The presumption that the property is
conjugal property may be rebutted only by strong, clear, categorical, and convincing evidence. There must be strict
proof of the exclusive ownership of one of the spouses, and the burden of proof rests upon the party asserting it.

However, even after having declared that Lot No. 234-C is the conjugal property of spouses Elenita and Eduardo, it
does not necessarily follow that it may automatically be levied upon in an execution to answer for debts, obligations,
fines, or indemnities of one of the spouses. Before debts and obligations may be charged against the conjugal
partnership, it must be shown that the same were contracted for, or the debts and obligations should have redounded
to, the benefit of the conjugal partnership. Fines and pecuniary indemnities imposed upon the husband or the wife, as
a rule, may not be charged to the partnership. However, according to Article 163 of the Civil Code, if the spouse who
is bound should have no exclusive property or if the property should be insufficient, the fines and indemnities may be
enforced upon the partnership assets only after the responsibilities enumerated in Article 161 of the same code have
been covered.

In this case, it is just and proper that Ronnie be compensated for the serious physical injuries he suffered. It should be
remembered that even though the vehicle that hit Ronnie was registered in the name of Elenita, she was not made a
party in the said criminal case. Thus, she may not be compelled to answer for Eduardo’s liability. Nevertheless, their
conjugal partnership property may be held accountable for it since Eduardo has no property in his name. The payment
of indemnity adjudged by the RTC of Bacolod City in favor of Ronnie may be enforced against the partnership assets
of spouses Elenita and Eduardo after the responsibilities enumerated under Article 161 of the Civil Code have been
covered. Therefore, the Court ruled that the conjugal properties of spouses Elenita Dewara and Eduardo Dewara shall
be held to answer for the judgment of Seventy-Two Thousand Five Hundred Ninety-Eight Pesos and Seventy Centavos
(P72,598.70), plus an interest rate of twelve (12) percent per annum from the date of finality of the decision of the
Regional Trial Court of Bacolod City in Criminal Case No. 7155, after complying with the provisions of Article 161
of the Civil Code.
 METROPOLITAN BANK and TRUST COMPANY
vs. INTERNATIONAL EXCHANGE BANK
G.R. No. 176008 August 10, 2011
Topic: Article 1178

FACTS:
On September 10, 2001, for the purpose of increasing its capital, SSC entered into a Credit Agreement with herein
respondent International Exchange Bank (IEB). As security for its loan obligations, SSC executed five separate deeds
of chattel mortgage constituted over various equipment found in its steel manufacturing plant.

On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction for the purpose of enjoining
SSC from taking out the mortgaged equipment from its premises because SSC defaulted in the payment of its
obligations and IEB's demand for payment went unheeded. IEB filed a Supplemental Complaint praying for the
issuance of a writ of replevin or, in the alternative, for the payment of SSC's outstanding obligations and attorney's
fees.

On August 30, 2004, SSC entered into a Capacity Lease Agreement with herein petitioner Chuayuco Steel
Manufacturing Corporation (CSMC) which allowed the latter to lease and operate the former's cold rolling mill and
galvanizing plant for a period of five years.

On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a motion for
intervention contending that it has legal interest in the properties subject of the litigation between IEB and SSC because
it is a creditor of SSC and that the mortgage contracts between IEB and SSC were entered into to defraud the latter's
creditors. Metrobank prayed for the rescission of the chattel mortgages executed by SSC in favor of IEB.
On January 21, 2005, CSMC filed an Omnibus Motion for intervention and for allowance to immediately operate the
cold rolling mill and galvanizing plant of SSC contending that its purpose in intervening is to seek the approval of the
court to operate the said plant pursuant to the Capacity Lease Agreement it entered into with SSC.

On February 14, 2005, the RTC issued an Order admitting the motions for intervention filed by CSMC and Metrobank.

On March 15, 2005, the RTC granted the motion to operate the machineries pendente lite.
On June 8, 2005, the RTC issued a Joint Resolution reiterating its admission of CSMC's motion for intervention and
directing the latter to file its complaint-inintervention.

On August 25, 2005, IEB filed a petition for certiorari, prohibition and mandamus with the CA assailing the RTC
Orders dated September 6, 2004 and February 14, 2005, Resolution dated March 15, 2005 and Joint Resolution dated
June 8, 2005. CA granted the petition and annulled said decisions.

Metrobank, CSMC and SSC filed their respective motions for reconsideration, but these were all denied by the CA in
its Resolution dated December 22, 2006.

ISSUE:
Whether or not the Metrobank may be allowed to intervene pursuant to Art. 1177 of the Civil Code.

HELD:
The Court ruled that Metrobank may not be allowed to intervene and pray for the rescission of the chattel mortgages
executed by SSC in favor of IEB. The remedy being sought by Metrobank is in the nature of an accion pauliana which,
under the factual circumstances obtaining in the present case, may not be allowed. Following successive measures
must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust
the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except
such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to
him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights
(accion pauliana). An action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor
has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been
exhausted and have been proven futile.
It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been
transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC's transmissible
rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure
and filed an action for annulment of the chattel mortgages. This cannot be done. It can only be availed of in the absence
of any other legal remedy to obtain reparation for the injury. No evidence was presented nor was even an allegation
offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of
the contracts of chattel mortgage between IEB and SSC.

ATIENZA vs ESPIDOL
G.R. NO. L-180665 August 11, 2010
Topic: Conditional Obligations

FACTS:
Petitioners, the Atienzas, own a parcel of agricultural land at Cabanatuan city. They decided to sell it to respondent
Espidol because petitioner Paulino Atienza needed money for his daughter's leukemia treatment. They entered into a
contract to sell the land for 130.00 per square meter or a total of 2,874,670.00 payable in three installments. Espidol
paid them 100,000.00 upon the execution of the contract and 30,000.00 as commission. When the Atienzas demanded
the payment of the second installment, respondent could not fully pay 1,750,000.00. He offered to pay 500,000.00
instead but the Atienzas refused to accept the amount. petitioners then filed a complaint at the RTC of Cabanatuan for
the annulment of the contract with damages. Espidol argued that their contract was a contract of sale on installment,
and that non-payment of installment would not amount to a breach that would be a ground for annulment. The RTC
ruled in favor of respondent Espidol, stating that he made an honest effort to pay his dues and that the annulment of
the contract is subject to the realty installment buyer protection act (RA 6552). The CA affirmed the decision, hence
this petition.

ISSUE:
Whether or not the Atienzas can validly cancel the contract to sell on the ground of non-payment of installment?

HELD:
In a contract to sell, the buyers' full payment of the price is a positive suspensive condition to the coming into effect
of the agreement. the title simply remains in the seller if the buyer does not comply with the condition precedent of
making payment at the time specified in the contract. In the present case, the contract involved is a contract to sell
because the Atienzas wanted Espidol to pay the purchase price in installments before they can give him the title.
However, since Espidol failed to pay the purchase price/installment on the day certain agreed upon as the positive
suspensive condition, the Atienzas CAN VALIDLY CANCEL their contract to sell because the obligation to sell the
parcel of land did not arise. When Espidol failed to pay, the Atienzas were in no obligation to reserve the land for him.
Furthermore, the failure to pay the second installment was no small default for the RTC to regard that Espidol made
honest efforts to pay. In fact, even as the case was pending and the last date of installment passed, Espidol yet again
failed to pay his dues. The decision of the RTC and CA is REVERSED and SET ASIDE. the contract to sell is
cancelled. Petitioners are ordered to return the 130,000.00 to Espidol.
 VDA. DE MISTICA V. NAGUIAT
G.R. No. 137909 December 11, 2003
Topic: Conditional Obligations

FACTS:
On April 5, 1979, Eulalo Mistica, deceased husband of petitioner, entered into a contract of sale with respondent
Bernardino Naguiat over a 200-square-meter parcel of land. The purchase price was P20,000, with the P2,000 down
payment due immediately after the signing of the contract, and the balance to be paid in a span of ten years. In case
of non-payment within the ten-year period agreed upon, Naguiat will pay 12% interest until fully paid.

Pursuant to their agreement, respondent gave a down payment of P2,000.00 out of the full purchase price of
P20,000.00. On February 7, 1980, respondent made another payment of P1,000.00 and after that no other payment
was made. Eulalio died sometime in 1986. In 1991, petitioner Fidela Del Castillo Vda. De Mistica filed with the trial
court a complaint for rescission of the contact to sell. She argues that she is entitled to rescind the contract under Art.
1191 of the Civil Code because respondent’s failure to pay the balance of the purchase price within the ten-year period
constituted substantial breach. She further avers that the proviso on the payment of interest did not extend the period
to pay, and allowing such interpretation would make the obligation potestative and void under Art. 1182.

Respondent argues, on the other hand that the contract cannot be rescinded because it clearly stipulates that in case of
failure to pay the balance within the time specified, a yearly interest of 12% is to be paid. Further, during the wake of
Eulalio Mistica, he offered to pay the remaining balance to petitioner but she refused.

Both the trial court and the appellate court found for the respondent.

ISSUE:
Whether or not petitioner may have the contract rescinded, and whether or not the stipulation extending the payment
after ten years converted the obligation to a potestative one.

HELD:
No, the Contract may not be rescinded. In a contract of sale, the remedy of an unpaid seller is either specific
performance or rescission. Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on
the violation of the reciprocity between parties, brought about by a breach of faith by one of them. Rescission,
however, is allowed only where the breach is substantial and fundamental to the fulfillment of the obligation. In the
present case, the failure of respondents to pay the balance of the purchase price within ten years from the execution
of the Deed did not amount to a substantial breach. In the contract, it was stipulated that payment could be made even
after ten years from the execution of the Contract, provided the vendee paid 12% interest. The stipulations of the
contract constitute the law between the parties; thus, courts have no alternative but to enforce them as agreed upon
and written.

Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband never made any
demand for the balance of the purchase price. Petitioner even refused the payment tendered by respondents during her
husband's funeral, thus showing that she was not exactly blameless for the lapse of the ten-year period. Had she
accepted the tender, payment would have been made well within the agreed period.

The contention that extending the period beyond ten years subject to the payment of additional 12% interest converted
the obligation into a purely potestative one is also untenable. The Code prohibits purely potestative, suspensive,
conditional obligations that depend on the whims of the debtor, because such obligations are usually not meant to be
fulfilled. Indeed, to allow the fulfillment of conditions to depend exclusively on the debtor's will would be to sanction
illusory obligations. The contract does not allow such thing. First, nowhere is it stated in the Deed that payment of the
purchase price is dependent upon whether respondents want to pay it or not. Second, the fact that they already made
partial payment thereof only shows that the parties intended to be bound by the contract.
 JOSEFINA TAYAG et al v COURT OF APPEALS
G.R. No. 96053 March 3, 1993

FACTS:
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979, and Celerina
Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land is the subject matter
of the present litigation between the heirs of Juan Galicia, Sr. who assert breach of the conditions as against private
respondent's claim anchored on full payment and compliance with the stipulations thereof. For the sum of P50,000.00
under the following terms:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged to have been paid upon the
execution of this agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10) days from and after the execution
of this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS' indebtedness with the Philippine
Veterans Bank which is hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be paid within one (1) year from and
after the execution of this instrument. (p. 53, Rollo)
There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According
to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979. Concerning
private respondent's assumption of the vendors' obligation to the Philippine Veterans Bank, the vendee paid only the
sum of P6,926.41 while the difference the indebtedness came from Celerina Labuguin. Moreover, petitioners asserted
that not a single centavo of the P27,000.00 representing the remaining balance was paid to them.

Issue:
Whether or not the contract may be rescinded due to breach.

Held:
The suggestion of petitioners that the covenant must be cancelled in the light of private respondent's so-called breach
seems to overlook petitioners' demeanor who, instead of immediately filing the case precisely to rescind the instrument
because of non-compliance, allowed private respondent to effect numerous payments posterior to the grace periods
provided in the contract. This apathy of petitioners who even permitted private respondent to take the initiative in
filing the suit for specific performance against them, is akin to waiver or abandonment of the right to rescind normally
conferred by Article 1191 of the Civil Code.
In Development Bank of the Philippines vs. Sarandi:
In a perfected contract of sale of land under an agreed schedule of payments, while the parties may mutually oblige
each other to compel the specific performance of the monthly amortization plan, and upon failure of the buyer to make
the payment, the seller has the right to ask for a rescission of the contract under Art. 1191 of the Civil Code, this shall
be deemed waived by acceptance of posterior payments.

FERNANDO GAITE vs ISABELO FONACIER

G.R. No. L-11827 JULY 31, 1961
Topic: CONDITIONAL OBLIGATIONS

FACTS:
Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims situated in the province of Camarines
Norte. By “Deed of Assignment”, Fonacier constituted and appointed Fernando Gaite as his true and lawful attorney-
in-fact to enter in to contract with any individual or juridical person for the exploration and development of the mining
claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. Gaite
then executeda general assignment conveying the right to develop and exploit the mining claim to Larap Iron Mines,
owned by him, and then started to develop the same. Fonacier then decided to revoke the authority granted to Gaite;
the latter acceded and transferred the claims back to Fonacier but for consideration—royalties and a sum of P75,000,
P10,000 of which was already paid. A balance of P65,000 remained for which Fonacier issued 2 sureties, good for a
year. There was a stipulation that the P65,000 balance will be paid from the 1st shipment of ores and its local sale.
Eventually, the sureties expired and Fonacier defaulted in settling his debt. He now alleges that the payment of the
balance was subject to a suspensive condition—being the 1st shipment and sale of iron ores.

ISSUE:
Whether or not the payment of the balance is subject suspensive condition.

HELD:
NO. The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five
Thousand Pesos (P65,000) will be paid out of the first letter of credit covering the first shipment of iron ore . . ." etc.
There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the
exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay
is recognized; only its maturity or demandability is deferred.what was constituted is a contract of sale. A contract of
sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the
seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates
performance by the other from the very start. If it is a suspensive condition, Fonacier would have been able to postpone
payment indefinitely.

MACTAN-CEBU INTL AIRPORT AUTHORITY vs BERNARDO LOZADA

G.R. No. 176625 February 25, 2010
Topic: Article 1187 (1179-1192) Conditional Obligations

FACTS:
Anastacio Deiparine is the owner of a lot located in Lahug, Cebu City. The same lot was subject to expropriation
proceedings, initiated by the Republic of the Philippines, represented by Civil Aeronautics Administration (CAA), for
the expansion and improvement of Lahug Airport. As early as 1947, the lots were already occupied by the U.S. Arny.
They were turned over to the Surplus property Commission, the Bureau of Aeronautics, the National Airport
Corporation and then to the CAA. During the pendency of the expropriation proceedings, Lozada, acquired the lot
from Deiparine.

Dec 29, 1961, the trial court favoured the Republic and was ordered to pay the Fair Market Value with damages
starting from 1947 when it was first occupied by eh airport. The affected landowners appealed. Pending Appeal, The
Air Transportation Office (Formerly the CAA), proposed a compromise settlement that the landowners would either
not appeal or withdraw their appeals in consideration that the lands would be resold at the price they expropriated in
the event that the ATO would abandon the Lahug Airport, pursuant to policy established in similar cases. Because of
this, Lozada did not appeal.

The projected improvement and expansion plan of old Lahug Airport was not pursued. Lozada and the landowners
contracted the CAA requesting the repurchase of the lots as per previous agreement. The CAA replied that it might be
used as an emergency DC-3 airport. The CAA reitered that the assurance that “should this office dispose and resell
the properties which may found to be no longer as an airport, then the policy of the office to give priority to the former
owners subject to the approval of the President.”

Nov 1989, President Aquino issued a Memorandum directing the transfer of general aviation operations of the Lahug
Airport to the Mactan International Airport before the end of 1990, and upon such transfer, the closure of the Lahug
Airport. Congress enacted a Law for its enforcement. From the date of the institution of the expropriation proceedings
up to the present, the public propose of the said exprorpriation was never actually initated, realized or implemented.
Instead, the old airport was converted into a commercial complex. Lozada’s lot became the site of a jail known as
Bagong Buhay Rehabilitation Complex, while a portion was occupied by squatters. The old airport was sooner
converted to Ayala I.T. Park, a commercial area.

The RTC rendered its decision of favouring the landowners as to restore possession and ownership of the land, upon
payment of expropriation price to plaintiffs. Likewise, the CA has also affirmed the decision of the RTC. Hence,
MCIAA filed a petition to reverse.

ISSUE:
Whether or Not the Respondents Utterly Failed to prove that there was a repurchase agreement or compromise
settlement between them and the government

HELD:
No. The testimonial evidence that there was an agreement is credible. The acquisition by the Republic of the
expropriated lots was subject to the condition that the Lahug Airport would continue its operation. The condition not
having materialized because the airport had been abandon, the former owner should then be allowed to reacquire the
expropriated property. In the power of Eminent Domain is subject to two mandatory requirements:
1) That it is for a particular purpose; and
2) That just compensation to be paid to the property owner. These requirements partake of the nature of implied
conditions that should be complied with to enable the condemner to keep the property expropriated.

With respect to the element of public use, the expropriator should commit to use the property pursuant to the purpose
stated in the petition, failing which, it should file another petition for the purpose. If he does not file, it is then
incumbent upon him to return the said property to its private owner if he desires to reacquire the same.

The right of respondents to repurchase their lots may be enforced based on a constructive trust constituted on the
property held by the government in favour of the respondents. The predicament of petitioners involves a constructive
trust, one that is akin to the implied trust referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of
property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue
of law is established. If the fulfilment of the obligation is offered by the grantor when it becomes due, he may demand
the reconveyance of the property to him." In the case at bar, petitioners conveyed Lots to the government with the
latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government
can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the
use of their properties upon a state of affairs that was not conceived nor contemplated when the expropriation was
authorized.

The rights and obligations between the constructive trustee and the beneficiary, in this case, respondent MCIAA and
petitioners over, are echoed in Art. 1190 of the Civil Code, "When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the fulfilment of said conditions, shall return to each other
what they have received . . . . In case of the loss, deterioration or improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return . . .”

While petitioners are obliged to Reconvey the lot to respondents, Respondents must return to the former what they
received as just compensation for the expropriation of the property, legal interest, while in this case runs from the time
petitioners comply with their obligation to respondents.

Article 1187 of the Civil Code, petitioners may keep whatever income or fruits they may have obtained from their lot,
and respondents need not account for the interests that the amounts they received as just compensation may have
earned in the meantime. In accordance with Article 1190 of the Civil Code vis-à-vis Article 1189, which provides that
"(i)f a thing is improved by its nature, or by time, the improvement shall inure to the beneCt of the creditor . . .,"
respondents, as creditors, do not have to pay, as part of the process of restitution, the appreciation in value of Lot,
which is a natural consequence of nature and time.

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY v. BENJAMIN TUDTUD, et al. 571 SCRA

165 November 14, 2008

FACTS:
The National Airports Corporation (NAC) filed a complaint for expropriation in order to expand the Cebu Lahug
Airport. It sought to acquire, by negotiated sale or expropriation, several lots adjoining the then existing airport which
included the parcels of land owned by the predecessors-in- interest of respondents Benjamin Tudtud et al. NAC
assured the owners that they would reacquire the land if it is no longer needed by the airport. The Court of First
Instance of Cebu granted the expropriation. No structures related to the operation of the Cebu Lahug Airport were
constructed on the land expropriated. Respondent Lydia Adlawan (Lydia), acting as attorney-in-fact of the original
owners, sent a letter to the general manager of the petitioner Mactan Cebu International Airport Authority (MCIAA),
the new owner of the lot and demanded to repurchase the lot at the same price paid at the time of the taking, without
interest. Lydia filed a complaint before the Regional Trial Court (RTC) of Cebu City for reconveyance and damages
against the MCIAA. The RTC of Cebu rendered judgment in favor of Tudtud et al. MCIAA appealed to the Court of
Appeals but it affirmed the RTC decision. MCIAA then filed a Motion for Reconsideration but was denied.

ISSUE:
Whether or not Tudtud et al. are entitled for the re-conveyance of the land expropriated

HELD:
Tudtud et al.’s witness respondent Justiniano Borga declared that the original owners did not oppose the expropriation
of the lot upon the assurance of the NAC that they would reacquire it if it is no longer needed by the airport. The rights
and duties between the MCIAA and Tudtud et al are governed by Article 1190 of the Civil Code which provides:
When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration, or
improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article
[Article 1189] shall be applied to the party who is bound to return. While the MCIAA is obliged to re-convey Lot No.
988 to Tudtud et al., they must return to the MCIAA what they received as just compensation for the expropriation of
Lot No. 988, plus legal interest to be computed from default, which in this case runs from the time the MCIAA
complies with its obligation to the respondents. Tudtud et al., must likewise pay the MCIAA the necessary expenses
it may have incurred in sustaining Lot No. 988 and the monetary value of its services in managing it to the extent that
Tudtud et al., were benefited thereby. Following Article 1187 of the Civil Code, the MCIAA may keep whatever
income or fruits it may have obtained from Lot No. 988, and Tudtud et al., need not account for the interests that the
amounts they received as just compensation may have earned in the meantime.

REPUBLIC OF THE PHILIPPINES vs. HOLY TRINITY DEVELOPMENT CORP.

G.R. NO. 17241 April 14, 2008
Conditional Obligations

FACTS:
On December 29, 2000 Republic of PH through the toll regulatory board (TRB), filed with the RTC complaint for
expropriation against landowners whose properties would be affected by construction, rehabilitation and expansion of
the North Luzon Expressway. Respondent Holy Trinity and Development Corporation (HTRDC) was one of the
affected landowners.

On March 19, 2002 the RTC issued a writ of possession in favour of the petitioner after compliance with the depositary
requirements by law. On March 3, 2003, HTRDC filed with RTC a Motion to withdraw deposit, praying that the
respondent or its duly authorized representative be allowed to withdraw the amount of 22, 968,000.00 out of TRB’s
advance deposit. RTC issued an order allowing such withdrawal but made a reservation as to the interest accrued.

On March 11, 2004 the RTC decided in favor of the HTRDC declaring that the interest earnings from the deposit,
under the principle of accessions, are considered as fruits and should properly pertain to the herein defendant/property
owner. The Republic contends that the respondent is entitled only to an amount equivalent to the zonal value of the
expropriated property.

ISSUE:
Whether or not, HTRDC has owns the interest that accrued on the deposited amount.

HELD:
Yes. The petition was denied. According to decision, TRB does not object to HTRDC’s withdrawal of the amount of
P22,968,000.00 from the expropriation account, provided that it is able to show (1) that the property is free from any
lien or encumbrance and (2) that it is the absolute owner thereof.21 The said conditions do not put in abeyance the
constructive delivery of the said amount to HTRDC pending the latter’s compliance therewith. Article 118722 of the
Civil Code provides that the "effects of a conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation." Hence, when HTRDC complied with the given conditions, as
determined by the RTC in its Order23 dated 21 April 2003, the effects of the constructive delivery retroacted to the
actual date of the deposit of the amount in the expropriation account of DPWH.
 ROMULO A. CORONEL, et.al., petitioners, vs. THE COURT OF APPEALS, CONCEPCION D.
ALCARAZ et.al., respondents
G.R. No. 103577 October 7, 1996
Topic: Conditional Obligations

FACTS:
On January 19, 1985, defendants-appellants Romulo Coronel, executed a document entitled "Receipt of Down
Payment" in favor of plaintiff Ramona Patricia Alcaraz with the following conditions:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document;
2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased
father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor
of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz, mother of Ramona, paid the down
payment of Fifty Thousand (P50,000.00) Pesos. On February 6, 1985, the property originally registered in the name
of the Coronels' father was transferred in their names.

On February 18, 1985, the Coronels sold the property to intervenor-appellant Catalina B. Mabanag. For this reason,
Coronels canceled and rescinded the contract with Ramona by depositing the down payment paid by Concepcion in
the bank.

ISSUE:
1. Whether or not the executed contract was a contract to sell.
2. Whether or not petitioner may validly rescind the contract.

HELD:
1. No. The contract was a contract of sale not a contract to sell. To distinguish, a contract to sell is a bilateral contract
whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price. In a conditional contract of sale,
however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will affect the seller's
title. If there had been previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person.
The agreement could not have been a contract to sell because the sellers herein made no express reservation of
ownership or title to the subject parcel of land.

