OBLIGATIONS/SOURCES OF OBLIGATIONS

METROPOLITAN BANK AND TRUST COMPANY v. ROSALES

G.R. NO. 183204; JANUARY 13, 2014

FACTS:
Respondent Rosales and her mother opened a Joint Peso
Account with petitioner Metrobank’s Pritil-Tondo Branch.
Respondent accompanied her client Liu Chiu Fang, applying for a
retiree’s visa to petitioner’s branch in Escolta to open a savings
account. She then opened with petitioner a Joint Dollar Account.
On July 31, 2003, petitioner issued a ―Hold Out‖ order against
respondent’s accounts. This was on the account that Petitioner had
filed a case for Estafa through False Pretenses and Use of Falsified
Documents because respondents allegedly were the ones responsible
for the fraudulent withdrawal of a sum of money from Liu Chiu
Fang’s dollar account.
Respondent denied taking part in the withdrawal as she did not
go to the bank on that day. The Office of the City Prosecutor issued
a Resolution dismissing the criminal case for lack of probable cause,
but it was later reversed, thus an Information for Estafa was then
filed.
On September 10, 2004, respondents filed a complaint for
Breach of Contract with Damages against petitioner alleging that
they attempted several times to withdraw their deposits but were
unable to because petitioner had placed their accounts under “Hold
Out” status without any explanation given.

ISSUE:
Was there a breach of contract by Metrobank?

HELD:
Yes. The “Hold Out” clause applies only if there is a valid and
existing obligation arising from any source of obligation enumerated
in Article 1157 of the Civil Code.
In this case, petitioner failed to show that the respondents have
an obligation to it under any law, contract, quasi-contract, delict, or
quasi-delict. Although a criminal case was filed by petitioner against
respondent, the Court ruled that it is not an enough reason to issue
―Hold Out‖ order as the case is still pending and no final judgment
of conviction has been rendered yet. Considering that respondent is
not liable under any of the five sources of obligation, there was no
legal basis for petitioner to issue the ―Hold Out‖ order. Thus,
petitioner is guilty of breach of contract when it unjustifiably refused
to release respondent’s deposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.
QUASI-CONTRACT
LOCSIN II v. MEKENI FOOD CORP.
G.R. NO. 192105; DECEMBER 9, 2013

FACTS:
Antonio Locsin is an employee of Mekeni. He is given a
compensation and benefit package where Mekeni offered him a car
plan, under which one-half of the cost of the vehicle is to be paid by
the company and the other half to be deducted from petitioner’s
salary.
To be able to effectively cover his appointed sales territory,
Mekeni furnished petitioner with a used Honda Civic car valued at
P280,000.00, which used to be the service vehicle of petitioner’s
immediate supervisor. He then paid for his 50% share through salary
deductions of P5,000.00 each month.
Locsin resigned. A total of P112,500.00 had been deducted from
his monthly salary and applied as part of the employee’s share in the
car plan. In his resignation letter, he made an offer to purchase his
service vehicle by paying the outstanding balance thereon. The
parties negotiated, but could not agree on the terms of the proposed
purchase. He then returned the vehicle to Mekeni.
He made personal and written follow-ups regarding his unpaid
salaries, commissions, benefits, and offer to purchase his service
vehicle. Mekeni replied that the company car plan benefit applied
only to employees who have been with the company for five years; for
this reason, the balance that he should pay on his service vehicle
stood at P116,380.00 if he opts to purchase the same.

ISSUE:
Is Antonio entitled to a refund of all the amounts he paid to the
cost of the service vehicle?

HELD:
Yes. It is unfair to deny Antonio a refund of all his contributions
to the car plan. Article 2142 of the Civil Code clarifies that there are
certain lawful, voluntary and unilateral acts which give rise to the
juridical relation of quasi-contract, to the end that no one shall be
unjustly enriched or benefited at the expense of another. In the
absence of specific terms and conditions governing the car plan
arrangement between the petitioner and Mekeni, a quasi-contractual
relation was created between them.
Consequently, Mekeni may not enrich itself by charging
petitioner for the use of its vehicle which is otherwise absolutely
necessary to the full and effective promotion of its business. It may
not, under the claim that petitioner‘s payments constitute rents for
the use of the company vehicle, refuse to refund what petitioner had
paid, for the reasons that the car plan did not carry such a condition;
the subject vehicle is an old car that is substantially, if not fully,
depreciated; the car plan arrangement benefited Mekeni for the most
part; and any personal benefit obtained by petitioner from using the
vehicle was merely incidental.
 METROPOLITAN BANK & TRUST ABSOLUTE MANAGEMENT
CORP.
G.R. NO. 170498. JANUARY 9, 2013

FACTS:
Metrobank deposited the AMC checks to Ayala Lumber and
Hardware’s account; because of Chua’s control over AMC’s
operations, Metrobank assumed that the checks payable to AMC
could be deposited to Ayala Lumber and Hardware’s account. Ayala
Lumber and Hardware had no right to demand and receive the
checks that were deposited to its account; despite Chua’s control over
AMC and Ayala Lumber and Hardware, the two entities are distinct,
and checks exclusively and expressly payable to one cannot be
deposited in the account of the other.
In its fourth-party complaint, Metrobank claims that Chua’s
estate should reimburse it if it becomes liable on the checks that it
deposited to Ayala Lumber and Hardware’s account.

ISSUE:
Whether or not Ayala Lumber must return the amount of said
checks to Metrobank.

HELD:
Yes. Metrobank acted in a manner akin to a mistake when it
deposited the AMC checks to Ayala Lumber and Hardware’s account
because it assumed that the checks payable to AMC could be
deposited to Ayala Lumber and Hardware’s account. This disjunct
created an obligation on the part of Ayala Lumber and Hardware,
through its sole proprietor, Chua, to return the amount of these
checks to Metrobank.
This fulfills the requisites of solutio indebiti. Metrobank’s
fourth-party complaint falls under the quasi-contracts enunciated in
Article 2154 of the Civil Code. Article 2154 embodies the concept
"solutio indebiti" which arises when something is delivered through
mistake to a person who has no right to demand it. It obligates the
latter to return what has `been received through mistake. Solutio
indebiti, as defined in Article 2154 of the Civil Code, has two
indispensable requisites: first, that something has been unduly
delivered through mistake; and second, that something was received
when there was no right to demand it.
 GONZALO v. TARNATE, JR.
G.R. NO. 160600; JANUARY 15, 2014

FACTS:
After the DPWH had awarded on July 22, 1997 the contract for
the improvement of the Sadsadan-Maba-ay Section of the Mountain
Province-Benguet Road to his company, Gonzalo Construction,
subcontracted to respondent Tarnate on October 15, 1997, the
supply of materials and labor for the project under the latter’s
business known as JNT Aggregates. Their agreement stipulated,
among others, that Tarnate would pay to Gonzalo eight percent and
four percent of the contract price, respectively, upon Tarnate‘s first
and second billing in the project.
In furtherance of their agreement, Gonzalo executed on April 6,
1999 a deed of assignment whereby he, as the contractor, was
assigning to Tarnate an amount equivalent to 10% of the total
collection from the DPWH for the project. This 10% retention fee was
the rent for Tarnate‘s equipment that had been utilized in the project.
In the deed of assignment, Gonzalo further authorized Tarnate to use
the official receipt of Gonzalo Construction in the processing of the
documents relative to the collection of the 10% retention fee and in
encashing the check to be issued by the DPWH for that purpose.
The deed of assignment was submitted to the DPWH on April
15, 1999. During the processing of the documents for the retention
fee, Tarnate learned that Gonzalo had unilaterally rescinded the deed
of assignment by means of an affidavit of cancellation of deed of
assignment dated April 19, 1999 filed in the DPWH on April 22, 1999;
and that the disbursement voucher for the 10% retention fee had
then been issued in the name of Gonzalo, and the retention fee
released to him.

ISSUE:
Can Tarnate recover his retention fee despite that he is in pare
delicto with the other party?

HELD:
Yes. The subcontract agreement and deed of assignment
between Gonzalo and Tarnate are void for being contrary to law.
However, even though both parties are in pare delicto the Court
allowed Tarnate to recover his retention fee, as an exception, due to
unjust enrichment. Here both parties are at fault. According to Article
1412 (1) of the Civil Code, the guilty parties to an illegal contract
cannot recover from one another and are not entitled to an affirmative
relief because they are in pari delicto or in equal fault. The doctrine
of in pari delicto is a universal doctrine that holds that no action
arises, in equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the property
agreed to be sold or delivered, or the money agreed to be paid, or
damages for its violation; and where the parties are in pari delicto,
no affirmative relief of any kind will be given to one against the other.
Nonetheless, the application of the doctrine of in pari delicto is not
always rigid. An accepted exception arises when its application
contravenes well-established public policy.
There is no question that Tarnate provided the equipment, labor
and materials for the project in compliance with his obligations under
the subcontract and the deed of assignment; and that it was Gonzalo
as the contractor who received the payment for his contract with the
DPWH as well as the 10% retention fee that should have been paid
to Tarnate pursuant to the deed of assignment. Considering that
Gonzalo refused despite demands to deliver to Tarnate the stipulated
10% retention fee that would have compensated the latter for the use
of his equipment in the project, Gonzalo would be unjustly enriched
at the expense of Tarnate if the latter was to be barred from
recovering because of the rigid application of the doctrine of in pari
delicto. The prevention of unjust enrichment called for the exception
to apply in Tarnate‘s favor.
 VENZON v. RURAL BANK OF BUENAVISTA, INC.
G.R. NO. 178031; AUGUST 28, 2013

FACTS:
Venzon alleged that she and her late spouse, George F. Venzon,
Sr., obtained a P5,000.00 loan from Rural Bank of Buenavista Inc.,
against a mortgage on their house and lot. She was able to pay
P2,300.00, and left an outstanding balance of only P2,370.00
She offered to pay the said balance in full, but the latter refused
to accept payment, and instead shoved her away from the bank
premises. The bank then foreclosed on the mortgage, and the
property was sold at auction for P6,472.76, the Rural Bank of
Buenavista being the highest bidder. She then paid the latter P6,000
which was then accepted by the latter. She questioned that the
amount of 6,000 was erroneously paid to the bank and prayed that
the same be returned to her. The bank said otherwise, saying that it
is entitled to such amount.

ISSUE:
Should the bank return the 6000 to Venzon?

HELD:
Yes. Since the bank was not entitled to receive the said amount,
as it is deemed fully paid from the foreclosure of petitioner‘s property
since its bid price at the auction sale covered all that petitioner owed
it by way of principal, interest, attorney‘s fees and charges, it must
return the same to petitioner. "If something is received when there is
no right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises.
Moreover, pursuant to Circular No. 799, series of 2013 of the
Bangko Sentral ng Pilipinas which took effect July 1, 2013, the
amount of ₱6,000.00 shall earn interest at the rate of 6% per annum
computed from the filing of the Petition in Civil Case No. 5535 up to
its full satisfaction.
 BANK OF THE PHILIPPINE ISLANDS V. MENDOZA
G.R. NO. 198799; MARCH 20, 2017

FACTS:
On April 8, 1997, Amado and Maria Mendoza (respondents) (a)
opened a foreign currency savings (US savings account) at BPI-Gapan
Branch and deposited therein the total amount of US$ 16,264.00, in
US Treasury Check payable to "Ma. Marcos Vda. de Mendoza"
(subject check); and (b) placed the amount of US$2,000.00 in a time
deposit account. After the lapse of the thirty (30) day clearing period
on May 9 and 13, 1997, respondents withdrew the amount of
US$16,244.00 from the US savings account, leaving only US$20.00
for bank charges.
On June 26, 1997, BPI received a notice from its correspondent
bank, Bankers Trust Company New York (Bankers Trust), that the
subject check was dishonored due to "amount altered", as evidenced
by (1) an electronic mail (e-mail) advice from Bankers Trust, and (2)
a photocopy of the subject check with a notation "endorsement
cancelled" by Bankers Trust as the original copy of the subject check
was allegedly confiscated by the government of the United States of
America (US government).
This prompted BPI to inform respondents of such dishonor and
to demand reimbursement. BPI then claimed that: (a) on July 18,
1997, respondents allowed BPI to apply the proceeds of their time
deposit account in the amount of US$2,015.00 to their outstanding
obligation; (b) upon the exhaustion of the said time deposit account,
Amado gave BPI a promissory note dated September 8, 1997
containing his promise to pay BPI-Gapan Branch the amount of
P1,000.00 monthly; and (c) when respondents failed to fulfill their
obligation despite repeated demands, BPI was constrained to give a
final demand letter to respondents on November 27, 1997.

ISSUE:
Should the respondents return the money to BPI?

HELD:
BPI's payment of the proceeds of the subject check was due to
a mistaken notion that such check was cleared, when in fact, it was
dishonored due to an alteration in the amount indicated therein.
Such payment on the part of BPI to respondents was clearly made by
mistake, giving rise to the quasi-contractual obligation of solutio
indebiti under Article 215446 in relation to Article 216347 of the Civil
Code.
Not being a loan or forbearance of money, an interest of six
percent (6%) per annum should be imposed on the amount to be
refunded and on the damages and attorney's fees awarded, if any,
computed from the time of demand until its satisfaction.
Consequently, respondents must return to BPI the aforesaid amount,
with legal interest at the rate of six percent (6%) per annum from the
date of extrajudicial demand - or on June 27, 1997, the date when
BPI informed respondents of the dishonor of the subject check and
demanded the return of its proceeds - until fully paid.
NATURE AND EFFECT OF OBLIGATIONS/REMEDY
SWIRE REALTY DEVELOPMENT CORP. v. SPECIALTY
CONTRACTS GENERAL AND CONSTRUCTION SERVICES, INC.
G.R. NO. 188027; AUGUST 9, 2017

FACTS:
The controversy arose from a Complaint for Sum of Money and
Damages filed by Swire Realty Development Corporation against
Specialty Contracts General and Construction Services, Inc.,
represented by its President and General Manager Jose Javellana, Jr.
The Complaint alleges breach of an Agreement to Undertake
Waterproofing Works (the Agreement) entered into by the parties.
Because of this, the respondents undertook to perform waterproofing
works on the petitioner's condominium project known as the Garden
View Tower for the amount of Php 2,000,000.00 over a period of 100
calendar days from the execution of the Agreement or until April 6,
1997.
The amount agreed upon is to be paid to the respondents as
follows: 20% as down payment, and the balance of 80% payable
through monthly progress billings based on accomplished work,
subject to a 10% retention fee and 1% withholding tax.
The Agreement likewise provided that the parties are liable for
penalty in case of delay in the performance of their respective
obligations and that retention fee shall be released to the respondents
within 90 days from turnover and acceptance by the petitioner of the
completed work. Here, the respondents however failed to finish the
project, having finished only 90 percent of the waterproofing works,
thus the petitioner hired Esicor to finish the work who accomplished
it on April 5, 1998.

ISSUE:
Was there a breach of contract? If any, what should the remedy
be?

HELD:
Yes, there is a clear breach of contract on the part of the
respondents when they failed to fully comply with their obligation
under the contract, having accomplished only 90% of the
waterproofing works within the time agreed upon, and failing to
perform the necessary repairs, they are liable for damages and are
bound to refund the excess in payment made by the petitioner.
Likewise, the respondents are liable for the costs incurred by
the petitioner in hiring the services of Esicor to complete their
unfinished work, amounting to Php 124,931.40, in consonance with
Article 1167 of the New Civil Code, which provides:
 Article 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.
The respondents are obligated under the Agreement to complete
the waterproofing works on April 6, 1997, but failed. The remaining
work to be done had to be performed by Esicor, who accomplished
the same on April 5, 1998.
In light of these, the respondents are then liable for delay for a
period of 365 days, which corresponds to the amount of Php
3,650,000.00 as penalty under the Agreement, taking into
consideration that the respondents have completed 90% of the
project and the absence of any showing of bad faith on their part, as
well as the fact that the waterproofing works have already been
completed at the respondents' expense, the amount of Php
3,650,000.00 as penalty is exorbitant under the premises. Therefore,
the Court reduces the same and imposes the amount of Php
200,000.00 as liquidated damages, by way of penalty.
DELAY
BONROSTRO v. LUNA
G.R. NO.172346; JULY 24, 2013

FACTS:
Constancia Luna entered into a contract to sell with Bliss
Development Corporation involving a house located in Quezon City.
A year after, Luna sold it to Lourdes Bonrostro under the following
terms:

The stipulated price of P1,250,000.00 shall be paid by the

VENDEE to the VENDOR in the following manner:
(a) P200,000.00 upon signing x x x [the] Contract To Sell,
(b) P300,000.00 payable on or before April 30, 1993,
(c) P330,000.00 payable on or before July 31, 1993,
(d) P417,000.00 payable to the New Capitol Estate, for 15 years
at [P6,867.12] a month,
x x x [I]n the event the VENDEE fails to pay the second
installment on time, [t]he VENDEE will pay starting May 1, 1993 a
2% interest on the P300,000.00 monthly. Likewise, in the event the
VENDEE fails to pay the amount of P630,000.00 on the stipulated
time, this CONTRACT TO SELL shall likewise be deemed cancelled
and rescinded and x x x 5% of the total contract price [of]
P1,250,000.00 shall be deemed forfeited in favor of the VENDOR.
Unpaid monthly amortization shall likewise be deducted from the
initial down payment in favor of the VENDOR.

After execution of the contract, Bonrostro took possession of the

property.

ISSUE:
Whether or not delay in the payment of installment is a
substantial breach of obligation as to warrant its rescission.

HELD:
No. In a contract to sell, payment of the price is a positive
suspensive condition. Failure of which is not a breach of contract
warranting rescission under Article 1191 of the Civil Code, but rather
just an event that prevents the supposed seller from being bound to
convey title to the supposed buyer. The contract to sell entered by
the parties refers to real property on installment basis, in which Art.
1191 cannot apply since they are governed by the Maceda Law.
However, there being no breach, Bonrostro is still not excused
from being made liable for interest on the installments due from the
date of default until fully paid. Tender of payment, a manifestation
by the debtor of a desire to comply with or pay an obligation, asserted
by Bonrostro for the accrual of interest to be suspended is not a valid
defense because for a tender of payment to take effect it must be
accompanied by the means of payment and debtor must take
immediate step to make a consignation, the deposit of the proper
amount with a judicial authority, then interest is suspended from the
time of such tender.
 DEVELOPMENT BANK OF THE PHILIPPINES v. GUARIÑA
AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION
G.R. NO. 160758; JANUARY 15, 2014

FACTS:
On July 1976, Guariña Corporation applied for a loan from DBP
to finance the development of its resort complex situated in Trapiche,
Oton, Iloilo. The loan, in the amount of P3,387,000.00, was approved
on August 5, 1976. 2. Guariña Corporation executed a promissory
note that would be due on November 3, 1988.
On May 17, 1977, Guariña Corporation executed a chattel
mortgage over the personal properties existing at the resort complex
and those yet to be acquired out of the proceeds of the loan, also to
secure the performance of the obligation. The loan was released in
several installments, and Guariña Corporation used the proceeds to
defray the cost of additional improvements in the resort complex. In
all, the amount released in a total of P3,003,617.49, from which DBP
withheld P148,102.98 as interest.
Guariña Corporation demanded the release of the balance of the
loan, but DBP refused. DBP found upon inspection of the resort
project, its developments and improvements that Guariña
Corporation had not completed the construction works, thus DBP
demanded the completion of the project, and warned that it would
initiate foreclosure proceedings should it not do so. For the inaction
of Guariña Corporation, DBP initiated extrajudicial foreclosure
proceedings.8. Guariña Corporation sued DBP demanding specific
performance of the latter’s obligation under the loan agreement and
to stop the foreclosure proceedings.

ISSUE:
Is there delay?

HELD:
No. The agreement between DBP and Guariña Corporation was
a loan. Loan is a reciprocal obligation, as it arises from the same
cause where one party is the creditor, and the other the debtor. The
obligation of one party in a reciprocal obligation is dependent upon
the obligation of the other, and the performance should ideally be
simultaneous. This means that in a loan, the creditor should release
the full loan amount and the debtor repays it when it becomes due
and demandable.
It was never established that Guariña Corporation was already
in default. In the telegram, DBP merely reminded the latter to make
good on its construction works otherwise it would foreclose the
mortgage it executed. There was no demand for payment of the
promissory note. The properties which stood as security for the loan
were foreclosed without any demand having been made on the
principal obligation. For an obligation to become due, there must
generally be a demand. Default generally begins from the moment the
creditor demands the performance of the obligation. Without such
demand, judicial or extrajudicial, the effects of default will not arise.
Thus, the fact that Guariña Corporation was not yet in default
rendered the foreclosure proceedings premature and improper.
 MAYBANK PHILIPPINES, INC. v. TARROSA
G.R. NO. 213014; OCTOBER 14, 2015

FACTS:
Tarrosa obtained a loan in the amount of P91,000.00 from
Maybank, secured by Real Estate Mortgage. After paying said loan,
they obtained another loan from Maybank in the amount of
P60,000.00 payable on March 11, 1984. They failed to settle the
second loan upon maturity. Sometime in April 1998, a final demand
letter was received by the spouses requiring them to settle their
outstanding loan. They offered to pay to a lesser amount, which
Maybank refused. On June 25, 1998, Maybank commenced
extrajudicial foreclosure proceedings. The property was sold in a
public auction to Philmay Property, Inc. the highest bidder. The
spouses filed a complaint for declaration of nullity and invalidity of
the foreclosure on the ground that the loan was unsecured, thus
there can be no foreclosure.

ISSUE:
Was the right to foreclose the REM barred by prescription?

HELD:
Yes. An action to enforce a right arising from a mortgage should
be enforced within ten (10) years from the time the right of action
accrues, i.e., when the mortgagor defaults in the payment of his
obligation to the mortgagee; otherwise, it will be barred by
prescription and the mortgagee will lose his rights under the
mortgage. However, mere delinquency in payment does not
necessarily mean delay in the legal concept. To be in default is
different from mere delay in the grammatical sense, because it
involves the beginning of a special condition or status which has its
own peculiar effects or results.
In order that the debtor may be in default, it is necessary that:
(a) the obligation be demandable and already liquidated; (b) the
debtor delays performance; and (c) the creditor requires the
performance judicially or extrajudicially, unless demand is not
necessary - i.e., when there is an express stipulation to that effect;
where the law so provides; when the period is the controlling motive
or the principal inducement for the creation of the obligation; and
where demand would be useless.
Moreover, it is not sufficient that the law or obligation fixes a
date for performance; it must further state expressly that after the
period lapses, default will commence. Thus, it is only when demand
to pay is unnecessary in case of the aforementioned circumstances,
or when required, such demand is made and subsequently refused
that the mortgagor can be considered in default and the mortgagee
obtains the right to file an action to collect the debt or foreclose the
mortgage.
 In the absence of showing that demand is unnecessary for the
loan obligation to become due and demandable, Maybank's right to
foreclose the real estate mortgage accrued only after the lapse of the
period indicated in its final demand letter for Sps. Tarrosa to pay, i.e.,
after the lapse of five (5) days from receipt of the final demand letter
dated March 4, 1998.
 RIVERA v. CHUA
G.R. NO. 184458; JANUARY 14, 2015

FACTS:
On February 24, 1995, Rivera obtained a loan from the spouses
Chua for the amount of P120,000. Almost 3years from the date of
payment stipulated in the promissory note, Rivera issued a check in
the amount of P25,000.00. On December 1998, the spouses received
another check issued in the amount of P133,454.00. Upon
presentment for payment, the 2 checks were dishonored for the
reason of ―account closed‖. Repeated demands were made by the
spouses but to no avail, thus they sued Rivera. Rivera claimed forgery
of the subject promissory note and denied his indebtedness
thereunder.
The trial court ruled in favor of the spouses ordering Rivera to
pay them P120,000 plus the stipulated interest of 5% per month from
Jan 1, 1996 and legal interest at the rate 12% per annum from June
11, 1999 as actual and compensatory damages.

ISSUE:
Is there Delay?

HELD:
Yes. The promissory note is unequivocal about the date when
the obligation falls due and becomes demandable -31 December
1995. As of January 1, 1996, Rivera had already incurred in delay
when he failed to pay the amount of P120,000 due to the spouses.
Thus, on that date, Rivera became liable for the stipulated interest
which the promissory note says is equivalent to 5% a month. In sum,
until 31 December 1995, demand was not necessary before Rivera
could be held liable for the principal amount of P120,000. Thereafter,
on 1 January 1996, upon default, Rivera became liable to pay the
spouses damages in the form of stipulated interest. The liability for
damages of those who default, including those who are guilty of
delay, in the performance of their obligations is laid down on Article
1170 of the Civil Code.
 CABANTING v. BPI FAMILY SAVINGS BANK, INC.
G.R. NO. 201927; FEBRUARY 17, 2016

FACTS:
On January 14, 2003, petitioners brought on installment basis
from Diamond Motors Corporation a 2002 Mitsubishi Adventure SS
MT and for value received, petitioners also signed and delivered to
Diamond Motors a promissory note with chattel mortgage. On the
day of execution of the document, Diamond Motors executed a Deed
of Assignment to BPI Family all its rights and interests to the
promissory note. On October16, 2003, a complaint for replevin was
filed by BPI against the petitioners and alleged that the latter failed
to pay 3 consecutive installments, and despite demand, they failed to
pay or surrender possession of the vehicle to BPI. In their Answer,
petitioners alleged that they sold the subject vehicle to one Victor S.
Abalos, with the agreement that the latter shall assume the obligation
to pay the monthly installments.
The trial court ruled in favor of BPI, ordering the petitioners to
pay P742,022.92 with interest at the rate of 24% per annum from the
filing of the complaint until full satisfaction. On appeal, the Court of
Appeals modified the interest at 12% per annum from the filing of the
complaint until its full satisfaction.