2. No. It was the contention of the petitioners that there was in fact a perfected contract of sale between them and
Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the consummation
thereof by going to the United States of America. There was no valid rescission of the contract. The petitioners may
not unilaterally and extrajudicially rescind the contract of sale, there being no express stipulation authorizing the
sellers to extrajudicially rescind the contract of sale. Moreover, petitioners are estopped from raising the alleged
absence of Ramona because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz
as the buyer, the sellers had been dealing with Ramona's mother, who had acted for and in behalf of her daughter, if
not also in her own behalf. The physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.
 LUZON BROKERAGE CO., INC. V MARITIME BLDG CO., INC.
G.R. No. L-25885 January 31, 1972
Topic: Conditional Obligation – Rescission

FACTS:
On April 30, 1949, in the City of Manila, the defendant Myers Building Co., Inc., owner of three parcels of land in
the City of Manila, together with the improvements thereon, entered into a contract entitled "Deed of Conditional
Sale" in favor of Bary Building Co., Inc., later known as Maritime Building Co., Inc., whereby the former sold the
same to the latter for P1, 000,000, to be paid in monthly installments of P10,000 with a 5% interest per annum (later
changed to P5,000 with 5.5% interest). They agreed that in case of failure on the part of the vendee to pay any of the
installments due and payable, the contract shall be annulled at the option of the vendor and all payments already made
by vendee shall be forfeited and the vendor shall have right to re-enter the property and take possession thereof.

Maritime failed to pay the installment for March 1961. Maritime VP Schedler requested Myers President Parsons for
a moratorium on the payments to which the Board of Directors of the Myers Co., Inc. refused to grant the request for
moratorium for suspension of payments under any condition.

On May 16, 1961, the Myers Building Co., Inc. made a demand upon the Maritime Building Co., Inc., for the payment
of the installments that had become due and payable, which letter, however, was returned unclaimed.

Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building Co., Inc. another letter advising it
of the cancellation of the Deed of Conditional Sale entered into between them and demanding the return of the
possession of the properties and holding the Maritime Building Co., Inc. liable for use and occupation of the said
properties at P10, 000 monthly.

Myers Building Co., Inc. demanded from its lessee, Luzon Brokerage, the payment of monthly rentals of P10T +
return of the property. Luzon Brokerage, to avoid paying to the wrong party, filed an action for interpleader. Myers
then filed a cross-claim, praying for judicial confirmation of its right to rescind.

ISSUE:
Whether or not Myers Building Co., Inc. may extra judicially rescind the contract.

HELD:
Yes. The SC held that Maritime having acted in bad faith, was not entitled to ask the court to give it further time to
make payment and thereby erase the default or breach that it had deliberately incurred. Thus the lower court committed
no error in refusing to extend the periods for payment. To do otherwise would be to sanction a deliberate and reiterated
infringement of the contractual obligations incurred by Maritime, an attitude repugnant to the stability and obligatory
force of contracts.

The court also stated: “Well settled is, however, the rule that a judicial action for the rescission of a contract
is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and
conditions" (Lopez vs. Commissioner of Customs) and “the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is
only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not require that the contracting party who believes itself
injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.” (UP vs. De
Los Angeles)

PREMISES CONSIDERED, the appealed decision should be, and hereby is, affirmed, and appellant
Maritime Building Co., as well as appellee Luzon Brokerage Co., are further ordered to surrender the premises to the
appellee Myers Building Co. Costs against appellant.
 PILIPINO TELEPHONE CORPORATION v. RADIOMARINE NETWORK (SAMARTNET)
PHILIPPINES, INC.
G.R. No. 160322 August 24, 2011
Topic: Conditional Obligation

FACTS:
On December 11, 1996 petitioner Pilipino Telephone Corporation (Piltel) expressed its willingness, on purely best
effort, to buy in 1997 from respondent Radiomarine Network, Inc. (Smartnet) 300,000 units of various brands of
cellular phones and accessories (Motorola, Mitsubishi, and Ericsson). On December 12, 1996, Piltel agreed to sell to
Smartnet a 3,500-square meter lot, known as the Valgoson Property, in Makati City for P560 million. Smartnet agreed
to pay Piltel P180 million as down payment with the balance of P380 million to be partly set off against the obligations
that Piltel was to incur from its projected purchase of cellular phones and accessories from Smartnet. Smartnet agreed
to settle any unpaid portion of the purchase price of the land after the set off on or about April 30, 1997.

The parties also agreed on a rescission and forfeiture clause which provided that, if Smartnet fails to pay the full price
of the land within the stipulated period and within five days after receipt of a notice of delinquency, it would
automatically forfeit to Piltel 10% of the P180 million down payment or P18 million and the contract shall be without
force and effect. Smartnet failed to pay the P380 million balance of the purchase price on or about the date it fell due.
On December 19, 1997 Piltel returned P50 million to Smartnet, a portion of the P180 million down payment that it
received. Smartnet later requested Piltel for the return of the remaining P130 million but the latter failed to do so.

On December 1, 1999 Smartnet filed a complaint against Piltel for rescission of their contract to sell alleging that it
withheld payment of the balance of the purchase price of the subject property because Piltel reneged on its commitment
to purchase from Smartnet 300,000 units of cellular phones and accessories. Piltel claimed that the agreement to
purchase cellular phones and accessories was not part of its contract with Smartnet for the sale of the Valgoson
Property and that Piltel committed to buy equipment from Smartnet only on a best effort basis. For this reason, Piltel
pointed out, Smartnet did not have the power to rescind the contract to sell the Valgoson Property and, hence, cannot
invoke that contract's rescission and forfeiture clause.

ISSUE:
Whether or not the failure to pay the purchase price as a condition renders the contract to sell without force and effect.

HELD:
Yes. The Supreme Court ruled that Smartnet's nonpayment of the full price of the property was not an act of rescission.
It was but an event that rendered the contract to sell without force and effect. In a contract to sell, the prospective
seller binds himself to part with his property only upon fulfillment of the condition agreed, in this case, the payment
in full of the purchase price. If this condition is not fulfilled, the seller is then released from his obligation to sell. As
the Court said in Heirs of Cayetano Pangan and Consuelo Pangan v. Perreras, the payment of the purchase price in a
contract to sell is a positive suspensive condition, the failure of which is not a breach but a situation that results in the
cancellation of the contract. Strictly speaking, therefore, there can be no rescission or resolution of an obligation that
is still non-existent due to the non-happening of the suspensive condition.

INTERNATIONAL HOTEL CORPORATION VS. JOAQUIN, JR

G.R. No. 158361 April 10, 2013
Topic: Conditional Obligations, Mixed Conditions.

FACTS:
Francisco Joaquin was contracted by International Hotel Corporation to render technical assistance in securing a
foreign loan for the construction of a hotel, to be guaranteed by the Development Bank of the Philippines. The contract
composed of 9 different phases, to which the Board of IHC approved phase 1 to 6 and applied for a foreign loan
guarantee with DBP. Joaquin was paid for his partial performance. Thereafter, Joaquin met with the Board of IHC
and presented the results of loan negotiations with Roger Dunn and Materials Handling Corp. He recommended to
consider Materials Handling because it had better terms in the loan contract. While negotiations were going on ,
Joaquin and the executive director of IHC met with Weston International Corp. to explore possible financing.
Materials Handling Corp. failed to deliver the loans, IHC informed DBP that it would use Weston for financing the
loans, to which DBP cancelled the guarantee agreement for failing to comply with the conditions it stipulated. Due to
Joaquin’s failure to secure the needed loan, IHC cancelled shares of stock issued to him. Thus, Joaquin prays for
specific performance and damages.

ISSUE:
Whether or not the Condition in the Contract and Joaquin had complied, and was fulfilled to which Joaquin may
collect damages.

HELD:
Yes. Art. 1186 is not applicable at the present case, in that Joaquin did not voluntarily prevent the fulfilment of the
obligation. Because the happening of the fulfilment of the obligation, which was the securing of the foreign loans, was
subject to a mixed condition that was dependant on the will of a 3rd party.

To secure a DBP-guaranteed loan did not solely rely upon the sole diligence of the obligor, respondents Joaquin,
because it had required the action and discretion of a 3rd party, which was an able and willing financial institution to
provide the needed loan, and the DBP Board of Governors to secure the loan. These 3rd persons could not be
compelled to act in any manner favourable to IHC.

When the fulfilment of a condition is dependant partly on the will of a 3rd party and partly on the obligor, the obligation
is mixed. Thus, the rule on mixed conditional obligations is that when the condition is not fulfilled but the obligor did
all in his power to comply with the obligation, the condition should be deemed satisfied. Joaquin was able to secure
an agreement with Weston, and subsequently tried to reverse the prior cancellation of DBP’s guaranty, there is thus
constructive fulfilment of the obligation.

HEIRS OF RAMON GAITE, ET AL VS. THE PLAZA, INC. AND FGU INSURANCE CORPORATION
G.R. No. 177685 January 26, 2011

Facts:
The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its President, Jose C. Reyes,
entered into a contract with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for the construction of a
restaurant building in Greenbelt, Makati, Metro Manila for the price of P7,600,000.00. To secure Rhogen’s compliance
with its obligation under the contract, Gaite and FGU Insurance Corporation (FGU) executed a surety bond in the
amount of P1,155,000.00 in favor of The Plaza. The Plaza paid P1,155,000.00 less withholding taxes as down payment
to Gaite. Thereafter, Rhogen commenced construction of the restaurant building. Engineer Angelito Z. Gonzales, the
Acting Building Official of the Municipality of Makati, ordered Gaite to cease and desist from continuing with the
construction of the building for violation of Sections 301 and 302 of the National Building Code (P.D. 1096) and its
implementing rules and regulations. Engr. Gonzales informed Gaite that the building permit for the construction of
the restaurant was revoked for non-compliance with the provisions of the National Building Code and for the
additional temporary construction without permit. Gaite notified Reyes that he is suspending all construction works
until Reyes and the Project Manager cooperate to resolve the issue he had raised to address the problem. This was
followed by another letter in which Gaite expressed his sentiments on their aborted project and reiterated that they can
still resolve the matter with cooperation from the side of The Plaza. However, Gaite informed The Plaza that he is
terminating their contract based on the Contractor’s Right to Stop Work or Terminate Contracts as provided for in the
General Conditions of the Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in solving the
problem concerning the revocation of the building permits, which he described as a minor problem. Additionally,
Gaite demanded the payment of P63,058.50 from The Plaza representing the work that has already been completed
by Rhogen. The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully responsible for failure to
comply with the terms of the contract and to deliver the finished structure on the stipulated date. Reyes argued that
the down payment made by The Plaza was more than enough to cover Rhogen’s expenses. The Plaza notified Gaite
that it could no longer credit any payment to Rhogen for the work it had completed because the evaluation of the
extent, condition, and cost of work done revealed that in addition to the violations committed during the construction
of the building, the structure was not in accordance with plans approved by the government and accepted by Ayala.
Hence, The Plaza demanded the reimbursement of the down payment, the cost of uprooting or removal of the defective
structures, the value of owner-furnished materials, and payment of liquidated damages. Branch 63 of the RTC Makati
rendered its decision granting the claims of The Plaza against Rhogen, the Gaites and FGU, and the cross-claim of
FGU against Rhogen and the Gaites. The CA affirmed the Decision of the trial court but modified the award of
damages. The motion for reconsideration of the decision was denied. Hence, this appeal.

Issue:
Whether or not petitioners are liable for breach of contract.

Held:
Rhogen committed a serious breach of its contract with The Plaza, which justified the latter in terminating the contract.
Petitioners are thus liable for damages for having breached their contract with respondent The Plaza. Article 1170 of
the Civil Code provides that those who in the performance of their obligations are guilty of fraud, negligence or delay
and those who in any manner contravene the tenor thereof are liable for damages. Under the principle of quantum
meruit, a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack of a
written contract, in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor,
payment shall be made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost
completed and already occupied would be to permit unjust enrichment at the expense of the contractor. Rhogen failed
to finish even a substantial portion of the works due to the stoppage order issued just two months from the start of
construction. Despite the down payment received from The Plaza, Rhogen, upon evaluation of the Project Manager,
was able to complete a meager percentage much lower than that claimed by it under the first progress billing.
Moreover, after it relinquished the project, the site inspection appraisal jointly conducted by the Project Manager,
Building Inspector Engr. Gregory and representatives from FGU and Rhogen, Rhogen was found to have executed
the works not in accordance with the approved plans or failed to seek prior approval of the Municipal Engineer. Article
1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be
executed at his cost.

SOLAR HARVEST, INC. VS. DAVAO CORRUGATED CARTON CORPORATION

G.R. No. 176868 July 26, 2010

Facts:
Petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao Corrugated Carton Corporation, for
the purchase of corrugated carton boxes, specifically designed for petitioner’s business of exporting fresh bananas, at
US$1.10 each. The agreement was not reduced into writing. To get the production underway, petitioner deposited,
US$40,150.00 in respondent’s US Dollar Savings Account with Westmont Bank, as full payment for the ordered
boxes. Despite such payment, petitioner did not receive any boxes from respondent. Petitioner wrote a demand letter
for reimbursement of the amount paid. Respondent replied that the boxes had been completed and that petitioner failed
to pick them up from the former’s warehouse 30 days from completion, as agreed upon. Respondent mentioned that
petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any
advanced payment from petitioner. Respondent then demanded petitioner to remove the boxes from the factory and
to pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee. Petitioner filed a
Complaint for sum of money and damages against respondent. The Complaint averred that the parties agreed that the
boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes
within such time. The Regional Trial Court (RTC) ruled that respondent did not commit any breach of faith that would
justify rescission of the contract and the consequent reimbursement of the amount paid by petitioner. The RTC said
that respondent was able to produce the ordered boxes but petitioner failed to obtain possession thereof because its
ship did not arrive. On appeal, the appellate court affirmed the decision of the trial court. Petitioner moved for
reconsideration, but the motion was denied by the CA. Hence, this petition.

Issue:
Whether or not respondent has breached its obligation and whether rescission of the obligation is the proper remedy.

Held: In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties’ respective
obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his
obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for
performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the
first paragraph of the present article, that is, the other party would incur in delay only from the moment the other party
demands fulfillment of the former’s obligation. Thus, even in reciprocal obligations, if the period for the fulfillment
of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default
and before a cause of action for rescission will accrue. Evident from the records and even from the allegations in the
complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver
the boxes. The Complaint only alleged that petitioner made a follow-up upon respondent, which, however, would not
qualify as a demand for the fulfillment of the obligation. Petitioner’s witness also testified that they made a follow-up
of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand
for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as
the latter would not yet be considered in breach of its contractual obligation. In sum, the Court finds that petitioner
failed to establish a cause of action for rescission, the evidence having shown that respondent did not commit any
breach of its contractual obligation.

UNIVERSAL FOOD CORPORATION VS COURT OF APPEALS

GR No. L-29155 May 13, 1970

Facts:
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the manufacture of
a food seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce; that the manufacture of
this product was used in commercial scale in 1942, and in the same year plaintiff registered his trademark in his name
as owner and inventor with the Bureau of Patents; that due to lack of sufficient capital to finance the expansion of the
business, in 1960, said plaintiff secured the financial assistance of Tirso T. Reyes who, after a series of negotiations,
formed with others defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 of the
aforequoted “Bill of Assignment.” On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed
with the Court of First Instance of Manila, against, the Universal Food Corporation, an action for rescission of a
contract entitled “Bill of Assignment.” The plaintiffs prayed the court to adjudge the defendant as without any right
to the use of the Mafran trademark and formula, and order the latter to restore to them the said right of user; to order
the defendant to pay Magdalo V. Francisco, Sr. his unpaid salary from December 1, 1960, as well as damages in the
sum of P40,000, and to pay the costs of suit. On February 28, the defendant filed its answer containing admissions
and denials. Paragraph 3 thereof “admits the allegations contained in paragraph 3 of plaintiffs’ complaint.” The answer
further alleged that the defendant had complied with all the terms and conditions of the Bill of Assignment and,
consequently, the plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V. Francisco, Sr. was not
dismissed from the service as permanent chief chemist of the corporation as he is still its chief chemist; and, by way
of special defenses, that the aforesaid plaintiff is estopped from questioning 1) the contents and due execution of the
Bill of Assignment, 2) the corporate acts of the petitioner, particularly the resolution adopted by its board of directors
at the special meeting held on October 14, 1960, to suspend operations to avoid further losses due to increase in the
prices of raw materials, since the same plaintiff was present when that resolution was adopted and even took part in
the consideration thereof, 3) the actuations of its president and general manager in enforcing and implementing the
said resolution, 4) the fact that the same plaintiff was negligent in the performance of his duties as chief chemist of
the corporation, and 5) the further fact that the said plaintiff was delinquent in the payment of his subscribed shares
of stock with the corporation. The defendant corporation prayed for the dismissal of the complaint, and asked for P750
as attorney’s fees and P5,000 in exemplary or corrective damages.

Issue: Whether or not the admissions made in the answer binds the defendant.

Held: Yes. It is alleged in paragraph 3 of the respondents’ complaint that what was ceded and transferred by virtue of
the Bill of Assignment is the “use of the formula” (and not the formula itself). This incontrovertible fact is admitted
without equivocation in paragraph 3 of the petitioner’s answer. Hence, it does “not require proof and cannot be
contradicted.” The last part of paragraph 3 of the complaint and paragraph 3 of the answer are reproduced below for
ready reference: 3. — … and due to these privileges, the plaintiff in return assigned to said corporation his interest
and rights over the said trademark and formula so that the defendant corporation could use the formula in the
preparation and manufacture of the mafran sauce, and the trade name for the marketing of said project, as appearing
in said contract …. 3. — Defendant admits the allegations contained in paragraph 3 of plaintiff’s complaint. The facts
narrated were the prevailing milieu on February 14, 1961 when the complaint for rescission of the Bill of Assignment
was filed. They clearly prove that the petitioner, acting through its corporate officers, schemed and maneuvered to
ease out, separate and dismiss the said respondent from the service as permanent chief chemist, in flagrant violation
of paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month after the institution of the action for
rescission, the petitioner corporation, thru its president and general manager, requested the respondent patentee to
report for duty, is of no consequence. As the Court of Appeals correctly observed, such request was a “recall to placate
said plaintiff.”

VISAYAN SAWMILL COMPANY, INC. VS COURT OF APPEALS

GR No. 83851 March 3, 1993

Facts: Ang Tay (Visayan Sawmill) and Ramon Hibionada (RJH Trading) entered into a sale involving scrap iron
located at the stockyard of defendant-appellant corporation (RJH Trading) subject to the condition that plaintiff-
appellee will open a letter of credit in the amount of P250,000.00 in favor of defendant-appellant corporation on or
before May 15, 1983 Ang Tay, through his men, started to gather scrap iron at the defendant-appellant's premises,
proceeding with such endeavor until May 30 when defendants-appellants allegedly directed Ang Tay’s men to desist
from pursuing the work in view of an alleged case filed against the latter by a certain Alberto Pursuelo. On July 19,
1983, Ang Tay sent a series of telegrams stating that the case filed against him by Pursuelo had been dismissed and
demanding that RJH Trading comply with the deed of sale, otherwise a case will be filed against them. In reply to
those telegrams, Hibionada's lawyer informed Ang Tay’s lawyer that RJH Trading is unwilling to continue with the
sale due to Ang Tay’s failure to comply with essential preconditions of the contract. Issue: Whether or not the contract
executed by the parties cancelled and terminated before the Complaint was filed by anyone of the parties Held: In the
agreement in question the seller bound and promised itself to sell the scrap iron upon the fulfillment by the private
respondent of his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the
purchase price. The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive
condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and unconditional letter of
credit. The former agreed to deliver the scrap iron only upon payment of the purchase price by means of an irrevocable
and unconditional letter of credit. Otherwise stated, the contract is not one of sale where the buyer acquired ownership
over the property subject to the resolutory condition that the purchase price would be paid after delivery. Thus, there
was to be no actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of credit.
Since what obtains in the case at bar is a mere promise to sell, the failure of the private respondent to comply with the
positive suspensive condition cannot even be considered a breach — casual or serious — but simply an event that
prevented the obligation of petitioner corporation to convey title from acquiring binding force.

HERMINIO TAYAG VS. AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN
LACSON, TEODISIA LACSON-ESPINOSA AND THE COURT OF APPEALS G.R. No. 134971 March 25,
2004

Facts:
Respondents were the original owners of three parcels of land located in Mabalacat, Pampanga. A group of original
farmers or direct tillers of landholdings over the lands owned by the Lacsons individually executed in favor of the
petitioner separate Deeds of Assignment, assigning to petitioner their respective rights as tenants/tillers of the
landholdings possessed and tilled by them for and in consideration of P50.00 per square meter; further granting
petitioner the exclusive right to buy the property if and when the respondents, with the concurrence of the defendants-
tenants, agreed to sell the property. Convinced that they were deceived by petitioner into signing the Deeds of
Assignment, the defendants-tenants decided to sell their rights and interests over the landholdings to the respondents.
Petitioner was prompted to file a complaint for the court to fix a period within which to pay the agreed purchase price
of P50.00 per square meter. The trial court held that petitioner was entitled to injunctive relief; but the CA ruled
otherwise, enjoining the trial court from proceeding with the case. Petitioner avers, among others, that respondents
induced the defendants-tenants to violate the deeds of assignment, contrary to Article 1314 of the New Civil Code.

Issue: Whether or not the respondents are liable to pay petitioner damages based on Article 1314 of the New Civil
Code/ Whether or not there is tort interference in this case

Held: No. In So Ping Bun v. Court of Appeals, we held that for the said law to apply, the pleader is burdened to prove
the following: (1) the existence of a valid contract; (2) knowledge by the third person of the existence of the contract;
and (3) interference by the third person in the contractual relation without legal justification. Where there was no
malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather
than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested,
and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. In fine, one
who is not a party to a contract and who interferes thereon is not necessarily an officious or malicious intermeddler.
Also, the defendants-tenants did not allege therein that the respondents induced them to breach their contracts with
the petitioner. The petitioner himself admitted when he testified that his claim that the respondents induced the
defendants-assignees to violate contracts with him was based merely on what “he heard”. Even if the respondents
received an offer from the defendants-tenants to assign and transfer their rights and interests on the landholding, the
respondents cannot be enjoined from entertaining the said offer, or even negotiating with the defendants-tenants. The
respondents could not even be expected to warn the defendants-tenants for executing the said deeds in violation of
P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have
culpably sold, disposed of, or abandoned their land, are disqualified from becoming beneficiaries.

BINALBAGAN VS. CA
G.R. No. 100594 March 10, 1993

Facts:
On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial Administrator of the
intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two subdivision lots
within the Phib-Khik Subdivision of the Puentevella family, conveying and transferring said lots to petitioner
Binalbagan Tech., Inc. * In turn Binalbagan, through its president, petitioner Hermilo J. Nava, executed an
Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the estate of Puentevella. Upon
the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the lots and the building
and improvements thereon. Binalbagan started operating a school on the property from 1967 when the titles and
possession of the lots were transferred to it. It appears that there was a pending case in RTC. * In this pending case
the intestate estate of the late Luis B. Puentevella, thru Judicial Administratrix, Angelina L. Puentevella sold said
aforementioned lots to Raul Javellana with the condition that the vendee-promisee would not transfer his rights to said
lots without the express consent of Puentevella and that in case of the cancellation of the contract by reason of the
violation of any of the terms thereof, all payments therefor made and all improvements introduced on the property
shall pertain to the promissor and shall be considered as rentals for the use and occupation thereof. Javellana having
failed to pay the installments for a period of five years, Civil Case No. 7435 was filed by defendant Puentevella against
Raul Javellana and the Southern Negros Colleges which was impleaded as a party defendant it being in actual
possession thereof, for the rescission of their contract to sell and the recovery of possession of the lots and buildings
with damages.

Issue:
Whether or not the petition is with merit

Held:
In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing which
is the object of the sale (Art. 1495, Civil Code); he warrants that the buyer shall, from the time ownership is passed,
have and enjoy the legal and peaceful possession of the thing. As afore-stated, petitioner was evicted from the subject
subdivision lots in 1974 by virtue of a court order in Civil Case No. 293 and reinstated to the possession thereof only
in 1982. During the period, therefore, from 1974 to 1982, seller private respondent Angelina Echaus' warranty against
eviction given to buyer petitioner was breached though, admittedly, through no fault of her own. It follows that during
that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand compliance of the prestation
of petitioner to pay the price of said subdivision lots. In short, her right to demand payment was suspended during that
period, 1974-1982.

DEIPARINE VS. CA AND TRINIDAD

GR. No. 96643, April 23, 1993

FACTS:
Spouses Carungay entered into a contract with Deiparine for the construction of a 3-story dormitory in Cebu. Carungay
agreed to pay Php970,000 inclusive of contractor’s fee, and Deiparine bound himself to erect the building “in strict
accordance to plans and specifications.” Trinidad, a civil engineer, was designated as Carungays’ representative, with
powers of inspection and coordination with the contractor. Trinidad reported to Carungay that Deiparine had been
deviating from the plans and specifications, thus impairing the strength and safety of the building. Carungay ordered
Deiparine to first secure approval from him before pouring cement. This order was not heeded, prompting Carungay
to send Deiparine another memorandum complaining that the construction works are faulty and done haphazardly
mainky due to lax supervision coupled with inexperienced and unqualified staff. Carungay then filed a complaint for
the rescission of the construction contract for damages.

ISSUE:
Whether or not the rescission of contract is valid due to breach.

RULING: Yes. Article 1385 states that rescission creates the obligation to return the things which were the object of
the contract, together with the 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. The construction contract falls squarely
under Article 1191 because it imposes upon Deiparine the obligation to build the structure and upon the Carungays
the obligation to pay for the project upon its completion. Article 1191 is not predicated on economic prejudice to one
of the parties but on breach of faith by one of them that violated the reciprocity between them. The violation of
reciprocity between Deiparine and Carungay spouses, to wit, the breach caused by Deiparine’s failure to follow the
stipulated plans and specifications, has given the Carungay spouses the right to rescind or cancel the contract.
AREOLA V. CA (1994)
G.R. No. 95641 September 22, 1994

FACTS:
▪ December 17, 1984: Prudential Guarantee And Assurance, Inc. issued collector's provisional receipt amounting to
P1,609.65 ▪ June 29, 1985: 7 months after the issuance of petitioner Santos Areola's Personal Accident Insurance
Policy, Prudential Guarantee And Assurance, Inc. unilaterally cancelled it for failing to pay his premiums through its
manager Teofilo M. Malapit
▪ Shocked by the cancellation of the policy, Santos approached Carlito Ang, agent of Prudential and demanded the
issuance of an official receipt. Ang told Santos that it was a mistake and assured its rectification. ▪ July 15, 1985:
Santos demanded the same terms and same rate increase as when he paid the provincial receipt but Malapit insisted
that the partial payment he made was exhausted and that he should pay the balance or his policy will cease to operate
▪ July 25, 1985 : Assistant Vice-President Mariano M. Ampil III apologized
▪ August 6, 1985 had filed a complaint for breach of contract with damages before the lower court
▪ August 13, 1985: Santos received through Carlito Ang the leeter of Assistant Vice-President Mariano M. Ampil III
finding error on their part since premiums were not remitted Malapit, proposed to extend its lifetime to December 17,
1985
▪ RTC: favored Santos - Prudential in Bad Faith
▪ CA: Reversed - not motivated by negligence, malice or bad faith in cancelling subject policy

ISSUE: W/N the Areolas can file against damages despite the effort to rectify the cancellation

HELD: YES. RTC reinstated

▪ Malapit's fraudulent act of misappropriating the premiums paid is beyond doubt directly imputable to Prudential
▪ Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope
of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.
▪ Subsequent reinstatement could not possibly absolve Prudential there being an obvious breach of contract
▪ a contract of insurance creates reciprocal obligations for both insurer and insured
▪ Article 1191 ▪ choice between fulfillment or rescission of the obligation in case one of the obligors fails to comply
with what is incumbent upon him ▪ entitles the injured party to payment of damages, regardless of whether he demands
fulfillment or rescission of the obligation
▪ Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no
substantial injury or actual damages whatsoever have been or can be shown.

DIESEL CONSTRUCTION VS. UPSI HOLDINGS

GR No. 154885 Date: March 24, 2008
FACTS:
Diesel Construction and UPSI Property Holdings entered into a Construction Agreement amounting to P12,739,099,
payable by progress billing. Diesel Construction, as a contractor, undertook the interior architectural construction
project for the 14th to 16th floors of the building owned by UPSI Property Holdings. Under the Agreement, in case of
unjustifiable delay, Diesel binds himself to pay UPSI liquidated damages in the amount equivalent to one-fifth (1/5)
of one (1) percent of the total Project cost for each calendar day of delay. Records show that while the original target
date for the completion was November 19, 1999, there is a total of 85 days of extension which were justifiable and
sanctioned by UPSI. Hence the project should have been finished by February 12, 2000. It was only on March 16,
2000, Diesel sent a letter notice to UPSI stating that the Project has been completed. UPSI, however, disregarded the
notice and refused to accept delivery of the contracted premises, claiming that Diesel had abandoned the Project
unfinished. UPSI also withheld Diesel’s 10% “retention money” and refused to pay the unpaid balance of the contract
price. Diesel filed a complaint before the Construction Industry Arbitration Commission (CIAC) to compel UPSI to
pay the remaining unpaid balance plus damages and attorney’s fees. UPSI denied liability and prayed for repayment
of expenses it allegedly incurred for completing the Project on its own, for a declaration that the deductions it made
for liquidated damages were proper and for attorney’s fees. CIAC ordered UPSI to pay Diesel (amount less than the
original demand) the total amount of P4,027,861.60 (P3,661,692.60, representing the unpaid balance of the contract
price and P366,169 as attorney’s fees). CIAC also dismissed UPSI’s counterclaim and assessed it for arbitration costs
in the amount of P298,406.03. UPSI elevated the case to the Court of Appeals. CA ruled that Diesel is entitled to
100% payment of the contract price but to be deducted by the liquidated damages sustained by UPSI. CA found Diesel
to have been in delay for 45 days (the project was said to be 97.56% complete as of March 22, 2000 and an additional
4 days were added for its completion). UPSI is now liable to Diesel for the amount of P2,515,173.64 only. Hence, this
appeal. Diesel contends to have not incurred delay and is entitled to the full payment of the contract price. UPSI, on
the other hand, contends that they are entitled to liquidated damages and be awarded also for their expenses in
completing the project.
ISSUE:
WON Diesel incurred delay and is entitled to full payment of the contract price.
HELD:
NO. Diesel did not incur delay and is entitled to full payment of the contract price! CA completely failed to factor in
several Change Orders of UPSI to Diesel regarding the construction project. These Change Orders comprised of
several changes or extra work on the part of Diesel as required by UPSI which would entitle a new schedule of
completion date. As correctly held by CIAC, no less than UPSI effectively moved the completion date, through various
Change Orders to April 7, 2000. Moreover, as evidenced by UPSI’s Progress Report No. 19 for the period ending
March 22, 2000, Diesel’s scope of work, as of that date, was already 97.56% complete. Such level of work
accomplishment would, by any rational norm, be considered as substantial to warrant full payment of the contract
amount, less actual damages suffered by UPSI pursuant to Article 1234 of the New Civil Code. Thus, when Diesel
attempted to turn over the premises to UPSI, claiming it had completed the Project on March 15, 2000; Diesel could
no longer be considered to be in delay and is not amenable under the Agreement for liquidated damages. Also, the
UPSI’s theory of Diesel’s abandonment was untenable considering that 97.56% was completed. However, UPSI is
entitled to the remaining 2.44% of the total contract price amounting to P310, 834.01. NOTES: 1. It should be noted
that CIAC found Diesel not to have incurred any delay while CA found Diesel to have been in delay for 45 days. 2.
Article 1234 of the Civil Code says as much, "If the obligation had been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee."

SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA, Petitioners, vs. KALAYAAN

DEVELOPMENT & INDUSTRIAL CORPORATION, Respondent. G.R. No. 163244 June 22, 2009
Ponente: Peralta, J.

Facts:
Kalayaan Development & Industrial Corporation discovered that Spouses Jose and Gloria Valenzuela had occupied
and built a house on a parcel of land it owned, and demanded that they vacate said property. Upon negotiation,
however, petitioners and Kalayaan entered a Contract to Sell wherein the petitioners would purchase 236 square meters
of the subject property for P1,416,000 in twelve equal monthly installments. The contract further stated that upon
failure to pay any of said installments, petitioners would be liable for liquidated penalty at 3% a month compounded
monthly until fully paid. Kalayaan would also execute the deed of absolute sale only upon full payment. Petitioners
were only able to pay monthly installments amounting to a total of P208, 000.00. They then requested Kalayaan to
issue a deed of sale for 118 square meters of the lot where their house stood, arguing that since they had paid half the
purchase price, or a total of P708,000.00 representing 118 square meters of the property. Kalayaan, on the other hand,
sent two demand letters asking petitioners to pay their outstanding obligation including agreed penalties. Gloria
Valenzuela’s sister, Juliet Giron, assumed the remaining balance for the 118 square meters of the subject property at
P10,000.00 per month to Kalayaan, which the latter accepted for and in behalf of Gloria. Thereafter, Kalayaan
demanded that petitioners pay their outstanding obligation, but were unheeded. Kalyaan then filed a Complaint fot the
Rescission of Contract and Damages against petitioners. The RTC of Caloocan rendered a Decision in favor of
Kalayaan, rescinding the contract between the parties and ordering petitioners to vacate the premises. Petitioners
sought recourse from the CA. They aver that the CA failed to see that the original contract between petitioners and
Kalayaan was altered, changed, modified and restricted as a consequence of the change in the person of the principal
debtor (Sps. Valenzuela to Juliet). When Kalayaan agreed to a monthly amortization of P10,000.00 per month the
original contract was changed, and that the same recognized Juliet’s capacity to pay and her designation as the new
debtor. Nevertheless, the CA affirmed the RTC ruling.

Issue:
If the original contract was novated and the principal obligation to pay for the remaining half of the subject property
was transferred from petitioners to Juliet.

Held:
No. Novation is never presumed. Novation is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the
creditor. Parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. In
absence of an express agreement, novation takes place only when the old and new obligations are incompatible on
every point. These are the indispensable requisites of novation: 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. In the instant case, none of the aforementioned
requisites are present, as Kalayaan never agreed to the creation of a new contract between them or Juliet. Kalayaan’s
acceptance of the late payments made by Juliet is, at best, an act of tolerance on part of Kalayaan that could not have
modified the contract. The non-fulfillment by petitioners of their obligation to pay, which is a suspensive condition
for the obligation of Kalayaan to sell and deliver the title to the property, rendered the Contract to Sell ineffective and
without force and effect. The parties stand as if the conditional obligation had never existed; Kalayaan cannot be
compelled to transfer ownership of the property to petitioners.

FERNANDO A. GAITE vs. ISABELO FONACIER, GEORGE KRAKOWER,LARAP MINES

&SMELTING CO., INC., SEGUNDINA VIVAS,FRANCISCO DANTE,PACIFICO ESCANDOR and
FERNANDO TY
G.R. L-11827 July 31 1961
Topic: Obligations with Period

FACTS:
Isabelo Fonacier (Fonacier) was the owner and/or holder of 11 iron lode mineral claims known as the Dawahan Group.
He executed a “Deed of Assignment” and appointed Fernando Gaite (Gaite) as his attorney-in-fact, who is authorized
to enter into a contract for the exploration and development of the mining claims on a royalty basis.
Gaite was the single proprietor of Larap Iron Mines, upon which he executed a general assignment conveying the
development and eexploitation of the mining claims under the “Deed of Assignment”.

Several improvements were made in the area for the operation of a mine. Approximately 24,000 metric tons of iron
ore was extracted.
For some reason, Fonacier decided to revoke the authority given to Gaite, to which the latter agreed subject to certain
conditions. One of the conditions is that Fonacier shall pay 75,000 pesos, for the 25,000 metric tons of iron ore already
extracted. 10,000 pesos of which will be paid upon signing of the agreement. The balance of 65,000 pesos shall be
paid through a letter of credit covering the first shipment of iron ores or first local sale of iron ore.
On December 8, 1964, to secure its payment, Fonacier delivered to Gaite surety bonds. One of which is with Far
Eastern Surety and Insurance Co., which liability shall be attached only when there had been an actual sale of iron ore
for the amount of 65,000 pesos and its liability will expire on December 8, 1955.

On December 8, 1955, the bond with Far Eastern Surety and Insurance Co. expired, no sale was made of the iron ores
and no payment of 65,000 pesos was also made. Gaite filed with the Court of First Instance a complaint against
Fonacier for the payment of 65,000 pesos with damages.

Fonacier argued that his obligation is subject to a condition that he will pay the balance out of the sale of iron ores but
there was still no sale of iron ores, hence the condition is not yet fulfilled and the obligation is not yet due and
demandable.

The trial court, in deciding in favor of Gaite, held that the obligation between Gaite and Fonacier was one with period
or term and it become due and demandable under Article 1198 of the Civil Code when Fonacier failed to secure
another surety when the surety with Far Eastern Surety and Insurance Co. expired on December 8, 1955. Hence, this
case.

ISSUE:
Whether or not the contract between Fonacier and Gaite is one with period and not with a condition and it become
due and demandable.

HELD:
Yes, the contract is one with period. According to the Supreme Court, what characterizes a conditional obligation is
the fact that its efficacy or obligatory force is subordinated to the happening of a future and uncertain event; so that if
the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.
As opposed to one with a period, it does not concern itself with the efficacy of the contract but only with demandability;
so that the arrival of the period will make the contract demandable. Here, the balance of 65,000 pesos shall be paid
out of the first letter of credit of the first shipment or first local sale of the iron ores, which shows no uncertainty that
the payment will have to be made sooner or later. It is the exact date at which the payment will be made that is
undetermined and not the existence of the obligation. the previous sale or shipment of the ore was not a suspensive
condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the
payment. The contract between Fonacier and Gaite is effective but its demandability is the question.

With respect to demandability, the contract becomes due and demandable on December 8, 1955. According
to Paragraph 2 and 3 of Article 1189 of the Civil Code, the debtor lose his right to the period: 2. “When he does not
furnish to the creditor the guaranties or securities which he has promised; and 3. When by his own acts he has impaired
said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory. Here, Fonacier failed to renew the surety with Far Eastern Surety
and Insurance Co. or to replace it with other equivalent surety. Moreover, Fonacier had impaired the securities
originally given and thereby forfeited any further time within which to pay.

Therefore, the contract of Fonacier and Gaite is considered to be one with a period because only its
demandability is deferred by the terms of the contract and not its efficacy. Moreover, the same becomes due and
demandable on December 8, 1955 because Fonacier failed to renew or to acquire new surety which prevents him to
the use of period under the contract.

FILOMENA SARMIENTO and EUSEBIO M. VILLA SENOR vs GLICERIO JAVELLANA

G.R. No. 18500 October 02, 1922
Topic: Obligations with a Period
FACTS:
On August 29, 1911, the defendant loaned the plaintiffs the sum of P1,500 with interest at the rate of 25 per cent per
annum for the term of one year. As guarantee for this loan, the plaintiffs pledged “a large medal with a diamond in
the center and surrounded with ten diamonds, a pair of diamonds earrings, a small comb with twenty-diamonds, and
two diamond rings, which the contracting parties appraised at P4,000”. The loan was evidenced by two documents;
(Exhibit A and 1) wherein the amount appears to be P1,875, which includes the 25 per cent interest on the sum of
P1,500 for the term of one year.

The plaintiff alleged that at the maturity of the loan, August 31, 1912, the plaintiff Eusebio M. Villasenor, being unable
to pay the loan, obtained from the defendant an extension, with the condition that the loan was to continue, drawing
interest at the rate of 25 per cent per annum, so long as the security given was sufficient to cover the capital and the
accrued interest. On August 1919, plaintiff Eusebio, went to the house of the defendant and offered to pay the loan
and redeem the jewels, to pay the amount of P11,000, but the defendant then informed the plaintiff that the period for
redemption of the jewels pledged had already elapsed contending that the period for prescription of the action to
recover the pledged item should be computed from August 28, 1911, which is the date the contract was made;
according to the defendant the plaintiffs could have opt to pay the loan due even before the expiration of the period
fixed for payment.

ISSUE:
W/N the defendant’s contention is proper regarding the prescription of the plaintiffs’ action for recovery of the item
pledged.

HELD:
The Court ruled in favor of the plaintiffs and rejected the defendant’s contention, stating Article 1128 of the Civil
Code (1196 now) that “Whenever in an obligation a period is designated, it is presumed to have been established for
the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should
appear that the period has been established in favor of one or of the other.”, which in this case, there was no express
stipulation giving the benefit of time to a particular party. Thus, the defendant’s contention that payment of the
principal, as well as recovery of the item pledged could have been made even before the expiration of the period for
payment is not tenable. The prescription period for claiming the pledged item should be computed from August 31,
1912 when the period for payment expired and computing from that time to October 9, 1920 or the time the complaint
was filed, 10 years have not lapsed, the right to claim the pledged item has not yet lapsed.
 VICTORIA SEOANE vs CATALINA FRANCO
G.R. No. 7859 February 12, 1913
Topic: Articles 1193 – 1198 (Obligations with a Period)

FACTS:
On October 13, 1884, a mortgage was executed to secure the payment by the mortgagor the sum of Php 4,876.01 and
was fixed to pay the sum “little by little”. On August 8, 1911, the claim was disclosed to the plaintiff’s intestate. Both
the principal and the interest was not paid. From the facts stated, it appears that the mortgage intends to leave the
duration of the period for the payment to the will of the debtor. In addition, the instrument seems to give the debtor
the option on when to pay the obligation.

ISSUE:
Whether or not the duration of the period for the payment of the obligation in the mortgage is left to the will of the
debtor.

HELD:
As provided in the case of Levy Hermanos vs Paterno, which was applied in this case,

The defendant having bound himself to pay his debt to the plaintiffs in partial payments, xxx it is seen that the
obligation is one of payment by installments. xxx the obligation is one of payment by installments, nevertheless no
fixed day was specified for its fulfillment, so that the period for payment is undetermined or was not fixed by the
parties when they executed the contract. Besides, it is evident that the term for payment was granted for the exclusive
benefit of the defendant and for his own convenience, as by the language of the document, the plaintiffs gained nothing
by the fact that the debt was not immediately demandable.

From the said jurisprudence, it is apparent that the instrument is one which leaves the period of payment to the will of
mortgagor. It should be brought to the court for the purpose of setting the date on which the instrument should become
due and payable. Thus, the action is premature and was tried before it is due. Besides, as the intention of the mortgage
is to leave the period of payment to the will of the mortgagor, an action could have been maintained by the mortgagee
at any time after its execution for the naming of a date on which the instrument must be paid in full. However, the
right of action accrued as soon as the instrument was executed.
 BENITO ORIT v. BALRODGAN COMPANY, LTD.
G.R. No. L-12277 December 29, 1950
TOPIC: Article 1196

FACTS:
The plaintiff brought an action in the CFI of Camarines Norte to collect Five thousand pesos from the defendant which
is the balance of an account due for export logs purchased by the defendant from the plaintiff, P1,500 for attorney’s
fee, P3000 for moral damages, P2,000 as exemplary damages and costs. The parties, assisted by their counsel entered
into a stipulation of facts and submitted it to the Court on September 25, 1956. The parties mutually agreed to submit
to the Court a fixed date when the defendant should pay the obligation which was on or before November 6, 1956,
and that for failure of the parties, they mutually agreed that the Court shall have the power to fix a reasonable time
when the defendant should pay, and the judgment would be based on the stipulation of facts. The parties, however,
failed to submit to the Court the date when the defendant had to pay the plaintiff. On November 6, 1956, the defendant
filed a motion praying that judgment be rendered according to the stipulation of facts, and the Court shall fix the time
when the defendant should pay the sum due. The Court granted the motion, ordering the defendant to pay within thirty
days from receipt of notice of judgment the P5,000 with legal interest thereon from 8 December 1955 until fully paid
and to pay the costs. The Court denied the motion for reconsideration on January 21, 1957, thus the appeal.

ISSUE:
Whether or not the Courts may fix a period in an obligation

HELD:
Under the stipulation of facts, the parties agreed to set the date for the appellant to pay the appellee. They failed to set
the date and as such, the Court rendered a decision in accordance with the stipulated facts and ordered the appellant
to pay the appellee within thirty days from receipt of notice of judgment. The judgment was in pursuant to the
compromise embodied in the stipulation of facts entered by the parties freely and voluntarily with the assistance of
their respective counsel, and thus the appellant cannot claim and complain that the period fixed by the Court was
unreasonable. The appellant claimed that the period of thirty days was only redounded to the benefit of the creditor,
the appellee, and not mutually citing the provisions of Article 1196 of the New Civil Code which states, “Whenever
in an obligation a period is designated, it shall be presumed to have been established for the benefit of both the creditor
and debtor, unless from the tenor or circumstances it should appear that the period has been established for the benefit
of one or of the other.” In the case at bar where the parties entered into a compromised agreement ending a controversy
and authorizing the Court to fix a reasonable time within which the appellant should pay its debt, the article cited
cannot be applied. It should apply in cases where parties to a contract themselves have fixed a period.
 ANITA C. BUCE vs. THE HONORABLE COURT OF APPEALS, SPS. BERNARDO C. TIONGCO and
ARACELI TIONGCO, SPS. DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE M. TIONGCO
G.R. No. 136913 May 12, 2000
Topic: Obligation with a Period

FACTS:
Petitioner leased a 56-square meter parcel of land located at 2068 Quirino Avenue, Pandacan, Manila. The lease
contract was for a period of fifteen years to commence on June 1, 1979 and to end on June 1, 1994 "subject to renewal
for another ten (10) years, under the same terms and conditions." Petitioner then constructed a building and paid the
required monthly rental of P200. Private respondents, through their administrator Jose Tiongco, later demanded a
gradual increase in the rental until it reached P400 in 1985. For July and August 1991, petitioner paid private
respondents P1,000 as monthly rental.

On December 6, 1991, private respondents’ counsel wrote petitioner informing her of the increase in the rent to
P1,576.58 effective January 1992 pursuant to the provisions of the Rent Control Law. Petitioner, however, tendered
six checks for only P400 each, payable to Tiongco as administrator. As might be expected, private respondents refused
to accept the same.

On August 9, 1993, petitioner filed with the Regional Trial Court of Manila a complaint for specific performance with
prayer for consignation. She prayed that private respondents be ordered to accept the rentals in accordance with the
lease contract and to respect the lease of fifteen years, which was renewable for another ten years, at the rate of P200
a month.
In their Answer, private respondents argued that they were justified in refusing the checks for P400 that petitioner
tendered under Republic Act No. 877, as amended. Moreover, the phrase in the lease contract authorizing renewal for
another ten years does not mean automatic renewal; rather, it contemplates a mutual agreement between the parties.

On 29 August 1995, the RTC declared the lease contract automatically renewed for ten years. On appeal, the Court of
Appeals reversed the decision of the RTC. According to the Court of Appeals, the phrase in the contract "this lease
shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10) years, under
the same terms and conditions" is unclear as to who may exercise the option to renew. The Court of Appeals denied
petitioner’s motion for reconsideration. Hence, this petition.

ISSUE:
Whether or not 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 ten (10) years”, under the same terms and conditions.

HELD:
No. The Supreme Court ruled that according to Article 1370 of the New Civil Code, the literal meaning of the
stipulations shall control if the terms of the contract are clear and leave no doubt upon the intention of the contracting
parties. However, if the terms of the agreement are ambiguous, resort is made to contract interpretation which is the
determination of the meaning attached to written or spoken words that make the contract. Also, to ascertain the true
intention of the parties, their actions, subsequent or contemporaneous, must be principally considered, in accordance
to Article 1371 of the same code.

The phrase "subject to renewal for another ten (10) years" is unclear on whether the parties contemplated an automatic
renewal or extension of the term, or just an option to renew the contract; and if what exists is the latter, who may
exercise the same or for whose benefit it was stipulated.