ISSUE:
Should BPI be paid of the value due and damages even in the
absence of prior demand?

HELD:
Yes. No prior demand was necessary to make petitioner’s
obligation due and payable. The promissory note with chattel
mortgage clearly stipulated that:

“In case of my failure to pay when due and payable, any sum
which I owe to the holder of this note xxx then the entre sum
outstanding under this note shall be immediately become due and
payable without the necessity of notice or demand which I hereby
waive.”

Article 1169 (1) of the Civil Code allows a party to waive the need
for notice and demand. Petitioner’s argument that their liability
cannot be deemed due and payable for lack of proof of demand must
be struck down.
FEDERAL BUILDERS, INC. v. FOUNDATION SPECIALISTS, INC.
G.R. NO. 194507; SEPTEMBER 8, 2014

FACTS:
Federal Builders entered into an agreement with Foundation
Specialists, Inc. whereby the latter, as sub-contractor, undertook the
construction of the diaphragm wall and guide walls of the Trafalgar
Plaza. Under the agreement, Federal Builders was to pay a down
payment equivalent to 20% of the contract price and the balance
through a progress billing every 15days, payable not later than 1week
from presentation of the billing. On January 9, 1992, Foundation
Specialists filed a complaint for sum of money seeking to collect
P1,635,278.91 representing Billings No. 3 and 4 with accrued
interest from August 1, 1991. It alleged that Federal Builders refused
to pay said amount despite demand and its completion of 97% of the
contracted works.
The trial court held that Federal Builders is liable to pay
P1,024,600 representing the billings 3 and 4, plus 12% legal interest
from August 30, 1991.

ISSUE:
Should the legal rate of 12 percent be applied in this case?

HELD:
No. 12% interest rate is inapplicable since the case does not
involve a loan or forbearance of money. Forbearance of money, goods
or credits refers to the arrangements other than loan agreements
where a person acquiesces to the temporary use of his money, goods
and credits pending the happening of certain events or fulfillment of
certain conditions. Consequently, if those conditions are breached,
said person is entitled not only to the return of the principal amount
paid, but also to compensation for the use of his money which would
be the same rate of legal interest applicable to a loan. The case does
not involve an acquiescence to the temporary use of a party’s money
but a performance of a particular service specifically the construction
of the diaphragm wall and guide walls of the Trafalgar Plaza.
Thus, in the absence of any stipulation as to interest in the
agreement between the parties herein, the matter of interest award
arising from the dispute in this case would actually fall under the
second paragraph of the guidelines in the landmark case of Eastern
Shipping Lines, which necessitates the imposition of interest at the
rate of 6%, instead of the 12% imposed by the courts below. The 6%
interest rate shall further be imposed from the finality of the
judgment herein until satisfaction thereof, in light of the case Nacar
vs. Gallery Frames. Hence, Federal Builders is ordered to pay
Foundation Specialists the sum of P1,024,600.00 representing
billings 3 and 4, plus interest at 6% per annum reckoned from
August 30,1991 until full payment thereof.
 ERMA INDUSTRIES, INC. v. SECURITY BANK CORP.
G.R. NO. 191274; DECEMBER 6, 2017

FACTS:
The case emanated from a debt contracted by Erma Industries,
Inc, from Security Bank which became due and demandable. The
loan covered several peso and dollar accounts which are covered by
a promissory note. The agreement includes interests and penalties in
case of failure to pay and delay in payment.
When these debts became due, a letter was sent by the Security
Bank. In said letter, the bank demanded payment, from Erma and
the sureties of Erma's outstanding peso and dollar obligations.
Despite this, still Erma failed to pay. Thereafter Security Bank filed
a Complaint with the Regional Trial Court of Makati City, for payment
of Erma's outstanding loan obligation plus interest and penalties.
With this, Security Bank wanted to get the balance plus the
stipulated interest, legal interest, as well as the penalty interest of 2
percent per month.
The lower court ordered Erma to pay Security Bank the
amounts of P17, 995,214.47 and US$289,730.10, inclusive of the
stipulated interest and penalty as of October 31, 1994, plus legal
interest of 12% per annum from November 1, 1994 until full payment
is made. However, because of justice and equity, the court found that
it was so iniquitous to still require Erma to pay 2% penalty per month
and legal interest on accrued interest after October 1994 because of
Given Erma's partial payments of its loan obligation, and the serious
slump suffered by its export business.
Erma however, argues that the stipulated interests and penalty
charges are excessive and iniquitous, hinging the same on the
decision of the trial courts. Being such, the amounts of P17,
995,214.47 and US$289,730 should have been reduced to the actual
unpaid principals of P12,957,500.00 and US$209,941.55. (which
already incorporated the interests and penalty charges) should have
been reduced to the actual unpaid principals of P12,957,500.00 and
US$209,941.55, respectively, devoid of any interests and penalty
charge.

ISSUE:
Is Erma liable for the payment of penalty interest for the delay
in the payment of its obligation?

HELD:
Yes. Erma is still liable to pay the penalty interest for the delay
she committed. The promissory notes provide for monthly
compounding of interest: "Interest not paid when due shall be
compounded monthly from due date." Compounding is sanctioned
under Article 1959 of the Civil Code:
 Article 1959. Without prejudice to the provisions of Article
2212, interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest. What the
trial court did was to stop the continued accrual of the 2% monthly
penalty charges on October 31, 1994, and to thereafter impose
instead a straight 12% per annum on the total outstanding amounts
due.
In making this ruling, the Regional Trial Court took into account
the partial payments made by petitioners, their efforts to
settle/restructure their loan obligations and the serious slump in
their export business in 1993. The Regional Trial Court held that,
under those circumstances, it would be "iniquitous, and tantamount
to merciless forfeiture of property if the interests and penalty charges
would be continually imposed.
As such, the Regional Trial Court did not delete altogether the
2% monthly penalty charges and stipulated interests of 7.5% (on the
dollar obligations) and 20% (on peso obligations). The trial court, in
fact, adjudged petitioner Erma liable to pay the amounts of
P17,995,214.47 and US$289,730.10, inclusive of the stipulated
interest and penalty as of October 31, 1994, on the basis of Article
1308 of the Civil Code and jurisprudential pronouncements on the
obligatory force of contracts - not otherwise contrary to law, morals,
good customs or public policy - between contracting parties.
 ONG v. BPI FAMILY SAVINGS BANK, INC.
G.R. NO. 208638, JANUARY 24 2018

FACTS:
Spouses Francisco and Betty Ong and Spouses Joseph Ong
Chuan and Esperanza Ong Chuan have a printing business.
To help them in their business expansion, they applied for loan
from Bank of Southeast Asia (BSA). As security, they executed a real
estate mortgage over their property situated in Paco, Manila, covering
the P15, 000,000.00 term loan and P5, 000,000.00 credit line or a
total of P20, 000,000.00.
With regard to the term loan, only P10, 444,271.49 was released
by BSA.
With regard to the P5, 000,000.00 credit line, only P3,
000,000.00 was released.
BSA promised to release the remaining P2, 000,000.00
conditioned upon the payment of the P3,000,000.00 initially released
to Ong et.al. They acceded to the condition and paid the P3,
000,000.00 in full. However, BSA still refused to release the P2,
000,000.00. As such Ong et al. then refused to pay the amortizations
due on their term loan.
Later on, BPI Family Savings Bank (BPI) merged with BSA, thus,
acquired all the latter's rights and assumed its obligations. BPI filed
a petition for extrajudicial foreclosure of the Real Estate
Mortgage(REM) because of the default by Ong et. al. in the payment
of their term loan.
In order to enjoin the foreclosure, Ong et.al instituted an action
for damages with Temporary Restraining Order and Preliminary
Injunction against BPI. Whereas BPI denied liability on the basis that
there is no perfected contract between the parties with respect to the
omnibus credit line and that being so, and as such no delay could be
attributed to BPI.

ISSUES:
1. Was there a perfected contract between the parties?
2. Assuming there was a perfected contract, is BPI liable for
damages based on delay?

HELD:
1. Yes. There is a contract between BPI and Ong.et.al. A contract
is perfected upon the meeting of the minds of the two parties. It is
perfected by mere consent, that is, from the moment that there is a
meeting of the offer and acceptance upon the thing and the cause
that constitute the contract. In separate Letters both dated January
31, 1997, BSA approved the term loan and the credit line. Such
approval and subsequent release of the amounts, albeit delayed,
perfected the contract between the parties.
 Loan is a reciprocal obligation, as it arises from the same cause
where one party is the creditor and the other the debtor. This means
that in a loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable. In this
case, BSA did not only incur delay in releasing the pre-agreed credit
line of P5,000,000.00 but likewise violated the terms of its agreement
with petitioners when it deliberately failed to release the amount of
P2,000,000.00 after petitioners complied with their terms and paid
the first P3,000,000.00 in full. 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.”
Further. the surviving or consolidated corporation shall be
responsible and liable for all the liabilities and obligations of each of
the constituent corporations in the same manner as if such surviving
or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action, or proceeding brought by
or against any of such constituent corporations may be prosecuted
by or against the surviving or consolidated corporation. The rights of
creditors or liens upon the property of any of such constituent
corporations shall not be impaired by such merger or consolidation.
Applying the pertinent provisions of the Corporation Code, BPI did
not only acquire all the rights, privileges and assets of BSA but
likewise acquired the liabilities and obligations of the latter as if BPI
itself incurred it.

2. Yes. There was delay by BPI. Since the loan covers a credit
line total of P20, 000,000.00, its refusal to release the balance on the
omnibus line prevented full performance of its obligation. There being
no release of the full loan amount, no default could be attributed to
petitioners. In other words, foreclosure was premature. Because of
the delay, a sum of P2, 772,000.00 as actual or compensatory
damages; P100, 000.00 as exemplary damages; P300, 000.00 as
attorney's fees; and interest of six percent (6%) per annum on all the
amounts of damages reckoned from the finality of the decision shall
be awarded to Ong et.al.
NEGLIGENCE
PHILIPPINE NATIONAL BANK v. SANTOS
G.R. NO. 208295; DECEMBER 10, 2014

FACTS:
In May 1996, Santos et.al discovered that their father
maintained a premium savings account with Philippine National
Bank (PNB), Sta. Elena-Marikina City Branch. They went to PNB to
withdraw their father's deposit. Lina Aguilar, the branch manager of
PNB required them to submit several documents which they
submitted. When they tried to withdraw the deposit, they were
informed that the deposit had been released to a certain Bernardito
Manimbo on April 1, 1997.
As such, they filed a complaint for sum of money and damages
against PNB and the branch manager. They questioned the release
of the deposit amount to Manimbo who had no authority from them
to withdraw their fatherss deposit and who failed to present to PNB
all the requirements for such withdrawal.

ISSUE:
Was there negligence in the part of Philippine National Bank
and Aguilar in releasing the deposit to Benardito Manimbo.

HELD:
Yes. PNB and Aguilar were negligent in handling the deposit of
Angel C. Santos.
The contractual relationship between banks and their
depositors is governed by the Civil Code provisions on simple loan.
Once a person makes a deposit of his money to the bank, he is
considered to have lent the bank a money. The bank becomes his
debtor, and he becomes the creditor of the bank, which is obligated
to pay him on demand.
The default standard of diligence in the performance of
obligations is “diligence of a good father of a family.” However, other
industries are bound by law to observe higher standards of diligence
because of the nature of their businesses. Banking is impressed with
public interest as it affects the economy and plays a significant role
in commerce. The public reposes its faith and confidence upon banks
that is why the Court recognized the fiduciary nature of banks’
functions, and attached a special standard of diligence for the
exercise of their function––extraordinary diligence.
PNB and Aguilar’s treatment of Angel C. Santos’s account is
inconsistent with the high standard of diligence required of banks.
They accepted Manimbo‘s representations despite knowledge of the
existence of circumstances that should have raised doubts on such
representations. They did not doubt why no original death certificate
could be submitted; why Reyme L. Santos would execute an affidavit
of self-adjudication when he, together with others, had previously
asked for the release of said deposit; and they relied on the certificate
of time deposit and Manimbo‘s representation that the passbook was
lost when the passbook had just been previously presented to Aguilar
for updating.
Their negligence is not based on their failure to accept
respondents’ documents as evidence of the right to claim the subject
deposit. Rather, it is based on their failure to exercise the diligence
required of banks when they accepted the fraudulent representations
of Manimbo.
 BJDC CONSTRUCTION v. LANUZO
G.R. NO. 161151; MARCH 24, 2014

FACTS:
This case involves a claim for damages arising from the death
of a motorcycle rider in a nighttime accident due to the supposed
negligence of a construction company then undertaking re–blocking
work on a national highway. The plaintiffs insisted that the accident
happened because the construction company did not provide
adequate lighting on the site, but the latter countered that the fatal
accident was caused by the negligence of the motorcycle rider
himself.
Nena alleged that she was the surviving spouse of the late
Balbino who figured in the accident that transpired at the site of the
re–blocking work at about 6:30 p.m. on October 30, 1997; that
Balbino‘s Honda motorcycle sideswiped the road barricade placed by
the company in the right lane portion of the road, causing him to lose
control of his motorcycle and to crash on the newly cemented road,
resulting in his instant death; and that the company‘s failure to place
illuminated warning signs on the site of the project, especially during
night time, was the proximate cause of the death of Balbino.
In its answer, BJDC denied Nena‘s allegations of negligence,
insisting that it had installed warning signs and lights along the
highway and on the barricades of the project; that at the time of the
incident, the lights were working and switched on; that its project
was duly inspected by the Department of Public Works and Highways
(DPWH), the Office of the Mayor of Pili, and the Pili Municipal Police
Station; and that it was found to have satisfactorily taken measures
to ensure the safety of motorists.

ISSUE:
Whether or not heirs of Balbino were able to establish by
preponderance of evidence the negligence of BJDC.

HELD:
No. The party alleging the negligence of the other as the cause
of injury has the burden to establish the allegation with competent
evidence. If the action based on negligence is civil in nature, the proof
required is preponderance of evidence.
In civil cases, the burden of proof is on the party who would be
defeated if no evidence is given on either side. The burden of proof is
on the plaintiff if the defendant denies the factual allegations of the
complaint in the manner required by the Rules of Court, but it may
rest on the defendant if he admits expressly or impliedly the essential
allegations but raises affirmative defense or defenses, which if
proved, will exculpate him from liability.
The Court affirmed the findings of the RTC, and rules that the
Lanuzo heirs, the parties carrying the burden of proof, did not
establish by preponderance of evidence that the negligence on the
part of the company was the proximate cause of the fatal accident of
Balbino.
During the trial, the Lanuzo heirs attempted to prove
inadequacy of illumination instead of the total omission of
illumination. In contrast, the company credibly refuted the allegation
of inadequate illumination. The Court observes, too, that SPO1
Corporal, a veteran police officer detailed for more than 17 years at
the Pili Police Station, enjoyed the presumption of regularity in the
performance of his official duties. In his report, it was mentioned that
―upon arrival at the scene of the incident it was noted that road
sign/barricade installed on the road has a light.
 BIGNAY EX-IM PHILIPPINES, INC. v. UNION BANK OF THE
PHILIPPINES
G.R. NO. 171590; FEBRUARY 12, 2014

FACTS:
In 1988, Rosario filed against Alfonso and Union Bank, Civil
Case No. Q-52702 for annulment of the 1984 mortgage, claiming that
Alfonso mortgaged the property without her consent, and for
reconveyance. In Letter proposal dated September 6, 1989, Bignay
Ex-Im Philippines, Inc. (Bignay), through its President, Milagros Ong
Siy (Siy), offered to purchase the property.
On December 20, 1989, a Deed of Absolute Sale was executed
by and between Union Bank and Bignay whereby the property was
conveyed to Bignay for P4 million. The deed of sale was executed by
the parties through Bignay’s Siy and Union Bank‘s Senior Vice
President Anthony Robles (Robles). One of the terms of the deed of
sale is quoted below:

“Section 1. The VENDEE hereby recognizes that the Parcel/s of

Land with improvements thereon is acquired through foreclosure
proceedings and agrees to buy the Parcel/s of Land with
improvements thereon in its present state and condition. The
VENDOR therefore does not make any x x x representations or
warranty with respect to the Parcel/s of Land but that it will defend
its title to the Parcel/s of Land with improvements thereon against
the claims of any person whomsoever.”

On December 12, 1991, a Decision was rendered in Civil Case

No. Q-52702 in favor of Alfonso. Union Bank appealed the above
Decision with the CA. It likewise sought a new trial of the case, which
the trial court denied. As Union Bank sought for remedies before the
Supreme Court by way of Petition for Certiorari, the December 12,
1991 Decision in Civil Case No. Q-52702, had in turn effected the
eviction of Bignay from the property; by then, the existing structure
on the lot had been demolished and there begun the construction of
a new building.

ISSUE:
Is there negligence by Union Bank in this case?
HELD:
Yes. Union Bank was grossly negligent in the handling and
prosecution of Civil Case No. Q-52702. Its appeal of the December
12, 1991 Decision in said case was dismissed by the Court of Appeals
for failure to file the required appellant’s brief. Further, the ensuing
Petition for Review on Certiorari filed with this Court was likewise
denied due to late filing and payment of legal fees.
Finally, the bank sought the annulment of the December 12,
1991 judgment, yet again, the CA dismissed the petition for its failure
to comply with Supreme Court Circular No. 28-91. As a result, the
December 12, 1991 Decision became final and executory, and Bignay
was evicted from the property.
Such negligence in the handling of the case is far from
coincidental; it is decidedly glaring, and amounts to bad faith.
“Negligence may be occasionally so gross as to amount to malice [or
bad faith].” Indeed, in culpa contractual or breach of contract, gross
negligence of a party amounting to bad faith is a ground for the
recovery of damages by the injured party.
As such that there is gross negligence of the seller in defending
its title to the property subject matter of the sale – thereby
contravening the express undertaking under the deed of sale to
protect its title against the claims of third persons resulting in the
buyer‘s eviction from the property, amounts to bad faith, and the
buyer is entitled to the remedies afforded under Article 1555 of the
Civil Code.
 DBP v. GA AND REALTY DEVELOPMENT CORPORATION
G.R. NO. 160758; JANUARY 15, 2014

FACTS:
In July 1976, Guariña Corporation applied for a loan from DBP
to finance the development of its resort complex. The loan, in
the amount of P3,387,000.00, was approved on August 5, 1976.
Guariña Corporation executed a promissory note that would be due
on November 3, 1988. On October 5, 1976, Guariña Corporation
executed a real estate mortgage over several real properties in favor
of DBP as security for the repayment of the loan. On May 17, 1977,
Guariña Corporation executed a chattelmortgage over the personal
properties existing at the resort complex and those yet to be acquired
out of the proceeds of the loan, also to secure the performance of the
obligation. Prior to the release of the loan, DBP required Guariña
Corporation to put up a cash equity of P1,470,951.00 for the
construction of the buildings and other improvements on the resort
complex.The loan was released in several installments, and Guariña
Corporation used the proceeds to defray the cost of additional
improvements in the resort complex. In all, the amount released
totaled P3,003,617.49, from which DBP withheld P148,102.98 as
interest.

ISSUE:
Whether or not Guarina was in delay in performing its
obligation making DBP’s action to foreclose the mortgage proper.

HELD:
No. The Court held that the foreclosure of a mortgage prior to
the mortgagor’s default on the principal obligation is premature, and
should be undone for being void and ineffectual. The mortgagee who
has been meanwhile given possession of the mortgaged property by
virtue of a writ of possession issued to it as the purchaser at the
foreclosure sale may be required to restore the possession of the
property to the mortgagor and to pay reasonable rent for the use of
the property during the intervening period. The agreement between
DBP and Guariña Corporation was a loan. Under the law, a loan
requires the delivery of money or any other consumable object by one
party to another who acquires ownership thereof, on the condition
that the same amount or quality shall be paid. Loan is a reciprocal
obligation, as it arises from the same cause where one party is
the creditor, and the other the debtor. The obligation of one party in
a reciprocal obligation is dependent upon the obligation of the other,
and the performance should ideally be simultaneous. This means
that in a loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable.
The loan agreement between the parties is a reciprocal
obligation. Appellant in the instant case bound itself to grant
appellee the loan amount of P3,387,000.00 condition on appellee’s
payment of the amount when it falls due. The appellant did not
release the total amount of the approved loan. Appellant therefore
could not have made a demand for payment of the loan since it had
yet to fulfil its own obligation. Moreover, the fact that appellee was
not yet in default rendered the foreclosure proceedings premature
and improper. By its failure to release the proceeds of the loan in
their entirety, DBP had no right yet to exact on Guariña Corporation
the latter’s compliance with its own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform
its obligation, the other party cannot be obliged to perform what is
expected of it while the other’s obligation remains unfulfilled. In other
words, the latter party does not incur delay.
EASTERN SHIPPING LINES INC. v. BPI/MS INSURANCE CORP.
and MITSUI SUM TOMO INSURANCE CO. LTD.
G.R. NO. 1993986: JANUARY 15, 2014

FACTS:
Sumitomo Corporation shipped various steel sheets in coil three
times from Yokohama, Japan through MV Eastern Challenger, a
vessel owned by Eastern Shipping in favor of Calamba Steel Center.
The first shipment is worth USD 125,417.26, the second was worth
USD 121,362.59 and the last was worth USD 476,416. The
shipments were insured against all risk by Sumitomo with Mitsui
Sumitomo Insurance. When the shipments reached Manila on
separate dates coils were observed to be in bad condition. The
shipments were turned to Asia Terminals (ATI) for stevedoring,
storage and safekeeping pending Calamba Steel’s withdrawal of the
goods. Calamba Steel eventually rejected the damaged coils worth
USD 7,751.15, USD 7,677.12, and USD 14, 782.05 respectively for
being unfit for its intended purpose. Calamba Steel filed an insurance
claim with Mitsui through the latter’s settling agent, BPI/MS
Insurance Corporation (BPI/MS), and the former was paid the sums
of US$7,677.12, US$14,782.05 and US$7,751.15 for the damage
suffered by all three shipments or for the total amount of
US$30,210.32. Correlatively, on August 31, 2004, as insurer and
subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for
Damages against Eastern Shipping and ATI.

ISSUE:
Is Eastern Shipping and ATI solidarily liable on account of the
damages incurred in the goods?

HELD:
Yes. Eastern Shipping and ATI are solidarily liable on account
of the damages incurred in the goods. Prior to the turnover of the
shipment to ATI the coils were already found in bad condition. These
findings of bad condition were reflected in the Turn Over Survey of
Bad Order Cargoes (TOSBOC). The TOSBO’s were jointly executed by
ATI, vessel‘s representative and surveyor while the Requests for Bad
Order Survey were jointly executed by ATI, consignee‘s representative
and the Shed Supervisor. These documents were corroborated by the
Damage Report. A Request for Bad Order Survey is a document which
is requested by an interested party that incorporates therein the
details of the damage, if any, suffered by a shipped commodity. Also,
a TOSBOC, usually issued by the arrastre contractor, which is ATI in
this case, is a form of certification that states therein the bad order
condition of a particular cargo, as found prior to its turn over to the
custody or possession of the said arrastre contractor.
The Court also noted that there was negligence on the part of
the employees of ATI and Eastern Shipping in the discharging of the
cargo. According to Sumitomo, coils were roughly handled during
their discharging from the vessel to the pier of Asian Terminals, Inc.
and even during the loading operations of these coils from the pier to
the trucks that will transport the coils to the consignee’s warehouse.
During the operations, the employees and forklift operators of
Eastern Shipping Lines and Asian Terminals, Inc. were very negligent
in the handling of the subject cargoes.Thus, it bears stressing unto
petitioner that 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 transported by them. Subject
to certain exceptions enumerated under Article 1734 of the Civil
Code, common carriers are responsible for the loss, destruction, or
deterioration of the goods. The extraordinary responsibility of the
common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who
has a right to receive them. Owing to this high degree of diligence
required of them, common carriers, as a general rule, are presumed
to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that
they exercised extraordinary diligence in transporting the goods. In
order to avoid responsibility for any loss or damage, therefore, they
have the burden of proving that they observed such high level of
diligence. In this case, such burden was not successfully hurdled.
 DR. FERNANDO P. SOLIDUM v. PEOPLE OF THE PHILIPPINES
G.R. NO. 192123; MARCH 10, 2014

FACTS:
Gerald Albert Gercayo (Gerald) was born on June 2, 19922 with
an imperforate anus. Two days after his birth, Gerald underwent
colostomy, a surgical procedure to bring one end of the large intestine
out through the abdominal wall, enabling him to excrete through a
colostomy bag attached to the side of his body. Gerald, then three
years old, was admitted at the Ospital ng Maynila for a pull-through
operation. Dr. Leandro Resurreccion headed the surgical team, and
was assisted by Dr. Joselito Luceño, Dr. Donatella Valeña and Dr.
Joseph Tibio. The anesthesiologists included Dr. Marichu Abella, Dr.
Arnel Razon and petitioner Dr. Fernando Solidum (Dr. Solidum).
During the operation, Gerald experienced bradycardia, and went into
a coma. His coma lasted for two weeks, but he regained
consciousness only after a month. He could no longer see, hear or
move. Agitated by her son’s helpless and unexpected condition, Ma.
Luz Gercayo (Luz) lodged a complaint for reckless imprudence
resulting in serious physical injuries with the City Prosecutor’s Office
of Manila against the attending physicians. Upon a finding of
probable cause, the City Prosecutor’s Office filed information solely
against Dr. Solidum for reckless imprudence resulting to serious
physical injuries.
The Regional Trial Court, as a Family Court, rendered its
judgment finding Dr. Solidum guilty beyond reasonable doubt of the
crime charged. Dr. Solidum’s conviction by the RTC was primarily
based on his failure to monitor and properly regulate the level of
anesthetic agent administered on Gerald by overdosing at 100%
halothane. The Court of Appeals affirmed the conviction.