In the Court’s jurisdiction, a fine delineation exists between renewal of the contract and extension of its period.
Generally, the renewal of a contract connotes the death of the old contract and the birth or emergence of a new one.
A clause in a lease providing for an extension operates of its own force to create an additional term, but a clause
providing for a renewal merely creates an obligation to execute a new lease contract for the additional term. As renewal
of the contract contemplates the cessation of the old contract, then it is necessary that a new one be executed between
the parties.
There is nothing in the stipulations in the contract and the parties’ actuation that shows that the parties intended an
automatic renewal or extension of the term of the contract. The fact that the lessee was allowed to introduce
improvements on the property is not indicative of the intention of the lessors to automatically extend the contract.
Considering the original 15-year duration of the contract, structures would have necessarily been constructed, added,
or built on the property, which in its previous state was an idle 56-square meter lot in the heart of Manila. Petitioner
leased the property for the purpose of turning it into a commercial establishment and to which it has been transformed
as Anita’s Grocery and Store. Neither the filing of the complaint a year before the expiration of the 15-year term nor
private respondents’ acceptance of the increased rentals has any bearing on the intention of the parties regarding
renewal. It must be recalled that the filing of the complaint was even spawned by private respondents’ refusal to accept
the payment of monthly rental in the amount of only P400.

In the case at bar, it was not specifically indicated who may exercise the option to renew, neither was it stated that the
option was given for the benefit of herein petitioner. Thus, pursuant to the Fernandez v. Court of Appeals ruling 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. Renewal of the contract may be had only upon their mutual agreement or at the will of both of them. Since
the private respondents were not amenable to a renewal, they cannot be compelled to execute a new contract when the
old contract terminated on June 1, 1994. It is the owner-lessors’ prerogative to terminate the lease at its expiration.
The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free
and uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the
owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between
the lessor and the lessee since the life of the contract would be dictated solely by the lessee.
 LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL CORPORATION
vs. HUANG CHAO CHUN AND YANG TUNG FA
G.R. No. 142378 March 7, 2002
Topic: Obligations with a Period

FACTS:
This case originated from an unlawful detainer case filed by the petitioner on October 9, 1996. In the said complaint,
petitioner alleged that respondents Huang Chao Chun and Yang Tung Fa violated their amended lease contract over a
1,112 square meter lot it owns when they did not pay the monthly rentals thereon in the total amount of P4,322,900.00.
On September 16, 1996, the amended lease contract, to which they entered into on August 1991, already expired but
respondents refused to surrender possession thereof plus the improvements made thereon, and pay the rental arrearages
despite repeated demands. The amended contract states that there will be a change of the leased lot into a wider one
but the rental will be the same at P100.00 per square meters and/or P111,200.00 per month; that the rental shall be
paid without the need to demand; that the term of lease is 5 years, with the option to renew before the expiration and
it may be adjusted depending upon the ejectment of tenants; that lessees have the option to introduce improvements
on said land and such improvements will become the property of the lessor without extra compensation of the same;
that violation by the Lessees of any of the terms and condition of said contract is equivalent to forfeitures of the deposit
in favor of the Lessor.

Respondents claimed, among other things, that they are entitled to a renewal of their contract in view of the provision
therein providing for automatic renewal, and also in view of the P24,000,000.00 worth of improvements they
introduced on the leased premises. MTC dismissed the case and ruled that that the contract entered into by the parties
may be extended by the lessees for reasons of justice and equity. ). It also ruled that the corporations failure to pay the
monthly rentals as they fell due was justified by the fact that petitioner refused to honor the basis of the rental increase
as stated in their Lease Agreement.

The RTC and the Court of Appeals affirmed the Decision of the MTC and agreed that the Contract of Lease entered
into by the parties could be extended unilaterally by the lessees for another five years or until September 16, 2001, on
the basis of justice and equity.

ISSUE:
Whether the court could still extend the term of the lease, after its expiration.

HELD:
No. The MTC had no power to extend the contract that already expired. The Supreme Court stated that “the power of
the courts to fix a longer term for a lease is discretionary. Such power is to be exercised only in accordance with the
particular circumstances of a case: a longer term to be granted where equities demanding extension come into play; to
be denied where none appear -- always with due deference to the parties freedom to contract.[10] Thus, courts are not
bound to extend the lease” it held in another case that “It is not the province of the court to alter a contract by
construction or to make a new contract for the parties”

It is also absent from the provisions of the contract that the contract will be automatically renewed thus the period is
presumed to be for the benefit of both parties (as stated in Art. 1196). In this case, the renewal of the contract may be
authorized only upon their mutual agreement or at their joint will.
 MACASAET vs MACASAET
G.R. no. L-154391-92 September 30, 2004
Topic: Obligations with a Period

FACTS:
This case involves a dispute between petitioners spouses Ismael and Teresita Macasaet, and respondents spouses
Vicente and Rosario Macasaet, parents of petitioner Ismael. Herein respondents filed an ejectment case against the
petitioners because they failed to pay a weekly rental of 500.00 as lease. Respondents allege that they invited
respondents to live at Banay-banay, Lipa City, and that they executed a verbal lease agreement, which the petitioners
failed to uphold. Petitioners allege that the verbal agreement did not exist, as they were merely invited to stay at Banay-
banay for them to live near one another, and for their construction business. They also allege that the lots in question
are in fact advance inheritance. The MTC granted the ejectment suit, but the RTC allowed the petitioners to appropriate
the improvements upon the land. CA also affirmed the decisions of the two courts, hence this petition.

ISSUE:
Do petitioners have the right to occupy the lots in question?

HELD:
NO. SC AFFIRMS the ejectment. In the present case, article 1197 of the civil code finds no application because the
parties did not intend a period got their alleged agreement. Respondents invited petitioners to stay at the questioned
lots with familial love as their basis. Mere failure to fix a period does not necessarily give courts the authority to do
so. Respondents allowed petitioners to stay as long as both parties benefited from their stay, and this served as a
resolutory condition. Since persistent animosity and countless arguments persisted over parental love of the
respondents, the purpose of the agreement ceased. Respondents merely tolerated their stay thereafter and they no
longer have cause for continued possession of the lots upon receipt of the notice to vacate. Since petitioners did not
heed the notice, ejectment was proper. Their possession, which was originally lawful, became unlawful when the
reason therefor -- love and solidarity -- ceased to exist between them.
 ABAD et al V. GOLDLOOP PROPERTIES INC.
G.R. No. 137909 December 11, 2003
Topic: Conditional Obligations

FACTS:
Petitioners (all surnamed Abad) were the owners of 13 parcels of agricultural land in Cavite. Goldloop
Properties, through its President Zapanta, enetered into a Deed of Conditional Sale with petitioners for a total of
P34,815,300 for the entire land area. In accordance with the terms, an earnest money of P1M was given by Goldloop
to Abad. The first payment of P6, 765,660.00 shall also be paid upon signing the Deed of Conditional Sale. The
remaining balance, representing the full and final payment of the total contract price, in the amount of P27,049,640.00
shall be paid on or before 31 December 1997. Under paragraph 8 of the Deed, it was also stipulated that:

In the event that the BUYER cannot comply, to fulfill his obligation to this contract, for the balance of the
total consideration, one week before December 31, 1997, the BUYER shall forward a formal request for an extension
of the contract not to exceed 30 days (on or before January 28, 1998). This grant of extension is afforded to the BUYER
on a one-time basis and no subsequent extensions will be granted. In the event that the BUYER fails to comply [with]
his part of the obligation within the specified extension period, the earnest money of ONE MILLION PESOS
(PHP1,000,000.00), given by the BUYER to the SELLER by way of MBTC Check No. 2930037 dated July 02, 1997,
shall be forfeited in favor of the SELLER but the first payment check of SIX MILLION SEVEN HUNDRED SIXTY-
FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) shall be returned to the BUYER without any
additional charges to the SELLER.

In a letter to Abad, Zapanta stated that due to the continuing economic downturn, the transaction would not
be consummated. He then requested that the first payment be returned within five days, in accordance with paragraph
8. Because of the refusal of Abad, Goldloop filed a Complaint for Collection which the RTC sustained. According to
the RTC, a careful and thorough study of [paragraph 8 of the Deed of Conditional Sale] undeniably reveals that
whether the contract was extended or not, the first payment in the amount of Php6,765,660.00 shall be returned to the
plaintiff. The statement "but the first payment check of six million seven hundred sixty five thousand six hundred
sixty pesos shall be returned to the buyer" indubitably presupposes that the parties, although using the words "earnest
money" had truly considered the same as an option on the part of the plaintiff to rescind the contract in lieu of the
forfeiture of Php1,000,000.00 if, for whatever reasons, it chooses not to pursue the contract by not paying the
remaining balance thereon either one week before 31December 1997 if not extended or, until 28 January 1998 if
extended. Put otherwise, the requirement of forwarding a formal request for extension of the contract was provided
for no other purpose than solely for the plaintiff to save the amount of Php1,000,000.00 from being forfeited in the
event it chooses to instead exercise its option of paying the balance on or before the said stipulated periods. In short,
the purpose of paying the amount of Php6,765,660.00 is distinct and separate from that of Php1,000,000.00.

The CA affirmed the ruling of the RTC.

Abad et al argue that buyer first had to comply with three “conditions precedent” before the first payment
could be returned to it: the formal request for extension, which must not exceed 30 days, and shall be on a one-time
basis. These conditions were allegedly not fulfilled, as Goldloop made no request for extension. Since respondent, as
buyer, failed to comply with the "condition precedents" in paragraph 8, its claim for refund did not ripen into a
demandable right. Moreover, even assuming they had an obligation to return the first payment, it should be deemed
one with a period. Even if no period was indicated in the contract it does not follow that no such period was intended.
Thus the remedy is not to demand the performance of the obligation, but to ask the court to fix the period within which
to return the first payment, pursuant to Art. 1197.

ISSUE:
Whether or not Abad et al had an obligation to return the first payment under the Deed of Sale, and whether
or not the obligation should be deemed to be one with a period.

HELD:
The Supreme Court affirmed the ruling of the trial court and the appellate court as to the obligation of Abad to return
the first payment.

Paragraph 8 of the contract is clear and unambiguous. As the trial and appellate courts ruled, unlike the P1,000,000.00
earnest money which would be forfeited in favor of petitioners in case of respondent's failure to deliver the balance of
the total consideration, the first payment would be returned to respondent. This obligation to return the first payment
can be gleaned from the second part of the disputed provision, which states: "but the first payment check of SIX
MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00)
shall be returned to the BUYER without any additional charges to the SELLER."

The Court cannot sustain petitioners' contention that their obligation to return the first payment should be deemed one
with a period, and that the Court should fix the period within which they should comply with the obligation. In the
first place, there is no occasion to apply the first paragraph of Article 1197 since there is no showing that the parties
had intended such a period. This matter was not raised in the Answer, the Amended Answer or the Second Amended
Answer which petitioners filed in the trial court; no evidence was likewise offered to prove such intent. Indeed, the
parties to a contract are bound by their agreement, considering that obligations arising from contracts have the force
of law between the contracting parties and should be complied with in good faith.
 PEOPLE’S BANK AND TRUST CO. vs DAHICAN LUMBER COMPANY
G. R. No. 17500 May 16, 1967
Topic: Obligations with a Period

FACTS:
Atlantic Gulf & Pacific Company of Manila sold and assigned all its rights in the Dahican Lumber concession
to Dahican Lumber Company (DALCO) - for the total sum of $500,000.00, of which only the amount of $50,000.00
was paid. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust
Company amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the BANK, a loan
of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00
each, maturing on different dates, executed by both DALCO and the Dahican America Lumber Corporation, a foreign
corporation and a stockholder of DALCO.

As security for the payment of the abovementioned loans, DALCO executed in favor of the BANK a deed of
mortgage covering five parcels of land situated in the province of Camarines Norte, together with all the buildings
and other improvements existing thereon and all the personal properties of the mortgagor located in its place of
business in the municipalities of Mambulao and Capalonga, Camarines Norte. DALCO executed a second mortgage
on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber
concession amounting to the sum of $450,000.00. Both deeds contained a provision extending the mortgage lien to
properties to be subsequently acquired by the mortgagor.Both mortgages were registered in the Office of the Register
of Deeds of Camarines Norte.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid
the same to the Export-Import Bank of Washington D.C., and the latter assigned to the former its credit and the first
mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay the overdue
promissory note.

DALCO purchased various machineries, equipment, spare parts and supplies in addition to, or in replacement
of some of those already owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds
quoted theretofore regarding "after acquired properties," the BANK requested DALCO to submit complete lists of
said properties but the latter failed to do so. In connection with these purchases, there appeared in the books of DALCO
as due to Connell Bros. Company (Philippines) - a domestic corporation who was acting as the general purchasing
agent of DALCO -the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.chan

The Board of Directors of DALCO, in a special meeting called for the purpose, passed a resolution agreeing
to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to it.

Thereafter, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be cancelled
but CONNELL and DAMCO refused to do so. As a result, on February 12, 1953, ATLANTIC and the BANK,
commenced foreclosure proceedings in the Court of First Instance of Camarines Norte against DALCO and DAMCO.

The defendants contend that the action to foreclose the mortgages filed on February 12, 1953 was premature
because the promissory note sued upon did not fall due until April 1 of the same year.

ISSUE:
Whether or not the action to foreclose the mortgage is premature.

HELD:
No. Dahican Lumber Co., was insolvent as of the date of the filing of the complaint, it should follow that the
debtor thereby lost the benefit to the period.

x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code);

and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the aggregate, P1,200,000 excluding
interest while the aggregate price of the "after-acquired" chattels claimed by Connell under the rescission contracts
was P1,614,675.94, and the Court understanding that
when the law permits the debtor to enjoy the benefits of the period notwithstanding that he is insolvent by his giving
a guaranty for the debt, that must mean a new and efficient guaranty, must concede that the causes of action for
collection of the notes were not premature.
 JOSE A. V. CORPUS vs. HON. FEDERICO C. ALIKPALA, as Presiding Judge of Branch XXII, Court of
First Instance of Manila and ACME MANUFACTURING Co., INC.
G.R. L-23707 January 17, 1968
Topic: Obligations with a Period

FACTS:
Jose A.V. Corpus (Corpus) filed a case for foreclosure of real estate mortgage against Acme Steel Manufacturing Co.,
Inc. (Acme). Judgment was rendered based on the compromise agreement between the parties. Among the terms and
condition is that there will be a 1% interest upon the amount of P100,000 representing the unpaid balance of the price
of a building and 2 lots. The interest of 12,000 shall be paid in advance in 2 installments namely: 6,000 on May 30
and the other 6,000 on June 15.

Acme issued two post-dated checks. One was duly cashed but the other was returned because of insufficiency of funds.
Based on that failure of Acme to pay, Corpus filed a motion for execution of the entire balance.

Acme claim that the funds in the bank run short of a few hundred pesos, that after he learned about the returned check,
they informed Corpus to redeposit the check, and that the delayed payment is not substantial violation of the
compromise agreement because all that Corpus need to do is to redeposit the check and it involves only advance
payment of interest.

The Regional Trial Court (RTC) issued the writ of execution for the payment of P100,000 plus interest. Acme appealed
with the Supreme Court on question of law, to which the RTC allowed and suspend the enforcement of writ. Corpus
also filed with the Supreme Court this case against Judge Alikpala for Certiorari praying the nullification of the
allowance of the appeal.

ISSUE:
Whether or Not the dishonor of the checks representing the advance interest under the compromise agreement resulted
to forfeiture of the period given to pay the P 100,000.

HELD:
Yes. As provided under Article 1198 of the Civil Code, the debtor shall lose every right to make use of the
period: x x x 4. When the debtor violate any undertaking in consideration of which the creditor agreed to the period.”
Here, Corpus seek not the rescission of the compromise but its enforcement. The term of the compromise agreement
are complete, definite and certain and no suspense condition is attached to it. Moreover, the acceptance of Corpus of
the check had suspended his action to enforce the payment of the balance of the principal. Since the check was
dishonored, Acme automatically became in default and lost the right to use such period. Therefore, the dishonor of
the checks which resulted to the default of Acme to pay the advance payment for interest resulted to the losing its right
to make use of the period to which they can pay the P 100,000.

LIRAG TEXTILE MILLS, INC AND FELIX K. LIRAG V. COURT OF APPEALS AND CHRISTIAN
ALCANTARA
G.R. No. L-30736. April 14, 1975.
FACTS:
In May 1960, herein petitioner Felix Lirag was a member of the Board of Directors of the Philippine Chamber of
Industries. Lirag Textile Mills, Inc. wrote a letter to Alcantara advising him that, effective May 11, 1960, his temporary
designation as Technical Assistant to the Administrative Officer was made permanent, and he would receive a salary
of P400.00 and allowance of P100.00 monthly. Alcantara’s tenure of employment was to be “for an indefinite period,
unless sooner terminated by reason of voluntary resignation or by virtue of valid cause or causes”. In November 1960,
he was promoted. However, on July 1961, Lirag Textile Mills wrote Alcantara a letter advising him that because the
company “has suffered some serious reverses, both in terms of pecuniary loss and in market opportunities”, the
company was terminating his services.

ISSUE:
W/N there was a violation of the written contract of employment executed by the parties.
HELD:
Yes. The law (Art. 1170 of the Civil Code) governing liability for damages is explicit when it states:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages. (Emphasis supplied). A "period" has been defined "as a
space of time which has an influence on obligation as a result of a juridical act, and either suspends their
demandableness or produces their extinguishment." Obligations with a period are those whose consequences are
subjected in one way or another to the expiration of said period or term. (8 Manresa 158) Art. 1193 of the Civil Code,
provides, among others, that "obligations with a resolutory period take effect at once, but terminate upon arrival of
the day certain. A day certain is understood to be that which must necessarily come, although it may not be known
when".
In the light of the foregoing provisions We have no doubt that the "indefinite period" of employment expressly agreed
upon by and between the parties in this case is really a resolutory period because the employment is bound to terminate
on a future "day certain" such as the employee's resignation or employer's termination of employment upon a valid
cause or causes, like death of the employee or termination of employer's corporate existence, although it may not be
known when.

CENTRAL PHILIPPINE UNIVERSITY V. COURT OF APPEALS

G.R. No. 112127. July 17, 1995.
FACTS:
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University), executed a deed of donation in favor of the latter of a parcel
of land, along with the following annotations:

1. The land shall be utilized by CPU exclusively for the establishment and use of a medical college with all its buildings
as part of the curriculum;
2. The said college shall not sell, transfer, or convey to any third party nor in any way encumber said land;
3. The said land shall be called “Ramon Lopez Campus”, and the said college shall be under the obligation to erect a
cornerstone bearing that name.

In 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation,
reconveyance, and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not
complied with the conditions of the donation.

ISSUE:
W/N the court shall fix the period within which petitioner would establish a medical college
HELD:
The period of time for the establishment of a medical college and the necessary buildings and improvements on the
property cannot be quantified in a specific number of years because of the presence of several factors and
circumstances involved in the erection of an educational institution, such as government laws and regulations
pertaining to education, building requirements and property restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period
was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix
the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed
the period for compliance therewith and such period has arrived.
This general rule however cannot be applied considering the different set of circumstances existing in the instant case.
More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to
comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately,
it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such procedure
would be a mere technicality and formality and would serve no purpose than to delay or lead to an unnecessary and
expensive multiplication of suits.
 VASQUEZ V. AYALA CORPORATION
G.R. No. 149734. November 19, 2004.

FACTS:
On April 23, 1981, spouses Vasquez entered into a MOA with Ayala Corp. with Ayala buying from the Vazquez
spouses all of the latter's shares of stock in Conduit Development, Inc. The main asset was a property in Ayala Alabang
which was then being developed by Conduit under a development plan where the land was divided into Villages 1, 2
and 3. The development was then being undertaken by G.P. Construction and Development Corp. Under the MOA,
Ayala was to develop the entire property, less what was defined as the "Retained Area". This "Retained Area" was to
be retained by the Vazquez spouses. The area to be developed by Ayala was called the "Remaining Area". In this
"Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the
spouses at the prevailing price at the time of purchase. After the execution of the MOA, Ayala caused the suspension
of work on Village 1 of the project. Ayala then received a letter from Lancer General Builder Corp. in which the latter
was claiming a certain amount as subcontractor. G.P. Construction not being able to reach an amicable settlement with
Lancer, Lancer sued G.P. Construction, Conduit and Ayala in the court. G.P. Construction and Lancer both tried to
enjoin Ayala from undertaking the development of the property. The suit was terminated only on 1987. Taking the
position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area" within 3 years from the date of the
MOA, the Vasquez spouses sent several "reminder" letters of the approaching so-called deadline. However, no
demand after 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the
letters signed by their authorized agent categorically stated that they expected development of Phase 1 to be completed
3 years from the settlement of the legal problems with the previous contractor. By early 1990, Ayala finished the
development of the vicinity. The 4 lots were then offered to be sold to the Vasquez spouses at the prevailing price in
1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below.

ISSUE:
W/N petitioners should file an action for the court to fix the period since the MOA does not specify a period for the
development of the subject lots

HELD:
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be
demandable only when that day comes. However, no such day certain was fixed in the MOA.
Petitioners, therefore, cannot demand performance after the three (3) year period fixed by the MOA for the
development of the first phase of the property since this is not the same period contemplated for the development of
the subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners should
have petitioned the court to fix the period in accordance with Article 1197 of the Civil Code. As no such action was
filed by petitioners, their complaint for specific performance was premature, the obligation not being demandable at
that point. Accordingly, Ayala Corporation cannot likewise be said to have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within three (3)
years from date thereof, Ayala Corporation could still not be held to have been in delay since no demand was made
by petitioners for the performance of its obligation.

PAUL SCHENKER V. WILLIAM F. GEMPE

RLE
G.R. No. L-16449. August 31, 1962.
FACTS:
Sometime in 1953 at Zurich, Switzerland, Paul Schenker and William Gemperle agreed to organize “The Philippine
Swiss Trading Co., Inc.” and to divide the capital stock equally between themselves and/or their associates. Defendant
caused articles of incorporation to be drafted and sent to plaintiff at Zurich. In a moment of indiscretion and mistaken
trust, the plaintiff signed and remitted to the defendant at Manila, the said articles which placed in the name of plaintiff
only 24% of the total subscription and the balance of 76% being in the name of defendant and his relatives. Explaining
the discrepancy between the articles and their verbal covenant, the defendant stated: “Temporarily, I had to place in
my name 75% of the shares because there is a local law which provides that when one intends to make contracts with
the government, 75% of the subscribed capital has to be Filipino as otherwise the Flag Law will be applied.” Defendant
also assured the plaintiff that he would give the latter “exactly the same holding as I have”. The plaintiff paid to the
defendant the sum of P7, 000 for his subscription.
In view of the consistent refusal of the defendant to live up to their agreement, notwithstanding repeated demands, the
plaintiff filed the present complaint.

ISSUE:

W/N the courts should fix the period

HELD:
Article 1197 of the Civil Code, provides -
If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends
upon the will of the debtor. In every case, the courts shall determine such period may under the circumstances have
been probably contemplate by the parties. Once fixed by the courts, the period cannot be changed by them.
The ultimate facts to be alleged in a complaint to properly and adequately plead the right of action granted the above
quoted provision of law are (1) Facts showing that a contract was entered into, imposing on one the parties an
obligation or obligations in favor of the other; (2) Facts showing that the performance of the obligation was left to the
will of the obligor or clean showing or from which an inference may reasonably drawn, that a period was intended by
the parties. The first cause of action, under consideration, sets out fact describing an obligation with an indefinite
period, there by bringing the case within the pale of the article above quoted, albeit it fails to specifically and
categorically demand that the court fix the duration of the period. Under the circumstances, the court could render
judgment granting the remedy indicated in said article 1197, notwithstanding standing the fact that the complaint does
not positive and by explicit expression ask for such relief. What determines the nature and character of an action is
not the prayer but the essential basic allegations of fact set forth in the pertinent pleading.

ENRIQUE C. ABAD ET AL vs. GOLDLOOP PROPERTIES INC.

G.R. NO. 168108 APRIL 13, 2007
Topic: Obligation with a Period

FACTS:
On August 29, 1997, respondent Goldloop Properties Inc. entered into a Deed of Conditional Sale with petitioners for
13 parcels of titled agricultural land covering a total of 53,562 square meters at the price of P650 per square meter, or
a total of P34, 815,300 for the entire land area. The price was to be paid in three separate ways, (a) Earnest Money,
(b) First Payment, and (c) The remaining balance to be paid on or before Dec 31, 1997 and upon fulfillment of some
conditions.