ISSUE:
Is the doctrine of res ipsa loquitur applicable?

HELD:
No. Res ipsa loquitur is literally translated as "the thing or the
transaction speaks for itself." The doctrine res ipsa loquitur means
that "where the thing which causes injury is shown to be under the
management of the defendant, and the accident is such as in the
ordinary course of things does not happen if those who have the
management use proper care, it affords reasonable evidence, in the
absence of an explanation by the defendant, that the accident arose
from want of care." It is simply recognition of the postulate that, as a
matter of common knowledge and experience, the very nature of
certain types of occurrences may justify an inference of negligence on
the part of the person who controls the instrumentality causing the
injury in the absence of some explanation by the defendant who is
charged with negligence. It is grounded in the superior logic of
ordinary human experience and on the basis of such experience or
common knowledge; negligence may be deduced from the mere
occurrence of the accident itself.
In order to allow resort to the doctrine, therefore, the following
essential requisites must first be satisfied, to wit: (1) the accident was
of a kind that does not ordinarily occur unless someone is negligent;
(2) the instrumentality or agency that caused the injury was under
the exclusive control of the person charged; and (3) the injury
suffered must not have been due to any voluntary action or
contribution of the person injured.
In the case, although it should be conceded without difficulty
that the second and third elements were present, considering that
the anesthetic agent and the instruments were exclusively within the
control of Dr. Solidum, and that the patient, being then unconscious
during the operation, could not have been guilty of contributory
negligence, the first element was undeniably wanting. Luz delivered
Gerald to the care, custody and control of his physicians for a pull-
through operation. Except for the imperforate anus, Gerald was then
of sound body and mind at the time of his submission to the
physicians. Yet, he experienced bradycardia during the operation,
causing loss of his senses and rendering him immobile. Hypoxia, or
the insufficiency of oxygen supply to the brain that caused the
slowing of the heart rate, scientifically termed as bradycardia, would
not ordinarily occur in the process of a pull-through operation, or
during the administration of anesthesia to the patient, but such fact
alone did not prove that the negligence of any of his attending
physicians, including the anesthesiologists, had caused the injury.
In fact, the anesthesiologists attending to him had sensed in the
course of the operation that the lack of oxygen could have been
triggered by the vago-vagal reflex, prompting them to administer
atropine to the patient.
The fact that the injury rarely occurs does not in itself prove
that the injury was probably caused by someone's negligence. Nor is
a bad result by itself enough to warrant the application of the
doctrine. The common experience of mankind does not suggest that
death would not be expected without negligence.
 LAND BANK OF THE PHILIPPINES v. KHO
G.R. NO. 205839; JULY 7, 2016

FACTS:
On December 28, 2005, Kho opened an account with Land
Bank in order to leverage a business deal with Red Orange. He
purchased Land Bank Manager’s check No. 07410 worth
₱25,000,000.00 payable to Red Orange and dated January 2, 2006.
He also gave Rudy Medel, one alleged to be representing Red Orange,
a photocopy of the check that the bank had given him. After his visit
to the Bank, the deal with Medel and Red Orange did not push
through. He picked up check No. 07410 from the bank on January
2, 2006, without informing the bank that the deal did not materialize.
Afterwards, Red Orange presented a spurious copy of check No.
07410 to BPI, Kamuning for payment. Land Bank cleared the check.
However, Kho never negotiated the actual check as it was in his
possession the whole time.

ISSUE:
Was Land Bank negligent in clearing the check?

HELD:
Yes. The business of banking is imbued with public interest; it
is an industry where the general public’s trust and confidence in the
system is of paramount importance. Consequently, banks are
expected to exert the highest degree of, if not the utmost, diligence.
They are obligated to treat their depositors’ accounts with meticulous
care, always keeping in mind the fiduciary nature of their
relationship.
Banks hold themselves out to the public as experts in
determining the genuineness of checks and corresponding signatures
thereon. Stemming from their primordial duty of diligence, one of a
bank’s prime duties is to ascertain the genuineness of the drawer’s
signature on check being encashed. The genuine check No. 07410
remained in Kho’s possession the entire time and Land Bank admits
that the check it cleared was a fake. When Land Bank’s CCD
forwarded the deposited check to its Araneta branch for inspection,
its officers had every opportunity to recognize the forgery of their
signatures or the falsity of the check. Whether by error or neglect,
the bank failed to do so, which led to the withdrawal and eventual
loss of the ₱25,000,000.00. This is the proximate cause of the loss.
Land Bank breached its duty of diligence and assumed the risk of
incurring a loss on account of a forged or counterfeit check. Hence,
it should suffer the resulting damage.
ABROGAR v. COSMOS BOTTLING COMPANY AND INTERGAMES
INC.
G.R. NO. 064749; MARCH 15, 2017

FACTS:
Cosmos, jointly with Intergames, organized an endurance
running contest billed as the "1st Pop Cola Junior Marathon"
scheduled to be held on June 15, 1980. The organizers plotted a 10-
kilometer course starting from the premises of the Interim Batasang
Pambansa (IBP), through public roads and streets, to end at the
Quezon Memorial Circle. Plaintiffs' son Rommel applied to participate
in the contest and was accepted. Consequently, on the day
anddesignated time of the marathon, Rommel joined the other
participants and ran the course plotted by the defendants. As it
turned out, the plaintiffs’ further alleged, the defendants failed to
provide adequate safety and precautionary measures and to exercise
the diligence required of them by the nature of their undertaking, in
that they failed to insulate and protect the participants of the
marathon from the vehicular and other dangers along the marathon
route. Rommel was bumped by a jeepney that was then running
along the route of the marathon on Don Mariano Marcos Avenue, and
in spite of medical treatment given to him at the Ospital ng Bagong
Lipunan, he died later that same day due to severe head injuries. The
petitioners then sued the respondents to recover various damages for
the untimely death of Rommel.
Cosmos denied liability, insisting that it had not been the
organizer of the marathon, but only its sponsor; that its participation
had been limited to providing financial assistance to Intergames; that
the financial assistance it had extended to Intergames, the sole
organizer of the marathon, had been in answer to the Government's
call to the private sector to help promote sports development and
physical fitness; that the petitioners had no cause of action against
it because there was no privity of contract between the participants
in the marathon and Cosmos; and that it had nothing to do with the
organization, operation and running of the event. It averred a cross-
claim against Intergames, stating that the latter had guaranteed to
hold Cosmos completely free and harmless from any claim or action
for liability for any injuries or bodily harm which may be sustained
by any of the entries in the '1st Pop Cola Junior Marathon' or for any
damage to the property or properties of third parties, which may
likewise arise in the course of the race. Thus, Cosmos sought to hold
Intergames solely liable should the claim of the petitioners prosper.
On its part, Intergames asserted that Rommel's death had been
an accident exclusively caused by the negligence of the jeepney
driver; that it was not responsible for the accident; that as the
marathon organizer, it did not assume the responsibilities of an
insurer of the safety of the participants; that it nevertheless caused
the participants to be covered with accident insurance, but the
petitioners refused to accept the proceeds thereof; that there could
be no cause of action against it because the acceptance and approval
of Rommel's application to join the marathon had been conditioned
on his waiver of all rights and causes of action arising from his
participation in the marathon; that it exercised due diligence in the
conduct of the race that the circumstances called for and was
appropriate, it having availed of all its know-how and expertise,
including the adoption and implementation of all known and possible
safety and precautionary measures in order to protect the
participants from injuries arising from vehicular and other forms of
accidents; and, accordingly, the complaint should be dismissed.

ISSUE:
Is Intergames negligent for not blocking off from traffic the
marathon route and for the inadequate number of marshals?

HELD:
Yes. A careful review of the evidence presented reasonably leads
to the conclusion that the safety and precautionary measures
undertaken by Intergames were short of the diligence demanded by
the circumstances of persons, time and place under consideration.
Hence, Intergames as the organizer was guilty of negligence. The race
organized by Intergames was a junior marathon participated in by
young persons aged 14 to 18 years. It was plotted to cover a distance
of 10 kilometers, starting from the IBP Lane, then going towards the
Batasang Pambansa, and on to the circular route towards the Don
Mariano Marcos Highway, and then all the way back to the Quezon
City Hall compound where the finish line had been set.
In staging the event, Intergames had no employees of its own to
man the race, and relied only on the "cooperating agencies" and
volunteers who had worked with it in previous races. The cooperating
agencies included the Quezon City police, barangay tanods,
volunteers from the Boy Scouts of the Philippines, the Philippine
National Red Cross, the Citizens Traffic Action Group, and the
medical teams of doctors and nurses coming from the Office of the
Surgeon General and the Ospital ng Bagong Lipunan. The Supreme
Court considered the "safeguards" employed and adopted by
Intergames as inadequate to meet the requirement of due diligence.
For one, the police authorities specifically prohibited Intergames from
blocking Don Mariano Marcos Highway in order not to impair road
accessibility to the residential villages located beyond the IBP Lanc.
The chosen route (IBP Lane, on to Don Mariano Marcos Highway, and
then to Quezon City Hall) was not the only route appropriate for the
marathon. In fact, Intergames came under no obligation to use such
route especially considering that the participants, who were young
and inexperienced runners, would be running alongside moving
vehicles.
 AL DELA CRUZ v. OCTAVIANO
GR NO. 219649; JULY 26, 2017

FACTS:
Respondent Captain Renato, Wilma, and Janet Octaviano rode
a tricycle driven by Eduardo Padilla. Wilma and Janet were inside
the sidecar of the vehicle while Renato rode at the back of the driver.
They then proceeded to Naga Road. Renato saw a light from an
oncoming car which was going too fast. The car, driven by Dela Cruz,
hit the back portion of the tricycle where Renato was riding. The force
of the impact caused the tricycle to turn around and land on the
pavement of the gutter. Renato was thrown from the gutter two
meters away. Renato felt severe pain in his lower extremities and
went momentarily unconscious. Renato was out of a gutter and was
carried to Dela Cruz’ car. Renato, Wilma, and Janet were brought to
Perpetual Help Medical Center where Renato’s leg was amputated
from below the knee. After his treatment at Perpetual Help, Renato
was brought to AFP Med Center and stayed there for nine months for
rehabilitation. Shortly before his discharge, he suffered bone
infection. He was brought to Fort Bonifacio Hospital where he was
operated on thrice for bone infection and was treated there for six
months. Prosthetics was attached to his leg. Over all he spent Php
623,268 for his medical bills. A testimony was made stating that Dela
Cruz was under the influence of liquor while he was driving the
vehicle.

ISSUE:
Was there negligence on the part of Dela Cruz?

HELD:
Yes. Negligence is the failure to observe for the protection of the
interests of another person that degree of care, precaution, and
vigilance which the circumstances justly demand, whereby such
other person suffers injury. In Picart v. Smith, it was held that the
test by which to determine the existence of negligence in a particular
case may be stated as follows: Did the defendant in doing the alleged
negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If
not, then he is guilty of negligence. The existence of negligence in a
given case is not determined by reference to the personal judgment
of the actor in the situation before him. The law considers what would
be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
The denial of petitioner that he was drunk at the time of the
accident, whether or not he was in a state of inebriation is
inconsequential. His being sober does not and will not erase the fact
that he was still negligent and that the proximate cause of the
collision was due to his said negligence. Proximate cause is that
which, in natural and continuous consequence, unbroken by any
new cause, produces an event, and without which the event would
not have occurred. As such, petitioner is wrong when he claims that
the proximate cause of the accident was the fault of the tricycle.
Neither is it correct to impute contributory negligence on the
part of the tricycle driver and Renato when the latter had violated a
municipal ordinance that limits the number of passengers for each
tricycle driver for hire to three persons including the driver.
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. To hold a person as having contributed to his injuries, it
must be shown that he performed an act that brought about his
injuries in disregard of warning or signs of an impending danger to
health and body. To prove contributory negligence, it is still
necessary to establish a causal link, although not proximate,
between the negligence of the party and the succeeding injury.
Negligence per se, arising from the mere violation of a traffic statute,
need not be sufficient in itself in establishing liability for damages.
 VISAYAN ELECTRIC COMPANY, INC. v. EMILIO G. ALFECHE
G.R. NO. 209910; NOVEMBER 29, 2017

FACTS:
On the night of January 6, 1998, a fire broke out at 11th Street,
South Poblacion, San Fernando, Cebu, which burned down the
house and store of respondent Emilio and his son, Gilbert (the
Alfeches), and the adjacent watch repair shop owned by the
Manugas. It was alleged that the cause of the fire was the constant
abrasion of Visayan Electric Company’s (VECO) electric wire with M.
Lhuillier's signboard. The next day, the Alfeches and Manugas
reported the incident to the police and to the Sangguniang Bayan of
San Fernando. Upon Emilio, Gilbert, and Manugas' request for site
inspection, the Sangguniang Bayan of San Fernando eventually
passed Resolution No. 12 requesting VECO to inspect the area and
to repair faulty wires. The Alfeches and Manugas sent a letter to the
management of VECO asking for financial assistance, which VECO
denied. VECO asserted that the fire was due, not to its fault, but to
that of M. Lhuillier. The Regional Trial Court ruled that the proximate
cause of the injury suffered by the Alfeches and Manugas was the
negligence of M. Lhuillier. It noted that based on Engr. Banaag's
testimony, M. Lhuillier installed its signage long after VECO moved
its poles. Thus, it was its negligence in installing and positioning its
signage which led to the abrasion of VECO's power line and,
ultimately, the fire.
On appeal, the Court of Appeals reversed the Regional Trial
Court decision and found VECO liable in M. Lhuillier's stead. The
Court of Appeals gave greater credence to the testimonies of Rabor
and Engr. Lauronal, considering them to be impartial witnesses. It
noted that the relocation of the posts came before the fire, occasioned
by the road widening and drainage projects. Thus, VECO transferred
the poles and the lines to a distance of merely eight (8) inches from
M. Lhuillier's signboard. This, in turn, caused the abrasion of power
lines and the fire.

ISSUE:
Was petitioner VECO's negligence the proximate cause of the
fire which razed the properties of the Alfeches and Manugas?

HELD:
Yes. All the elements for liability for a quasi-delict under Article
2176 of the Civil Code have been shown to be attendant on VECO's
part.
The elements of a quasi-delict are:(1) the damages suffered by
the plaintiff; (2) the 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 the fault or negligence and the damages
incurred.
 On the first element, it is undisputed that the Alfeches and
Manugas suffered damage because of the fire. What has hitherto
remained unresolved is which between VECO and M. Lhuillier is
liable to indemnify them.
Fault is "a voluntary act or omission which causes damage to
the right of another giving rise to an obligation on the part of
another." On the other hand, "negligence is the failure to observe for
the protection of the interest of another person that degree of care,
precaution and vigilance which the circumstances justly demand."
Between VECO and M. Lhuillier, it is VECO which the Court finds to
have been negligent. M. Lhuillier was not negligent in installing its
signage. It installed its signage in 1995 well before the road-widening
and drainage projects commenced and ahead of VECO's relocation of
its posts. Solon and Camuta both emphasized that the signage was
installed free of any obstacle. Other than VECO's evasive
accusations, there is no proof to the contrary. It was VECO that was
negligent. It is apparent that it transferred its posts and wires without
regard for the hazards that the transfer entailed, particularly with
respect to the installations which had previously been distant from
the wires and posts but which had since come into close proximity.
VECO is a public utility tasked with distributing electricity to
consumers. It is its duty to ensure that its posts are properly and
safely installed. As the holder of a public franchise, it is to be
presumed that it has the necessary resources and expertise to enable
a safe and effective installation of its facilities. By installing its posts
and wires haphazardly, without regard to how its wires could come
in contact with a previously installed signage, VECO failed to act in
keeping with the diligence required of it.
Proximate cause is defined as "that cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause,
produces the injury and without which the result would not have
occurred." VECO's negligence was the proximate cause of the damage
suffered by the Alfeches and Manugas. It is settled that the
confluence of proximity, abrasion, and short-circuiting led to the fire.
The first of these-proximity arose because of VECO's relocation of
posts and wires. Installed in such a manner that its wires constantly
touched M. Lhuillier's signage, this "led to the failure of the insulation
thereby causing a short circuit which eventually led to the breaking
and burning of the wire." It was this burning wire that fell on the
Alfeches' residence's roof and burned down their house and store, as
well as Manugas' adjacent shop.
JOSEPH HARRY WALTER POOLE-BLUNDEN v. UNION BANK OF
THE PHILIPPINES
G.R. NO. 205838; NOVEMBER 29, 2017

FACTS:
Sometime in March 2001, Poole-Blunden came across an
advertisement placed by Union Bank in the Manila Bulletin which
was for the public auction of certain properties where one was a
condominium unit. The Unit was advertised to have an area of 95
square meters. Thinking that it was sufficient and spacious enough
for his residential needs, Poole-Blunden decided to register for the
sale and bid on the unit. About a week prior to the auction, Poole-
Blunden visited the unit for inspection. Poole-Blunden did not doubt
the unit's area as advertised. On the day of the auction, Poole-
Blunden inspected the Master Title of the project owner to the
condominium in the name of Integrated Network and the
Condominium Certificate of Title of Union Bank to verify once again
the details as advertised and the ownership of the unit. Both
documents were on display at the auction venue.
Poole-Blunden placed his bid and won the unit. Poole-Blunden
entered into a Contract to Sell with Union Bank. Poole-Blunden
started occupying and he was able to fully pay for the Unit. Later on,
Poole-Blunden decided to construct two additional bedrooms in the
Unit. Upon examining it, he noticed apparent problems in its
dimensions. He took rough measurements of the Unit, which
indicated that its floor area was just about 70 square meters, not 95
square meters, as advertised by Union Bank. Poole-Blunden got in
touch with an officer of Union Bank to raise the matter, but no action
was taken. Poole-Blunden wrote to Union Bank, informing it of the
discrepancy. He asked for a rescission of the Contract to sell, along
with a refund of the amounts he had paid, in the event that it was
conclusively established that the area of the unit was less than 95
square meters.
Union Bank thereafter informed Poole-Blunden that after
inquiring with the Housing and Land Use Regulatory Board (HLURB),
the Homeowners' Association of T-Tower Condominium, and its
appraisers, the Unit was confirmed to be 95 square meters, inclusive
of the terrace and the common areas surrounding it. Poole-Blunden
was not satisfied with Union Bank's response. Thus, he hired an
independent geodetic engineer, Engr. Tagal to survey the Unit and
measure its actual floor area. Engr. Tagal issued a certification
stating that the total floor area of the Unit was only 74.4 square
meters. Poole-Blunden gave Union Bank a copy of Engr. Tagal's
certification on. Union Bank explained that the total area of the
subject unit based on the ratio allocation maintenance cost
submitted by the developer to HLURB is 98 square meters (60 square
meters as unit area and 38 square meters as share on open space).
On the other hand, the actual area thereof based on the
measurements made by its surveyor is 74.18 square meters which
was much higher than the unit area of 60 square meters that was
approved by HLURB. Poole-Blunden's dissatisfaction with Union
Bank's answer prompted him to file his Complaint for Rescission of
Contract and Damages.

ISSUE:
Did respondent Union Bank commit such a degree of fraud as
would entitle petitioner Joseph Harry Walter Poole-Blunden to the
voiding of the Contract to sell the condominium unit?

HELD:
Yes. Banks assume a degree of prudence and diligence higher
than that of a good father of a family, because their business is
imbued with public interest and is inherently fiduciary. The high
degree of diligence required of banks equally holds true in their
dealing with mortgaged real properties, and subsequently acquired
through foreclosure, such as the Unit purchased by petitioner. In the
same way that banks are presumed to be familiar with the rules on
land registration, given that they are in the business of extending
loans secured by real estate mortgage, banks are also expected to
exercise the highest degree of diligence. This is especially true when
investigating real properties offered as security, since they are aware
that such property may be passed on to an innocent purchaser in the
event of foreclosure. Indeed, the ascertainment of the status or
condition of a property offered to it as security for a loan must be a
standard and indispensable part of a bank's operations.
Credit investigations are standard practice for banks before
approving loans and admitting properties offered as security. It
entails the assessment of such properties: an appraisal of their value,
an examination of their condition, a verification of the authenticity of
their title, and an investigation into their real owners and actual
possessors. Whether it was unaware of the unit's actual interior area;
or, knew of it, but wrongly thought that its area should include
common spaces, respondent's predicament demonstrates how it
failed to exercise utmost diligence in investigating the Unit offered as
security before accepting it. This negligence is so inexcusable; it is
tantamount to bad faith.
Even the least effort on respondent's part could have very easily
confirmed the Unit's true area. Similarly, the most cursory review of
the Condominium Act would have revealed the proper reckoning of a
condominium unit's area. Respondent could have exerted these most
elementary efforts to protect not only clients and innocent
purchasers but, most basically, itself. Respondent's failure to do so
indicates how it created a situation that could have led to no other
outcome than petitioner being defrauded.
 CITYSTATE SAVINGS BANK v. TERESITA TOBIAS
G.R. NO. 227990; MARCH 7, 2018

FACTS:
Rolando Robles, a certified public accountant, has been
employed with Citystate Savings Bank since July 1998 then as
Accountant-trainee for its Chino Roces Branch. On September 6,
2000, Robles was promoted as acting manager for petitioner's
Baliuag, Bulacan branch, and eventually as manager. Sometime in
2002, respondent Teresita Tobias, a meat vendor at the Baliuag
Public Market, was introduced by her youngest son to Robles, Robles
persuaded Tobias to open an account with the petitioner, and
thereafter to place her money in some high interest rate mechanism,
to which the latter yielded. Thereafter, Robles would frequent Tobias'
stall at the public market to deliver the interest earned by her deposit
accounts in the amount of Php 2,000.00. In turn, Tobias would hand
over her passbook to Robles for updating. The passbook would be
returned the following day with typewritten entries but without the
corresponding counter signatures. Tobias was later offered by Robles
to sign-up in petitioner's back-to-back scheme which is supposedly
offered only to petitioner's most valued clients. Under the scheme,
the depositors authorize the bank to use their bank deposits and
invest the same in different business ventures that yield high
interest. Robles allegedly promised that the interest previously
earned by Tobias would be doubled and he assured her that he will
do all the paper work. Lured by the attractive offer, Tobias signed the
pertinent documents without reading its contents and invested to
petitioner through Robles. Later, Tobias became sickly, thus she
included her daughter and herein respondent Shellidie Valdez as co-
depositor in her accounts with the petitioner.
In 2005, Robles failed to remit to respondents the interest as
scheduled. Respondents tried to reach Robles but he can no longer
be found. In a meeting with Robles’ siblings, it was disclosed to the
respondents that Robles withdrew the money and appropriated it for
personal use. Robles later talked to the respondents, promised that
he would return the money by installments and pleaded that they do
not report the incident to the petitioner. Robles however reneged on
his promise. Petitioner also refused to make arrangements for the
return of respondents' money despite several demands.
Respondents filed a Complaint for sum of money and damages
against Robles and the petitioner, alleging that Robles committed
fraud in the performance of his duties as branch manager when he
lured Tobias in signing several pieces of blank documents, under the
assurance as bank manager of petitioner, everything was in order.

ISSUE:
Is petitioner guilty of breach of contract as to warrant the
imposition of liability solely upon it?
HELD:
No. In the case at bar, petitioner does not deny the validity of
respondents' accounts, in fact it suggests that transactions with it
have all been accounted for as it is based on official documents
containing authentic signatures of Tobias. In fine, respondents' claim
for damages is not predicated on breach of their contractual
relationship with petitioner, but rather on Robles' act of
misappropriation.
At any rate, it cannot be said that the petitioner is guilty of
breach of contract so as to warrant the imposition of liability solely
upon it. Records show that respondents entered into two types of
transactions with the petitioner, the first involving savings accounts,
and the other loan agreements. Both of these transactions were
entered into outside the petitioner bank's premises, through Robles.
In the first, the respondents as the depositors, acts as the creditor,
and the petitioner, as the debtor. In these agreements, the petitioner,
by receiving the deposit impliedly agrees to pay upon demand and
only upon the depositor's order. Failure by the bank to comply with
these obligations would be considered as breach of contract. The
second transaction which involves three loan agreements, are the
subject of contention. These loans were obtained by respondents,
secured by their deposits with the petitioner, and executed with
corresponding authorization letters allowing the latter to debit from
their account in case of default. Respondents do not contest the
genuineness of their signature in the relevant documents; rather they
submit that they were merely lured by Robles into signing the same
without knowing their import. The loans were approved and released
by the petitioner, but instead of reinvesting the same, the proceeds
were misappropriated by Robles, as a result, respondents' accounts
were debited and applied as payment for the loan.
Under the premises, the petitioner had the authority to debit
from the respondents' accounts having been appointed as their
attorney-in-fact in a duly signed authentic document. Furthermore,
there is nothing irregular or striking that transpired which should
have impelled petitioner into further inquiry as to the authenticity of
the attendant transactions. Suffice it is to state that the questioned
withdrawal was not the first time in which Robles has acted as the
authorized representative of the petitioner or as intermediary
between the petitioner and the respondents, who is also not merely
an employee but petitioner's branch manager.
MEDICAL MALPRACTICE/NEGLIGENCE
SOLIDUM v. PEOPLE OF THE PHILIPPINES
G.R. NO. 192123; MARCH 10, 2014

FACTS:
Gerald Albert Gercayo (Gerald) was born on June 2, 19922 with
an imperforate anus. Two days after his birth, Gerald underwent
colostomy, a surgical procedure to bring one end of the large intestine
out through the abdominal wall, enabling him to excrete through a
colostomy bag attached to the side of his body. Gerald, then three
years old, was admitted at the Ospital ng Maynila for a pullthrough
operation. Dr. Leandro Resurreccion headed the surgical team, and
was assisted by Dr. Joselito Luceño, Dr. Donatella Valeña and Dr.
Joseph Tibio. The anesthesiologists included Dr. Marichu Abella, Dr.
Arnel Razon and petitioner Dr. Fernando Solidum (Dr. Solidum).
During the operation, Gerald experienced bradycardia, and went into
a coma. His coma lasted for two weeks, but he regained
consciousness only after a month. He could no longer see, hear or
move. Agitated by her son’s helpless and unexpected condition, Ma.
Luz Gercayo (Luz) lodged a complaint for reckless imprudence
resulting in serious physical injuries with the City Prosecutor’s Office
of Manila against the attending physicians. Upon a finding of
probable cause, the City Prosecutor’s Office filed information solely
against Dr. Solidum for reckless imprudence resulting to serious
physical injuries.
The Regional Trial Court, as a Family Court, rendered its
judgment finding Dr. Solidum guilty beyond reasonable doubt of the
crime charged. Dr. Solidum’s conviction by the RTC was primarily
based on his failure to monitor and properly regulate the level of
anesthetic agent administered on Gerald by overdosing at 100%
halothane. The Court of Appeals affirmed the conviction.

ISSUE:
Whether Dr. Solidum was liable for medical negligence.

HELD:
No. An action upon medical negligence – whether criminal, civil
or administrative – calls for the plaintiff to prove by competent
evidence each of the following four elements, namely: (a) the duty
owed by the physician to the patient, as created by the physician-
patient relationship, to act in accordance with the specific norms or
standards established by his profession; (b) the breach of the duty by
the physician’s failing to act in accordance with the applicable
standard of care; (3) the causation, i.e., there must be a reasonably
close and causal connection between the negligent act or omission
and the resulting injury; and (4) the damages suffered by the patient.
Here, the Prosecution presented no witnesses with special medical
qualifications in anesthesia to provide guidance to the trial court on
what standard of care was applicable. It would consequently be truly
difficult, if not impossible, to determine whether the first three
elements of a negligence and malpractice action were attendant. In
view of the actuations of the anesthesiologists and the administration
of anesthesia, the committee finds that the same were all in
accordance with the universally accepted standards of medical care
and there is no evidence of any fault or negligence on the part of the
anesthesiologists.
 NILO B. ROSIT v. DAVAO DOCTORS HOSPITAL AND DR.
ROLANDO G. GESTUVO
G.R. No. 210445; DECEMBER 7, 2015

FACTS:
Rosit figured in a motorcycle accident. The X-ray taken at the
Davao Doctors Hospital (DDH) showed that he fractured his jaw.
Rosit was then referred to Dr. Gestuvo, a specialist in mandibular
injuries, who operated on Rosit. Dr. Gestuvo used a metal plate
fastened to the jaw with metal screws to immobilize the mandible. As
the operation required the smallest screws available, Dr. Gestuvo cut
the screws on hand to make them smaller. Dr. Gestuvo knew that
there were smaller titanium screws available in Manila, but did not
so inform Rosit supposing that the latter would not be able to afford
the same. Following the procedure, Rosit could not properly open and
close his mouth and was in pain. X-rays done on Rosit after the
operation showed that the fracture in his jaw was aligned but the
screws used on him touched his molar. Rosit was referred to a
dentist, Dr. Pangan. He opined that another operation is necessary
and that it is to be performed in Cebu.
In Cebu, Dr. Pangan removed the plate and screws thus
installed by Dr. Gestuvo and replaced them with smaller titanium
plate and screws. Dr. Pangan also extracted Rosit's molar that was
hit with a screw and some bone fragments. Three days after the
operation, Rosit was able to eat and speak well and could open and
close his mouth normally. On his return to Davao, Rosit demanded
that Dr. Gestuvo reimburse him for the cost of the operation and the
expenses he incurred, as well as for the amount he would have to
spend for the removal of the plate and screws that Dr. Pangan
installed. Dr. Gestuvo refused to pay. Thus, Rosit filed a civil case for
damages and attorney's fees with the RTC against Dr. Gestuvo and
DDH.

ISSUE:
Should Dr. Gestuvo be absolved from liability?

HELD:
No. To establish medical negligence, an expert testimony is
generally required to define the standard of behavior by which the
court may determine whether the physician has properly performed
the requisite duty toward the patient. But where the application of
the principle of res ipsa loquitur is warranted, an expert testimony
may be dispensed with in medical negligence cases. To resort to the
doctrine of res ipsa loquitur, the following essential requisites are
satisfied: (1) the accident was of a kind that does not ordinarily occur
unless someone is negligent; (2) the instrumentality or agency that
caused the injury was under the exclusive control of the person
charged; and (3) the injury suffered must not have been due to any
voluntary action or contribution of the person injured.
The first element was sufficiently established when Rosit proved
that one of the screws installed by Dr. Gestuvo struck his molar. Had
Dr. Gestuvo used the proper size and length of screws and placed the
same in the proper locations, these would not have struck Rosit's
teeth causing him pain and requiring him to undergo a corrective
surgery. Dr. Gestuvo knew that the screws he used on Rosit were too
large. More importantly, he also knew that these screws were
available locally at the time of the operation. Yet, he did not avail of
such items and went ahead with the larger screws and merely sawed
them off. Even assuming that the screws were already at the proper
length after Dr. Gestuvo cut the same, it is apparent that he
negligently placed one of the screws in the wrong area thereby
striking one of Rosit's teeth.
Anent the second element for the res ipsa loquitur doctrine
application, it is sufficient that the operation which resulted in the
screw hitting Rosit's molar was, indeed, performed by Dr. Gestuvo.
No other doctor caused such fact. Lastly, the third element that the
injury suffered must not have been due to any voluntary action or
contribution of the person injured was satisfied in this case. It was
not shown that Rosit's lung disease could have contributed to the
pain. What is clear is that he suffered because one of the screws that
Dr. Gestuvo installed hit Rosit's molar.
Clearly then, the res ipsa loquitur doctrine finds application in
the instant case and no expert testimony is required to establish the
negligence of defendant Dr. Gestuvo. There are four essential
elements a plaintiff must prove in a malpractice action based upon
the doctrine of informed consent: "(1) the physician had a duty to
disclose material risks; (2) he failed to disclose or inadequately
disclosed those risks; (3) as a direct and proximate result of the
failure to disclose, the patient consented to treatment she otherwise
would not have consented to; and (4) plaintiff was injured by the
proposed treatment.
The four adverted essential elements above are present here.
First, Dr. Gestuvo clearly had the duty of disclosing to Rosit the risks
of using the larger screws for the operation. Second, Dr. Gestuvo
failed to disclose these risks to Rosit, deciding by himself that Rosit
could not afford to get the more expensive titanium screws. Third,
had Rosit been informed that there was a risk that the larger screws
are not appropriate for the operation and that an additional operation
replacing the screws might be required to replace the same, Rosit
would not have agreed to the operation. Rosit was, in fact, able to
afford the use of the smaller titanium screws that were later used by
Dr. Pangan to replace the screws that were used by Dr. Gestuvo.
Fourth, as a result of using the larger screws, Rosit experienced pain
and could not heal properly because one of the screws hit his molar.
Without a doubt, Dr. Gestuvo is guilty of withholding material
information which would have been vital in the decision of Rosit in
going through with the operation with the materials at hand. Thus,
Dr. Gestuvo is also guilty of negligence on this ground.
 CARLOS BORROMEO v. FAMILY CARE HOSPITAL
G.R. No. 191018; JANUARY 25,2016

FACTS:
On July 13, 1999 the Borromeo brought his wife to the Family
Care Hospital because she had been complaining of acute pain at the
lower stomach area and fever for two days. She was admitted at the
hospital and placed under the care of Dr. Inso. It was suspected that
Lilian might be suffering from acute appendicitis. Tests and
evaluation were conducted but were not conclusive to confirm she
had appendicitis. Lilian abruptly developed an acute surgical
abdomen. Dr. Inso decided to conduct an exploratory laparotomy for
fear Lilian might have a ruptured appendix. Eventually her appendix
was removed and the operation was successful. Six Hours after the
operation her blood pressure was low. Intravenous fluids were
ordered to be infused to raise her blood pressure. Subsequently Lilian
became pale and restless.
An endotracheal tube connected to an oxygen tanks was
inserted into Lilian to ensure her airway was clear and to compensate
for the lack of circulating oxygen in her body from the loss of red
blood cells. Her condition continued to deteriorate. Due to the
immediate need to resuscitate Lilian, further tests were no longer
conducted and CPR was done on her. Dr. Inso informed Lilians family
the need to re-operate on her and that she would be placed in an
Intensive Care Unit (ICU). Unfortunately, Family Care Hospital did
not have an ICU because it was a secondary hospital and the
Department of Health does not require them to have one. Dr. Inso
then sought help from Muntinlupa Medical Center (MMC) which had
an available bed and a team ready for resuscitation. Unfortunately,
Lilian passed away despite such efforts.
As per the autopsy report, Dr. Reyes concluded that the cause
of Lilian‘s death was hemorrhage due to bleeding petechial blood
vessels: internal bleeding. He further concluded that the internal
bleeding was caused by the 0.5 x 0.5 cm opening in the repair site.
He opined that the bleeding could have been avoided if the site was
repaired with double suturing instead of the single continuous suture
repair that he found. Based on the autopsy, the petitioner filed a
complaint for damages against Family Care and against Dr. Inso for
medical negligence.

ISSUE:
Are the respondents guilty of Medical Negligence?

HELD:
No. The Petitioner failed to present an expert witness. As a basic
principle whoever alleges a fact has the burden of proving it. In a
medical malpractice case, the plaintiff has the duty of proving its
elements, namely: (1) a duty of the defendant to his patient; (2) the
defendant’s breach of this duty; (3) injury to the patient; and (4)
proximate causation between the breach and the injury suffered. In
civil cases, the plaintiff must prove these elements by a
preponderance of evidence.
A medical professional has the duty to observe the standard of
care and exercise the degree of skill, knowledge, and training
ordinarily expected of other similarly trained medical professionals
acting under the same circumstances. Breach of the accepted
standard of care constitutes negligence or malpractice and renders
the defendant liable for the resulting injury to his patient.
 OUR LADY OF LOURDES HOSPITAL v. SPOUSES CAPANZANA
G.R. NO. 189218; MARCH 22, 2017

FACTS:
Regina Capanzana was scheduled to undergo Caesarean
section for the birth of her third child on January 2, 1998. Because
of she experienced active labor a week earlier, she underwent
emergency surgery. Prior to the procedure, she was duly assessed
and attended to by her attending physicians in her prior childbirths.
She was found fit to for anesthesia after she responded negatively to
questions about tuberculosis, rheumatic fever, and cardiac diseases.
On that same day, she gave birth to a baby boy. When her condition
stabilized, she was discharged from the recovery room and
transferred to a regular hospital room.
Thirteen hours after her operation, Regina who was then under
watch by her niece, Katherine Balad, complained of a headache, a
chilly sensation, restlessness, and shortness of breath. She asked for
oxygen and later became cyanotic. After undergoing an x-ray, she
was found to be suffering from pulmonary edema. She was eventually
transferred to the Intensive Care Unit, where she was hooked to a
mechanical ventilator. The impression then was that she was
showing signs of amniotic fluid embolism. On January 2, 1998, when
her condition still showed no improvement, Regina was transferred
to the Cardinal Santos Hospital. The doctors thereat found that she
was suffering from rheumatic heart disease mitral stenosis with mild
pulmonary hypertension, which contributed to the onset of fluid in
her lung tissue (pulmonary edema). This development resulted in
cardiopulmonary arrest and, subsequently, brain damage. Regina
lost the use of her speech, eyesight, hearing and limbs. She was
discharged in a still vegetative state.
Respondent spouses Capanzana filed a complaint for damages
against petitioner hospital, along with co-defendants: Dr. Miriam
Ramos, an obstetrician/gynecologist; Dr. Milagros Joyce Santos, an
anesthesiologist; and Jane Does, the nurses on duty stationed on the
second floor of petitioner hospital on December 26-27, 1997.
Respondents imputed negligence to Drs. Ramos and Santos for the
latter's failure to detect the heart disease of Regina, resulting in
failure not only to refer her to a cardiologist for cardiac clearance, but
also to provide the appropriate medical management before, during,
and after the operation. They further stated that the nurses were
negligent for not having promptly given oxygen, and that the hospital
was equally negligent for not making available and accessible the
oxygen unit on that same hospital floor at the time.

ISSUE:
Who is liable for the negligence that caused damage and injury
to Regina?
HELD:
For the negligence of its nurses, petitioner is thus liable under
Article 2180 in relation to Article 2176 of the Civil Code. Under Article
2180, an employer like petitioner hospital may be held liable for the
negligence of its employees based on its responsibility under a
relationship of patria potestas. The liability of the employer under
this provision is "direct and immediate; it is not conditioned upon a
prior recourse against the negligent employee or a prior showing of
the insolvency of that employee." The employer may only be relieved
of responsibility upon a showing that it exercised the diligence of a
good father of a family in the selection and supervision of its
employees. The rule is that once negligence of the employee is shown,
the burden is on the employer to overcome the presumption of
negligence on the latter's part by proving observance of the required
diligence.
In the instant case, there is no dispute that petitioner was the
employer of the nurses who have been found to be negligent in the
performance of their duties. This fact has never been in issue. Hence,
petitioner had the burden of showing that it exercised the diligence
of a good father of a family not only in the selection of the negligent
nurses, but also in their supervision.
After a careful review of the records, the Supreme Court found
that the preponderance of evidence supports the finding of the Court
of Appeals that the hospital failed to discharge its burden of proving
due diligence in the supervision of its nurses and is therefore liable
for their negligence. It must be emphasized that even though it
proved due diligence in the selection of its nurses, the hospital was
able to dispose of only half the burden it must overcome.
FORTUITUOUS EVENT
METRO CONCAST STEEL CORPORATION v. ALLIED BANK
CORPORATION
G.R. NO. 177921; DECEMBER 4, 2013

FACTS:
On various dates and for different amounts, Metro Concast
through its officers, obtained several loans from Allied Bank. These
loan transactions were covered by a promissory note and separate
letters of credit/trust receipts. By way of security, the individual
petitioners executed several Continuing Guaranty/Comprehensive
Surety Agreements in favor of Allied Bank. Petitioners failed to settle
their obligations. Hence, Allied Bank, through counsel, sent them
demand letters seeking payment but to no avail. Thus, Allied Bank
was prompted to file a complaint for collection of sum of money. The
petitioners alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the peso
against the US dollar contributed greatly to the downfall of the steel
industry, directly affecting the business of Metro Concast and
eventually leading to its cessation.
In order to settle their debts with Allied Bank, petitioners offered
the sale of Metro Concast’s remaining assets to Allied Bank. Allied
Bank advised them to sell the equipment and apply the proceeds of
the sale to their outstanding obligations. Since there were no takers,
the equipment was reduced into ferro scrap or scrap metal over the
years. In 2002, Peakstar Oil Corporation expressed interest in buying
the scrap metal. Unfortunately, Peakstar reneged on all its
obligations under their Memorandum of Agreement (MoA). In this
regard, petitioners asseverated that their failure to pay their
outstanding loan obligations to Allied Bank must be considered as
force majeure.

ISSUE:
Are the loan obligations incurred by the petitioners under the
subject promissory note and various trust receipts already
extinguished?

HELD:
No. Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of the thing
due, the condonation or remission of the debt, the confusion or
merger of the rights of creditor and debtor, compensation or novation.
Peakstar‘s breach of its obligations to Metro Concast arising from the
MoA cannot be classified as a fortuitous event under jurisprudential
formulation.
 Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee
the same. To constitute a fortuitous event, the following elements
must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations
must be independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill obligations in
a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury or loss.
While it may be argued that Peakstar‘s breach of the MoA was
unforeseen by petitioners, the same us clearly not "impossible" to
foresee or even an event which is independent of human will." Neither
has it been shown that said occurrence rendered it impossible for
petitioners to pay their loan obligations to Allied Bank and thus,
negates the former’s force majeure theory altogether. In any case, as
earlier stated the performance or breach of the MoA bears no relation
to the performance or breach of the subject loan transactions, they
being separate and distinct sources of obligations. The fact of the
matter is that petitioners’ loan obligations to Allied Bank remain
subsisting for the basic reason that the former has not been able to
prove that the same had already been paid or, in any way,
extinguished.
 BERNALES v. NORTHWEST AIRLINES
G.R. NO. 182395; OCTOBER 5, 2015

FACTS:
On October 1, 2002, Marito Bernales, a lawyer, university dean
and board member of the Sangguniang Panlalawigan of Camarines
Sur, together with the other prominent personalities from Bicol were
heading to Honolulu as delegates of trade and tourism mission. They
were economy class passengers of Northwest Airlines (NWA) Flight
No. 10 from Manila to Honolulu via Narita, Japan. Their connecting
flight was scheduled at 8:40 p.m. later that evening. However, a
typhoon hit Japan at 6:00 pm. which led to the cancellation of most
flights including the flight of Marito and company. However, NWA did
not cancel Flight No. 22, also bound for Honolulu later that night, to
minimize delays and to accommodate stranded passengers in case
the typhoon would subside. At around 9:00 p.m., the storm subsided
and the airport resumed its operations. Marito was placed last in the
wait-list for Flight No. 22 but was unable to depart. The delegates
arrived at Honolulu on October 2, 2002 between 3:00 and 4:00 p.m.,
Honolulu time but they had already missed the courtesy calls they
were to make on the governor and the mayor, which were scheduled
for earlier that day.
Marito filed a complaint for moral and exemplary damages
against the respondent NWA for breach of their contract of carriage.
He alleged that NWA staff’s rude treatment, his ejection from the
shuttle bus, the resulting missed obligations due to the flight's delay,
and the humiliation from the ordeal caused him immense mental
anguish and moral shock.

ISSUE:
Should Northwest Airlines be liable for damages?

HELD:
No. NWA should not be liable for said damages. Moral damages
predicated upon a breach of a carriage contract is only recoverable in
instances where the mishap results in the death of a passenger, or
where the carrier is guilty of fraud or bad faith. Bad faith is not simple
negligence or bad judgment; it involves ill intentions and a conscious
design to do a wrongful act for a dishonest purpose.
Under the carriage contract, NWA had the obligation to
transport the Marito from Narita International Airport to Honolulu,
Hawaii, on October 1, 2002 at 8:40 p.m. The primary cause of NWA's
delay in the fulfillment of its obligation was the unusually strong
typhoon that struck Japan that evening which resulted in the
cancellation of more than 200 flights. The arrival of the typhoon was
an extraordinary and unavoidable event. Its occurrence made it
impossible for NWA to bring the Marito to Honolulu in time for his
commitments. NWA cannot be held liable for a breach of contract
resulting from a fortuitous event. Moreover, NWA did not act in bad
faith or in a wanton, fraudulent, reckless, or oppressive manner. On
the contrary, it exerted its best efforts to accommodate the petitioner
on Flight No. 22 and to lessen the petitioner's discomfort when he
and the other passengers were left to pass the night at the terminal.
USURIOUS TRANSACTIONS
MALLARI v. PRUDENTIAL BANK
G.R. NO. 197861; JUNE 5, 2013

FACTS:
Petitioners obtained from respondent bank a loan of P1.7
million. They stipulated that the loan will bear 23% interest per
annum, attorney's fees equivalent to 15% per annum of the total
amount due, but not less than P200.00, and penalty and collection
charges of 12% per annum. Petitioners executed a Deed of Real
Estate Mortgage in favor of respondent. Petitioners failed to settle
their loan obligations with respondent bank, thus, the latter, through
its lawyer, sent a demand letter to the former for them to pay their
obligations, which when computed up to January 31, 1992,
amounted to P2, 991,294.82 for the second loan.

ISSUE:
Is the 23% per annum interest rate and the 12% per annum
penalty charge on petitioners' loan to which they agreed upon,
excessive or unconscionable under the circumstances?

HELD:
No. The interest rate of 23% per annum is not excessive or
unconscionable. The court said that there is no need unsettle the
principle affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, unconscionable and
exorbitant, hence, the stipulation was void for being contrary to
morals. The Supreme Court did not consider the interest rate agreed
upon by petitioners and respondent bank to be unconscionable.
Clearly, jurisprudence establish that the 24% per annum stipulated
interest rate was not considered unconscionable, thus, the 23% per
annum interest rate imposed on petitioners' loan in this case can by
no means be considered excessive or unconscionable.
 ANCHOR SAVINGS BANK v. PINZMAN REALTY AND
DEVELOPMENT CORPORATION
G.R. NO. 192304; AUGUST 13, 2014

FACTS:
Pinzman Realty obtained a loan worth Php 3,000,000 from
Anchor Savings secured by a real estate mortgage over lots in Cubao
registered in the name of Marylin. She executed a Promissory note
and Disclosure statement in favor of Anchor Savings worth Php
3,308,447.74 which includes payment for three months interest. The
loan documents stipulated that the first installment shall be for
₱148,640 and will be due on December 26, 1997, the second
installment will be for the same amount and shall be due on January
26, 1998, and the third installment will be for ₱3,011,167.74 and will
be due on February 26, 1998. Moreover, the Promissory Note and
Disclosure Statement imposed a monthly 5% late payment charge,
25% attorney’s fees, and 25% liquidated damages in case of unpaid
installments on the part of Marilyn.
On December 3, 1997, the proceeds of the loan were released to
Marilyn who then issued three checks for the payment of monthly
installments to Anchor Savings. The first check was for ₱144,000 and
was for the first installment due on December 26, 1997. The second
check in the same amount was for the second installment due on
January 26, 1998. Finally, the third check in the amount
of₱3,300,000 corresponded to the last installment due on February
26, 1998.
However, among the three checks, only the first one was cleared
for payment, and the Marilyn incurred an outstanding balance of
₱3,012,252.32 which they failed to settle. Marilyn continued her
correspondence with the Anchor Savings through its Vice President
to ask for an update on their account. Subsequently, the Marilyn
received a Second Notice of Extrajudicial Sale for the satisfaction of
an obligation, which as of October 15, 1998 amounted to
₱4,577,269.42, excluding penalties, charges, attorney’s fees and
costs of foreclosure. Anchor Savings emerged as the highest bidder
of the disputed properties, and a Certificate of Sale was issued in
favor of the Anchor Savings. Still, Marilyn allegedly tried to settle the
loan but was surprised when Anchor Savings issued a Statement of
Account stating that as of October 29, 1999, Pinzman Realty owed
the Anchor Savings ₱12,525,673.44
As Marilyn failed to redeem the properties, ownership of the
foreclosed properties was eventually consolidated in Anchor Saving’s
name which succeeded in acquiring certificates of title over the
disputed properties.
Thus, Pinzman Realty and Marilyn filed a Complaint for the
Annulment of Extrajudicial Foreclosure of Mortgaged Properties,
Auction Sale, Certificate of Sale and Damages against the petitioner
before the RTC. They prayed for the nullification of the foreclosure
sale alleging that the amount demanded in the Notice of Extrajudicial
Sale was exorbitant and excessive.

ISSUE:
Will the imposition of usurious interest rates on a loan
obligation secured by a real estate mortgage result in the invalidity
of the subsequent foreclosure sale of the mortgage?

HELD:
Yes. It is jurisprudential axiom that a foreclosure sale arising
from a usurious mortgage cannot be given legal effect. In the case at
bar, the unlawful interest charge which led to the demand for
₱4,577,269.42 as stated in the Notice of Extrajudicial Sale resulted
in the invalidity of the subsequent foreclosure sale held on June 1,
1999. Pinzman and Marilyn cannot be obliged to pay an inflated or
overstated mortgage indebtedness on account of excessive interest
charges without offending the basic tenets of due process and equity.
 ROSEMARIE REY v CESAR ANSON
G.R. NO. 211206; NOVEMBER 7, 2018

FACTS:
Rosemarie Rey is the President and one of the owners of
Southern Luzon Technological College Foundation Incorporated, a
computer school in Legazpi City. On August 2002, she needed a
quick infusion of cash for the said school. She approached a friend,
who introduced her to an acquaintance, Cesar Anson. Rey borrowed
from Anson the amount of P200, 000.00 payable in one year, and
subject to 7.5% interest per month or Pl 5,000.00 monthly interest,
which would be paid bi-monthly by way of postdated checks. The
loan was secured by a real estate mortgage on Spouses Teodoro and
Rosemarie Rey's property, a lot covered by Transfer Certificate of Title
(TCT). In the event of default, the Spouses Rey would pay a penalty
charge of 10% of the total amount, plus 12% attorney's fees. The
terms and conditions of the loan were embodied in a Deed of Real
Estate Mortgage. Rosemarie Rey thereafter issued 24 postdated
checks for P7, 500.00 each, as well as another postdated check for
the principal amount of P200, 000.00. Three days later, Rosemarie
Rey again borrowed from Cesar Anson P350, 000.00, subject to 7%
interest per month, and payable in four months. The second loan was
secured by a real estate mortgage over a parcel of land covered by
TCT registered in the name of Rey's mother. The parties executed a
second Deed of Real Estate Mortgage.
Rey faithfully paid the interest on the first loan for twelve
months. She was, however, unable to pay the principal amount when
it became due. She appealed to Anson to extend the terms thereof.
Anson agreed and Rey later signed a promissory note and executed a
Deed of Real Estate Mortgage stating that the Spouses Rey's principal
obligation shall be payable in four months from the execution of the
Deed of Real Estate Mortgage, and it shall be subject to interest of
7.5% per month. These two documents cancelled, updated and
replaced the original agreement on the first loan. Rey once again
issued postdated checks to cover the interest payments on the
amended first loan, and another postdated check for the principal
amount. Rey was able to make good on her interest payments, but
thereafter failed to pay the principal amount. Anent the second loan,
Rey failed to faithfully pay monthly interest thereon and she was
unable to pay the principal amount thereof when it became due. Rey
appealed to Anson to extend the terms thereof. Anson agreed, and
the parties executed anew a Deed of Real Estate Mortgage wherein
Rey acknowledged her indebtedness to Anson, payable within four
months from the execution of the Deed of Real Estate Mortgage, and
subject to 7% interest per month.
Four months thereafter, Rey again failed to fulfill her obligation
on the second loan. The same was extended once more in a Deed of
Real Estate Mortgage wherein Rey acknowledged indebtedness to
Anson, payable within six months from the execution of the Deed of
Real Estate Mortgage, and subject to the same 7% interest per
month. Rey obtained a third loan from Anson but was not put in
writing, but the parties verbally agreed that the same would be
subject to 3% monthly interest. A week later Rey obtained a fourth
loan from Anson. It was also not put in writing, but there was an oral
agreement of 4% monthly interest. Anson sent Rey a Statement of
Account seeking full payment of all four loans.
Instead of paying her loan obligations, Rey sent to Anson a letter
stating that the interest rates imposed on the four loans were
irregular, if not contrary to law. The 7.5% and 7% monthly interest
rates imposed on the first and second loans, respectively, were
excessive and unconscionable and should be adjusted to the legal
rate. Moreover, no interest should have been imposed on the third
and fourth loans in the absence of any written agreement imposing
interest. Per Rosemarie Rey's computation using the legal rate of
interest, all four loans were already fully paid, as well as the interests
thereon. Rey contended that she had overpaid the amount of P283,
434.19. She demanded from Cesar Anson the return of the excess
payment; otherwise, she would be compelled to seek redress in court.
The Spouses Rey filed a Complaint for Recomputation of Loans and
Recovery of Excess Payments and Cancellation of Real Estate
Mortgages and Checks against Anson.