The contract also stated: “In the event that the BUYER cannot comply, to fulfill his obligation with this
contract, the BUYER shall forward a formal request for an extension of the contract not to exceed 30 days (on or
before January 28, 1998). This grant of extension is afforded to the BUYER on a one-time basis and no subsequent
extensions will be granted. In the event that the BUYER fails to comply [with] his part of the obligation within the
specified extension period, the earnest money of P1, 000,000, given by the BUYER to the SELLER by way of an MBTC
Check dated July 02, 1997, shall be forfeited in favor of the SELLER but the first payment check of PHP6, 765,660
shall be returned to the BUYER without any additional charges to the SELLER.”

On August 28, 1998, respondent informed Abad that he would not object to the planned sale of the properties
to other parties, provided that 50% of the forfeitable amount of P1, 000,000.00 would be returned in addition to the
P6, 765,660.00 as provided in paragraph 8 of the Deed of Conditional Sale. He also declared that the intended date of
purchase had been adversely affected by economic conditions which were never foreseen as a possible contingency.

On October 8, 1998, respondent informed Abad that the negotiations with the banks had failed due to "the
continuing economic downturn" and consequently, the transaction would not be consummated. He then requested that
the first payment be returned within five days, in accordance with the deed.

On June 10, 2002, the RTC ruled in favor of respondent.

 The CA dismissed the appeal and affirmed in toto the ruling of the trial court. Citing Article 1370 of the Civil
Code and related cases, it declared that if the terms of a contract are clear with no doubt as to the intentions of the
contracting parties, then the literal meaning of the stipulations shall control. It held that the disputed paragraph 8 of
the deed is plain and unambiguous: in case respondent failed to pay the balance, the earnest money would be forfeited,
but the first payment shall be returned to respondent. The appellate court declared that petitioner's obligation to return
the first payment was an unconditional one.

ISSUE:
Whether or not the obligation to return the first payment of P6, 765,660.00, assuming it to be unconditional, is an
obligation with a period

HELD:
The Court cannot sustain petitioners' contention that their obligation to return the first payment should be deemed one
with a period, and that the Court should fix the period within which they should comply with the obligation. In the
first place, there is no occasion to apply the first paragraph of Article 1197 since there is no showing that the parties
had intended such a period. This matter was not raised in any Answer which petitioners filed in the trial court; no
evidence was likewise offered to prove such intent. Indeed, the parties to a contract are bound by their agreement,
considering that obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith.

The court quoted the ruling in Bautista v. Court of Appeals: “The rule is that where the language of a contract
is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention
of the parties must be gathered from that language, and from that language alone.”

CONSIDERING THE FOREGOING, the Court resolved to DENY the petition.

 THE SECRETARY OF EDUCATION v. HEIRS OF RUFINO DULAY, SR.
G.R. No. 164748. January 27, 2006.
Topic: Obligations with a Period

FACTS:
On August 3, 1981, the spouses Rufino Dulay, Sr. & Ignacia Vicente executed a deed of donation over a 10,000-
square-meter portion of their property located in Rizal, Santiago, Isabela in favor of the then Ministry of Education
and Culture. The deed provides that the consideration is the benefits that may derived from the use of the property
which is intended for school. Sometime in 1988, Department of Education, Culture, & Sports (DECS) started
construction of the Rizal National High School building on a parcel of land it acquired from Alejandro Feliciano. The
school site was about 2 kilometers away from the land donated by the spouses Dulay.

On August 19, 1994, the spouses Dulay requested to the DECS that the property be returned to them considering that
the land was never used since 1981 to which the Barangay Council of Rizal recognized the spouses’ right of
redemption because of the failure to utilize the intended purpose. On December 22, 1994, Rufino Dulay, Sr. passed
away. On August 31, 1997, the heirs of Dulay filed a complaint for the revocation of the deed of donation contending
that DECS did not fulfil the condition & that the land remained idle for years. DECS, thru the Office of the Solicitor
General (OSG), counter-argued that it complied w/ the said condition because it the land was being used as its
technology & & home economics laboratory. Respondents denied such argument.

On December 26, 2002, the trial court ruled in favor of the respondents, revoking the deed of donation since it is
subject to a resolutory condition to which DECS did not comply; that the intended “school purpose” is inexistent since
another school has been built nearby. On July 30, 2004, the appellate court affirmed the decision of the trial court.

ISSUE:
Whether or not DECS complied w/ the resolutory condition, namely, that the land donated shall be used for “school
purposes” to justify the deed of donation.

HELD:
No. The Supreme Court ruled that the appellate court did not err in ruling that there is nothing in the records that could
concretely prove that the condition of donation has been complied with by the defendant-appellants. Petitioners assert
that the planting of palay is intended for public purpose. In the same breadth, the planting of palay on the land donated
can hardly be considered and could not have been the "school purposes" referred to and intended by the donors when
they had donated the land in question. Also, the posture of the defendant-appellants that the land donated is being used
as technology and home economics laboratory of the Rizal National High School is far from being the truth
considering that not only is the said school located two kilometers away from the land donated but also there was not
even a single classroom built on the land donated that would reasonably indicate that, indeed, classes have been
conducted therein.
 JOSE A. V. CORPUS V HON. FEDERICO C. ALIKPALA
G.R. No. L-23707 January 17, 1968
Topic: Obligations with a Period

FACTS:
A suit for foreclosure of a real estate mortgage filed by Corpus against Acme Steel Manufacturing Corp, whereby a
compromise judgment was rendered, where the parties agreed that the unpaid balance of a Nestor de Castro Building
be 100,000 Php, to be paid with interest of 1% per month for 1 year, and in the subsequent year 1% on the remaining
balance and 0.5% for the following 2 years. They also agreed that failure to follow the terms of the payment will give
the right to Corpus to be issued a writ of execution for the entire balance. One of Acme’s checks dishonoured when
presented for payment due to insufficient funds. Corpus is thus seeking the entirety of the sum from the Acme. The
Corp. argued that it had now put sufficient funds in the account and the check may be deposited, but Corpus moved
for the issuance of the writ of execution.

ISSUE:
Whether Corpus can demand the entirety of the sum

HELD:
Yes. Art. 1198 (4) is applicable which provides, the “The debtor shall lose every right to make use of the period: XXX
(4) When the debtor has violates any undertaking in consideration of which the creditor agreed to the period. XXX.
This is the applicable provision as in asking for the execution of the entire payment, Corpus was not seeking the
resolution of the compromise agreement, but was demanding enforcement of it. When the check was dishonoured,
Acme automatically became in default and had thus lost the right to make use of the period.

AGONCILLO and MARIÑO

vs. JAVIER, administrator of the estate of the late ANASTACIO ALANO
G.R. No. 12611 August 7, 1918
Topic: Alternative Obligations

FACTS:
Anastacio, Jose, and Florencio Alano, in a document, promised to pay Php 2,730.50 to Da. Marcela Mariño,
it being the amount of indebtedness, within a year from the date of the execution of said document. To secure the
payment of the debt, they mortgaged to Mariño a house and lot which, in case of insolvency, shall be ceded to her and
transferring all rights to ownership and possession. Agoncillo and Mariño filed the case to compel the defendants to
pay their debt and, in case of failure to do so, convey to them the house and lot. The defendants claimed that any
cause of action against the estate is barred by prescription for failure of Mariño to previously present her claim on the
committee on claims for allowance appointed by the court when Anastacio Alano died. The lower court held that the
document was a conveyance of the house and lot which took effect upon the failure of the debtors to pay the debt.

ISSUE:
W/N the action of the plaintiffs to claim the house and lot for the debtor’s insolvency is barred by prescription

HELD:
YES. The action to claim the house and lot is barred by prescription because the claim on the principal has
prescribed. The principal undertaking is the payment of money. The opinion of the Court is that the agreement to
convey the house and lot in the event of failure to pay the debt in money is perfectly valid. It is simply an undertaking
that if the debt is not paid in money, it will be paid in another way. The obligations of the debtors were alternative and
they had the right to elect which they would perform based on Art. 1132 of the Civil Code (now Art. 1200, NCC).
The liability of the defendants as to the conveyance of the house and lot is subsidiary and conditional, being dependent
upon the failure to pay in money. It must follow that upon prescription of the action to recover the debt, the action to
compel conveyance of the house and lot must also prescribe because it is only a subsidiary alternative agreement on
how the debt shall be paid.
 ONG GUAN CAN vs. CENTURY INSURANCE CO.
G.R. No. L-22738 December 2, 1924
Topic: Alternative Obligations

FACTS:
A building of the plaintiff was insured against fire by the defendant in sum of P30,000, as well as the goods
and merchandise therein contained in the sum of P15,000. On February 28, 1923, the house and merchandise insured
were burnt while the policies issued by the defendant in favor of the plaintiff were in force. Under clause 14 of the
conditions of the policies:

“The Company may at its option reinstate or replace the property damaged or destroyed, or any part thereof, instead
of paying the amount of the loss or damage, or may join with any other Company or insurers in so doing, but the
Company shall not be bound to reinstate exactly or completely, but only as circumstances permit and in reasonable
sufficient manner, and in no case shall the Company be bound to expend more in reinstatement than it would have
cost to reinstate such property as it was at the time of the occurrence of such loss or damage, nor more than the sum
insured by the Company thereon.”

On April 19, 1924, the Court of First Instance of Iloilo rendered a judgment in favor of the plaintiff,
sentencing the defendant company to pay him the sum of P45,000, the value of certain policies of fire insurance, with
legal interest thereon from February 28, 1923, until payment with the costs. The defendant appealed from the
judgment, and insist that the same must be modified and that it must be permitted to rebuild the house burnt, subject
to alignment of the street where the building was erected, and that they be relieved from the payment of the sum in
which the building was ensured.

ISSUE:
Whether or not the defendant company may rebuild the house burnt instead of paying the insured amount.

HELD:
No. The Court affirmed the judgment of the CFI. In alternative obligations, the debtor must notify the creditor
of his election, stating which of the two presentations he is disposed to fulfill, in accordance with Article 1133 of the
Civil Code. The object of this notice is to give the creditor opportunity to express his consent or to impugn the election
made by the debtor, and only after said notice shall the election take legal effect when consented by the creditor, or if
impugned by the latter, when declared proper by a competent court.

In this case, record show that the company did not give any formal notice of election to rebuild, and while
the witnesses speak of the proposed reconstruction of the house destroyed, yet the plaintiff did not give his assent to
the proposition, for the reason that the new house would be smaller and of materials of lower kind than those employed
in the construction of the house destroyed. Upon this point the trial judge very aptly says in his decision: "It would be
an imposition unequitable, as well as unjust, to compel the plaintiff to accept the rebuilding of a smaller house than
the one burnt, with a lower kind of materials that those of said house, without offering him an additional indemnity
for the difference in size between the two houses, which circumstances were taken into account when the insurance
applied for by the plaintiff was accepted by the defendant". Additionally, rebuilding of the house was unjust because
it does not compensate the insured value of the merchandise contained in the house destroyed, which amounts to the
sum of P15, 000.

CLARA TAMBUNTING DE LEGARDS, ET. AL. VS VICTORIA DESBARATS MIAILHE

GR NO. L-3435 April 28, 1951

Facts:
On June 3, 1944, plaintiffs filed a complaint against the original defendant William J. B. Burke, alleging defendant's
unjustified refusal to accept payment in discharge of a mortgage indebtedness in his favor, and praying that the latter
be ordered :

(1) to receive the sum of P75,920.83 deposited by plaintiff Clara Tambunting de Legarda, the mortgagor, on the same
date with the clerk of this court in payment of the mortgage indebtedness of said plaintiff to defendant herein,
(2) to execute the corresponding deed of release of mortgage, and
(3) to pay damages in the sum of P1,000.

The gist of defendant's answer , is that plaintiffs have no cause of action for the reason that at the instance of plaintiff
Clara Tambunting de Legarda an agreement was had on May 26, 1944, where defendant condoned the interests due
and to become due on the mortgage indebtedness till the termination of the war, in consideration of the undertaking
of said plaintiff (with the consent of her husband Vicente L. Legarda, the other plaintiff) to pay her obligation to
defendant upon such termination of the war; and that the war then had not yet terminated.

Issue:
Whether or not the said agreement was in the sense that the defendant condoned the interests then due and which
might hereafter become due on said obligation with the understanding that plaintiff Clara Tambunting de Legarda
would pay her obligation upon the termination of the war

Held:
There is no dispute that on June 3, 1944, Clara Tambunting de Legarda deposited in court the sum of P75,920.83 for
the purpose of satisfying the full amount then due on her obligation. But it is likewise true that the money deposited
was in certified check, representing Japanese Military notes, which notes defendant Burke refuse to receive as payment
a few days before the consignation. The offer of payment or consignation to be effective must comply with some
legal requirements. As formerly stated, in the mortgage renewal executed by plaintiffs and defendant on March 16,
1940, defendant was given the option to demand payment of the obligation either in Philippine currency, or in English
currency. But defendant claims that on that date he could not very well refuse to accept the worthless Japanese Military
notes tendered to him, nor insist on the payment of English currency, for he then entertained the fear that, had he done
so, he would have been reported to the Japanese authorities, taken to Fort Santiago, and killed. It appears, therefore,
that the tender of payment made by the plaintiff in Japanese Military notes was a valid tender because it was the only
currency permissible at the time, and the same was made in accordance with the agreement because payment in
Japanese Military notes during the occupation is tantamount to payment in the Philippine currency.

MARTINA QUIZANO VS. GAUDENCIO REDUGERIO JOSEFA POSTRADO

G.R. No. L-6220 Date: May 7, 1954
Topic: Facultative Obligations

FACTS:
On October 4, 1948, defendant-appellant Josefa Postrado together with her husband, contracted a loan from plaintiff-
appellee Martina Quizana amounting to Php 550.00 which they promise to pay on the month of January 1949. It was
also stipulated in the contract that if defendant-appellants fail to pay the said amount on the stipulated date, they will
give their coconut farm situated at Cororocho, Balogo, Sta. Cruz, Marinduque.

The defendants-appellants admit the execution of the document, but claim, as special defense, that since the 31st of
January, 1949, they offered to pledge the land specified in the agreement and transfer possession thereof to the
plaintiff-appellee, but that the latter refused said offer contending that the second part of the written obligation, in
which the defendant -appellees agreed and promised to deliver a mortgage over the parcel of land described therein,
upon their failure to pay the debt on a date specified in the proceeding paragraph, is not valid and not binding and
effective upon him

ISSUE:
Whether or not the second part of the written obligation, in which the defendant -appellees agreed and promised to
deliver a mortgage over the parcel of land described therein, upon their failure to pay the debt on a date specified in
the proceeding paragraph is valid and binding upon the plaintiff

HELD:
The decisive question at issue, therefore, is whether the second part of the written obligation, in which the obligors
agreed and promised to deliver a mortgage over the parcel of land described therein, upon their failure to pay the debt
on a date specified in the proceeding paragraph, is valid and binding and effective upon the plaintiff-appellee, the
creditor. This second part of the obligation in question is what is known in law as a facultative obligation, defined in
article 1206 of Civil Code of the Philippines, which provides:
ART. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the
obligation is called facultative.
xxx xxx xxx

This is a new provision and is not found in the old Spanish Civil Code, which was the one in force at the time of the
execution of the agreement.

There is nothing in the agreement which would argue against its enforcement. it is not contrary to law or public morals
or public policy, and notwithstanding the absence of any legal provision at the time it was entered into government it,
as the parties had freely and voluntarily entered into it, there is no ground or reason why it should not be given effect.
It is a new right which should be declared effective at once, in consonance with the provisions of article 2253 of the
Civil Code of the Philippines, thus:
ART. 2253. . . . But if a right should be declared for the first time in this Code, it shall be effective at once, even
though the act or event which gives rise thereto may have been done or may have occurred under the prior legislation,
provided said new right does not prejudice or impair any vested or acquired right, of the same origin.

ARCO PULP AND PAPER CO., INC. AND CANDIDA A. SANTOS

vs DAN T. LIM
G.R. No. 206806 June 25, 2014
Topic: Alternative Obligations

FACTS:
Dan T. Lim works in the business of supplying scrap papers, cartons and other raw materials under the name
of Quality Paper and Plastic Products, Enterprises to factories engaged in the paper mill business. He delivered scrap
papers to Arco Pulp and Paper Company, Inc. through its CEO and President, Candida A. Santos. The parties allegedly
agreed that Arco Pulp and Paper would either pay Lim the value of the raw materials or deliver to him their finish
products of equivalent value.

Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issue a post dated check, with the
assurance that the check would not bounce. When he deposited the check, it was dishonored for being drawn against
a closed account.

On the same day, Arco Pulp and Paper and Eric Sy executed a memorandum of agreement where Arco Pulp
and Paper bound themselves to deliver their finished products to Megapack Container Corp owned by Sy. According
to the memorandum, the raw materials would be supplied by Lim, through his company, Quality Paper and Plastic
Products.

Lim sent a demand letter to Arco Pulp and Paper but no payment was made to him. Hence he filled a
complaint for collection of sum of money.

RTC rendered judgment in favor of Arco Pulp and Paper and dismissed the complaint, holding that Arco
Pulp and Paper and Eric Sy entered into the memorandum of agreement, novation took place, which extinguished
Arco Pulp and Paper’s obligation Lim.

On Appeal, Lim argued that novation did not take place since the memorandum of agreement between Arco
Pulp and Paper and Eric Sy was an exclusive and private agreement between them.

The CA reversed the decision of RTC and ruled that the facts and circumstances in this case showed existence
of an alternative obligation.

ISSUE:
Whether the obligation between parties was an alternative obligation

HELD:
 Yes, the obligation between the parties was an alternative obligation. The rule on alternative obligations is
governed by Art 1199 of the Civil Code. According to factual findings of the trial court and appellate court, the original
contract between the parties was for respondent to deliver scrap papers worth 7,220,969.31 to petitioner Arco Pulp
and Paper. The payment for this delivery became petitioner’s obligation. By agreement, the petitioner Arco Pulp and
paper, as the debtor, had the option to either pay the price, deliver the finished products or equivalent value of
respondent. The appellate court correctly identified the obligation between the parties as an alternative obligation,
whereby the petitioner after receiving the raw materials from respondent, would either pay him the price of the raw
materials or in the alternative, deliver to him the finished products of equivalent value. Petition is denied.

REPUBLIC GLASS CORPORATION AND GERVEL, INC. v CUA

G.R. No. 144413 July 30, 2004
Topic: Joint and Solidary Obligations

FACTS:
Petitioners Republic Glass Corporation (“RGC”) and Gervel, Inc. (“Gervel”) together with respondent
Lawrence C. Qua (“Qua”) were stockholders of Ladtek, Inc. (“Ladtek”). Ladtek obtained loans from Metropolitan
Bank and Trust Company (“Metrobank”) and Private Development Corporation of the Philippines (“PDCP”) with
RGC, Gervel and Qua as sureties. Among themselves, RGC, Gervel and Qua executed Agreements for Contribution,
Indemnity and Pledge of Shares of Stocks (“Agreements”). The Agreements all state that in case of default in the
payment of Ladtek’s loans, the parties would reimburse each other the proportionate share of any sum that any might
pay to the creditors.

Ladtek defaulted on its loan obligations to Metrobank and PDCP. During the pendency of Collection Case No. 8364,
RGC and Gervel paid Metrobank P7 million. Later, Metrobank executed a waiver and quitclaim dated 7 September
1988 in favor of RGC and Gervel. Based on this waiver and quitclaim, Metrobank, RGC and Gervel filed on 16
September 1988 a joint motion to dismiss Collection Case No. 8364 against RGC and Gervel. Qua refused to
reimburse the amount to RGC and Gervel. Subsequently, RGC and Gervel furnished Qua with notices of foreclosure
of Qua’s pledged shares. RGC and Gervel eventually foreclosed all the pledged shares of stock at public auction.

RTC ruled in the Foreclosure Case No. 88-2643 that defendants' payment entitled them to reimbursement from
plaintiff and having failed to do so, the foreclosure of the shares of stocks is justified. The CA ruled otherwise, stating
that the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly, RGC and Gervel cannot
demand reimbursement. Hence, this petition.

ISSUE:
Whether or not RGC and Gervel have the right to seek for reimbursement from Qua as solidary co-debtor.

HELD:
No. The SC held that the payment of the entire obligation by one or some of the solidary debtors results in a
corresponding obligation of the other debtors to reimburse the paying debtor. However, we agree with RGC and
Gervel’s contention that in this case payment of the entire obligation is not an essential condition before they can seek
reimbursement from Qua. The words of the Agreements are clear.

If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his
payment exceeded his share in the obligation. Considering that RGC and Gervel paid only P7 million out of the total
obligation of P14,200,854.37, which payment was less than RGC and Gervel’s combined shares in the obligation, 38
it was clearly partial payment. Since they only made partial payments, RGC and Gervel should clearly and
convincingly show that their payments to Metrobank and PDCP exceeded their proportionate shares in the obligations
before they can seek reimbursement from Qua. This RGC and Gervel failed to do. RGC and Gervel, in fact, never
claimed that their payments exceeded their shares in the obligations. Consequently, RGC and Gervel cannot validly
seek reimbursement from Qua.

In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently, RGC and Gervel cannot
validly foreclose the pledge of Qua’s GMC shares of stock which secured his obligation to reimburse. Therefore, the
foreclosure of the pledged shares of stock has no leg to stand on.
 LAFARGE CEMENT PHILIPPINES, INC., ET AL V. CONTINENTAL CEMENT CORPORATION, ET
AL
GR No 155173 November 23, 2004
Topic: Joint and Solidary Obligations

FACTS:
Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on
August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other
qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement
business of Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a
Sale and Purchase Agreement (SPA). At the time of the foregoing transactions, petitioners were well aware that CCC
had a case pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization
Trust (APT) v. Court of Appeals and Continental Cement Corporation.

In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the
SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount of
P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account
in the First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712.

However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the
Decision in GR No. 119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that
nonpayment to APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of
several other properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a
“Complaint with Application for Preliminary Attachment” against petitioners. Docketed as Civil Case No. Q-00-
41103, the Complaint prayed, among others, that petitioners be directed to pay the “APT Retained Amount” referred
to in Clause 2 (c) of the SPA.

Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping.
Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-00-41103 in another action,
which involved the same parties and which was filed earlier before the International Chamber of Commerce. After
the trial court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated the matter before
the Court of Appeals in CA-GR SP No. 68688.

In the meantime, to avoid being in default and without prejudice to the outcome of their appeal, petitioners filed their
Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-41103. In their
Answer, they denied the allegations in the Complaint. They prayed -- by way of compulsory counterclaims against
Respondent CCC, its majority stockholder and president Gregory T. Lim, and its corporate secretary Anthony A.
Mariano -- for the sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c)
P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney’s fees plus costs of suit.

Petitioners alleged that CCC, through Lim and Mariano, had filed the “baseless” Complaint in Civil Case No. Q-00-
41103 and procured the Writ of Attachment in bad faith. Relying on this Court’s pronouncement in Sapugay v. CA,
petitioners prayed that both Lim and Mariano be held “jointly and solidarily” liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss petitioners’
compulsory counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition.

ISSUE:
Whether or not the RTC gravely erred in ruling that (i) petitioners’ counterclaims against Respondents Lim and
Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and (iii) petitioners violated the
rule on joinder of causes of action.

HELD:
Obligations may be classified as either joint or solidary. “Joint” or “jointly” or “conjoint” means mancum or
mancomunada or pro rata obligation; on the other hand, “solidary obligations” may be used interchangeably with
“joint and several” or “several.” Thus, petitioners’ usage of the term “joint and solidary” is confusing and ambiguous.
The ambiguity in petitioners’ counterclaims notwithstanding, respondents’ liability, if proven, is solidary. This
characterization finds basis in Article 1207 of the Civil Code, which provides that 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. We have assiduously maintained this legal
principle as early as 1912 in Worcester v. Ocampo, in which we held:
“x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action
is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort
in which he participates, but is also jointly liable with his tort feasors. x x x

“It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is
done, if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if they
had performed the wrongful act themselves. x x x

“Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of
them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable
for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not
joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as
compared to that of the others. x x x

“Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves.
They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and
severally liable for the whole amount. x x x

“A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might
exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally
operates to discharge all. x x x

“Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable.
The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true
even though they are charged jointly and severally.”