ISSUE:
Are the interest rates on the first and second loans
unconscionable and contrary to morals?

HELD:
Yes. As case law instructs, the imposition of an unconscionable
rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust.
In this case, the first loan had a 7.5% monthly interest rate or
90% interest per annum, while the second loan had a 7% monthly
interest rate or 84% interest per annum, which rates are very much
higher than the 3% monthly interest rate imposed in the case of Ruiz
v. Court of Appeals and the 5% monthly interest rate imposed in the
case of Sps. Albos v. Sps. Embisan, et al.
Based on the ruling of the Spouses Albos case, the Supreme
Court held that the interest rates of 7.5% and 7% are excessive,
unconscionable, iniquitous, and contrary to law and morals; and,
therefore, void ab initio.
 MARQUEZ v. ELISAN CREDIT CORPORATION
G.R. NO. 194642; APRIL 6, 2015

FACTS:
On December 16, 1991, Nunelon R. Marquez obtained the first
loan from Elisan Credit Corporation. The petitioner signed a
promissory note which provided that it is payable in weekly
installments and subject to 26% annual interest rate. In case of non-
payment, the petitioner agreed to pay 10% monthly penalty based on
the total amount unpaid and another 25% of such amount for
attorney's fees exclusive of costs, and judicial and extrajudicial
expenses. To further secure payment of the loan, the petitioner
executed a chattel mortgage over a motor vehicle. The first loan was
fully paid. Subsequently, the petitioner obtained the second loan
from the respondent for P55, 000.00 as evidenced by a promissory
note and a cash voucher. The promissory note covering the second
loan contained exactly the same terms and conditions as the first
promissory note. When the second loan matured, the petitioner had
only P29, 960.00, leaving an unpaid balance of P25, 040.00. Due to
liquidity problems, the petitioner asked the respondent if he could
pay in daily installments until the second loan is paid. The
respondent granted the petitioner's request. Thus, 21 months after
the second loan's maturity, the petitioner had already paid a total of
P56, 440.00, an amount greater than the principal.
Despite the receipt of more than the amount of the principal,
the respondent filed a complaint for judicial foreclosure of the chattel
mortgage because the petitioner allegedly failed to settle the balance
of the second loan despite demand. The respondent relied on Article
1253 of the Civil Code which provides that if the debt produces
interest, payment of the principal shall not be deemed to have been
made until the interests have been covered. The petitioner argues
that he has fully paid his obligation. Thus, the respondent has no
right to foreclose the chattel mortgage. The petitioner insists that his
daily payments should be deemed to have been credited against the
principal, as the official receipts issued by the respondent were silent
with respect to the payment of interest and penalties. He cites Article
1176 of the Civil Code which ordains that the receipt of the principal
by the creditor without reservation with respect to the interest, shall
give rise to the presumption that the interest has been paid.

ISSUE:
Did the respondent act lawfully when it credited the daily
payments against the interest instead of the principal?

HELD:
Yes. The court harmonized Article 1176 and Article 1253 of the
Civil Code to determine whether the daily payments made after the
second loan's maturity should be credited against the interest or
against the principal.
Article 1176 provides that: "The receipt of the principal by the
creditor, without reservation with respect to the interest, shall give
rise to the presumption that said interest has been paid…” On the
other hand, Article 1253 states: "If the debt produces interest,
payment of the principal shall not be deemed to have been made until
the interests have been covered." The provisions appear to be
contradictory but they in fact support, and are in conformity with,
each other. Both provisions are also presumptions and, as such, lose
their legal efficacy in the face of proof or evidence to the contrary.
Article 1176 falls under Chapter I: Nature and Effect of Obligations,
while Article 1253 falls under Subsection I: Application of Payments,
Chapter IV: Extinguishment of Obligations, of Book V: Obligations
and Contracts of the Civil Code. The structuring of these provisions,
properly taken into account, means that Article 1176 should be
treated as a general presumption subject to the more specific
presumption under Article 1253. Article 1176 is relevant on
questions pertaining to the effects and nature of obligations in
general, while Article 1253 is specifically pertinent on questions
involving application of payments and extinguishment of obligations.
The presumption under Article 1176 does not resolve the
question of whether the amount received by the creditor is a payment
for the principal or interest. Under this article the amount received
by the creditor is the payment for the principal, but a doubt arises
on whether or not the interest is waived because the creditor accepts
the payment for the principal without reservation with respect to the
interest. Article 1176 resolves this doubt by presuming that the
creditor waives the payment of interest because he accepts payment
for the principal without any reservation. On the other hand, the
presumption under Article 1253 resolves doubts involving payment
of interest-bearing debts. It is a given under this Article that the debt
produces interest. The doubt pertains to the application of payment;
the uncertainty is on whether the amount received by the creditor is
payment for the principal or the interest. Article 1253 resolves this
doubt by providing a hierarchy: payments shall first be applied to the
interest; payment shall then be applied to the principal only after the
interest has been fully-paid.
Correlating the two provisions, the rule under Article 1253 that
payments shall first be applied to the interest and not to the principal
shall govern if two facts exist: (1) the debt produces interest (e.g., the
payment of interest is expressly stipulated) and (2) the principal
remains unpaid. The exception is a situation covered under Article
1176, i.e., when the creditor waives payment of the interest despite
the presence of (1) and (2) above. In such case, the payments shall
obviously be credited to the principal.
 SPS. BONROSTRO v. SPS. LUNA
G.R. NO. 172346; JULY 24, 2013

FACTS:
Constancia Luna, as buyer, entered into a contract to sell with
Bliss Development Corporation involving a house located in Quezon
City. A year after, Luna sold it to Lourdes Bonrostro under the
following terms:

1. The stipulated price of ₱1,250,000.00 shall be paid by the

VENDEE to the VENDOR in the following manner:
(a) ₱200,000.00 upon signing x x x the Contract To Sell,
(b) ₱300,000.00 payable on or before April 30, 1993,
(c) ₱330,000.00 payable on or before July 31, 1993,
(d) ₱417,000.00 payable to the New Capitol Estate, for 15 years
at ₱6,867.12 a month;

2. x x x In the event the VENDEE fails to pay the second

installment on time, the VENDEE will pay starting May 1, 1993 a 2%
interest on the ₱300,000.00 monthly. Likewise, in the event the
VENDEE fails to pay the amount of ₱630,000.00 on the stipulated
time, this CONTRACT TO SELL shall likewise be deemed cancelled
and rescinded and x x x 5% of the total contract price of
₱1,250,000.00 shall be deemed forfeited in favor of the VENDOR.
Unpaid monthly amortization shall likewise be deducted from the
initial down payment in favor of the VENDOR.

After the execution of the second contract, the spouses

Bonrostro took possession of the property. However, except for the
₱200,000.00 down payment, Lourdes failed to pay any of the
stipulated subsequent amortization payments. Luna filed a
complaint for rescission of the contract and damages.
The RTC ruled that the delay could not be considered a
substantial breach considering that Lourdes (1) requested for an
extension within which to pay; (2) was willing and ready to pay as
early as the last week of October 1993 and even wrote Atty. Carbon
about this on November 24, 1993; (3) gave Constancia a down
payment of ₱200,000.00; and, (4) made payment to Bliss.

ISSUE:
Would delay in the payment of installment be a substantial
breach of obligation as to warrant its rescission?

HELD:
No. In a contract to sell, payment of the price is a positive
suspensive condition. Failure of which is not a breach of contract
warranting rescission under Article 1191 of the Civil Code, but rather
just an event that prevents the supposed seller from being bound to
convey title to the supposed buyer. The contract to sell entered by
the parties refers to real property on installment basis, in which Art.
1191 cannot apply since they are governed by the Maceda Law.
However, there being no breach, Bonrostro is still not excused from
being made liable for interest on the installments due from the date
of default until fully paid.
 CARLOS LIM v. DEVELOPMENT BANK OF THE PHILIPPINES
G.R. NO. 177050; JULY 01, 2013

FACTS:
Petitioners obtained a loan of ₱40,000.00 from respondent DBP
to finance their cattle raising business. On the same day, they
executed a Promissory Note undertaking to pay the annual
amortization with an interest rate of 9% per annum and penalty
charge of 11% per annum. Then petitioners obtained another loan
from DBP in the amount of ₱960,000.00. They also executed a
Promissory Note, promising to pay the loan annually from August 22,
1973 until August 22, 1982 with an interest rate of 12% per annum
and a penalty charge of 1/3% per month on the overdue
amortization. To secure the loans, petitioners executed a Mortgage in
favor of DBP over some real properties. Due to violent confrontations
between government troops and Muslim rebels in Mindanao from
1972 to 1977, petitioners were forced to abandon their cattle ranch.
As a result, their business collapsed and they failed to pay the loan
amortizations. The Promissory Notes became due and demandable
as early as 1972 and 1976. The only reason the mortgaged properties
were not foreclosed in 1977 was because of the restraining order from
the court. In 1978, petitioners made a partial payment of
₱902,800.00. No subsequent payments were made. It was only in
1989 that petitioners tried to negotiate the settlement of their loan
obligations. And although DBP could have foreclosed the mortgaged
properties, it instead agreed to restructure the loan. In fact, from
1989 to 1994, DBP gave several extensions for petitioners to settle
their loans, but they never did, thus, prompting DBP to cancel the
Restructuring Agreement. Petitioners, however, insist that DBP‘s
cancellation of the Restructuring Agreement justifies the
extinguishment of their loan obligation under the Principle of
Constructive Fulfillment found in Article 1186 of the Civil Code.

ISSUE:
Whether the obligations of petitioners were extinguished

HELD:
No. Article 1186 of the Civil Code, which states that "the
condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment," does not apply in this case. Article 1186
enunciates the doctrine of constructive fulfillment of suspensive
conditions, which applies when the following three (3) requisites
concur, viz: (1) The condition is suspensive; (2) The obligor actually
prevents the fulfillment of the condition; and (3) He acts voluntarily.
Suspensive condition is one the happening of which gives rise to the
obligation. It will be irrational for any Bank to provide a suspensive
condition in the Promissory Note or the Restructuring Agreement that
will allow the debtor-promissor to be freed from the duty to pay the
loan without paying it. Besides, petitioners have no one to blame but
themselves for the cancellation of the Restructuring Agreement. It is
significant to point out that when the Regional Credit Committee
reconsidered petitioners’ proposal to restructure the loan, it imposed
additional conditions.
In fact, when DBP’s General Santos Branch forwarded the
Restructuring Agreement to the Legal Services Department of DBP in
Makati, petitioners were required to pay the amount of
₱1,300,672.75, plus a daily interest of ₱632.15 starting November
16, 1993 up to the date of actual payment of the said amount. This,
petitioners failed to do. DBP therefore had reason to cancel the
Restructuring Agreement. Moreover, since the Restructuring
Agreement was cancelled, it could not have novated or extinguished
petitioners’ loan obligation. And in the absence of a perfected
Restructuring Agreement, there was no impediment for DBP to
exercise its right to foreclose the mortgaged properties.
 INTERNATIONAL HOTEL CORPORATION v. FRANCISCO B.
JOAQUIN, JR.
G.R. NO. 158361; APRIL 10, 2013

FACTS:
Respondent submitted a proposal to the Board of Directors of
IHC for him to render technical assistance in securing a foreign loan
for the construction of a hotel, to be guaranteed by DBP. The IHC
Board of Directors approved the project. Anent the financing, IHC
applied with DBP for a foreign loan guaranty. DBP processed the
application and approved it subject to several conditions. Shortly
after submitting the application to DBP, Joaquin wrote to IHC to
request the payment of his fees in the amount of ₱500,000.00 for the
services that he had provided and would be providing to IHC in
relation to the hotel project that were outside the scope of the
technical proposal. Joaquin intimated his amenability to receive
shares of stock instead of cash in view of IHC’s financial situation.
The stockholders of IHC granted Joaquin’s request. Negotiations with
Materials Handling Corporation and, later on, with its principal,
Barnes, ensued. While the negotiations with Barnes were ongoing,
Joaquin and Jose Valero met with another financier, the Weston, to
explore possible financing. When Barnes failed to deliver the needed
loan, IHC informed DBP that it would submit Weston for DBP’s
consideration. As a result, DBP cancelled its previous guaranty. IHC
entered into an agreement with Weston, and communicated this
development to DBP. However, DBP denied the application for
guaranty for failure to comply with the conditions contained in its
letter. Due to Joaquin’s failure to secure the needed loan, IHC
canceled the 17,000 shares of stock previously issued to Joaquin and
Suarez as payment for their services.

ISSUE:
Whether the obligations of the respondents were fulfilled

HELD:
Yes. IHC was liable based on the nature of the obligation.
Considering that the agreement between the parties was not
circumscribed by a definite period, its termination was subject to a
condition – the happening of a future and uncertain event. The
prevailing rule in conditional obligations is that the acquisition of
rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event that
constitutes the condition. To secure a DBP-guaranteed foreign loan
did not solely depend on the diligence or the sole will of the
respondents because it required the action and discretion of third
persons – an able and willing foreign financial institution to provide
the needed funds, and the DBP Board of Governors to guarantee the
loan. Such third persons could not be legally compelled to act in a
manner favorable to IHC. The existing rule in a mixed conditional
obligation is that when the condition was not fulfilled but the obligor
did all in his power to comply with the obligation, the condition
should be deemed satisfied. Considering that the respondents were
able to secure an agreement with Weston, and subsequently tried to
reverse the prior cancellation of the guaranty by DBP, the court ruled
that they thereby constructively fulfilled their obligation.
 THE WELLEX GROUP v. U-LAND AIRLINES
G.R. NO. 167519; JANUARY 14, 2015

FACTS:
Wellex and U-Land entered into a Memorandum of Agreement
to expand their respective airline operations in Asia. The
Memorandum of Agreement stated that within 40 days from its
execution date, Wellex and U-Land would execute a share purchase
agreement covering U-Land’s acquisition of the shares of stock of
both APIC shares and PEC shares. In this share purchase agreement,
U-Land would purchase from Wellex its APIC shares and PEC shares.
Both parties agreed that the purchase price of APIC shares and PEC
shares would be paid upon the execution of the share purchase
agreement and Wellex‘s delivery of the stock certificates covering the
shares of stock. The transfer of APIC shares and PEC shares to U-
Land was conditioned on the full remittance of the final purchase
price as reflected in the share purchase agreement. Further, the
transfer was conditioned on the approval of the Securities and
Exchange Commission of the issuance of the shares of stock and the
approval by the Taiwanese government of U-Land’s acquisition of
these shares of stock. The 40-day period lapsed. Wellex and U-Land
were not able to enter into any share purchase agreement although
drafts were exchanged between the two. Despite the absence of a
share purchase agreement, U-Land remitted to Wellex. According to
Wellex, the parties agreed to enter into a security arrangement. U-
Land could recover the amount it paid to Wellex by selling these
shares of stock and land titles or using them to generate income.
Wellex and U-Land still failed to enter into the share purchase
agreement and the joint development agreement.

ISSUES:
1. Whether a share purchase agreement is required
2. Whether there was a novation of the First Memorandum of
Agreement
3. Whether the parties are obligated to return to each other all
they have received

HELD:
1. Yes. ART. 1370 provides that if the terms of a contract are
clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the
words appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former. Section 2 of the First
Memorandum of Agreement clearly provides that the execution of a
share purchase agreement containing mutually agreeable terms and
conditions must first be accomplished by the parties before
respondent U-Land purchases any of the shares owned by petitioner
Wellex. A perusal of the stipulation on its face allows for no other
interpretation. The need for a share purchase agreement to be
entered into before payment of the full purchase price can further be
discerned from the other stipulations of the First Memorandum of
Agreement. There being no share purchase agreement executed,
respondent U-Land was under no obligation to begin payment or
remittance of the purchase price of the shares of stock.

2. No. After the 40-day period, the parties did not enter into any
subsequent written agreement that was couched in unequivocal
terms. The transaction of the First Memorandum of Agreement
involved large amounts of money from both parties. The parties
sought to participate in the air travel industry, which has always
been highly regulated and subject to the strictest commercial
scrutiny. Both parties admitted that their counsels participated in
the crafting and execution of the First Memorandum of Agreement as
well as in the efforts to enter into the share purchase agreement. Any
subsequent agreement would be expected to be clearly agreed upon
with their counsels’ assistance and in writing, as well. Given these
circumstances, there was no express novation. There was also no
implied novation of the original obligation. There was no
incompatibility between the original terms of the First Memorandum
of Agreement and the remittances made by respondent U-Land for
the shares of stock. These remittances were actually made with the
view that both parties would subsequently enter into a share
purchase agreement. It is clear that there was no subsequent
agreement inconsistent with the provisions of the First Memorandum
of Agreement.

3. Yes. Article 1185 provides that if an obligation is conditioned

on the nonoccurrence of a particular event at a determinate time,
that obligation arises (a) at the lapse of the indicated time, or (b) if it
has become evident that the event cannot occur. It is the non-
occurrence or non-execution of the share purchase agreement that
would give rise to the obligation to both parties to free each other
from their respective undertakings. This includes returning to each
other all that they received in pursuit of entering into the share
purchase agreement. At the lapse of the 40-day period, the parties
failed to enter into a share purchase agreement. This lapse is the first
circumstance provided for in Article 1185 that gives rise to the
obligation. Applying Article 1185, the parties were then obligated to
return to each other all that they had received in order to be freed
from their respective undertakings. However, the parties continued
their negotiations after the lapse of the 40-day period. They made
subsequent transactions with the intention to enter into the share
purchase agreement. Despite that, they still failed to enter into a
share purchase agreement. Communication between the parties
ceased, and no further transactions took place. It became evident
that, once again, the parties would not enter into the share purchase
agreement. This is the second circumstance provided for in Article
1185.
HILLTOP MARKET FISH VENDORS' ASSOCIATION, INC. V HON.
BRAULIO YARANON
G.R. NO. 188057; JULY 12, 2017

FACTS:
Petitioner Hilltop and respondent City of Baguio entered into a
Contract of Lease over a lot owned by the City of Baguio. The contract
provided that the period of lease is 25 years, renewable for the same
period at the option of both parties, and the annual lease rental is
₱25,000, with the first payment commencing upon the issuance by
the City Engineer's Office of the Certificate of full occupancy
Certificate of the building to be constructed by Hilltop on the lot.
Before the Certificate is issued, the City of Baguio can continue
collecting market fees from the vendors who are allowed to occupy
any portion of the building. At the termination of the lease period, the
City of Baguio will own the building without payment or
reimbursement for Hilltop's costs. Hilltop constructed the building
on the lot. Even though the City Engineer's Office did not issue a
Certificate, Hilltop's members occupied the Rillera building and
conducted business in it. City Council of Baguio issued Resolution
rescinding the contract of lease with Hilltop, for its continued failure
to comply with its obligation to complete the Rillera building. Then
Mayor Jaime Bugnosen ordered the closure of the two upper floors of
the Rillera building. Thereafter, it recommended to condemn the
building. Mayor Bernardo Vergara issued a notice to take over the
Rillera building. Hilltop filed with the RTC a Complaint with Very
Urgent Application for Temporary Restraining Order and Writ of
Preliminary Injunction praying that the court issue an injunction

ISSUE:
Whether the issuance of the Certificate was a suspensive
condition which determines the perfection of the contract of lease

HELD:
No. The contract of lease specifically provides that: "x x x the
annual lease rental shall be ₱25,000 payable within the first 30 days
of each and every year; the first payment to commence immediately
upon issuance by the City Engineer's Office of the Certificate of full
occupancy of the entire building to be constructed thereon x x x."
Clearly, the issuance of the Certificate is only a condition that will
make Hilltop start paying the annual lease rental to the City of
Baguio. Because the Certificate was not issued, the payment of
annual lease rental did not commence. A contract constitutes the law
between the parties and they are, therefore, bound by its
stipulations. If the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning of
its stipulations shall control. Hilltop failed to distinguish between a
condition imposed upon the perfection of the contract and a
condition imposed on the performance of an obligation. Failure to
comply with the first condition results in the failure of a contract,
while the failure to comply with the second condition only gives the
other party the option either to refuse to proceed or to waive the
condition.
In this case, the condition, which is the issuance of the
Certificate, was imposed only for the obligation to pay the rent to
commence. Payment of the price, or the rent, in this case, goes into
the performance of the contract and has nothing to do with the
perfection of the contract. It would be incredible for plaintiff-
appellant to assert that the certificate was a condition prior to its
occupancy. Plaintiff-appellant raised no protest when it occupied the
Rillera building. By its continued silence, it has agreed that the
issuance of the said certificate was not a condition to the perfection
of the lease contract. The rule of acquiescence by silence has
estopped plaintiff-appellant to deny the reality of the state of things
which it made to appear to exist and upon which others have been
led to rely. Parties must take the consequences of the position they
assume. Hilltop is also estopped from claiming that the contract of
lease did not commence since it based its occupancy of the Rillera
building on the contract of lease.
OBLIGATIONS WITH A PERIOD
ROWENA R. SALONTE v. COMMISSION ON AUDIT
G.R. NO. 207348; AUGUST 19, 2014

FACTS:
The City of Mandaue and F.F. Cruz and Co., Inc. entered into a
Contract of Reclamation in which F.F. Cruz, in consideration of a
defined land sharing formula thus stipulated, agreed to undertake,
at its own expense, the reclamation of 180 hectares, more or less, of
foreshore and submerged lands from the Cabahug Causeway in that
city. On a best effort basis, the construction of roadways, drainage
system and open spaces in the area designated as share of the City
of Mandaue, shall be completed not later than December 31, 1991.
Pursuant to the MOA, F.F. Cruz proceeded to construct the
contemplated housing units and other facilities which included a
canteen and a septic tank. Later developments saw the City of
Mandaue undertaking the Metro Cebu Development Project II, part
of which required the widening of the Plaridel Extension Mandaue
Causeway. However, the structures and facilities built by F.F. Cruz
subject of the MOA stood in the direct path of the road widening
project. Thus, the DPWH entered into an Agreement to Demolish,
Remove and Reconstruct Improvement with F.F. Cruz whereby the
latter would demolish the improvements outside of the boundary of
the road widening project and, in return, receive the total amount of
PhP 1,084,836.42 in compensation. Thereafter, Darza addressed a
letter-complaint to the Office of the Ombudsman inviting attention to
several irregularities regarding the implementation of MCDP II.

ISSUE:
Whether the obligation was with a period.