In a “joint” obligation, each obligor answers only for a part of the whole liability; in a “solidary” or “joint and several”
obligation, the relationship between the active and the passive subjects is so close that each of them must comply with
or demand the fulfillment of the whole obligation. 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.”

The solidary character of respondents’ alleged liability is precisely why credence cannot be given to petitioners’
assertion. According to such assertion, Respondent CCC cannot move to dismiss the counterclaims on grounds that
pertain solely to its individual co-debtors. In cases filed by the creditor, a solidary debtor may invoke defenses arising
from the nature of the obligation, from circumstances personal to it, or even from those personal to its co-debtors.

Article 1222 of the Civil Code provides:

“A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from the nature
of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which
personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter
are responsible.”

The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on grounds that
pertain only to its individual co-debtors -- is therefore allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on behalf of Co-
respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed. Be that as it may,
Respondent CCC cannot be declared in default. Jurisprudence teaches that if the issues raised in the compulsory
counterclaim are so intertwined with the allegations in the complaint, such issues are deemed automatically joined.
Counterclaims that are only for damages and attorney’s fees and that arise from the filing of the complaint shall be
considered as special defenses and need not be answered.

CCC’s Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed.

While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual
defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the
requisite authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers
and cannot act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and
Mariano, the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to
them.
CERNA MANOLO P. CERNA vs. THE HONORABLE COURT OF THE HONORABLE COURT OF
APPEALS and CONRAD C. LEVISTE
G.R. No. L-4835. March 30, 1993
Topic: Solidary Obligations

FACTS:
On or about October 16, 1972, Celerino Delgado and Conrad Leviste entered into a loan agreement which was
evidenced by a promissory note. On the same date, Delgado executed a chattel mortgage over a Willy's jeep
owned by him; he is acting as the attorney-in-fact in a mortgage contract of herein petitioner and; he also mortgage
a "Taunus" car owned by the petitioner. Consequently, the period lapsed without Delgado paying the loan. For
that reason, Leviste was prompted to file a collection suit (docketed as Civil Case No. 17507 ) with the CFI of
Rizal against Delgado and petitioner Cerna as solidary debtors.

The petitioner filed his first Motion to Dismiss on the ground of lack of cause of action against petitioner and
the death of Delgado. Petitioner claimed that the claim should be filed in the proceedings for the settlement
of Delgado's estate as the action did not survive Delgado's death. Moreover, he also stated that since Leviste
already opted to collect on the note, he could no longer foreclose the mortgage. This Motion to Dismiss was
denied. Thereafter, petitioner filed with the Court of Appeals a special civil action for certiorari, mandamus,
and prohibition with preliminary injunction docketed as CA G.R. No. 03088 on the ground that the respondent
judge committed grave abuse of discretion in refusing to dismiss the complaint, but then the court denied because
the petitioner failed to prove the death of Delgado and the consequent settlement proceedings regarding the
latter's estate.

On February 18, 1977, petitioner filed his second Motion to Dismiss on the ground that the trial court acquired
no jurisdiction over deceased defendant, that the claim did not survive, and that there was no cause of action
against him. The motion was dismissed.

Thereafter, petitioner filed a motion to reconsider the said order but this was denied. Then, on October 17,
1977, he filed another petition for certiorari and prohibition with the Court of Appeals. In holding petitioner
liable, the Court of Appeals held that petitioner Cerna and Delgado were liable as solidary debtors.

ISSUE:
Whether or not petitioner Cerna and Delgado are liable as solidary debtors

HELD:
NO. The Court did not agree. The Court said, only Delgado signed the promissory note and accordingly, he was
the only one bound by the contract of loan. Nowhere did it appear in the promissory note that the petitioner
was a co-debtor. The law is clear that "contracts take effect only between the parties . . ." But by some
stretch of such imagination, petitioner was held solidarily liable for the debt allegedly because he was a co-
mortgagor of Delgado, the principal debtor. This ignores the basic precept that "there is solidarily liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity."
We have already stated that the contract of loan, as evidenced by the promissory note, was signed by Delgado
only. Hence, the petitioner had no part in the said contract, nowhere could it be seen from the agreement that
petitioner was solidarily bound with Delgado for the payment of the loan.

Moreover, there is also no legal provision nor jurisprudence in our jurisdiction which makes a third person
(petitioner Cerna) who secures the fulfillment of another's obligation by mortgaging his own property to be
solidarily bound with the principal obligor (Delgado). A chattel mortgage may be "an accessory contract" to
a contract of loan, but that fact alone does not make a third-party mortgagor (petitioner) solidarily bound with
the principal debtor (Delgado) in fulfilling the principal obligation that is, to pay the loan. The signatory to
the principal contract of loan remains to be primarily bound. It is only upon the default of the latter that the
creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an
action for the recovery of the amount of the loan. Moreover, the liability of the third-party mortgagors extends
only to the property mortgaged. Should there be any deficiency, the creditors has recourse on the principal
debtor.
More so, the mortgage contract was also signed only by Delgado as mortgagor. The Special Power of Attorney
did not make the petitioner a mortgagor, all it did was to authorized Delgado to mortgage certain properties
belonging to petitioner. In this case, the petitioner lent his car to Delgado so that the Delgado may mortgage
the same to secure his debt to Leviste. Thus, from the contract itself, it was clear that only Delgado was the
mortgagor regardless of the fact the he used properties belonging to a third person to secure his debt.

Leviste, having chosen to file the collection suit, could not now run after the petitioner for the satisfaction
of the debt. This is even more true in this case because of the death of the principal debtor, Delgado.
Leviste was pursuing a money claim against a deceased person. (Section 7, Rule 86 lof the Rules of Court).
 SESBRENO vs. COURT OF APPEALS and RODIS, SR.
G.R. No. 84096 January 26, 1995
Topic: Joint and Solidary Obligations

FACTS:
Petitioner Raul H. Sesbreno made a money market placement in the amount of Php 300,000 with PhilFinance with a
term of 32 days payable on March 13, 1981. In turn PhilFinance issued a Certificate of Confirmation of Sale of a
Delta Motor Corporation Promissory Note (DMC PN) and a Certificate of Securities Delivery Receipt indicating that
the said promissory note where the Pilipinas Bank was the custodian-depositary evidencing the petitioner's money
market placement. The promissory note had a face value of Php 2.3 million stamped across the face of the note “non-
negotiable” with PhilFinanace as the payee and Delta Motor Corporation as the maker.

The checks were dishonored for having been drawn against insufficient funds which prompted the petitioner to
demand to Pilipinas Bank the physical delivery of the promissory note which the latter did not. The petitioner also
made a written demand from Delta Motor Corporation for the partial satisfaction of the promissory note which the
latter also denied and insisted that such note was not intended to be negotiable.

As the petitioner failed to collect his investment and interest, he filed an action for damages with the Regional Trial
Court against Delta Motor Corporation and Pilipinas Bank. The complaint was dismissed since the petitioner did not
implead PhilFnance in the complaint for damages arising from the non-return of his investment with respect to the
same money market placement involved. The said complaint having been dismissed for lack of merit, petitioner
appealed to the Court of Appeals which affirmed the dismissal order. The Court of Appeals held that PhilFnance is
"solely and legally obligated to return the investment of plaintiff, together with its earnings, and to answer all the
damages plaintiff has suffered incident thereto." Petitioner thereafter led a petition for review on certiorari.

ISSUE:
Whether or not a non-negotiable promissory note be assigned.

HELD:
Yes. Although the promissory note was marked “non-negotiable,” it was not at the same time stamped “not-
transferable” or “non-assignable.” Hence, there is no stipulation which prohibits the promissory note to be assigned
nor transferred.
In money market placement, the investor is a lender who loans his money to a borrower through a middleman or
dealer. Petitioner here loaned his money to a borrower through PhilFinance and when the latter failed to deliver back
petitioner's placement with the corresponding interest earned at the maturity date, the liability incurred by PhilFinance
was a civil one. As such, petitioner could have instituted against PhilFinance before the ordinary courts a simple action
for recovery of the amount he had invested and he could have prayed therein for damages but he did not. Thus, the
Court of Appeals correctly ruled that a money market transaction partakes of the nature of a loan and therefore
"nonpayment thereof would not give rise to criminal liability for estafa through misappropriation or conversion. The
Court of Appeals noted that PhilFinance was not obliged under the money market transaction to return the same money
he or the corporation had received from petitioner. The Court rendered a decision ordering Pilipinas Bank to pay
petitioner the amount of P304,533.33 in damages plus legal interest thereon at the rate of six percent (6%) per annum
counted from April 2, 1981 being the custodian-depositary of DMC PN. In holding Pilipinas Bank liable for damages
for breach of duty.

Petitioner's recovery of his investment and the dismissal of the criminal aspect of the case he had led against private
respondent as a consequence of this decision notwithstanding, he still has an opportunity to hold private respondent
liable in a criminal liable as it was held in People v. Tugbang that ". . . an accused acquitted of a criminal charge may
nevertheless be held in the same case civilly liable where the facts established by the evidence so warrants."

Wherefore the petition is denied and the decision of the Court of Appeals, as modified is affirmed in toto.
 METRO MANILA TRANSIT CORPORATION VS COURT OF APPEALS
G.R. No. 104408
Facts:
On August 28, 1979, Nenita Custodio boarded as a paying passenger a public utility jeepney driven by defendant
Agudo Calebag and owned by Victorino Lamayo. While in transit, a collision between the said jeepney and a Metro
Manila Transit Corp. (MMTC) bus occurred. The collision impact caused Custodio to hit the front windshield of the
passenger jeepney and was thrown out therefrom, falling onto the pavement unconscious with serious physical
injuries.
A complaint for damages was filed by private respondent, a minor, against all of therein named defendants following
their refusal to pay the expenses incurred by Custodio as result of the collision.
The trial court rendered judgment dismissing the complaint against Metro Manila Transit Corporation and ordering
Calebag, Lamayo and Godofredo C. Leonardo to pay the Nenita Custodio jointly and severally.
Custodio’s motion to reconsider the portion the of the trial court’s decision absolving MMTC from liability was denied
for lack of merit. An appeal was filed with the Court of Appeals, who modified the trial court’s decision by holding
MMTC solidarily liable with the other defendants.
The Court of Appeals denied subsequent motions for reconsideration of both Custodio and MMTC.

Issue:
Whether or not MMTC is vicariously liable for damages based on quasi-delict due to Calebag’s negligence

Held:
It is procedurally required for each party in a case to prove his own affirmative assertion by the degree of evidence
required by law.In civil cases, the degree of evidence required of a party in order to support his claim is preponderance
of evidence, or that evidence adduced by one party which is more conclusive and credible than that of the other party.
It is, therefore, incumbent on the plaintiff who is claiming a right to prove his case. Corollarily, defendant must
likewise prove own allegation to buttress its claim that it is not liable.
The case at bar is clearly within the coverage of Article 2176 and 2177, in relation to Article 2180, of the Civil Code
provisions on quasi-delicts as all the elements thereof are present, to wit: (1) damages suffered by the plaintiff, (2)
fault or negligence of the defendant or some other person for whose act he must respond, and (3) the connection of
cause and effect between fault or negligence of the defendant and the damages incurred by plaintiff.It is to be noted
that petitioner was originally sued as employer of driver Leonardo under Article 2180, the pertinent parts of which
provides that:
The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible. “Employers shall be liable for damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or
industry…. The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage.”
The basis of the employer's vicarious liability has been explained under this ratiocination: The responsibility imposed
by this article arises by virtue of a presumptionjuristantumof negligence on the part of the persons made responsible
under the article, derived from their failure to exercise due care and vigilance over the acts of subordinates to prevent
them from causing damage. Negligence is imputed to them by law, unless they prove the contrary. Thus, the last
paragraph of the article says that such responsibility ceases if is proved that the persons who might be held responsible
under it exercised the diligence of a good father of a family (diligentissimipatrisfamilias) to prevent damage. It is
clear, therefore, that it is not representation, nor interest, nor even the necessity of having somebody else answer for
the damages caused by the persons devoid of personality, but it is the non-performance of certain duties of precaution
and prudence imposed upon the persons who become responsible by civil bond uniting the actor to them, which forms
the foundation of such responsibility. Finally, we believe that respondent court acted in the exercise of sound discretion
when it affirmed the trial court's award, without requiring the payment of interest thereon as an item of damages just
because of delay in the determination thereof, especially since private respondent did not specifically pray therefoer
in her complaint. Article 2211 of the Civil Code provides that in quasi-delicts, interest as a part of the damages may
be awarded in the discretion of the court, and not as a matter of right. We do not perceive that there have been
international dilatory maneuvers or any special circumstances which would justify that additional award and,
consequently, we find no reason to disturb said ruling.
 ESTRELLA PALMARES, petitioner, vs.
THE COURT OF APPEALS, and M.B. LENDING CORPORATION, respondents.
G.R. No. 126490 March 31, 1998
Topic: Joint and Solidary Obligations in relation to Suretyship

FACTS:
Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended
a loan to the spouses Osmeña and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of
P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed
every 30 days from the date thereof. On four occasions after the execution of the promissory note and even after the
loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance
of P13,700.00. No payments were made after the last payment on September 26, 1991. Consequently, on the basis of
petitioner's solidary liability under the promissory note, respondent corporation filed a complaint against petitioner
Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency
of the latter. appellate court declared that petitioner Palmares is a surety since she bound herself to be jointly and
severally or solidarily liable with the principal debtors, the Azarraga spouses, when she signed as a co-maker. As such,
petitioner is primarily liable on the note and hence may be sued by the creditor corporation for the entire obligation.

The basis of petitioner Palmares' liability under the promissory note is expressed in this wise:
ATTENTION TO CO-MAKERS : PLEASE READ WELL
I, Mrs . Estrella Palmares , as the Co-maker of the above-quoted loan, have fully
understood the contents of this Promissory Note for Short-Term Loan:
That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the
above principal maker of this note;
That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above loan from me
in case the principal maker, Mrs . Merlyn Azarraga defaults in the payment of the note subject to the same conditions
above-contained.

[A]lthough the second paragraph says that she is liable as a surety, the third paragraph defines the nature of
her liability as that of a guarantor.

Petitioner accordingly concludes that her liability should be deemed restricted by the clause in the third
paragraph of the promissory note to be that of a guarantor.

ISSUE:
Whether or not petitioner is a surety and thus jointly and severally liable with the debtors.

HELD:
YES. Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract
is called a suretyship.

In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the
principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is
that of a surety.

Several attendant factors in that genre lend support to our finding that petitioner is a surety. For one, when
petitioner was informed about the failure of the principal debtor to pay the loan, she immediately offered to settle the
account with respondent corporation. Obviously, in her mind, she knew that she was directly and primarily liable
upon default of her principal. For another, and this is most revealing, petitioner presented the receipts of the payments
already made, from the time of initial payment up to the last, which were all issued in her name and of the Azarraga
spouses. This can only be construed to mean that the payments made by the principal debtors were considered by
respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner. The concomitant
and simultaneous compliance of petitioner's obligation with that of her principals only goes to show that, from the
very start, petitioner considered herself equally bound by the contract of the principal makers. In this regard, we need
only to reiterate the rule that a surety is bound equally and absolutely with the principal, and as such is deemed an
original promisor and debtor from the beginning. This is because in suretyship there is but one contract, and the surety
is bound by the same agreement which binds the principal. In essence, the contract of a surety starts with the
agreement, which is precisely the situation obtaining in this case before the Court.

A surety is usually bound with his principal by the same instrument, executed at the same time and upon the
same consideration; he is an original debtor, and his liability is immediate and direct.

A creditor's right to proceed against the surety exists independently of his right to proceed against the
principal. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has
the right to proceed even against the surety alone. Since, generally, it is not necessary for the creditor to proceed
against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is
the same that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued
immediately and before any proceedings are had against the principal.

Judgment appealed from is AFFIRMED subject to modification.

 GEORGE TIU AND ROSALINA TIU vs. COURT OF APPEALS AND JUAN GO
G.R. No. 107481 November 18, 1993
Topic: Joint and Solidary Obligations

FACTS:
George Tiu and Rosalina Tiu negotiated a loan of P300,000.00 with Juan Go who then asked for a mortgage of the
Condominium Units owned by Tiu as security for the payment. Juan Go then prepared a document denominated as
"deed of sale of a condominium with right to repurchase" and another as "contract of lease", the former in favor of the
spouses Lim and the latter in favor of George Tiu. When George Tiu tried to redeem the said properties, Juan Go
refused redemption of the mortgaged properties. Spouses Lim claimed that by virtue of George Tiu's failure, as vendor
a retro, to exercise his right to repurchase the condominium units within the period expressly stipulated in the contract,
the spouses thereupon irrevocably acquired the absolute ownership of said condominium units; that absolute
ownership thereof has been consolidated in their names;

Go subsequently filed a motion to admit third party-complaint for a sum of money and damages against Joaquin Tiu,
alleging that on different dates, the latter had, for himself and in behalf of the Tius, received the money as loan or
advances in connection with the latter's tobacco business, in the total amount of P700,000.00, for which amount
Joaquin Tiu should be held jointly and severally liable with the Tius.

ISSUE:
Whether or not Joaquin Tiu is solidariliy liable with George and Rosalina Tiu

HELD:
NO. The various receipts clearly show that the appellant George Tiu never signed the receipts nor received any money
from appellant Go while appellant Joaquin Tiu signed and received the money for and in behalf of Rosalina.
Consequently, they are not liable solidarily for the said amounts even if the money were used for their tobacco
business. And even if they admitted that they received the money, both are not liable in solidum because there was no
express provision in said receipts that appellants George and Joaquin Tiu should be liable in solidum.

There is solidary obligation only when the obligation expressly so states or when the law or nature of the obligation
requires solidarity. There is also no truth to the allegation that appellants George and Joaquin Tiu admitted that they
are jointly and solidarily liable for said amount. What they admitted was that they received said money. Appellants'
failure to deny the allegations in Go's third party complaint does not amount to an admission that they are solidarily
liable. Be it noted that appellants Tiu, in their reply and answer to the counterclaim of appellant Go, admitted that only
appellant Rosalina Tiu received the monies.

The doctrine laid down on the case of Un Fak Leang vs. Nigurra, falls squarely on the point wherein the Supreme
Court ruled that an admission of two debtors in their brief that their liability in the contract is a solidary one does not
convert the joint character of their obligation as appearing in their contract, for what determines the nature of the
obligation is the tenor of their contract itself, not the admission of the parties.
 SOLIDBANK CORPORATION VS MINDANAO FERROALLOY CORPORATION
G.R. No.153535 July 28, 2005
Topic: Joint and Solidary Obligation

FACTS:
The following corporations decided to forge into a joint venture: Maria Cristina Chemical Industries(MCCI) and three
Korean corporations, namely Ssangyong Corporation, the Pohang Iron Corporation and Steel Company and the Dongil
Industries Company, Ltd. They decided to establish a corporation, under the name of Mindanao Ferroalloy
Corporation with principal office situated in Illigan City. The president and chairman of the board of directors was
Ricardo P. Guevarra, while the vice president of the corporation was the general manager of Ssangyong Corporation,
Jong-Won Hong and so was Terresita Cu.

On November 26, 1990 the board of directors approved a resolution which states that Teresita Cu acting together with
Jong- Won Hong was to secure an omnibus line from Solidbank with an amount of P30,000,000.000. Sometime in
April 1991, the indebtedness of the company ballooned to the amount of P200,453,686.69 as compared to its assets
which contained only P65,476,000.

On May 21, 1991 the corporation secured an ordinary loan from Solidbank with the amount of P3,200,000. Later
March 28, 1991, another loan was granted in favour of the corporation with an amount of P1,800.000. This would
mean that the total loan obtained by the company amounted to P5,000,000. The corporation and the bank agreed to
consolidate and thus they agreed to reconstruct the two loan availments both payable on September 20 ,1991. The
corporation later executed Promisorry Note No. 96-91-00865-6 in favour of the bank with an amount of
P5,160,000.000 payable on September 20, 1991. The corporation also executed a Deed of Assignment in favour of
the bank covering its rights, title and interest.

After the execution of the said deeds, the corporation stopped it’s operations. Hence with this being said , the
corporation failed to pay Solidbank the amount of P7,283,913.33.

ISSUE:
Whether or not in the absence of joint and solidary liability the provision of Article 1208 in relation to Article 1207
of the civil code will apply in the case at bar

HELD:
No. As stated in Article 1207 of the civil code, “there is solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires solidarity.” Since solidarity is not expressly stated in the
promisory note, it cannot be presumed.

With regard to joint liability, it also cannot apply in this case. The evidence show that there is only one debtor: the
corporation. For a joint obligation to exist, there must be at least two debtors each of whom is liable only for a
proportionate part of the debt, and the creditor is entitled only to a proportionate part of a credit. The fact that
Respondents Cu and Hong sign for and on behalf of the corporation clearly established that they are acting in behalf
of the corporation.

INTERNATIONAL FINANCE CORPORATION

vs. IMPERIAL TEXTILE MILLS, INC.
GR. No. 154885 March 24, 2008.
Topic: Article 1207-1222; Joint and Solidary Obligations

FACTS:
International Finance Corporation and Philippine Polyamide Industrial Corporation entered into a loan agreement
wherein IFC extened to PPIC a loan of US$ 7 000 000, payable in 16 semi-annual installments of US$ 437, 500 each
with interest rate of 10% per annum on the prinicpal amount of the loan advanced and outstanding from time to time.
A Guarantee Agreement was executed with Imperial Textile Mills, Inc. , Grand Textile Manufacturing Corp. and IFC
as parties. ITM and Grandtex agreed to guarantee PPIC’s obligation under the loan agreement. The first 3 installments
have been paid however the next 3 were rescheduled as requested by PPIC. Despite rescheduling, PPIC defaulted.
IFC served a notice of default to PPIC demanding the latter to pay the outstanding principal loan and all its accrued
interests. Despite such notice, PPIC failed to pay the loan and interests.

IFC applied for the extrajudicial foreclosure of mortgages on the real estate, buildings, machinery and equipment plant
and all improvements owned by PPIC. The extrajudicial sale of PPIC’s properties amounted to US$ 5 250 000 leaving
a balance of US$ 2 833 967. PPIC failed to pay the remaining balance, IFC demanded ITM and Grandtex as guarantors
to pay the outstanding balance. The remaining balance is still left unpaid.
CA held that ITM bound itself under the Guarantee Agreement to pay PPIC’s obligation upon default. It held as well
that ITM’s liability as a guarantor would arise only if and when PPIC could not pay. Since PPIC’s inability to comply
with its obligation was not sufficiently established, ITM could not immeditaly be made to assume the liability.

ISSUE:
Whether or not Imperial Textile Mills is a surety and thus solidarily liable with PPIC for the payment of the loan

HELD:
Yes, ITM is a surety. While the Guarantee Agreement specifically stated that ITM was “jointly and severally” liable,
the contract further stated that ITM was a pimary obligor, not a mere surety. Those stipulations meant only one thing:
that at bottom, it was a surety. Thus, ITM bound itself to be solidarily liablewith PPIC. ITM thereby brought itself to
the level of PPIC and could not be deemed merely secondarily liable. As Article 2047 provides, a suretyship is created
when a guarantor binds itself solidarily with the principal obligor. Article 1216 states that “The creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not
been fully collected.” Thus the petitioner as creditor was justified in taking action directly against a respondent.
 PEOPLE OF THE PHILIPPINES vs. BARTOLOME TAMPUS and IDA MONTESCLAROS
G.R. No. 181084 June 16, 2009
Topic: Solidary liability in criminal offenses

FACTS:
On February 19, 1995, Ida and ABC, whom are mother and daughter started to rent a room in a house owned by
Tampus, a barangay tanod. On April 1, 1995., ABC testified that she was in the house with Ida and Tampus who were
both drinking beer at that time. They forced her to drink beer 10 and after consuming three and one-half (3 1/2) glasses
of beer, she became intoxicated and very sleepy. While ABC was lying on the floor of their room, she overheard
Tampus requesting her mother, Ida, that he be allowed to "remedyo" or have sexual intercourse with her. Appellant
Ida agreed and instructed Tampus to leave as soon as he finished having sexual intercourse with ABC. Ida then went
to work, leaving Tampus alone with ABC. ABC fell asleep and when she woke up, she noticed that the garter of her
panties was loose and rolled down to her knees. She suffered pain in her head, thighs, buttocks, groin and vagina, and
noticed that her panties and short pants were stained with blood which was coming from her vagina. When her mother
arrived home from work the following morning, she kept on crying but appellant Ida ignored her. ABC sought the
help of her aunt Nellie to file a complaint against Tampus for rape and the trial court convicted Tampus of two counts
of rape, and Ida was found guilty as an accomplice in the crime.