HELD:
No. Article 1193 provides that obligations for whose fulfillment
a day certain has been fixed, shall be demandable only when that
day comes. 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. If the uncertainty consists in whether the day
will come or not, the obligation is conditional, and it shall be
regulated by the rules of the preceding Section.
A plain reading of the Contract of Reclamation reveals that the
six (6)-year period provided for project completion, or, with like effect,
termination of the contract was a mere estimate and cannot be
considered a period or a "day certain" in the context of the
aforequoted Art. 1193. To be clear, par. 15 of the Contract of
Reclamation states: "[T]he project is estimated to be completed in six
(6) years." As such, the lapse of six (6) years from the perfection of
the contract did not, by itself, make the obligation to finish the
reclamation project demandable, such as to put the obligor in a state
of actionable delay for its inability to finish. Thus, F.F. Cruz cannot
be deemed to be in delay.
A careful reading of the pertinent section of the Contract of
Reclamation between F.F. Cruz and Mandaue City, however, would
confirm that herein respondent Cruz was still the owner of the
subject properties at the time these were demolished. Indeed, the
Contract specifies that the six (6)-year period was no more than an
estimate of the project completion. It was not a fixed period agreed
upon. Being so, the mere lapse of six (6) years from the execution of
the Contract, did not by itself deem the reclamation project
completed, muchless bring about the fulfillment of the condition
stipulated in the MOA. The lapse of six (6) years from the perfection
of the subject reclamation contract, without more, could not have
automatically vested Mandaue City, under the MOA, with ownership
of the structures. Moreover, even if we consider the allotted six (6)
years within which F.F. Cruz was supposed to complete the
reclamation project, the lapse thereof does not automatically mean
that F.F. Cruz was in delay. As may be noted, the City of Mandaue
never made a demand for the fulfillment of its obligation under the
Contract of Reclamation.
RECIPROCAL OBLIGATIONS
FIL-ESTATE PROPERTIES, INC. v SPS. RONQUILLO
G.R. NO. 185798; JANUARY 13, 2014

FACTS:
Respondents purchased from petitioners an 82-square meter
condominium unit at Central Park Place Tower in Mandaluyong City
for a pre-selling contract price of ₱5,174,000.00. Respondents
executed and signed a Reservation Application Agreement wherein
they deposited ₱200,000.00 as reservation fee. As agreed upon,
respondents paid the full downpayment of ₱1,552,200.00 and had
been paying the ₱63,363.33 monthly amortizations until September
1998. Upon learning that construction works had stopped,
respondents likewise stopped paying their monthly amortization.
Claiming to have paid a total of ₱2,198,949.96 to petitioners,
respondents through two (2) successive letters, demanded a full
refund of their payment with interest. When their demands went
unheeded, respondents were constrained to file a Complaint for
Refund and Damages before the HLURB. Respondents prayed for
reimbursement/refund of ₱2,198,949.96 representing the total
amortization payments, ₱200,000.00 as and by way of moral
damages, attorney’s fees and other litigation expenses.

ISSUE:
Whether the respondents are entitled to rescind.

HELD:
Yes. Article 1191 provides that the power to rescind obligations
is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. The injured party may
choose between the fulfillment and the rescission of the obligation,
with payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become
impossible. Respondents are entitled to rescind the contract and
demand reimbursement for the payments they had made to
petitioners.
Petitioners’ failure to develop the condominium project as a
substantial breach of their obligation which entitles respondents to
seek for rescission with payment of damages. Also, the Asian
financial crisis in 1997 was not unforeseeable and beyond the control
of a business corporation. It is unfortunate that petitioner apparently
met with considerable difficulty e.g. increase cost of materials and
labor, even before the scheduled commencement of its real estate
project as early as 1995. However, a real estate enterprise engaged in
the pre-selling of condominium units is concededly a master in
projections on commodities and currency movements and business
risks. The fluctuating movement of the Philippine peso in the foreign
exchange market is an everyday occurrence, and fluctuations in
currency exchange rates happen every day, thus, not an instance of
caso fortuito.
 GOLDEN VALLEY EXPLORATION, INC. v. PINKIAN MINING
COMPANY AND COPPER VALLEY
G.R. NO. 190080; JUNE 11, 2014

FACTS:
PMC is the owner of 81 mining claims located in Kayapa, Nueva
Vizcaya, of which were covered by a Mining Lease Contract while the
remaining 66 had pending applications for lease. PMC entered into
an Operating Agreement with GVEI, granting the latter "full,
exclusive and irrevocable possession, use, occupancy, and control
over the mining claims, and every matter pertaining to the
examination, exploration, development and mining of the mining
claims and the processing and marketing of the products " for a
period of 25 years. PMC extra-judicially rescinded the OA upon
GVEI’s violation of Section 5.01, Article V thereof. GVEI contested
PMC’s extra-judicial rescission of the OA averring therein that its
obligation to pay royalties to PMC arises only when the mining claims
are placed in commercial production which condition has not yet
taken place. It also reminded PMC of its prior payment of the amount
of ₱185,000.00 as future royalties in exchange for PMC’s express
waiver of any breach or default on the part of GVEI. PMC no longer
responded to GVEI’s letter. Instead, it entered into a MOA with CVI,
whereby the latter was granted the right to "enter, possess, occupy
and control the mining claims" and "to explore and develop the
mining claims, mine or extract the ores, mill, process and beneficiate
and/or dispose the mineral products in any method or process,"
among others, for a period of 25 years. Due to the foregoing, GVEI
filed a Complaint for Specific Performance, Annulment of Contract
and Damages against PMC and CVI.

ISSUE:
Whether there was a valid rescission of the Operating
Agreement

HELD:
Yes. In reciprocal obligations, either party may rescind the
contract upon the other’s substantial breach of the obligation/s he
had assumed thereunder. The injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible. By
expressly stipulating in the OA that GVEI’s non-payment of royalties
would give PMC sufficient cause to cancel or rescind the OA, the
parties clearly had considered such violation to be a substantial
breach of their agreement. Thus, PMC’s extra-judicial rescission of
the OA based on the said ground was valid. GVEI cannot excuse its
non-payment of royalties on the argument that no commercial
mining was yet in place. This is precisely because the obligation to
develop the mining areas and put them in commercial operation also
belonged to GVEI. Records reveal that when the OA was signed, 15
mining claims were already covered by a perfected mining lease
contract. This meant that GVEI could have immediately extracted
mineral deposits from the covered mineral land and carried out
commercial mining operations from the very start. However, despite
earlier demands made by PMC, no meaningful steps were taken by
GVEI towards the commercial production of the 15 perfected mining
claims and the beneficial exploration of those remaining.
Consequently, seven years into the life of the OA, no royalties were
paid to PMC.
 SANGGUNIANG PANLUNGSOD NG BAGUIO CITY v. JADEWELL
PARKING SYSTEMS CORPORATION
G.R. NO. 160025; APRIL 23, 2014

FACTS:
The Sanggunian passed Resolution authorizing the City Mayor
of Baguio to negotiate and enter into a Memorandum of Agreement
with Jadewell for the installation of its proposed DG4S parking
technology. Sanggunian enacted a City Ordinance outlining the rules
and policy on the privatization of the administration of on-street
parking in the city streets of Baguio. For this purpose, the City of
Baguio authorized the intervention of a private operator for the
regulation, charging and collection of parking fees and the
installation of modern parking meters, among others. An invitation
to bid for the proposed regulation of on-street parking and
installation of parking meters on Baguio City‘s streets was published.
Four interested bidders submitted their proposals, but three were
disqualified. The bid of Jadewell was the only one not disqualified;
hence, it was awarded the project. The MOA was finally executed
between Jadewell and the City of Baguio for the installation,
management and operation of the DG4S P&D parking meters.
Jadewell began to mobilize and take over the parking facilities at the
Ganza/Burnham Park area. Around this time, questions arose
regarding the compliance by Jadewell with the provisions of the MOA,
notably on matters such as obtaining the recommendation from the
DPWH for the installation of the parking meters and the legality of
the collection of parking fees being done by its parking attendants
prior to the installation of the parking meters at Burnham Park.

ISSUE:
Whether there was a valid rescission.

HELD:
No. The MOA does not specifically provide for the exact number
of parking meters to be installed by Jadewell pursuant to the parties’
objective in regulating parking in the city. Nevertheless, 100 parking
spaces were allotted as mentioned in Annex A of the MOA. The
agreement also obligates Jadewell to have its parking attendants
deputized by the DOTC-LTO so that they shall have the authority to
enforce traffic rules and regulations in the regulated areas. Despite
the enumeration of the faults of Jadewell, there was no substantial
breach committed by Jadewell to justify a unilateral rescission of the
MOA. Unfortunately, neither the RTC nor the CA provided a clear
basis for their rulings on the extent of the breach of the MOA by
Jadewell. Save from reiterating the Sanggunian‘s litany of violations
said to be committed by Jadewell, there was no testimony on record
to prove such facts and no indication as to whether the RTC or CA
dismissed them or took them at face value. Whatever the extent of
breach of contract that Jadewell may have committed – and the
enumeration of Jadewell‘s alleged faults in Resolution 37 is quite
extensive – the City of Baguio was still duty-bound to establish the
alleged breach.
 METROPOLITAN BANK AND TRUST COMPANY v. WILFRED N.
CHIOK
G.R. NO. 172652; NOVEMBER 26, 2014

FACTS:
Respondent Chiok usually buys dollars from Nuguid. Chiok
pays Nuguid either in cash or manager’s check, to be picked up by
the latter or deposited in the latter’s bank account. Nuguid delivers
the dollars either on the same day or on a later date as may be agreed
upon between them, up to a week later. For this purpose, Chiok
maintained accounts with petitioners. Chiok likewise entered into a
BPLA with Asian Bank. Under the BPLA, checks drawn in favor of, or
negotiated to, Chiok may be purchased by Asian Bank. Upon such
purchase, Chiok receives a discounted cash equivalent of the amount
of the check earlier than the normal clearing period. Asian Bank "bills
purchased" SBTC Manager’s Check in the amount of ₱25,500,000.00
issued in the name of Chiok, and credited the same amount to the
latter’s Savings Account. Asian Bank issued MC in the amount of
₱7,550,000.00 and MC in the amount of ₱10,905,350.00 to Gonzalo
B. Nuguid. The two Asian Bank manager’s checks, with a total value
of ₱18,455,350.00 were issued pursuant to Chiok‘s instruction and
was debited from his account. Likewise upon Chiok‘s application,
Metrobank issued Cashier‘s Check in the amount of ₱7,613,000.00
in the name of Gonzalo Nuguid. The same was debited from Chiok‘s
Savings Account. Chiok then deposited the three with an aggregate
value of ₱26,068,350.00 in Nuguid‘s account with FEBTC. Nuguid
was supposed to deliver US$1,022,288.50, the dollar equivalent of
the three checks as agreed upon, in the afternoon of the same day.
Nuguid, however, failed to do so, prompting Chiok to request that
payment on the three checks be stopped.

ISSUE:
Whether the banks are bound by the obligations of the parties

HELD:
Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of
the other. They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous fulfillment
of the other. When Nuguid failed to deliver the agreed amount to
Chiok, the latter had a cause of action against Nuguid to ask for the
rescission of their contract. On the other hand, Chiok did not have a
cause of action against Metrobank and Global Bank that would allow
him to rescind the contracts of sale of the manager’s or cashier‘s
checks, which would have resulted in the crediting of the amounts
thereof back to his accounts. The right of rescission under Article
1191 of the Civil Code can only be exercised in accordance with the
principle of relativity of contracts under Article 1131. Under the civil
law principle of relativity of contracts under Article 1131, contracts
can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has
acted with knowledge thereof. Metrobank and Global Bank are not
parties to the contract to buy foreign currency between Chiok and
Nuguid. Therefore, they are not bound by such contract and cannot
be prejudiced by the failure of Nuguid to comply with the terms
thereof.
 SWIRE REALTY DEVELOPMENT CORPORATION v. JAYNE YU
G.R. NO. 207133; MARCH 09, 2015

FACTS:
Respondent Jayne Yu and petitioner Swire Realty Development
Corporation entered into a Contract to Sell covering one residential
condominium unit, specifically Unit 3007 of the Palace of Makati for
the total contract price of P7,519,371.80, payable in equal monthly
installments until September 24, 1997. Respondent likewise
purchased a parking slot in the same condominium building for
P600,000.00. Respondent paid the full purchase price of
P7,519,371.80 for the unit while making a down payment of
P20,000.00 for the parking lot. However, notwithstanding full
payment of the contract price, petitioner failed to complete and
deliver the subject unit on time. This prompted respondent to file a
Complaint for Rescission of Contract with Damages before the
HLURB.

ISSUE:
Whether rescission of the contract.

HELD:
Article 1191 of the Civil Code sanctions the right to rescind the
obligation in the event that specific performance becomes impossible.
The CA aptly found that the completion date of the condominium unit
was November 1998 but was extended to December 1999. However,
at the time of the ocular inspection conducted by the HLURB
ENCRFO, the unit was not yet completely finished as the kitchen
cabinets and fixtures were not yet installed and the agreed amenities
were not yet available. It is evident that the report on the ocular
inspection conducted on the subject condominium project and
subject unit shows that the amenities under the approved plan have
not yet been provided as of May 3, 2002, and that the subject unit
has not been delivered to respondent as of August 28, 2002, which
is beyond the period of development of December 1999 under the
license to sell. Incontrovertibly, petitioner had incurred delay in the
performance of its obligation amounting to breach of contract as it
failed to finish and deliver the unit to respondent within the
stipulated period. The delay in the completion of the project as well
as of the delay in the delivery of the unit are breaches of statutory
and contractual obligations which entitle respondent to rescind the
contract, demand a refund and payment of damages.
 SPS. BEROT v. FELIPE C. SIAPNO
G.R. NO. 188944; JULY 9, 2014

FACTS:
Macaria Berot and spouses Rodolfo A. Berot and Lilia P. Berot
obtained a loan from Felipe C. Siapno in the sum of ₱250,000.00,
payable within one year together with interest thereon at the rate of
2% per annum from that date until fully paid. As security for the
loan, Macaria, appellant and Lilia mortgaged to appellee a portion,
consisting of 147 square meters, of that parcel of land with an area
of 718 square meters, situated in Banaoang, Calasiao, Pangasinan in
the names of Macaria and her husband Pedro Berot, deceased. On
June 23, 2003, Macaria died. Because of the mortgagors’ default,
appellee filed an action against them for foreclosure of mortgage and
damages in the Regional Trial Court of Dagupan City. The action was
anchored on the averment that the mortgagors failed and refused to
pay the abovementioned sum of ₱250,000.00 plus the stipulated
interest of 2% per month despite lapse of one year from May 23, 2002.

ISSUE:
Whether the nature of the loan obligation contracted by
petitioners is joint.

HELD:
Yes. Under Article 1207 of the Civil Code of the Philippines, the
general rule is that when there is a concurrence of two or more
debtors under a single obligation, the obligation is presumed to be
joint. The law further provides that to consider the obligation as
solidary in nature, it must expressly be stated as such, or the law or
the nature of the obligation itself must require solidarity. The
testimony of petitioner Rodolfo only established that there was that
existing loan to respondent, and that the subject property was
mortgaged as security for the said obligation. His admission of the
existence of the loan made him and his late mother liable to
respondent. The contents of the real estate mortgage has no
indication in the plain wordings of the instrument that the debtors –
the late Macaria and herein petitioners – had expressly intended to
make their obligation to respondent solidary in nature. Absent from
the mortgage are the express and indubitable terms characterizing
the obligation as solidary. Respondent was not able to prove by a
preponderance of evidence that petitioners' obligation to him was
solidary.
Hence, applicable to this case is the presumption under the law
that the nature of the obligation herein can only be considered as
joint. It is incumbent upon the party alleging otherwise to prove with
a preponderance of evidence that petitioners' obligation under the
loan contract is indeed solidary in character.
 UCPB v. SPS. UY
G.R. NO. 204039; JANUARY 10, 2018

FACTS:
Spouses Walter and Lily Uy entered into a Contract to Sell with
Prime Town Property Group, Inc. (PPGI) for a unit in Kiener Hills
Mactan Condominium Project. The total contract price amounted to
₱1, 151,718. 7 5 payable according to the following terms: (a)
₱l00,000.00 as down payment; and (b) the balance paid in 40
monthly installments at ₱26,297.97 from 16 January 1997 to 16
April 2000.PPGI transferred the right to collect the receivables of the
buyers, which included respondents, of units in Kiener Hills to UCPB
as PPGI’s partial settlement of its loan with UCPB. Respondents filed
a complaint before the the Housing and Land Use Regulatory Board
Regional Office (HLURB Regional Office) for sum of money and
damages against PPGI and UCPB. They claimed that in spite of their
full payment of the purchase price, PPGI failed to complete the
construction of their units in Kiener Hills.he HLURB Regional Office
found that respondents were entitled to a refund in view of PPGI’ s
failure to complete the construction of their units. Nonetheless, it
found that UCPB cannot be solidarily liable with PPGI because only
the accounts receivables were conveyed to UCPB and not the entire
condominium project.Respondents appealed before the HLURB-
Board of Commissioners.
The HLURB Board reversed and set aside the HLURB Regional
Office decision. It agreed that the proceedings against PPGI should
be suspended on account of its corporate rehabilitation.
Nevertheless, the HLURB Board found UCPB solidarily liable with
PPGI because it stepped into the latter’s shoes insofar as Kiener Hills
is concerned pursuant to the MOA between them. It noted that UCPB
was PPGI’s successor-in-interest, such that the delay in the
completion of the condominium project could be attributable to it and
subject it to liability. The HLURB Board ruled that as PPGI’s assignee,
UCPB was bound to refund the payments made, without prejudice to
its right of action against PPGI.
On appeal, the OP affirmed the decision of the HLURB
Board.UCPB appealed before the CA, which affirmed with
modification the OP decision. While the appellate court agreed that
respondents are entitled to a full refund of the payments they may
have made, it ruled that UCPB is not solidarily liable with PPGI, and
as such cannot be held liable for the full satisfaction of respondents’
payments. It limited UCPB’s liability to the amount respondents have
paid upon the former’s assumption as the party entitled to receive
payments. UCPB moved for reconsideration but it was denied by the
CA.

ISSUE:
 Whether or not the assailed CA decision had become final and
executory after respondents failed to appeal the same.

HELD:
It must be remembered that when a case is appealed, the
appellate court has the power to review the case in its entirety.
In Heirs of Alcaraz v. Republic of the Phils., the Court explained that
an appellate court is empowered to make its own judgment as it
deems to be a just determination of the case. In any event, when
petitioners interposed an appeal to the Court of Appeals, the
appealed case was thereby thrown wide open for review by that court,
which is thus necessarily empowered to come out with a judgment
as it thinks would be a just determination of the controversy. Given
this power, the appellate court has the authority to either affirm,
reverse or modify the appealed decision of the trial court. To withhold
from the appellate court its power to render an entirely new decision
would violate its power of review and would, in effect, render it
incapable of correcting patent errors committed by the lower courts.
Thus, when UCPB appealed the present controversy before the Court,
it was not merely limited to determine whether the CA accurately set
UCPB’s liability against respondents. It is also empowered to
determine whether the appellate court’s determination of liability was
correct in the first place. This is especially true considering that the
issue of the nature of UCPB’s liability is closely intertwined and
inseparable from the determination of the amount of its actual
liability.
 ARCO PULP AND PAPER CO. v. DAN T. LIM
G.R. NO. 206806; JUNE 25, 2014

FACTS:
Dan T. Lim works in the business of supplying scrap papers,
cartons, and other raw materials. He delivered scrap papers worth
7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco Pulp and
Paper). Arco Pulp and Paper issued a post-dated check dated April
18, 20077 in the amount of 1,487,766.68 as partial payment. When
he deposited the check on April 18, 2007, it was dishonored. On the
same day, Arco Pulp and Paper and a certain Eric Sy executed a
memorandum of agreement, where Arco Pulp and Paper bound
themselves to deliver their finished products to Megapack Container
Corporation, owned by Eric Sy, for his account. Dan T.Lim sent a
letter12 to Arco Pulp and Paper demanding payment of the amount
of 7,220,968.31, but no payment was made to him. Petitioners argue
that the execution of the memorandum of agreement constituted a
novation of the original obligation since Eric Sy became the new
debtor of respondent. Petitioners reiterate that novation took place
since there was nothing in the memorandum of agreement showing
that the obligation was alternative. They also argue that when
respondent allowed them to deliver the finished products to Eric Sy,
the original obligation was novated.

ISSUE:
Whether or not there was novation.

HELD:
The rule on alternative obligations is governed by Article 1199
of the Civil Code. In an alternative obligation, there is more than one
object, and the fulfillment of one is sufficient, determined by the
choice of the debtor who generally has the right of election." The right
of election is extinguished when the party who may exercise that
option categorically and unequivocally makes his or her choice
known. The choice of the debtor must also be communicated to the
creditor who must receive notice of it since: 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.
The obligation between the parties as an alternative obligation,
whereby petitioner Arco Pulp and Paper, 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. When petitioner Arco Pulp and Paper tendered a
check to respondent in partial payment for the scrap papers, they
exercised their option to pay the price. Respondent’s receipt of the
check and his subsequent act of depositing it constituted his notice
of petitioner Arco Pulp and Paper’s option to pay.
Novation extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when there is
subrogation of the creditor. It occurs only when the new contract
declares so "in unequivocal terms" or that "the old and the new
obligations be on every point incompatible with each other."
There is nothing in the memorandum of agreement that states
that with its execution, the obligation of petitioner Arco Pulp and
Paper to respondent would be extinguished. It also does not state
that Eric Sy somehow substituted petitioner Arco Pulp and Paper as
respondent’s debtor. It merely shows that petitioner Arco Pulp and
Paper opted to deliver the finished products to a third person instead.
SOLIDARY OBLIGATIONS
OLONGAPO CITY v. SUBIC WATER AND SEWERAGE CO., INC.
G.R. NO. 171626; AUGUST 6, 2014

FACTS:
Petitioner Olongapo City (petitioner) passed Resolution No. 161,
which transferred all its existing water facilities and assets under the
Olongapo City Public Utilities Department Waterworks Division, to
the jurisdiction and ownership of the Olongapo City Water District
(OCWD). Petitioner filed a complaint for sum of money and damages
against OCWD. Among others, petitioner alleged that OCWD failed to
pay its electricity bills to petitioner and remit its payment under the
contract to pay, pursuant to OCWD’s acquisition of petitioner’s water
system. Subic Water took over OCWD’s water operations in Olongapo
City. Petitioner and OCWD entered into a compromise agreement. In
this agreement, petitioner and OCWD offset their respective claims
and counterclaims. The compromise agreement also contained a
provision regarding the parties’ request that Subic Water,
Philippines, which took over the operations of the defendant
Olongapo City Water District be made the co-maker for OCWD’s
obligations. Mr. Noli Aldip, then chairman of Subic Water, acted as
its representative and signed the agreement on behalf of Subic Water.
To enforce the compromise agreement, the petitioner filed a motion
for the issuance of a writ of execution with the trial court. The trial
court granted the motion, but did not issue the corresponding writ of
execution. The petitioner asserted that although Subic Water was not
a party in the case, it could still be subjected to a writ of execution,
since it was identified as OCWD’s co-maker and successor-in-interest
in the compromise agreement.

ISSUE:
Whether Subic Water is solidarily liable with OCWD.

HELD:
No. Solidary liability must be expressly stated. As the rule
stands, solidary liability is not presumed. This stems from Art.
1207of the Civil Code. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
In the present case, the joint and several liability of Subic Water and
OCWD was nowhere clear in the agreement. The agreement simply
and plainly stated that petitioner and OCWD were only requesting
Subic Water to be a co-maker, in view of its assumption of OCWD’s
water operations. No evidence was presented to show that such
request was ever approved by Subic Water’s board of directors. Under
these circumstances, petitioner cannot proceed after Subic Water for
OCWD’s unpaid obligations. The law explicitly states that solidary
liability is not presumed and must be expressly provided for. Not
being a surety, Subic Water is not an insurer of OCWD’s obligations
under the compromise agreement.
 ESTANISLAO AND AFRICA SINAMBAN v. CHINA BANKING
CORPORATION
G.R. NO. 193890; MARCH 11, 2015

FACTS:
The spouses Manalastas executed a Real Estate Mortgage (REM)
in favor of respondent Chinabank. The spouses Manalastas executed
several promissory notes in favor of Chinabank. In two of the PNs,
petitioner spouses Sinamban signed as co-makers. Chinabank filed
a Complaint for sum of money against the spouses Manalastas and
the spouses Sinamban. The spouses Sinamban admitted that they
signed some PN forms as co-makers upon the request of the spouses
Manalastas who are their relatives; although they insisted that they
derived no money or other benefits from the loans.

ISSUE:
Whether or not a co-maker can be held solidarily liable.

HELD:
Yes. According to Article 2047 of the Civil Code, if a person
binds himself solidarily with the principal debtor, the provisions of
Articles 1207 to 1222 of the Civil Code on joint and solidary
obligations shall be observed. It is settled that when the obligor or
obligors undertake to be "jointly and severally" liable, it means that
the obligation is solidary. A co-maker of a PN who binds himself with
the maker "jointly and severally" renders himself directly and
primarily liable with the maker on the debt, without reference to his
solvency.
In this case, the spouses Sinamban expressly bound themselves
to be jointly and severally, or solidarily, liable with the principal
makers of the PNs, the spouses Manalastas.
 RAMON E. REYES and CLARA R. PASTOR v. BANCOM
DEVELOPMENT CORP.
G.R. NO. 190286; JANUARY 11, 2018

FACTS:
The dispute in this case originated from a Continuing
Guaranty executed in favor of respondent Bancom by Angel E. Reyes,
Sr., Florencio Reyes, Jr., Rosario R. Du, Olivia Arevalo, and the two
petitioners herein, Ramon E. Reyes and Clara R. Pastor (the Reyes
Group). In the instrument, the Reyes Group agreed to guarantee the
full and due payment of obligations incurred by Marbella under an
Underwriting Agreement with Bancom. Marbella was unable to pay
back the notes at the time of their maturity. She issued replacement
Promissory Notes the increased and amount but she defaulted.
Because of Marbella's continued failure to pay back the loan despite
repeated demands, Bancom filed a Complaint for Sum of Money with
a prayer for damages against (a) Marbella as principal debtor; and (b)
the individuals comprising the Reyes Group as guarantors of the
loan.
In their defense, Marbella and the Reyes Group argued that they
had been forced to execute the Promissory Notes and the Continuing
Guaranty against their will. The RTC held Marbella and the Reyes
Group solidarily liable to Bancom.
Marbella and the Reyes Group appealed the RTC ruling to the
CA. The CA denied the appeal citing the undisputed fact that
Marbella and the Reyes Group had failed to comply with their
obligations under the Promissory Notes and the guaranty. The
appellate court rejected the assertion that noncompliance was
justified by the earlier agreements entered into by the parties.

ISSUES:
1. Whether the present suit should be deemed abated by the
revocation by the SEC of the Certificate of Registration issued to
Bancom.
2. Whether the CA correctly ruled that petitioners are liable to
Bancom for (a) the payment of the loan amounts indicated on the
Promissory Notes issued by Marbella; and (b) attorney's fees.