Pending resolution of the appeal before the Court of Appeals, accused Tampus died on November 16, 2000 and his
appeal was dismissed by the Third Division of this Court. Thus, the appeal before the Court of Appeals dealt only
with that of appellant Ida. Ida was held to be solidarily liable with Tampus for the entire amount of indemnity.

ISSUE:
Whether or not Ida should be solidarily liable with tampus for the civil indemnity as ruled by the trial court

HELD:
Yes, In the case at bar, the trial court ruled that the accomplice is solidarily liable with the principal for the entire
amount of the civil indemnity of P50,000.00. This is an erroneous apportionment of the civil indemnity. First, because
it does not take into account the difference in the nature and degree of participation between the principal, Tampus,
versus the accomplice, Ida. Ida's previous acts of cooperation include her acts of forcing ABC to drink beer and
permitting Tampus to have sexual intercourse with her daughter. But even without these acts, Tampus could have still
raped ABC. It was Tampus, the principal by direct participation, who should have the greater liability, not only in
terms of criminal liability, but also with respect to civil liability. Second, Article 110 of the Revised Penal Code states
that the apportionment should provide for a quota amount for every class for which members of such class are
solidarily liable within their respective class, and they are only subsidiarily liable for the share of the other classes.
The Revised Penal Code does not provide for solidary liability among the different classes, as was held by the trial
court in the case at bar. Thus, taking into consideration the difference in participation of the principal and accomplice,
the principal, Tampus, should be liable for two-thirds (2/3) of the total amount of the civil indemnity and moral
damages and appellant Ida should be ordered to pay one-third (1/3) of the amount.
 BENIGNO VIGALLA vs PHILIPPINE COLLEGE OF CRIMINOLOGY
GR No. 200094 June 10, 2013
Topic: SOLIDARY LIABILITY

FACTS:
PCCr is a non-stock educational institution, while the petitioners were janitors, janitresses and supervisor in
the Maintenance Department of PCCr under the supervision and control of Atty. Florante A. Seril. The petitioners,
however, were made to understand, upon application with respondent school, that they were under MBMSI, a
corporation engaged in providing janitorial services to clients. Atty. Seril is also the President and General Manager
of MBMSI. PCCr discovered that the Certificate of Incorporation of MBMSI had been revoked as of July 2, 2003. On
March 16, 2009, PCCr, through its President, respondent Gregory Alan F. Bautista (Bautista), citing the revocation,
terminated the school's relationship with MBMSI, resulting in the dismissal of the employees or maintenance
personnel under MBMSI, except Alfonso Bongot (Bongot) who was retired. The dismissed employees filed their
respective complaints for illegal dismissal, reinstatement, back wages, separation pay, underpayment of salaries,
overtime pay, holiday pay, service incentive leave, and 13th month pay against MBMSI, Atty. Seril, PCCr, and
Bautista. In their complaints, they alleged that it was the school, not MBMSI, which was their real employer because
(a) MBMSI’s certification had been revoked; (b) PCCr had direct control over MBMSI’s operations; (c) there was no
contract between MBMSI and PCCr; and (d) the selection and hiring of employees were undertaken by PCCr.

ISSUE:
Whether or not a labor-only contractor is solidary liable with the employer.

HELD:
YES. They are liable with the employer. The NLRC and the CA correctly ruled that the releases, waivers and
quitclaims executed by petitioners in favor of MBMSI redounded to the benefit of PCCr pursuant to Article 1217 of
the New Civil Code. The reason is that MBMSI is solidarily liable with the respondents for the valid claims of
petitioners pursuant to Article 109 of the Labor Code. As correctly pointed out by the respondents, the basis of the
solidary liability of the principal with those engaged in labor-only contracting is the last paragraph of Article 106 of
the Labor Code which provides that “In such cases, the person or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly
employed by him. The Court holds that the releases, waivers and quitclaims executed by petitioners in favor of
MBMSI redounded to the respondents' benefit. The liabilities of the respondents to petitioners are now deemed
extinguished. The Court cannot allow petitioners to reap the benefits given to them by MBMSI in exchange for the
releases, waivers and quitclaims and, again, claim the same benefits from PCCr, only contracting is the last paragraph
of Article 106 of the Labor Code.
 PH CREDIT CORPORATION vs COURT OF APPEALS and CARLOS M. FARRALES
G.R. No. 109648 November 22, 2001
Topic: Joint and Solidary Obligations

FACTS:
This is a Petition for Review under Rule 45 of the Rules of Court assailing the October 28, 1992 Decision
and the April 6, 1993 Resolution of the Court of Appeals in CA-GR SP Nos. 23324 and 25714. The decision dismissed
CA-GR SP No. 23324 for being moot and academic and 25714 for lack of merit. The assailed Resolution denied the
petitioner’s Motion for Reconsideration.
The facts of the cases are as follows:
1. CA-G.R. SP No. 23324
PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales (Private Respondent), Thomas H. Van
Sebille and Federico C. Lim, for a sum of money. After service of summons upon the defendants, they failed to file
their answer within the reglementary period, hence they were declared in default. On January 31, 1984, a decision was
rendered, the dispositive portion of the which reads as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff PH Credit Corporation and against
defendants Pacific Lloyd Corporation, Thomas H. Van Sebille, Carlos M. Farrales, and Federico C. Lim, ordering the
latter to pay the former, the following:
'A) The sum of P118,814.49 with interest of 18% per annum, starting December 20, 1982 until fully paid;
'B) Surcharge of 16% per annum from December 20,1982;
'C) Penalty Charge of 2% per month from December 20,1982, computed on interest and principal compounded;
'D) Attorney's fees in an amount equivalent to 25% of the total sum due; and
'E) Costs of suit.
'SO ORDERED.'
After the aforesaid decision, has become final and executory, a Writ of execution was issued. Personal and Real
properties of Carlos Farrales were levied and sold at public auction wherein the petitioner was the highest bidder, to
which the private respondent objected.
The Trial Court ruled in favor of the private respondent, declaring the auction sale of Farrales’ private
properties as null and void, to which the Court of Appeals had affirmed and further held that pursuant to the January
31, 1984 decision of the Trial Court, the liability of Farrales was merely joint and not solidary and that there was no
legal basis for the levying and selling of Farrales’properties in order to satisfy the whole obligation.
Hence this petition, to which the petitioner contends among other things, that the CA had erred in ruling that
the liability of Farrales is merely joint and solidary notwithstanding the Suretyship Agreement that was executed by
the defendants, as mentioned in the proceedings of the Trial Court, stating that “xxx to the effect that if Pacific Lloyd
Corporation cannot pay the amount loaned by plaintiff to said corporation, then Federico C. Lim, Carlos M. Farrales
and Thomas H. Van Sebille will hold themselves jointly and severally together with defendant Pacific Lloyd
Corporation to answer for the payment of said obligation.”
ISSUE:
W/N the petitioner’s contention holds merit in this case regarding the solidarity of the respondent’s liability.
HELD:
The Court dismissed the petition. Stating among other things that the basis of the execution should be the
January 31, 1984 Decision rendered by the Trial Court, which does not make mention that of the fact that the liability
of the respondents is solidary. This is notwithstanding the fact that a suretyship agreement was mentioned in the body
of the Trial Court case. It is a well settled rule that when there is conflict between the body of the case and its dispositive
portion (fallo), the latter prevails since it contains the final judgment of the court. There being no mention in the
dispositive portion of the Trial Court decision that the liability is solidary, then the liability is merely joint, applying
Articles 1207 and 1208 of the Civil Code.
 LILIBETH SUNGA-CHAN and CECILIA SUNGA vs COURT OF APPEALS, et al
G.R. No. 164401 June 25, 2008
Topic: Articles 1207 – 1222 (Joint and Solidary Obligations)

FACTS:
In 1977, Chua and Jacinto Sunga formed a partnership engaging in the marketing of liquefied petroleum gas.
The business operated under the name of Shellite Gas Appliance Center (Shellite), registered as a sole proprietorship
in the name of Jacinto despite the partnership arranged for equal sharing of the net profit. After Jacinto’s death in
1989, his widow and her daughter, Cecilia Sunga and Lilibeth Sunga-Chan, respectively, pursued the business without
Chua’s consent. Thereafter, Chua’s repeated demands of accounting and winding up was ignored. Hence, on June 22,
1992, Chua filed a complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares
and Damages with Writ of Preliminary Attachment. The RTC ruled in favor of the plaintiff.

After one month, the same court issued an amended writ of execution. However, the said execution cannot be
immediately executed as Chua requested from the trial court to commission a certified public accountant to assume
the accounting work and inventory of the partnership assets if petitioners refuse to do it before the deadline set by the
court. Afterwards, Chua withdrew his motion and requested for the admission of an accounting report prepared by
CPA Cheryl Gahuman. Chua’s total claim amounted to Php 14,277,344.94. The RTC approved the computation of
claims with regard to the petitioners’ failure and refusal, despite notice, to appear and submit an accounting report on
the winding up of the partnership on April 29 and 30, 2002. Nevertheless, petitioners submitted their own CPA-
certified valuation and accounting report limiting Chua’s claim to Php 3,154,736.65. On November 6, 2002, the RTC
rejected the accounting report of the petitioners, while upholding the new computation of claims submitted by Chua.
Petitioners filed for reconsideration but was denied by both the trial and appellate courts.

ISSUE:
Whether or not Lilibeth Sunga-Chan and Cecilia Sunga are solidarily liable for the claims of Chua.

HELD:
The obligation of petitioners is solidary. The complaint of Chua for winding up of partnership affairs,
accounting, appraisal, and recovery of shares and damages is clearly a suit to enforce a solidary or joint and several
obligation on the part of petitioners. The continuance of the business and management of Shellite by petitioners against
the will of Chua gave rise to a solidary obligation, the acts complained of not being severable in nature.

As provided in Article 1207:

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

The need for the imposition of a solidary liability becomes all the more pronounced considering the impossibility of
quantifying how much of the partnership assets or profits was misappropriated by each petitioner. Likewise, the
petitioners’ obligation for the payment of damages and attorney’s and litigation fees ought to be solidary in nature,
they having resisted in bad faith, compelling Chua to resort to litigation.

NATIVIDAD P. NAZARENO v. COURT OF APPEALS

G.R. No. 138842 October 18, 2000
TOPIC: Divisible and Indivisible Obligations (Art. 1223-1225)

FACTS:
Maximino Nazareno, Sr. and Aurea Poblete acquired properties in Quezon City and Cavite during their
marriage. They have five children namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. herein petitioners.
The ownership of some of the properties were in question as it appears that after the death of Maximino, Sr., Romeo
filed an intestate case in CFI of Cavite. Upon reorganization of the Courts in 1983, the case was transferred to RTC
of Naic, Cavite and Romeo was appointed as the administrator of his father’s estate. In the course of the proceedings,
it was discovered that his parents executed several deeds of sale in favor of his sister, Natividad, one of which involved
six lots in Quezon City for the total amount of P47,800. The petitioners argued that the Deed of Absolute Sale dated
on January 7, 1970 was an indivisible contract founded on an indivisible obligation, and as such it cannot be annulled
by only one of them.

ISSUE:
Whether or not the Deed of Absolute Sale executed by the deceased spouses during their lifetime involving
their conjugal properties was an indivisible contract

HELD:
The obligation was indivisible as the performance cannot be done in parts, otherwise the value of what is
transferred be diminished. The petitioners were mistaken in basing the indivisibility of a contract on the number of
obligors. An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the
thing which is the object thereof. Indivisibility refers to the prestation and not to the object, itself.
 SPOUSES INOCENCIO H. GONZALES and ROSARIO ES QUIVEL GONZALES vs. GSIS
G.R. No. L-51997 September 10, 1981
Topic: Divisible and Indivisible Obligations

FACTS:
On April 2, 1968, August 14, 1968 and November 7, 1968, petitioner-spouses Inocencio H. Gonzales and
Rosario Esquivel Gonzales obtained a housing loan of P80,000.00 from the respondent GSIS. This was to be repayable
within fifteen years at 6% interest per annum for the first P30,000.00 and pay for the balance. GSIS accepted as
collaterals two (2) residential lots located in Quezon City, and two (2) agricultural lands located in Jaen, Nueva Ecija.
Of the latter two, one is 15.7880 hectares in area, while the other is 9.4602 hectares. Petitioners were able to pay
several monthly installments of P814.38 until both of them retired compulsorily from government service in 1973,
leaving an unpaid obligation of over P73,000.00, which, as of May 31, 1978, amounted to P 135,884.87 because of
accumulated interests or arrearages.

By virtue of Presidential Decree No. 27, otherwise known as the Tenants' Emancipation Act, effective
October 21, 1972, the agricultural lands of petitioners were subdivided and awarded by the then Department of
Agrarian Reform to the tenant-farmers therein. It was only in May of 1979, however, that payment by the Land Bank
became remittable covering in particular, the 15- hectare land of petitioners in Jaen.

The land, having been appraised at P117,005.00, that sum was tendered by the Land Bank to the GSIS broken
down as follows: 20% in cash or P23,505.00 (recomputed at P23,401.00), and 80% in bonds or P93,500.00 (re-
computed at P93,604.00). The GSIS refused acceptance unless the payment in bonds was to be credited thus:
P16,400.00 at par (the loan value of the property) and P77,100.00 in land bank bonds discounted at 18%; interest per
annum to maturity.

Petitioners, on July 30, 1979, accepted under protest the condition of the GSIS. This, however, did not stop
them from seeking reconsideration of the decision of the GSIS to the extent of appealing to the Office of the President
on September 24, 1979 and offering to pay the balance of their obligation in cash provided GSIS would accept at par
value the Land Bank bonds without awaiting payment corresponding to their other 9-hectare agricultural land in Jaen.
However, the GSIS maintained its previous position. Subsequently, the instant Petition for mandamus was filed on
November 28, 1979, with petitioners praying that the GSIS be directed to accept the payment of Land Bank bonds at
par value, without any discount whatsoever, so that any of petitioners’ collaterals could be released. They also ask for
actual, moral and exemplary damages, aside from attorney's fees and costs of suit.

ISSUE:
Whether or not the GSIS may be compelled under the provisions of Section 80, Republic Act No. 3844, as
amended, to accept Land Bank bonds at face value in payment of outstanding loans secured partially by lands taken
by the Land Bank under Operation Land Transfer.

HELD:
Yes. The Supreme Court ruled that under Section 80 of Republic Act No. 3844, otherwise known as "The
Code of Agrarian Reforms of the Philippines," as amended by Presidential Decree No. 251, when lands with existing
encumbrances are acquired under the land reform program, the land owner is paid the net value of the land as
determined under Presidential Decree No. 27, minus the outstanding balance of his obligation to a government lending
institution, which is to be paid directly to the latter by the Land Bank in Land Bank bonds, existing charters of those
government lending institutions to the contrary notwithstanding. The insistence of the GSIS to discount those bonds
(notwithstanding the alleged "reasonableness" of the 18% discount rate) is to defeat that very provision aimed not only
to cushion the impact of dispossession on the land owner but also to benefit the tenant so that the latter may obtain
title to the land free from any hen or encumbrance. The aforementioned statute does not explicitly provide that Land
Bank bonds shall be accepted at their face value but there can be no question that such is the intendment of the law
particularly in the absence of any provision expressly permitting discounting, as differentiated from Republic Act No.
304, or the Backpay Law, as amended by Republic Acts Nos. 800 and 897, which expressly allows it.

Land Bank bonds are certificates of indebtedness, approved by the Monetary Board of the Central Bank, fully
tax-exempt both as to principal and income, and bear interest at the rate of 6% per annum redeemable at the option of
the Land Bank at or before maturity, which in no case shall exceed 25 years. They are fully negotiable and
unconditionally guaranteed by the Government of the Republic of the Philippines. (Section 76, RA 3844, as amended
by PD 251)
The Court ruled that it is clear then that it is not only the loan value but the outstanding balance of the obligation that
has to be settled with Land Bank bonds at their par or face value. The fact that only one agricultural land of the four
securities was placed under land reform should make no difference. Although it may be conceded that the obligation
of the petitioners is, in a sense, divisible because it can be settled partially according to current practice, it does not
render the mortgage of four (4) parcels of land also divisible. Generally, the divisibility of the principal obligation is
not affected by the indivisibility of the mortgage. The mortgage obligation is indivisible; that is, it cannot be divided
among the different lots. A real estate mortgage voluntarily constituted by the debtor on two or more parcels of land
is one and indivisible. Each and every parcel under mortgage answers for the totality of the debt. Being indivisible,
the full value of the one parcel being paid for by the Land Bank should be applied in full to the outstanding loan
obligation without any discounting.

The case at bar does not fall under the exception in Article 2089 of the Civil Code where each of the several
things given in mortgage guarantees only a determinate portion of the credit. This exception contemplates separate
debts secured by separate properties, which is not the factual set-up herein. Neither can it be said that the Land Bank,
by operation of law, has rendered the mortgage of the four parcels divisible by taking only one of them solely to obtain
its release. The basic indivisibility of the mortgage obligation still remains unimpaired despite that fact. To hold that
the acceptance of the bonds at par value should be limited only to the loan value of properties acquired by the Land
Bank but should be discounted as to other lands not so acquired, would not only run counter to the principle of
indivisibility of a mortgage and contravene the clear mandate of PD No. 251, but would also reduce the bond payment
to the dispossessed landowner by approximately one-half, to his complete detriment. This is a consequence that neither
law, equity, nor justice would countenance.

BLOSSOM AND COMPANY, INC., vs. MANILA GAS CORPORATION

G.R. No. L-32958 November 8, 1930
TOPIC: Divisible and Indivisible Obligations

FACTS:
On September 10, 1918, it entered into a contract with the defendant in which the plaintiff promised and
undertook to purchase and receive from the defendant and the defendant agreed to sell and deliver to the plaintiff, for
a period of four years, three tons of water gas tar per month from September to January 1, 1919 and twenty tons per
month after January 1, 1919, for the remaining period of the contract; one-half ton of coal gas tar a month from
September to January 1, 1919, and six tons per month after January 1, 1919, for the remainder of the contract, delivery
to be made at the plant of the defendant in the City of Manila, without containers and at the price of P65 per ton for
each kind of gas tar—said price will increase or decrease depending on the prices of raw materials used.

On January 31, 1919, this contract was amended so that it should continue to remain in force for a period of
ten years from January 1, 1919. And that from and after January 1, 1919, plaintiff would take at least the quantities
specified in the contract of September 10, 1918, and that at its option, it would have the right to take the total output
of water gas tar of defendant's plant and 50 per cent of the gross output of its coal gas tar, and upon giving ninety days'
notice, it would have the right to the entire output of coal gas tar, except such as the defendant might need for its own
use. In sum, , the contract provided for the delivery to the plaintiff from month to month of the specified amounts of
the different tars as ordered and requested by the plaintiff.

That in consideration of this modification of the contract of September 10, 1918, plaintiff agreed to purchase
from the defendant of certain piece of land lying adjacent to its plant at the price of P5 per square meter. Defendant
sold and conveyed the land to the plaintiff which in turn executed a mortgage thereon to the defendant for P17,140.20,
to secure the payment of the balance of the purchase price

About the last part of July, 1920 the defendant willfully, and deliberately breached its said contract, Exhibit
C, with the plaintiff by ceasing to deliver any coal and water gas tar to petitioner. notwithstanding the frequent and
urgent demands made by the plaintiff defendant flatly refused to make any deliveries under said contract.
 On November 23, 1923, the plaintiff was forced to commence action against the defendant to recover the
damages which it had up to that time suffered by reason of such flagrant violation of said contract on the part of the
defendant herein, and to obtain the specific performance of the said contract and after due trial of that action. Judgment
was entered therein in favor of the plaintiff for the sum of P26,119.08, as the damages suffered by this plaintiff by the
defendant's breach of said contract from July, 1920, up to and including September, 1923, with legal interest thereon
from November 23, 1923.

On January 31, 1926, plaintiff made demands for the delivery of certain amounts of coal gas tar and water
gas but the defendant refused to make such deliveries. On March 26, 1926 the said defendant offered to resume
delivery to the plaintiff from that date of the minimum monthly quantities of tars stated in its contract. The plaintiff
commenced to accept deliveries of said tars from it, and at once ascertained that the said defendant was deliberately
charging it prices much higher than the contract price. On January 29, 1927, plaintiff again demanded for deliveries
but the defendant again refused to make such deliveries. Because of this, the plaintiff filed another complaint and
prayed for the rescission of said contract and for the full damages which the plaintiff has suffered from September,
1923, and will suffer for the remainder of said contract by reason of the defendant's failure and refusal to perform the
same.

After the evidence was taken the referee found that the plaintiff was entitled to P56,901.53 damages. But the
damages was entered awarding damages to plaintiff in the sum of P2,219.60 pertaining only to the excessive price
paid by plaintiff. Plaintiff appealed.

ISSUE:
Whether or not the Trial Court erred in holding that this suit in so far as the damages from November, 1923,
to March 31, 1926, are concerned , is res judicata.

HELD:
YES. The previous action by plaintiff to recover damages resulting to the breach of contract and the judgment
rendered thereof is a bar to an action for the recovery of damages resulting to a subsequent breach of the same action.

As what was held in Pakas vs. Hollingshead, “Upon refusal, by the seller, after partial performance, longer
to comply with his contract to sell and deliver a quantity of articles in installments the buyer cannot keep the contract
in force and maintain actions for breaches as they occur but must recover all his damages in one suit”

And in the opinion of the same, the Court stated that:

“In as much as there was a total breach of the contract by the defendant's refusal to deliver, the plaintiff
cannot split up his demand and maintain successive actions, but must either recover all his damages in the first suit.
.. . In other words, there can be but one action for damages for a total breach of an entire contract to deliver goods,
and the fact that they were to be delivered in installment from time to time does not change the general rule.”

And in Watts vs. Weston (238 Federal, 149), the Court stated:
“Where a continuing contract was terminated by the absolute refusal of the party whose action was necessary
to further perform, a claim for damages on account of the breach constituted as indivisible demand, and when the
same or any part of the same was pleaded, litigated, and final judgment rendered, such suit and judgment constitute
a bar to subsequent demands which were or might have been litigated therein.”
 J.M. TUASON & CO., INC., VS COLLECTOR OF INTERNAL REVENUE
G.R. NO. L-11530 JUNE 30, 1960
Topic: Divisible and Indivisible Obligations

FACTS:
On November 6, 1951 the Varsity Hills, Inc., owner of five parcels of residential land in Quezon City, entered
into a contract with petitioner J. M. Tuason & Co., Inc., a corporation engaged in the business of developing
subdivisions and promoting sales therein, whereby it ceded to the latter its five parcels of residential land above
described generally for the purpose of having it surveyed, platted, monumented and otherwise developed into a
subdivision. During the period from the fourth quarter of 1951 to the second quarter of 1953, inclusive, Tuason & Co.,
Inc. received as compensation for its services the following amounts: P282,862.70 as 10 per cent commission for sales
and P116,331.21 as "administration fee." On August 22, 1953, the respondent Collector of Internal Revenue assessed
against the petitioner the broker's tax on the 8 per cent received by the latter as "administration fee" in the amount of
P8,724.84, representing the broker's percentage tax and surcharge thereon. Petitioner contested this assessment,
although it paid the respondent under protest P9,024.84 and thereafter filed a claim for its refund. As respondent
refused to grant the refund, petitioner instituted an action in the Court of Tax Appeals for the review of the assessment.
After trial the Court of Tax Appeals sustained the assessment and denied the refund prayed for. It is against this refusal
to grant the refund that the appeal to this Court has been presented.

ISSUE:
Whether or not entire fee received by broker subject to tax if contract covering several prestations is
indivisible?