HELD:
1. No. The revocation of Bancom's Certificate of Registration
does not justify the abatement of these proceedings. Section 122 of
the Corporation Code provides that a corporation whose charter is
annulled, or whose corporate existence is otherwise terminated, may
continue as a body corporate for a limited period of three years, but
only for certain specific purposes enumerated by law. When a
corporation is dissolved and the liquidation of its assets is placed in
the hands of a receiver or assignee, the period of three years
prescribed by section 77 of Act No. 1459 known as the Corporation
Law is not applicable, and the assignee may institute all actions
leading to the liquidation of the assets of the corporation even after
the expiration of three years.
It is evident from the foregoing discussion of law and
jurisprudence that the mere revocation of the charter of a corporation
does not result in the abatement of proceedings. Since its directors
are considered trustees by legal implication, the fact that Bancom did
not convey its assets to a receiver or assignee was of no consequence.

2. Yes. As guarantors of the loans of Marbella, petitioners are

liable to Bancom.
On the merits of the claim, the Court affirmed on the liability of
petitioners. Having executed a Continuing Guaranty in favor of
Bancom, petitioners are solidarily liable with Marbella for the
payment of the amounts indicated on the Promissory Notes.
The petitioners did not challenge the genuineness and due
execution of the promissory notes. Neither did they deny their
nonpayment of Marbella's loans or the fact that these obligations
were covered by the guaranty.
The Continuing Guaranty evidently binds them to pay Bancom
the amounts indicated on the original set of Promissory Notes, as well
as any and all instruments issued upon the renewal, extension,
amendment or novation thereof.
 J PLUS ASIA DEVELOPMENT CORPORATION v. UTILITY
ASSURANCE CORPORATION
G.R. NO. 199650; JUNE 26, 2013

FACTS:
Petitioner J Plus Asia Development Corporation represented by
its Chairman, Joo Han Lee, and Martin E. Mabunay, doing business
under the name and style of Seven Shades of Blue Trading and
Services, entered into a Construction Agreement whereby the latter
undertook to build the former's 72-room condominium/hotel.
Mabunay commenced work at the project site on January 7, 2008.
Petitioner paid up to the 7th monthly progress billing sent by
Mabunay. Petitioner had paid the total amount of ₱15,979,472.03
inclusive of the 20% down payment. However, Mabunay had
accomplished only 27.5% of the project. Petitioner terminated the
contract and sent demand letters to Mabunay and respondent surety.
Thereafter petitioner is claiming against the performance bond.
However, respondent argued that the performance bond merely
guaranteed the 20% down payment and not the entire obligation of
Mabunay under the Construction Agreement.

ISSUE:
Whether or not the claim of petitioner against the performance
bond was proper.

HELD:
Yes. The plain and unambiguous terms of the Construction
Agreement authorize petitioner to confiscate the Performance Bond
to answer for all kinds of damages it may suffer as a result of the
contractor’s failure to complete the building. Such stipulation
allowing the confiscation of the contractor’s performance bond
partakes of the nature of a penalty clause. A penalty clause, expressly
recognized by law, is an accessory undertaking to assume greater
liability on the part of the obligor in case of breach of an obligation.
It functions to strengthen the coercive force of obligation and to
provide, in effect, for what could be the liquidated damages resulting
from such a breach. The obligor would then be bound to pay the
stipulated indemnity without the necessity of proof on the existence
and on the measure of damages caused by the breach. It is well-
settled that so long as such stipulation does not contravene law,
morals, or public order, it is strictly binding upon the obligor. Having
elected to terminate the contract and expel the contractor from the
project site under Article 13 of the said Agreement, petitioner is
clearly entitled to the proceeds of the bond as indemnification for
damages it sustained due to the breach committed by Mabunay.
 DARIO NACAR v. GALLERY FRAMES
G.R. NO. 189871; AUGUST 13, 2013

FACTS:
Petitioner Dario Nacar filed a complaint for constructive
dismissal against respondents Gallery Frames (GF) and/or Felipe
Bordey, Jr. The Labor Arbiter rendered a Decision in favor of
petitioner and found that he was dismissed from employment
without a valid or just cause. Thus, petitioner was awarded
backwages and separation pay in lieu of reinstatement in the amount
of ₱158,919.92. An Entry of Judgment was later issued certifying
that the resolution became final and executory on May 27, 2002.
Petitioner filed a Motion for Correct Computation, praying that his
backwages be computed from the date of his dismissal on January
24, 1997 up to the finality of the Resolution of the Supreme Court on
May 27, 2002. Respondents claimed that after the decision becomes
final and executory, the same cannot be altered or amended
anymore. Petitioner maintains that considering that the October 15,
1998 decision of the Labor Arbiter did not become final and executory
until the April 17, 2002 Resolution of the Supreme Court in G.R. No.
151332 was entered in the Book of Entries on May 27, 2002, the
reckoning point for the computation of the backwages and separation
pay should be on May 27, 2002 and not when the decision of the
Labor Arbiter was rendered on October 15, 1998. Further, petitioner
posits that he is also entitled to the payment of interest from the
finality of the decision until full payment by the respondents.
Respondents contend that to allow the further recomputation of the
backwages to be awarded to petitioner at this point of the proceedings
would substantially vary the decision of the Labor Arbiter as it
violates the rule on immutability of judgments.

ISSUE:
Whether or not the computation of the award is proper.

HELD:
No. No essential change is made by a recomputation as this step
is a necessary consequence that flows from the nature of the illegality
of dismissal declared by the Labor Arbiter in that decision. A
recomputation (or an original computation, if no previous
computation has been made) is a part of the law – specifically, Article
279 of the Labor Code and the established jurisprudence on this
provision – that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full satisfaction,
as expressed under Article 279 of the Labor Code.
When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 6% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code. 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, however, shall
be adjudged on unliquidated claims or damages, except when or until
the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code), but when
such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
That the amount respondents shall now pay has greatly
increased is a consequence that it cannot avoid as it is the risk that
it ran when it continued to seek recourses against the Labor Arbiter's
decision.
 VIRGINIA M. VENZON v. RURAL BANK OF BUENAVISTA
GR NO. 178031; AUGUST 28, 2013

FACTS:
Virginia Venzon, together with his spouse obtained a Php
5,000.00 loan from Rural Bank of Buenavista against a mortgage on
their house and lot. The Bank foreclosed the property and sold at
auction to the Bank for Php 6,472.76 when the spouses failed to
settle their account. Venzon then filed a Petition to annul the
foreclosure proceedings and the tax declarations issued in the name
of the Bank, which was eventually dismissed in favor of the Bank.
The trial court held that Venzon erroneously relied on the mandatory
requirement on publication that under the Rural Bank Act, the
foreclosure of mortgages covering loans granted by rural banks
nvolving real properties levied upon by a sheriff shall be exempt from
publication where the total amount of the loan, including interests
due and unpaid, does not exceed Php 10,000. Since Venzon‘s
outstanding obligation amounted to just over Php 6,000.00
publication was not necessary. The CA also dismissed the petition
because of an improper remedy.

ISSUE:
Whether Venzon is entitled to a return of Php 6,000 which she
had paid to the Bank.

HELD:
Yes. Since respondent was not entitled to receive the said
amount, as it is deemed fully paid from the foreclosure of petitioner's
property since its bid price at the auction sale covered all that
petitioner owed it by way of principal, interest, attorney's fees and
charges, it must return the same to petitioner. "If something is
received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises."
Moreover, pursuant to Circular No. 799, series of 2013 of the Bangko
Sentral ng Pilipinas which took effect July 1, 2013, the Court ordered
the Bank to return to Venzon or her assigns the amount of P6,000.00
which shall earn interest at the rate of 6% per annum computed from
the filing of the Petition in Civil Case No. 5535 up to its full
satisfaction.
 S.C. MEGAWORLD CONSTRUCTION AND DEVELOPMENT
CORPORATION v. ENGR. LUIS U. PARADA
G.R. NO. 183804; SEPTEMBER 11, 2013

FACTS:
S.C. Megaworld bought lighting materials from Gentile
Industries, owned by Engineer Parada. Megaworld was unable to pay
for the purchase on due date, but blamed it on its failure to collect
under its sub-contract with the Enviro Kleen. It was however able to
persuade Enviro Kleen to agree to settle its above purchase, but after
paying the respondent Parada P250,000.00 once, Enviro Kleen
stopped making further payments, leaving an outstanding balance of
P816,627.00. It also ignored the various demands of the Parada, who
then filed a suit in the RTC, to collect from the petitioner the said
balance, plus damages, costs and expenses.
Megaworld denied liability by saying that it was released from
its indebtedness to the Parada due to the novation of their contract.
There was allegedly novation when Parada accepted the partial
payment of Enviro Kleen in its behalf, and thereby acquiesced to the
substitution of Enviro Kleen as the new debtor in Megaworld‘s place.
The trial court found that the respondent Parada never agreed to
release the petitioner Megaworld from its obligation, and this
conclusion was upheld by the CA. From the recital of facts in the trial
court's decision, respondent Parada demanded interest of two
percent (2%) per month upon the balance of the purchase price of
P816,627.00, from judicial demand until full payment.

ISSUE:
What is the proper rate in awarding interest?

HELD:
Pursuant to Article 2209 of the Civil Code, except as provided
under Central Bank Circular No. 905, and now under Bangko Sentral
ng Pilipinas Circular No. 799, which took effect on July 1, 2013, the
respondent may be awarded interest of six percent (6%) of the
judgment amount by way of actual and compensatory damages. In
this case, it is nowhere stated in the trial court's decision that the
parties had in fact stipulated an interest on the amount due to the
respondent. Even granting that there was such an agreement, there
is no finding by the trial court that the parties stipulated that the
outstanding debt of the petitioner would be subject to two percent
(2%) monthly interest.
Article 2209 of the Civil Code provides that "[i]f 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 percent per
annum." Pursuant to the said provision, then, since there is no
finding of a stipulation by the parties as to the imposition of interest,
only the amount of 12% per annum may be awarded by the court by
way of damages in its discretion, not two percent (2%) per month,
following the guidelines laid down in the landmark case of
Eastern Shipping Lines v. Court of Appeals. Eastern Shipping
Lines, Inc. synthesized the rules on the imposition of interest, 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."
But in Resolution No. 796 dated May 16, 2013, the Monetary
Board of the Bangko Sentral ng Pilipinas approved the revision of the
interest rate to be imposed for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of
an express contract as to such rate of interest.
Thus, under BSP Circular No. 799, issued on June 21, 2013
and effective on July 1, 2013, the said rate of interest is now back at
six percent (6%). Thus, petitioner was ordered to pay respondent
Parada the principal amount due of P816,627.00, plus interest at
twelve percent (12%) per annum, reckoned from judicial demand
until June 30, 2013, and six percent (6%) per annum from July 1,
2013 until finality hereof, by way of actual and compensatory
damages. Thereafter, the principal amount due as adjusted by
interest shall likewise earn interest at six percent (6%) per annum
until fully paid.
 SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS v. SPS. TECSON
G.R. NO. 179334; JULY 1, 2013

FACTS:
Respondent spouses Tecson (respondents) are co-owners of a
parcel of land. Said parcel of land was among the properties taken by
the government sometime in 1940 without the owners’ consent and
without the necessary expropriation proceedings and used for the
construction of the MacArthur Highway. In a letter dated December
15, 1994, respondents demanded the payment of the fair market
value of the subject parcel of land. Petitioner Contreras offered to pay
the subject land at the rate of ₱0.70 per square meter. Unsatisfied
with the offer, respondents demanded for the return of their property
or the payment of compensation at the current fair market value. As
their demand remained unheeded, respondents filed a Complaint for
recovery of possession with damages against petitioners, praying that
they be restored to the possession of the subject parcel of land.
The appellate court did not agree with the RTC that the doctrine
of state immunity from suit is applicable, because the recovery of
compensation is the only relief available to the landowner. To deny
such relief would undeniably cause injustice to the landowner.
Besides, petitioner Contreras, in fact, had earlier offered the payment
of compensation although at a lower rate. Thus, the CA remanded
the case to the trial court for the purpose of determining the just
compensation. Then, the RTC rendered a Decision, on appeal, the CA
affirmed the above decision with the modification that the just
compensation stated above should earn interest of six percent (6%)
per annum computed from the filing of the action on March 17, 1995
until full payment.

ISSUE:
Whether the amount awarded to respondent spouses is proper.

HELD:
Yes. The concept of just compensation does not imply fairness
to the property owner alone. Compensation must be just not only to
the property owner, but also to the public which ultimately bears the
cost of expropriation. Petitioners had been occupying the subject
property for more than fifty years without the benefit of expropriation
proceedings. In taking respondents’ property without the benefit of
expropriation proceedings and without payment of just
compensation, petitioners clearly acted in utter disregard of
respondents’ proprietary rights which cannot be countenanced by
the Court. For said illegal taking, respondents are entitled to
adequate compensation in the form of actual or compensatory
damages which in this case should be the legal interest of six percent
(6%) per annum on the value of the land at the time of taking in 1940
until full payment. This is based on the principle that interest runs
as a matter of law and follows from the right of the landowner to be
placed in as good position as money can accomplish, as of the date
of taking.
 METRO CONCAST STEEL CORPORATION, ET AL v. ALLIED
BANK CORPORATION
G.R. NO. 177921; DECEMBER 4, 2013

FACTS:
Metro Concast, through its officers, herein individual
petitioners, obtained several loans from Allied Bank. These loan
transactions were covered by a promissory note and separate letters
of credit/trust receipts. However, petitioners failed to settle their
obligations under the promissory note and trust receipts. Thus,
Allied Bank was prompted to file a complaint for collection of sum of
money.
In their Answer, petitioners admitted their indebtedness to
Allied Bank but denied liability for the interests and penalties
charged. Hence, in order to settle their debts with Allied Bank,
petitioners offered the sale of Metro Concast's remaining assets,
consisting of machineries and equipment, to Allied Bank, which the
latter, however, refused. Instead, Allied Bank advised them to sell the
equipment and apply the proceeds of the sale to their outstanding
obligations. Petitioners offered the equipment for sale, but since there
were no takers, the equipment was reduced into ferro scrap or scrap
metal over the years. Then, Peakstar Oil Corporation expressed
interest in buying the scrap metal. During the negotiations with
Peakstar, petitioners claimed that Atty. Peter Saw, a member of Allied
Bank's legal department, acted as the latter's agent. Eventually, with
the alleged conformity of Allied Bank, through Atty. Saw, a
Memorandum of Agreement was drawn between Metro Concast and
Peakstar, under which Peakstar obligated itself to purchase the scrap
metal.
Unfortunately, Peakstar reneged on all its obligations under the
MoA. In this regard, petitioners asseverated that: (a) their failure to
pay their outstanding loan obligations to Allied Bank must be
considered as force majeure; and (b) since Allied Bank was the party
that accepted the terms and conditions of payment proposed by
Peakstar, petitioners must therefore be deemed to have settled their
obligations to Allied Bank.

ISSUE:
Whether or not the loan obligations incurred by the petitioners
under the subject promissory note and various trust receipts have
already been extinguished.

HELD:
No. Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of the thing
due, the condonation or remission of the debt, the confusion or
merger of the rights of creditor and debtor, compensation or novation.
The Court dispels the notion that the Memorandum of Agreement
would have any relevance to the performance of petitioners'
obligations to Allied Bank. The Memorandum of Agreement is a sale
of assets contract, while petitioners' obligations to Allied Bank arose
from various loan transactions. Absent any showing that the terms
and conditions of the latter transactions have been, in any way,
modified or novated by the terms and conditions in the Memorandum
of Agreement, said contracts should be treated separately and
distinctly from each other, such that the existence, performance or
breach of one would not depend on the existence, performance or
breach of the other. In the foregoing respect, the issue on whether or
not Allied Bank expressed its conformity to the assets sale
transaction between Metro Concast and Peakstar (as evidenced by
the MoA) is actually irrelevant to the issues related to petitioners' loan
obligations to the bank. Besides, as the CA pointed out, the fact of
Allied Bank's representation has not been proven in this case and
hence, cannot be deemed as a sustainable defense to exculpate
petitioners from their loan obligations to Allied Bank.
 INTERNATIONAL HOTEL CORPORATION v. FRANCISCO B.
JOAQUIN, JR. AND RAFAEL SUAREZ
G.R. NO. 158361; APRIL 10, 2013

FACTS:
Respondent Joaquin, Jr. submitted a proposal to the Board of
Directors of the International Hotel Corporation (IHC) for him 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 (DBP). Anent the financing, IHC applied with DBP
for a foreign loan guaranty. DBP processed the application, and
approved it subject to several conditions. Thereafter, Joaquin wrote
to IHC to request the payment of his fees in the amount of
₱500,000.00 for the services that he had provided and would be
providing. Joaquin intimated his amenability to receive shares of
stock instead of cash in view of IHC’s financial situation. Then, the
stockholders of IHC granted Joaquin’s request, allowing the payment
for both Joaquin and Rafael Suarez for their services in implementing
the proposal.
Thereafter, Joaquin presented to the BOD the results of his
negotiations with potential foreign financiers. He recommended a
corporation which had offered beneficial terms. His recommendation
was accepted. While the negotiations with Barnes were ongoing,
Joaquin and Jose Valero, the Executive Director of IHC, met with
another financier, the Weston International Corporation (Weston), to
explore possible financing. When Barnes failed to deliver the needed
loan, IHC informed DBP that it would submit Weston for DBP's
consideration.
Due to Joaquin’s failure to secure the needed loan, IHC
canceled the 17,000 shares of stock previously issued to Joaquin and
Suarez as payment for their services. The CA concurred with the RTC,
upholding IHC’s liability under Article 1186 of the Civil Code. It ruled
that in the context of Article 1234 of the Civil Code, Joaquin had
substantially performed his obligations and had become entitled to
be paid for his services.

ISSUE:
Whether IHC is liable to pay respondents’ compensation for
their services.

HELD:
Yes. Notwithstanding the inapplicability of Article 1186 and
Article 1234 of the Civil Code, IHC was liable based on the nature of
the obligation. Considering that the agreement between the parties
was not circumscribed by a definite period, its termination was
subject to a condition – the happening of a future and uncertain
event.
 The lower courts held that Joaquin and Suarez’ obligation was
subject to the suspensive condition of successfully securing a foreign
loan guaranteed by DBP. To secure a DBP-guaranteed foreign loan
did not solely depend on the diligence or the sole will of the
respondents because it required the action and discretion of third
persons – an able and willing foreign financial institution to provide
the needed funds, and the DBP Board of Governors to guarantee the
loan. Such third persons could not be legally compelled to act in a
manner favorable to IHC. There is no question that when the
fulfillment of a condition is dependent partly on the will of one of the
contracting parties, or of the obligor, and partly on chance, hazard
or the will of a third person, the obligation is mixed. The existing rule
in a mixed conditional obligation is that when the condition was not
fulfilled but the obligor did all in his power to comply with the
obligation, the condition should be deemed satisfied.
Considering that the respondents were able to secure an
agreement with Weston, and subsequently tried to reverse the prior
cancellation of the guaranty by DBP, the Court ruled that they
thereby constructively fulfilled their obligation. Furthermore,
quantum meruit should apply in the absence of an express agreement
on the fees.
 NATIONAL POWER CORPORATION v. IBRAHIM
G.R. NO. 175863; FEBRUARY 18, 2015

FACTS:
National Power Corporation (NAPOCOR) took possession of a
land. The subject land, while in truth a portion of a private estate
register red under Transfer Certificate of Title (TCT) in the name of
Macapanton Mangondato (Mangondato), was occupied by NAPOCOR
under the mistaken belief that such land is part of public land
reserved for its use by the government. Then, Mangondato discovered
NAPOCOR’s occupation of the subject land. After such discovery,
Mangondato began demanding compensation for the subject land
from NAPOCOR. In support of his demand for compensation,
Mangondato sent to petitioner a lette rdetailing the origins of his
ownership over the land. In the letter, Mangonfato said that the
subject land is owned by Datu Magayo-ong Maruhom but he has the
right over it.
Then, Mangondato filed a complaint for reconveyance before
RTC of Marawi City against NAPOCOR in which he asked for, among
others, the payment by NAPOCOR of a monthly rental from 1978
until the return of such land. Thereafter, Branch 8 of the Marawi City
RTC rendered a Decision, among others, requiring the NAPOCOR to
pay rentals in favor of Mangondato. During the pendency of the
appeal, respondents Ibrahims and Maruhoms filed before the RTC of
Marawi City a complaint against Mangondato and NAPOCOR
disputing Mangondato's ownership of the land by claiming that they
are the real owners of the land. The Ibrahims and Maruhoms submit
that since they are the real owners of the land, they should be the
ones entitled to any rental fees. The Ibrahims and Maruhoms were
adjudged to be the real owners of the subject land.

ISSUE:
Is NAPOCOR liable in favor of the Ibrahims and Maruhoms for
the rental fees despite its previous payment to Mangondato?

HELD:
No. The lower courts held that NAPOCOR may still be held liable
to the Ibrahims and Maruhoms for such fees and indemnity because
its previous payment to Mangondato was tainted with "bad faith‖
when NAPOCOR "allowed" payment to Mangondato despite its prior
knowledge that the subject land was owned by a certain Datu
Magayo-ong Maruhom and not by Mangondato. But this was
reversed by the Supreme Court saying that no "bad faith" may be
taken against NAPOCOR in paying Mangondato the rental fees.
NAPOCOR’s payment to Mangondato of the rental fees adjudged due
for the subject land was required by the final and executory decision
in the two civil cases and was compelled thru a writ of garnishment
issued by the court that rendered such decision. In other words, the
payment to Mangondato was not a product of a deliberate choice on
the part of NAPOCOR but was made only in compliance to the lawful
orders of a court with jurisdiction. It was not NAPOCOR that
"allowed" the payment of the rental fees and expropriation indemnity
to Mangondato.
NAPOCOR’s previous payment to Mangondato of the rental fees
pursuant to the final judgment in the two civil cases may be
considered to have extinguished the former's obligation regardless of
who between Mangondato, on one hand, and the Ibrahims and
Maruhoms, on the other, turns out to be the real owner of the subject
land. Should the Ibrahims and Maruhoms turn out to be the real
owners of the subject land, NAPOCOR‘s previous payment to
Mangondato pursuant to the civil cases given the absence of bad faith
on its part may nonetheless be considered as akin to a payment made
in "good faith" to a person in "possession of credit" per Article 1242
of the Civil Code that, just the same, extinguishes its obligation to
pay for the rental fees and expropriation indemnity due for the
subject land. Article 1242 of the Civil Code reads: "Payment made in
good faith to any person in possession of the credit shall release the
debtor."
Article 1242 of the Civil Code is an exception to the rule that a
valid payment of an obligation can only be made to the person to
whom such obligation is rightfully owed. It contemplates a situation
where a debtor pays a "possessor of credit" i.e., someone who is not
the real creditor but appears, under the circumstances, to be the real
creditor. Borrowing the principles behind Article 1242, the Court
finds that Mangondato being the judgment creditor in Civil Case No.
605-92 and Civil Case No. 610-92 as well as the registered owner of
the subject land at the time may be considered as a "possessor of
credit" with respect to the rental fees adjudged due for the subject
land in the two cases, if the Ibrahims and Maruhoms turn out to be
the real owners of the subject land.
Hence, NAPOCOR's payment to Mangondato of the fees due for
the subject land as a consequence of the execution of Civil Case No.
605-92 and Civil Case No. 610-92 could still validly extinguish its
obligation to pay for the same even as against the Ibrahims and
Maruhoms.
 NETLINK COMPUTER INCORPORATED v. ERIC DELMO
G.R. NO. 160827; JUNE 18, 2014

FACTS:
Netlink hired Eric S. Delmo (Delmo) tasked to canvass and
source clients and convince them to purchase the products and
services of Netlink. He and his fellow account managers were not
required to accomplish time cards to record their personal presence
in the office of Netlink. He was able to generate sales from which he
earned commissions. He then requested payment of his
commissions, but Netlink refused and only gave him partial cash
advances chargeable to his commissions. In order to force him to
resign, Netlink issued several memoranda detailing his supposed
infractions of the company’s attendance policy. Despite the
memoranda, Delmo continued to generate huge sales for Netlink.
The the CA rendered decision affirming that Delmo was illegally
dismissed. Netlink submits that the CA committed a reversible error
of law in not holding that the applicable exchange rate for computing
the US dollar commissions of Delmo should be the rates prevailing at
the time when the sales were actually generated, not the rates
prevailing at the time of the payment. In his comment, Delmo
counters that because he had earned in US dollars it was only fair
that his commissions be paid in US dollars; that Netlink should not
be allowed to flip-flop after it had paid commissions in US dollar on
the sales generated by its sales agents on US-dollar denominated
transactions; and that attorney‘s fees were warranted because of the
unanimous finding that there was violation of procedural due
process.

ISSUE:
Whether or not the payment of the commissions should be in
US dollars.