HELD:
Yes. It follows, therefore, that the parties have agreed on giving compensation denominated administration
fees for services which may well be included in the duties of a broker. But the duty of developing the subdivision,
with its lots, streets, playgrounds, sewage, etc. is also a necessary incident to the duty of selling the lands subject of
the contract. The lands must be subdivided into residential lots, with streets laid out, before said lots can be sold. And
while this work may be entrusted to another, the parties have seen fit to have the same entrusted to the petitioner. It
would be reasonable that this work or duty be considered distinct and separate from the duties or incidents of the
brokerage, and not subject to the tax on brokers. But the parties have by their contract rendered it impossible to separate
the amount due petitioner for such duty and obligation (of developing a subdivision) from those due petitioner as
"administration fees." Petitioner may well be a contractor, in so far as the developing of the subdivision is concerned.
But neither petitioner nor the owner has shown which portion of the fee mentioned in the contract as "administration
fee" is given petitioner as its compensation for developing the subdivision. The reason for all this must be the fact that
the parties have considered their contract as one whole, indivisible contract, especially as the corresponding fees for
the different prestations therein undertaken by petitioner are grouped into two, "brokerage" and "administration",
without it being possible to separate and identify what portion is due petitioner for developing the subdivision and
what portion for the supposed acts of administration, which may also be considered acts of brokerage. It is in the above
sense that the Court of Tax Appeals has held that the consideration for all the different prestations is simple, entire
and indivisible, for which reason the contract must be considered as one indivisible contract of brokerage, the
developing of the subdivision being considered as a necessary incident to, and preparatory for, the sales of the lots of
the subdivision, and the documentation and collection also an integral part of the sales or negotiations therefor.

Considering, therefore, that the parties to the contract evidently made a single, indivisible contract because
of indivisibility of consideration, for the reason that the parties fixed a so-called administration fee for developing the
subdivision and for executing all necessary documentation and collection for the consummation of the sales of the lots
in the subdivision, without possibility of determining the fees for each of the distinct prestation, we are constrained to
find that the court below committed no error in confirming the assessment subject of the petition for review.
 INTESTATE ESTATE OF FRANCISCO UBAT V. ANASTASIA UBAT DE MONTES, and PHILIPPINE
NATIONAL BANK
G.R. No. L-11633 January 31, 1961
Topic: Divisible and Indivisible Obligations

FACTS:
On October 7, 1936, Eduardo Ubat obtained a loan of P400.00, evidenced by a promissory note, from the
Philippine National Bank and, as security for payment, mortgaged his land. He died after having paid three
installments, and his only son, Francisco Ubat, inherited the mortgaged property. On September 18, 1946, Francisco
Ubat borrowed P400.00 from the Philippine National Bank, executing a chattel mortgage on the standing crops of his
land. Francisco Ubat died on September 25, 1954, when the unpaid balance of his indebtedness was P82.00.

An intestate proceeding was filed by one of the creditors of Francisco, where Atanasia Ubat de Montes,
Francisco’s daughter, was appointed administratrix. The bank filed two claims, the first referring to the indebtedness
of Francisco Ubat in the amount of P82.00, with interest, plus attorney's fees, and the second referring to the account
of Eduardo Ubat in the sum of P310.37, or the unpaid installments due in 1939, 1940, 1941, 1942, 1943, 1944 and
1945, with interest, plus attorney's fees. The administratrix admitted the first claim but opposed the second, on the
ground that, since this obligation was payable in ten equal yearly installments, all the unpaid installments, except the
one that fell due on October 7, 1945, had already prescribed. In its order dated March 1, 1956, the court approved the
first claim; and, as to the second, only the sum of P55.23, representing the tenth installment, was allowed.

Eduardo’s promissory note dated October 8, 1936 was the basis of the second claim:

"On or before the 7th day of October, 1946, for value received I promise to pay to the order of the
Philippine National Bank, at its office in Manila. Philippine Islands, the sum of Four Hundred Only pesos
(P400.00) with interest thereon compounded semi-annually, at the rate of eight per cent (8%) per annum from
date hereof until paid and with interest at the same rate on annual installments overdue and unpaid. Payment
of the principal and the corresponding interest shall be made in ten equal annual installments of P59.61 each
in accordance with the following schedule of amortization."

The administratrix construes this obligation as divisible, and because its payment was stipulated to be in ten
equal yearly installments, it results that on October 7, 1939, when the fourth installment had become due and payable,
the prescriptive period of ten years commenced to run as to said installment, and that, following a similar computation
as to the other installment, only the tenth installment of P59.61, which fell due on October 7, 1945, was recoverable
when the present claim was filed on September 26, 1955.

The bank, on the other hand, argues that the parties could not have intended a divisible obligation because
no fixed date was agreed upon for the payment of each installment.

ISSUE:
Whether or not the the obligation to pay the installments was divisible such that each installment has its own
prescription, and all except one have already prescribed.

HELD:
Yes. the note provides that "payment of the principal and the corresponding interest shall be made in ten
equal annual installments of P59.61 each"; and this stipulation is couched in mandatory tenor, deducible from the use
of the unequivocal terms "shall be made", thereby making it an absolute duty (not merely an optional benefit) on the
part of the debtor to pay such installments yearly. In other words, each installment, if not paid, gave rise to a separate
cause of action, which might be the subject matter of suit by the bank. The statute of limitations consequently began
to run, as to each unpaid installment, from the date the bank could sue the debtor therefor. While the promissory note
was payable "on or before the 7th day of October, 1946", this period was limited by the particular provision requiring
(not merely allowing) payment in ten "equal annual installments."

The argument of the bank overlooks the fact that the debtor was bound to pay the installments in accordance
with the schedule of amortizations set forth in the promissory note executed on October 7, 1936, for which it is clear
that said installments were to be settled at the "End of Year 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10" (Record on Appeal, p. 38),
computed logically without saying from the date of the note, October 7, 1936.
 METROPOLITAN BANK AND TRUST COMPANY VS. SLGT HOLDINGS
G. R. No. 175181-82 September 14, 2007
Topic: Divisible and Indivisible Obligations

FACTS:
Dylanco and SLGT, respondents, each entered into a contract to sell with ASB Development Corporation
(ASB) for the purchase of units at BSA Towers then being developed by the latter. As stipulated, ASB will deliver
the units thus sold upon completion of the construction or before December 1999. Relying on this and other
undertakings, Dylanco and SLGT each paid in full the contract price of their respective units. The promised completion
date came and went, but ASB failed to deliver, as the Project remained unfinished at that time. To make matters worse,
respondents learned that the lots on which the BSA Towers were to be erected had been mortgaged to Metrobank and
UCPB without the prior written approval of the Housing and Land Use Regulatory Board (HLURB).

Thereafter, Dylanco and SLGT filed with the HLURB a complaint for delivery of property and title and for
the declaration of nullity of mortgage. During this time, ASB had already filed with SEC a petition for rehabilitation
and a rehabilitation receiver had in fact been appointed. According to ASB, it encountered liquidity problems after
Metrobank and UCPB simultaneously demanded payments of their loans.

Petitioners claim that respondents have no personality to ask for the nullification of the mortgage because
they are not parties to the said mortgage transaction, and that the transaction was done in good faith.

HLURB ruled in favor of respondents stating that the mortgage constituted over the lots is invalid for the
lack of mortgage clearance from the HLURB. The Office of the President and the Court of Appeals affirmed the said
decision.

Petitioners now contend that the appellate court erred when it declared the subject mortgage contract void in
its entirety and then directed both petitioner banks to release the mortgage on the Project.

ISSUE:
Whether or not the nullity extends to the entire mortgage contract.

HELD:
Yes. A mortgage contract is, by nature, indivisible. Consequent to this feature, a debtor cannot ask for the
release of any portion of the mortgaged property or of one or some of the several properties mortgaged unless and
until the loan thus secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the
obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate
extinguishments of the mortgage as long as the debt is not completely satisfied.

The situation obtaining in the case at bench is within the purview of the aforesaid rule on the indivisibility of
mortgage. It may be that Section 18 of PD 957 allows partial redemption of the mortgage in the sense that the buyer
is entitled to pay his installment for the lot or unit directly to the mortgagee so as to enable him - the said buyer - to
obtain title over the lot or unit after full payment thereof. Such accommodation statutorily given to a unit/lot buyer
does not, however, render the mortgage contract also divisible. Generally, the divisibility of the principal obligation
is not affected by the indivisibility of the mortgage. The real estate mortgage voluntarily constituted by the debtor
(ASB) on the lots or units is one and indivisible.

The mortgage contract executed between ASB and the petitioner banks is considered indivisible, that is, it
cannot be divided among the different buildings or units of the Project. Necessarily, partial extinguishment of the
mortgage cannot be allowed. In the same token, the annulment of the mortgage is an all or nothing proposition. It
cannot be divided into valid or invalid parts. The mortgage is either valid in its entirety or not valid at all. In the present
case, there is doubtless only one mortgage to speak of. Ergo, a declaration of nullity for violation of Section 18 of PD
957 should result to the mortgage being nullified wholly.
 INTERNATIONAL HOTEL CORPORATION vs JOAQUIN, JR. AND SUAREZ
G.R. No. 158361 10 APRIL 2013
Topic: Divisible and indivisible obligation

FACTS:

 Francisco B. Joaquin, Jr. proposed that he would render a technical assistance in securing a foreign loan in
favor International Hotel Corporation (IHC) for the construction of a hotel to be guaranteed by the
Development Bank of the Philippines (DBP).
 The proposal includes 9 phases. The Board of Directors of IHC approved phases 1 to 6. They also earmarked
2 Million pesos for the project. IHC applied for a foreign load guaranty with DBP, which was approved
subject to conditions.
 Joaquin asked for the payment of his fees for the services amounting to 500,000, which is beyond the
technical proposal. Joaquin suggested that he is amenable to receive shares of stock in lieu of cash payment,
which was granted to Joaquin and Suarez.
 Joaquin pursued negotiations for obtaining a loan. He narrowed the financiers to Roger Dunn & Company
(Roger) and Materials Handling Corporation (MHC). This recommendation was accepted. Negotiations
ensued with MHC with its principal, Barnes International (Barnes). However, during the negotiation Joaquin
and the Executive Director of IHC met Weston International Corporation to explore possible financing.
 When Barnes did not deliver the needed loan, IHC informed DBP that it will submit Weston for consideration
but resulted to cancellation of DBP’s guaranty.
 IHC finally entered into an agreement with Weston International Corporation and communicated it with the
DBP. The bank denied that application for guaranty for failure to comply with certain conditions. Due to that
failure to secure loan, the IHC through its president cancelled that shares of stocks previously issued to
Joaquin and Suarez.
 Joaquin and Suarez filed a case for specific performance and annulment, damages and injunction with the
Regional Trial Court (RTC). RTC held IHC liable to Joaquin and Suarez but it was also found by the RTC
that Joaquin and Suarez failed to meet their obligation and the cancellation of stocks is proper.
 Both appealed with the Court of Appeals (CA), CA concurred with the RTC upholding liability of IHC under
Article 1186 and ruled that Joaquin had substantially performed his obligation and become entitled to his
services under Article 1234.
 Hence, this case.

 IHC arguments:
o that because the obligation was indivisible and subject to a suspensive condition, Article 1181 of
the Civil Code27 applied, under which a partial performance was equivalent to nonperformance; and
that the award of attorney’s fees should be deleted for lack of legal and factual bases.
 Joaquin and Suarez contention:
o that the obligation was divisible and capable of partial performance

ISSUE:

Whether or not the obligation is indivisible which makes the partial performance equivalent to
nonperformance or divisible which is susceptible to the application of substantial performance.

HELD:
 The contract is silent on constructive fulfillment of obligation.

 On substantial Compliance.
o It is well to note that Article 1234 applies only when an obligor admits breaching the contract after
honestly and faithfully performing all the material elements thereof except for some technical
aspects that cause no serious harm to the obligee. IHC correctly submits that the provision refers to
an omission or deviation that is slight, or technical and unimportant, and does not affect the real
purpose of the contract.
 It is notable that the confusion on the amounts of compensation arose from the parties’ inability to agree on
the fees that respondents should receive. Considering the absence of an agreement, and in view of
respondents’ constructive fulfillment of their obligation, the Court has to apply the principle of quantum
meruit in determining how much was still due and owing to respondents. Under the principle of quantum
meruit, a contractor is allowed to recover the reasonable value of the services rendered despite the lack of a
written contract. The measure of recovery under the principle should relate to the reasonable value of the
services performed. The principle prevents undue enrichment based on the equitable postulate that it is unjust
for a person to retain any benefit without paying for it. Being predicated on equity, the principle should only
be applied if no express contract was entered into, and no specific statutory provision was applicable.

FILINVEST LAND VS COURT OF APPEALS

G.R. 138980 SEPTEMBER 20, 2005
TOPIC: Article 1226 Obligations with a Penal Clause

FACTS:

On 26 April 1978, Filinvest land awarded to PACIFIC the development of its residential subdivisions
consisting of two parcels of lands, subject to terms and conditions in an agreement. To guarantee its compliance to the
agreement, PACIFIC posted two surety bonds in favor of Filinvest which were issued by Philippine American General
Insurance (PHILMAGEN).

However after 3 extensions granted by Filinvest, PACIFIC failed to finish the contracted works. Filinvest
told PACIFIC that they will take over the project and hold them liable for damages. Filinvest submitted its claim
against PHILMAGEN under its performance and guarantee bond but PHILMAGEN refused to acknowledge liability,
for that the principal, PACIFIC, refused liability.

PACIFIC claims that its failure to finish work was due to the inclement weather and change order which
plaintiff refused to accept and pay for caused the disruption of work. Since the contractual relation between Filinvest
and PACIFIC created a reciprocal obligation, the failure of FILINVEST to pay its progressing bills estops it from
demanding fulfilment of what is incumbent upon PACIFIC. And that the extensions granted was a waiver to claim
any damages for the delay. It was a unilateral and voluntary action of Filinvest in preventing PACIFIC from
completing the work has relieved PACIFIC from the obligation.

PHILMAGEN contends that various amendments on the principal contract and the deviations in the
implementation were resorted by Filinvest and PACIFIC without PHILMAGENS written consent, have automatically
released them from any or all liability covered by the surety bonds issued.

An ocular inspection was appointed by the judge. The said court commissioner made basis that the work
done or undone could be made other than the contract billings and payments made by both parties at there was no
proper procedure followed in terminating the contract, lack of inventory of work accomplished, absence of appropriate
record of work progress and inadequate documentation and system of construction management. There was a clear
extension and PACIFIC will pay the penalty. However, the penalty (P 15, 000.00 per day amounted to P3,990,000.00)
seems to be excessive and held that a forfeiture of the amount due to Pacific from Filinvest is a reasonable penalty
considering the amount of work already performed by Pacific. The trial court dismissed Filinvests complaint. The CA
upheld the same.
ISSUE:

Whether or Not the liquidated damages agreed upon by the parties should be reduced considering that the
liquidated damages was fixed by the parties to server not only as penalty in case PACIFIC fails to fulfil its obligation
on time, but also as indemnity for actual and anticipated damages which Filinvest may suffer by reason of such failure

HELD:

Yes. There is no question that the penalty of P15,000.00 per day of delay was mutually agreed upon by the
parties and that the same is sanctioned by law. A penal clause is an accessory undertaking to assume greater liability
in case of breach.

It is attached to an obligation in order to insure performance and has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in
the event of breach. Article 1226 of the Civil Code states:

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, 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.

As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms and
conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public
policy.[13] Nevertheless, courts may equitably reduce a stipulated penalty in the contract in two instances: (1) if the
principal obligation has been partly or irregularly complied; and (2) even if there has been no compliance if the penalty
is iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which provides:

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.

In herein case, the trial court ruled that the penalty charge for delay pegged at P15,000.00 per day of delay
in the aggregate amount of P3,990,000.00 -- was excessive and accordingly reduced it to P1,881,867.66 considering
the amount of work already performed and the fact that Filinvest consented to three (3) prior extensions. As it is settled
that the project was already 94.53% complete and that Filinvest did agree to extend the period for completion of the
project, which extensions Filinvest included in computing the amount of the penalty, the reduction thereof is clearly
warranted.

In cases where there has been partial or irregular compliance, as in this case, there will be no substantial
difference between a penalty and liquidated damages insofar as legal results are concerned. The distinction is thus
more apparent than real especially in the light of certain provisions of the Civil Code of the Philippines which provides
in Articles 2226 and Article 2227. There is no justification for the Civil Code to make an apparent distinction between
a penalty and liquidated damages because the settled rule is that there is no difference between penalty and liquidated
damages insofar as legal results are concerned and that either may be recovered without the necessity of proving actual
damages and both may be reduced when proper.
 FLORENTINO VS. SUPERVALUE, INC.
G.R. No. 172384 September 12, 2007
Topic: Obligations with a penal clause

FACTS:
Florentino is the sole proprietor of Empanada Royale, while the respondent is a corporation which leases
stalls and commercial store spaces in SM. Both parties executed 3 contracts to lease cart-type stalls in SM, each with
a term of 4 months renewable upon agreement. When the contracts expired, the parties renewed. A month before the
renewal expires, PET received 2 letters from RESP. One charges them of violating the contract of lease by not opening
on Dec 16 and 26 of 1999, increasing their price without consulting the RESP; and frequently closing early because
of the lack of supply, which violates the terms of the contract. The second letter was to inform the PET that RESP
would not be renewing their contract. The RESP confiscated the equipment and personal belongings of the PET found
in the stall after the contract expired. PET demanded, through a letter, that the RESP release the equipment and
personal belongings and to return the security deposit. A month later, the PET sent another letter demanding the same.
The RESP still refused to comply. PET filed an action for Specific performance, Sum of Money and Damages in the
RTC. PET claims that RESP had always verbally represented that the contract would be renewed, and so the PET
introduced improvements in the store space (200k). PET further avers that RESP refuses to give back the security
deposit, personal belongings and equipment without reason even after repeated demands, PET prays for actual, moral
and exemplary damages plus attorney’s fees. RESP reiterated that PET violated their contract and is also liable for
electricity and water bills and claims that the confiscation of the items was in the exercise of its retaining lien because
PET failed to settle obligations. RTC found for petitioner. CA modified, and found that RESP was justified in
forfeiting the security.

ISSUE:
Whether or not petitioner is entitled to get back her security deposit.

HELD:
Yes, but only half.. Courts may reduce penalty in two instances (1) if the principal obligation has been partly
or irregularly complied with and even if there has been no compliance if the penalty is iniquitous or unconscionable.
The forfeiture of the security deposit, in this case, is excessive since the breaches were not of such degree that the
respondent was unduly prejudiced. RESP should reimburse half of the deposit. It has been a practice that lessees
improve the leased spaces, no misrepresentation from the lessor induced the lessee from doing as such. To be entitled
to reimbursement for improvements, Art. 1678 should be read together with 448 and 546, the PET must be considered
a builder of good faith.
 MAKATI DEVELOPMENT CORPORATION, plaintiff-appellant, vs.
EMPIRE INSURANCE CO., defendant-appellee
G.R. No. L-21780 June 30, 1967
Topic: Obligations with a penal clause

FACTS:
On March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a lot, with an area of
1,589 square meters, in Makati, Rizal, for P55,615.

A so-called "special condition" contained in the deed of sale provides that "the VENDEES shall commence
the construction and complete at least 50% of [their] residence on the property within two (2) years to the satisfaction
of the VENDOR and, in the event of [their] failure to do so, the bond which the VENDEES has delivered to the
VENDOR will be forfeited in favor of the VENDOR by the mere fact of failure of the VENDEES to comply with this
special condition." To insure faithful compliance with this "condition," Andal gave a surety bond wherein he, as
principal, and the Empire Insurance Company, as surety, jointly and severally, undertook to pay the Makati
Development Corporation the sum of P12,000 in case Andal failed to comply with his obligation under the deed of
sale.

Andal did not build his house; instead he sold the lot to Juan Carlos. As neither Andal nor Juan Carlos built
a house on the lot within the stipulated period, the Makati Development Corporation, sent a notice of claim to the
Empire Insurance Co. advising it of Andal's failure to comply with his undertaking. Demand for the payment of
P12,000 was refused, whereupon the Makati Development Corporation filed a complaint in the Court of First Instance
of Rizal against the Empire Insurance Co. to recover on the bond in the full amount. Andal alleged that the "special
condition" in the deed of sale was contrary to law, morals and public policy.
The lower court rendered judgment, sentencing the Empire Insurance Co. to pay the Makati Development Corporation;
but reduced the liability for breach because there was “only really a little delay.”

ISSUE:
Whether or not the trial court may reduce the penalty despite the penal clause.

HELD:
Yes. While it is true that in obligations with a penal sanction the penalty takes the place of "damages and the
payment of interest in case of non-compliance" and that the obligee is entitled to recover upon the breach of the
obligation without the need of proving damages, it is nonetheless true that in certain instances a mitigation of the
obligor's liability is allowed.
The trial court found that Juan Carlos had finished more than 50 per cent of his house by April, 1961, or barely a
month after the expiration on March 31, 1961 of the stipulated period. There was therefore a partial performance of
the obligation within the meaning and intendment of article 1229 of the Civil Code.
 COUNTRY BANKERS INSURANCE CORP. AND ENRIQUE SY V CA AND OSCAR VENTANILLA
ENT. CORP.
G.R. No. 85161 September 9, 1991
Topic: Obligation with a Penal Clause

FACTS:
Respondent OVEC, as lessor, and the petitioner Sy, as lessee, entered into a lease agreement over the Avenue,
Broadway and Capitol Theaters and the land on which they are situated in Cabanatuan City. The term of the lease was
for 6 years commencing from June 13, 1977 and ending June 12, 1983. After more than 2 years of operation of the
Avenue, Broadway and Capitol Theaters, the lessor OVEC made demands for the repossession of the said leased
properties in view of the Sy's arrears in monthly rentals and non-payment of amusement taxes.

On August 8, 1979, OVEC and Sy had a conference and by reason of Sy's request for reconsideration of
OVECs demand for repossession of the 3 theaters, the former was allowed to continue operating the leased premises
upon his conformity to certain conditions imposed by the latter in a supplemental agreement dated August 13, 1979.

In pursuance of their latter agreement, Sy's arrears in rental in the amount of P125, 455.76 was reduced to
P71, 028.91. However, the accrued amusement tax liability of the 3 theaters to the City Government of Cabanatuan
City had accumulated to P84, 000 despite the fact that Sy had been deducting the amount of P4, 000 from his monthly
rental with the obligation to remit the said deductions to the city government. Hence, letters of demand dated January
7, 1980 and February 3, 1980 were sent to Sy demanding payment of the arrears in rentals and amusement tax
delinquency. The latter demand was with warning that OVEC will re-enter and repossess the Avenue, Broadway and
Capital Theaters on February 11, 1980 in pursuance of the pertinent provisions of their lease contract and their
supplemental letter-agreement. But notwithstanding the said demands and warnings SY failed to pay the above-
mentioned amounts in full Consequently, OVEC padlocked the gates of the three theaters under lease and took
possession thereof in the morning of February 11, 1980 by posting its men around the premises of the Id movie houses
and preventing the lessee's employees from entering the same.
Sy filed the present action for reformation of the lease agreement, damages and injunction late in the afternoon of the
same day. And by virtue of a restraining order dated February 12, 1980 followed by an order directing the issuance of
a writ of preliminary injunction issued in said case, Sy regained possession and operation of the Avenue, Broadway
and Capital theaters.

ISSUE:
Whether or not respondent is unjustly enriched or benefits at the expense of petitioners.

HELD:
No. A provision which calls for the forfeiture of the remaining deposit still in the possession of the lessor,
without prejudice to any other obligation still owing, in the event of the termination or cancellation of the agreement
by reason of the lessee's violation of any of the terms and conditions of the agreement is a penal clause that may be
validly entered into. A penal clause is an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in
the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. As a
general rule, in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment
of interests in case of non-compliance. This is specifically provided for in Article 1226, par. 1, New Civil Code. In
such case, proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded
(Article 1228, New Civil Code). However, there are exceptions to the rule that the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-compliance with the principal obligation. They are
first, when there is a stipulation to the contrary; second, when the obligor is sued for refusal to pay the agreed penalty;
and third, when the obligor is guilty of fraud (Article 1226, par. 1, New Civil Code). It is evident that in all said cases,
the purpose of the penalty is to punish the obligor. Therefore, the obligee can recover from the obligor not only the
penalty but also the damages resulting from the non-fulfillment or defective performance of the principal obligation.