HELD:
Yes. As a general rule, all obligations shall be paid in Philippine
currency. However, the contracting parties may stipulate that foreign
currencies may be used for settling obligations. This is pursuant to
Republic Act No. 8183, which provides as follows: Section 1. All
monetary obligations shall be settled in the Philippine currency
which is legal tender in the Philippines. However, the parties may
agree that the obligation or transaction shall be settled in any other
currency at the time of payment.
The Court remarked in C.F. Sharp & Co. v. Northwest Airlines,
Inc. that the repeal of Republic Act No. 529 had the effect of removing
the prohibition on the stipulation of currency other than Philippine
currency, such that obligations or transactions could already be paid
in the currency agreed upon by the parties. However, both Republic
Act No. 529 and Republic Act No. 8183 did not stipulate the
applicable rate of exchange for the conversion of foreign currency-
incurred obligations to their peso equivalent. It follows, therefore,
that the jurisprudence established under Republic Act No. 529 with
regard to the rate of conversion remains applicable. In C.F. Sharp,
the Court cited Asia World Recruitment, Inc. v. NLRC, to the effect
that the real value of the foreign exchange-incurred obligation up to
the date of its payment should be preserved.
There was no written contract between Netlink and Delmo
stipulating that the latter’s commissions would be paid in US dollars.
The absence of the contractual stipulation notwithstanding, Netlink
was still liable to pay Delmo in US dollars because the practice of
paying its sales agents in US dollars for their US dollar-denominated
sales had become a company policy. With the payment of US dollar
commissions having ripened into a company practice, there is no way
that the commissions due to Delmo were to be paid in US dollars or
their equivalent in Philippine currency determined at the time of the
sales. To rule otherwise would be to cause an unjust diminution of
the commissions due and owing to Delmo.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK v. ARTURO
P. FRANCO
G.R. NO. 180069; MARCH 5, 2014

FACTS:
The plaintiff secured from defendant PCIB Trust Indenture
Certificates, and that despite demands, defendants refused and still
refuses to return to plaintiff the trust amounts, plus the stipulated
interest. In all of the trust transactions that defendant PCIB had
entered into with the plaintiff, defendant PCIB represented to plaintiff
that in making the trust investment, plaintiff was actually providing
for his future since the money invested was going to be managed and
administered by their PCIB-Trust Services Group and will be
commingled, pooled and automatically rolled- over for better
investment return.
In 1995, due to financial problems, plaintiff then turned to his
Trust Indenture Certificates and started inquiring as to how he could
liquidate the trust. Then he received a letter signed by defendant’s
counsel denying plaintiff’s request for payment by stating that due to
the conversion of all outstanding PCI Bank trust indenture accounts
into common trust certificates, all such PCI Bank trust indenture
certificates have been rendered "null and void." Plaintiff prays for the
payment of the amounts under the Trust Indenture Certificates, plus
interest, but petitioner Bank alleged payment on the subject trust
certificate indentures.

ISSUE:
Who has the obligation to prove payment?

HELD:
Even where the plaintiff must allege non-payment, the general
rule is that the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment. When the creditor
is in possession of the document of credit, he need not prove non-
payment for it is presumed. The creditor's possession of the evidence
of debt is proof that the debt has not been discharged by payment.
In this case, respondent's possession of the original copies of the
subject TICs strongly supports his claim that petitioner Bank's
obligation to return the principal plus interests of the money
placement has not been extinguished. The TICs in the hands of
respondent is a proof of indebtedness and a prima facie evidence that
they have not been paid. Petitioner Bank could have easily presented
documentary evidence to dispute the claim, but it did not. In its
omission, it may be reasonably deduced that no evidence to that
effect really exist. Worse, the testimonies of petitioner Bank's own
witnesses, reinforce, rather than belie, respondent's allegations of
non-payment.
 BOGNOT v. RRI LENDING CORPORATION
G.R. NO. 180144; SEPTEMBER 24, 2014

FACTS:
RRI Lending Corporation is an entity engaged in the business of
lending money. The petitioner and his brother, Rolando A. Bognot,
applied for and obtained a loan of Five Hundred Thousand Pesos from
the respondent, payable on November 30, 1996. The loan was
evidenced by a promissory note and was secured by a post-dated
check dated November 30, 1996. The petitioner renewed the loan
several times on a monthly basis. He paid a renewal fee for each
renewal, issued a new post-dated check as security, and executed
and/or renewed the promissory note previously issued. The
respondent on the other hand, cancelled and returned to the
petitioner the post-dated checks issued prior to their renewal.
Subsequently, the loan was again renewed on a monthly basis until
June 30, 1997. Several days before the loan’s maturity, Rolando’s
wife, Julieta Bognot (Mrs. Bognot), went to the respondent‘s office
and applied for another renewal of the loan. She issued in favor of
the respondent Promissory Note, and International Bank Exchange
(IBE) Check dated July 30, 1997, in the amount of ₱54,600.00 as
renewal fee. On the excuse that she needs to bring home the loan
documents for the Bognot siblings’ signatures and replacement, Mrs.
Bognot asked the respondent’s clerk to release to her the promissory
note, the disclosure statement, and the check dated July 30, 1997.
Mrs. Bognot, however, never returned these documents nor issued a
new post-dated check. Consequently, the respondent sent the
petitioner follow-up letters demanding payment of the loan, plus
interest and penalty charges. These demands went unheeded.
Thereafter, respondent filed a complaint for sum of money
before the Regional Trial Court against the Bognot siblings. The RTC
ruled in the respondent’s favor and ordered the Bognot siblings to
pay the amount of the loan, plus interest and penalty charges. It
considered the wordings of the promissory note and found that the
loan they contracted was joint and solidary. The petitioner appealed
the decision to the Court of Appeals which affirmed RTC’s findings.
It found the petitioner’s defense of payment untenable and
unsupported by clear and convincing evidence.

ISSUE:
Whether the parties’ obligation was extinguished by: (i)
payment; and (ii) novation by substitution of debtors.

HELD:
No. The Court held that no evidence was presented to establish
the fact of payment. Jurisprudence tells that one who pleads
payment has the burden of proving it; the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-
payment. Indeed, once the existence of an indebtedness is duly
established by evidence, the burden of showing with legal certainty
that the obligation has been discharged by payment rests on the
debtor. In the present case, the petitioner failed to satisfactorily prove
that his obligation had already been extinguished by payment. As the
CA correctly noted, the petitioner failed to present any evidence that
the respondent had in fact encashed his check and applied the
proceeds to the payment of the loan. Neither did he present official
receipts evidencing payment, nor any proof that the check had been
dishonored.
Under Article 1249, paragraph 2 of the Civil Code, it provides:
x x x The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the fault
of the creditor they have been impaired. Also, settled is the rule that
payment must be made in legal tender. A check is not legal tender
and, therefore, cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as
payment. Mere delivery of checks does not discharge the obligation
under a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually
realized.
Further, the obligation of petitioner was not extinguished by
novation. To give novation legal effect, the original debtor must be
expressly released from the obligation, and the new debtor must
assume the original debtor’s place in the contractual relationship.
Depending on who took the initiative, novation by substitution of
debtor has two forms – substitution by expromision and substitution
by delegacion. In both cases, the original debtor must be released
from the obligation; otherwise, there can be no valid novation.
Furthermore, novation by substitution of debtor must always be
made with the consent of the creditor. Here, Mrs. Bognot did not
substitute the petitioner as debtor. She merely attempted to renew
the original loan by executing a new promissory note and check. The
purported one month renewal of the loan, however, did not push
through, as Mrs. Bognot did not return the documents or issue a new
post-dated check. Since the loan was not renewed for another month,
the original due date, June 30,1997, continued to stand. More
importantly, the respondent never agreed to release the petitioner
from his obligation. That the respondent initially allowed Mrs. Bognot
to bring home the promissory note, disclosure statement and the
petitioner’s previous check dated June 30, 1997, does not ipso facto
result in novation. Neither will this acquiescence constitute an
implied acceptance of the substitution of the debtor.
In order to give novation legal effect, the creditor should consent
to the substitution of a new debtor. Novation must be clearly and
unequivocally shown, and cannot be presumed. Since the petitioner
failed to show that the respondent assented to the substitution, no
valid novation took place with the effect of releasing the petitioner
from his obligation to the respondent.
 BENJAMIN EVANGELISTA v. SCREENEX
G.R. NO. 211564; NOVEMBER 20, 2017

FACTS:
In 1991, Evangelista obtained a loan from respondent Screenex,
Inc. which issued two checks to him. There were also vouchers of
Screenex that were signed by Evangelista evidencing that he received
the 2 checks in acceptance of the loan granted to him. As security for
the payment of the loan, Evangelista gave two open dated checks,
both pay to the order of Screenex, Inc. Before the checks were
deposited, there was a personal demand from the family for
Evangelista to settle the loan and likewise a demand letter sent by
the family lawyer.
However, in the interim, petitioner was charged with violation
of BP 22 for the reason "ACCOUNT CLOSED." The checks bounced
when Screenex tried to use the checks to settle the loan on December
22, 2004. Evangelista was eventually acquitted, however, accused is
ordered to pay his civil obligation in the total amount of ONE
MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000) plus
twelve (12%) percent interest per annum from the date of the filing of
the two sets of Information until fully paid and to pay the costs of
suit. Thereafter, Evangelista appealed the civil aspect of the case
alleging that the same had been extinguished and/or was barred by
prescription.

ISSUE:
Whether the obligation of Evangelista had been extinguished or
barred by prescription.

HELD:
Yes. It is a settled rule that the creditor's possession of the
evidence of debt is proof that the debt has not been discharged by
payment. It is likewise an established tenet that a negotiable
instrument is only a substitute for money and not money, and the
delivery of such an instrument does not, by itself, operate as
payment. However, payment is deemed effected and the obligation for
which the check was given as conditional payment is treated
discharged, if a period of 10 years or more has elapsed from the date
indicated on the check until the date of encashment or presentment
for payment. The failure to encash the checks within a reasonable
time after issue, or more than 10 years in this instance, not only
results in the checks becoming stale but also in the obligation to pay
being deemed fulfilled by operation of law.
While it is true that the delivery of a check produces the effect
of payment only when it is cashed, pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor is prejudiced by the creditor's
unreasonable delay in presentment. Similarly in this case, the Court
finds that the delivery of the checks, despite the subsequent failure
to encash them within a period of 10 years or more, had the effect of
payment. Evangelista is considered discharged from his obligation to
pay and can no longer be pronounced civilly liable for the amounts
indicated thereon.
 DESIDERIO DALISAY INVESTMENTS, INC., v. SOCIAL
SECURITY SYSTEM
G.R. NO. 231053; APRIL 04, 2018

FACTS:
In 1976, respondent Social Security System (SSS) filed a case
before the Social Security Commission (SSC) against the Dalisay
Group of Companies (DGC) for the collection of unremitted SSS
premium contributions of the latter's employees. Desiderio Dalisay,
then President of petitioner Desiderio Dalisay Investments, Inc.
(DDII), sent a Letter to SSS offering the subject land and building to
offset DGC's liabilities subject of the aforementioned cases at
P3,500,000. However, no negotiation took place because of
disagreement as to the value. DDII's Special Board of Directors
issued a Resolution stating that the properties covered by TCTs be
sold to SSS in order to settle the unremitted premiums and penalty
obligations of DDII. In the same Board Resolution, Desiderio Dalisay,
or in his absence, Veronica Dalisay-Tirol (Dalisay-Tirol), was
authorized to sign in behalf of the corporation.
Thereafter, in a meeting, Atty. Cabarroguis, representing DGC,
explained that the DGC is no way capable of settling its obligation in
cash. DGC offered that he has "the authority to offer the properties
in the amount of 2 million pesos." He also assured them that that
they will turn the properties over to SSS free of liens and
encumbrances. The offer for dacion was accepted at the appraised
value of P2,000,000. The SSC accepted DDII's proposed dacion en
pago pegged at the appraised value of P2,000,000. Meanwhile, DDII
failed to deliver the titles of the subject property, free from all liens
and encumbrances. DDII insists that Atty. Cabarroguis' alleged
acceptance of the proposals of SSS was not covered by any Board
Resolution or Affidavit of Consent by the corporate and individual
owners of the properties. Consequently, it alleges that there was no
dation in payment to speak of, contrary to the claim of SSS. Thus,
DDII filed a complaint for Quieting of Title, Recovery of Possession
and Damages against SSS with the RTC.

ISSUE:
Whether or not there was a perfected Dacion en Pago.

HELD:
Yes. In dacion en pago, property is alienated to the creditor in
satisfaction of a debt in money. The debtor delivers and transmits to
the creditor the former's ownership over a thing as an accepted
equivalent of the payment or performance of an outstanding debt. In
such cases, Article 1245 provides that the law on sales shall apply,
since the undertaking really partakes—in one sense—of the nature
of sale; that is, the creditor is really buying the thing or property of
the debtor, the payment for which is to be charged against the
debtor's obligation. As a mode of payment, dacion en pago
extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved,
unless the parties by agreement—express or implied, or by their
silence—consider the thing as equivalent to the obligation, in which
case the obligation is totally extinguished. There is no dacion in
payment when there is no transfer of ownership in the creditor's
favor, as when the possession of the thing is merely given to the
creditor by way of security.
In the case at hand, in order to determine whether or not there
was indeed a perfected dacion en pago, the three stages of a contract
of sale must be present. First Stage: Negotiation Offer validly
reduced. In the instant case, the late Desiderio Dalisay, on March 11,
1977, offered to SSS that they partially settle their obligations to the
latter via dacion. Dalisay offered several properties for P3,500,000 in
favor of SSS to partially extinguish petitioner's obligation which
amounted to P4,421,321.62. conclude that DDII's offer was validly
reduced from P3,500,000 to P2,000,000. Second Stage: Perfection
Acceptance absolute and unqualified. The Court ruled that there was
perfected dation in payment. Article 1319 of the New Civil Code reads:
Consent is manifested by the meeting of the offer and the acceptance
upon the tiling and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Within the purview of the law on sales, a contract of sale is perfected
by mere consent, upon a meeting of the minds on the offer and the
acceptance thereof. Applying said principles, the Court held that SSS'
acceptance of the offer at P2,000,000 resulted in a perfected dation.
SSS' agreement to the P2,000,000 offer was not a counter-offer as
petitioner would have it, but an acceptance of the new reduced offer
communicated by the company's representative, Atty. Cabarroguis,
which acceptance perfected the proposed dation in payment. Third
Stage: Consummation Transfer of possession to SSS tantamount to
"delivery".
The Court ruled that the agreement on dacion en pago was
consummated by DDII's delivery of the property to SSS. Here, DDII
having divested itself of any claim over the property in favor of SSS
by means of sale via dacion en pago, petitioner has lost its title over
the property which would give it legal personality to file said action.
 VILLARICA PAWNSHOP v. SOCIAL SECURITY COMMISSION
G.R. NO. 228087; JANUARY 24, 2018

FACTS:
Petitioners are compulsorily registered with the Social Security
System(SSS) under Republic Act (R.A.) No. 8282, otherwise known as
the Social Security Law of 1997. In 2009, petitioners paid their
delinquent contributions and accrued penalties with the different
branches of the SSS. Invoking Section 4 of R.A. No. 9903 and Section
2 (f) of the SSC Circular No. 2010-004 or the Implementing Rules and
Regulations of R.A. No. 9903 (IRR), petitioners claimed that the
benefits of the condonation program extend to all employers who
have settled their arrears or unpaid contributions even prior to the
effectivity of the law. The SSS - San Francisco Del Monte Branch
denied petitioner Villarica Pawnshop, Inc.'s request for refund stating
that there was no provision under R.A. No. 9903 allowing
reimbursement of penalties paid before its effectivity. Petitioners were
likewise informed that their application for the refund of the accrued
penalty had been denied because R.A. No. 9903 does not cover
accountabilities settled prior to its effectivity.
Petitioners filed their respective Petitions before the SSC
seeking reimbursement of the 3% per month penalties they paid in
2009. In its Answer, the SSS prayed for the dismissal of the petitions
for utter lack of merit. It maintained that petitioners were not entitled
to avail of the condonation program under R.A. No. 9903 because
they were not considered delinquent at the time the law took effect in
2010; and that there was nothing more to condone on the part of
petitioners for they have settled their obligations even before the
enactment of the law.

ISSUE:
Are the petitioners entitled to avail of the condonation program
under R.A. No. 9903?

HELD:
No. Under R.A. No. 9903 and its IRR, an employer who is
delinquent or has not remitted all contributions due and payable to
the SSS may avail of the condonation program provided that the
delinquent employer will remit the full amount of the unpaid
contributions or would submit a proposal to pay the delinquent
contributions in installment within the six (6)-month period set by
law. Under Section 4 of R.A. No. 9903, once an employer pays all its
delinquent contributions within the six month period, the accrued
penalties due thereon shall be deemed waived. In the last proviso
thereof, those employers who have settled their delinquent
contributions before the effectivity of the law but still have existing
accrued penalties shall also benefit from the condonation program.
In that situation, there is still something to condone because there
are existing accrued penalties at the time of the effectivity of the law.
Here, the Court finds that employers who have paid their unremitted
contributions and already settled their delinquent contributions as
well as their corresponding penalties before R.A. No. 9903's effectivity
do not have a right to be refunded of the penalties already paid. A
plain reading of Section 4 of R.A. No. 9903 shows that it does not give
employers who have already settled their delinquent contributions as
well as their corresponding penalties the right to a refund of the
penalties paid.
Logically, only existing obligations can be extinguished either
by payment, loss of the thing due, remission or condonation,
confusion or merger or rights, compensation, novation, annulment of
contract, rescission, fulfillment of a resolutory condition, or
prescription. It is absurd to revive obligations that have already been
extinguished by payment or performance just to be re-extinguished
by condonation or remission so that it may create a resulting
obligation on the basis of solutio indebiti.
 SPS. CACAYORIN v. ARMED FORCES AND POLICE MUTUAL
BENEFIT ASSOCIATION, INC.
G.R. NO. 171298; APRIL 15, 2013

FACTS:
Oscar Cacayorin is a member of respondent AFPMBAI, a mutual
benefit engaged in the business of developing housing projects for
personnel of the AFP, PNP and the like. He filed an application with
AFPMBAI to purchase a property which the latter owned, through a
loan facility. Oscar and his wife, on one hand, and the Rural Bank of
San Teodoro on the other, executed a Loan and Mortgage Agreement.
The Rural Bank issued a letter of guaranty informing AFPMBAI that
the proceeds of petitioners’ approved loan shall be released to
AFPMBAI after title to the property is transferred in petitioners’ name
and after the registration and annotation of the parties’ mortgage
agreement. Thereafter, the AFPMBAI executed in petitioners’ favor a
Deed of Absolute Sale, and a new title.
But the loan facility did not push through and the Rural Bank
closed and was placed under receivership by the Philippine Deposit
Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was
able to take possession of petitioners’ loan documents and TCT, while
petitioners were unable to pay the loan/consideration for the
property. AFPMBAI made oral and written demands for petitioners to
pay the loan/ consideration for the property. Then, petitioners filed
a Complaint for consignation of loan payment against AFPMBAI,
PDIC and the Register of Deeds. Petitioners alleged that as a result
of the Rural Bank’s closure and PDIC’s claim that their loan papers
could not be located, they were left in a quandary as to where they
should tender full payment of the loan and how to secure cancellation
of the mortgage annotation on the subject TCT.
AFPMBAI filed a Motion to Dismiss claiming that petitioners‘
Complaint falls within the jurisdiction of the Housing and Land Use
Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it
was filed by petitioners in their capacity as buyers of a subdivision
lot and it prays for specific performance of contractual and legal
obligations decreed under Presidential Decree No. 957. It added that
since no prior valid tender of payment was made by petitioners, the
consignation case was fatally defective and susceptible to dismissal.

ISSUES:
1. Is the complaint for consignation falls within the jurisdiction
of the regular courts?
2. Is the lack of prior tender of payment by the petitioners fatal
to their consignation case?

HELD:
1. Yes. Under Article 1256 of the Civil Code, the debtor shall be
released from responsibility by the consignation of the thing or sum
due, without need of prior tender of payment, when the creditor is
absent or unknown, or when he is incapacitated to receive the
payment at the time it is due, or when two or more persons claim the
same right to collect, or when the title to the obligation has been lost.
Applying Article 1256 to the petitioners‘ case as shaped by the
allegations in their Complaint, the Court finds that a case for
consignation has been made out, as it now appears that there are
two entities which petitioners must deal with in order to fully secure
their title to the property: 1) the Rural Bank (through PDIC), which
is the apparent creditor under the July 4, 1994 Loan and Mortgage
Agreement; and 2) AFPMBAI, which is currently in possession of the
loan documents and the certificate of title, and the one making
demands upon petitioners to pay. Clearly, the allegations in the
Complaint present a situation where the creditor is unknown, or that
two or more entities appear to possess the same right to collect from
petitioners. Whatever transpired between the Rural Bank or PDIC
and AFPMBAI in respect of petitioners’ loan account, if any, such that
AFPMBAI came into possession of the loan documents and TCT No.
37017, it appears that petitioners were not informed thereof, nor
made privy thereto.

2. No. The lack of prior tender of payment by the petitioners is

not fatal to their consignation case. They filed the case for the exact
reason that they were at a loss as to which between the two – the
Rural Bank or AFPMBAI – was entitled to such a tender of payment.
Besides, as earlier stated, Article 1256 authorizes consignation alone,
without need of prior tender of payment, where the ground for
consignation is that the creditor is unknown, or does not appear at
the place of payment; or is incapacitated to receive the payment at
the time it is due; or when, without just cause, he refuses to give a
receipt; or when two or more persons claim the same right to collect;
or when the title of the obligation has been lost. Consignation is
necessarily judicial; hence, jurisdiction lies with the RTC, not with
the HLURB.
 SPS. BONROSTRO v. SPS. LUNA
G.R. NO. 172346; JULY 24, 2013

FACTS:
Respondent Constancia, as buyer, entered into a Contract to
Sell with Bliss Development Corporation involving a house and lot. A
year after, Constancia, this time as the seller, entered into another
Contract to Sell with petitioner Lourdes Bonrostro concerning the
same property. Immediately after the execution of the said second
contract, the spouses Bonrostro took possession of the property.
However, except for the ₱200,000.00 down payment, Lourdes failed
to pay any of the stipulated subsequent amortization payments.
Then, a subsequent case for Rescission was filed wherein which the
petitioner spouses were assessed by the court to pay the interest due
to their default in paying. The petitioners appealed alleging that
Lourdes was willing and ready to pay her obligation as evidenced by
her November 24, 1993 letter to Atty. Carbon. They also assert that
the sending of the said letter constitutes a valid tender of payment
on their part. Hence, they argue that they should not be assessed
any interest subsequent to the date of the said letter.

ISSUE:
Whether or not there is a valid tender of payment and
consignation which suspended the interest from accruing.

HELD:
None. Tender of payment is the manifestation by the debtor of
a desire to comply with or pay an obligation. If refused without just
cause, the tender of payment will discharge the debtor of the
obligation to pay but only after a valid consignation of the sum due
shall have been made with the proper court. Consignation is the
deposit of the proper amount with a judicial authority in accordance
with rules prescribed by law, after the tender of payment has been
refused or because of circumstances which render direct payment to
the creditor impossible or inadvisable. Tender of payment, without
more, produces no effect.
In this case, the subject letter merely states Lourdes’ willingness
and readiness to pay but it was not accompanied by payment. She
claimed that she made numerous telephone calls to Atty. Carbon
reminding the latter to collect her payment, but, neither said lawyer
nor Constancia came to collect the payment. After that, the spouses
Bonrostro took no further steps to effect payment. They did not resort
to consignation of the payment with the proper court despite
knowledge that under the contract, non-payment of the installments
on the agreed date would make them liable for interest thereon. The
spouses Bonrostro erroneously assumed that their notice to pay
would excuse them from paying interest. Their claimed tender of
payment did not produce any effect whatsoever because it was not
accompanied by actual payment or followed by consignation. Hence,
it did not suspend the running of interest.
 ELIZABETH DEL CARMEN v. SPOUSES RESTITUTO SABORDO
AND MIMA MAHILUM-SABORDO
G.R. NO. 181723; AUGUST 11, 2014

FACTS:
Spouses Toribio and Eufrocina Suico, along with partners,
obtained a loan from DBP for their business, and to secure the said
loan, lands owned by the Suico spouses, and another lot owned by
their business partner, Juliana Del Rosario, were mortgaged.
Subsequently, they failed to pay their loan obligations forcing DBP to
foreclose the mortgage. DBP consolidated its ownership over the
same. Nonetheless, DBP later allowed the Suico spouses and
Reginald and Beatriz Flores (Flores spouses), as substitutes for
Juliana Del Rosario, to repurchase the subject lots. The Suico and
Flores spouses were able to pay the downpayment and the first
monthly amortization, but no monthly installments were made
thereafter. Threatened with the cancellation of the conditional sale,
the Suico and Flores spouses sold their rights over the said properties
to respondents subject to the condition that the latter shall pay the
balance of the sale price. DBP approved the sale of rights of the Suico
and Flores spouses in favor of herein respondents. Subsequently,
respondents were able to repurchase the foreclosed properties of the
Suico and Flores spouses.
Thereafter, respondent filed an original action for declaratory
relief raising the issue of whether or not the Suico spouses have the
right to recover from respondents Lots 506 and 514. The RTC and
the CA gave Suico spouses until October 1990 to redeem. In the
meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina,
and several others, including herein petitioner, as legal heirs. Later,
they discovered that respondents mortgaged Lots 506 and 514 with
Republic Planters Bank (RPB) as security for a loan which,
subsequently, became delinquent. Thereafter, claiming that they are
ready with the payment of ₱127,500.00, but alleging that they cannot
determine as to whom such payment shall be made, petitioner and
her co-heirs filed a Complaint with the RTC seeking to compel herein
respondents and RPB to interplead and litigate between themselves
their respective interests on the abovementioned sum of money.
Respondents filed their Answer with Counterclaim praying for the
dismissal of the above Complaint on the ground, among others, that
there was no valid consignation.

ISSUE:
Is there a valid consignation in this case?

HELD:
None. Consignation is the act of depositing the thing due with
the court or judicial authorities whenever the creditor cannot accept
or refuses to accept payment, and it generally requires a prior tender
of payment.
In the instant case, petitioner and her co-heirs, upon making
the deposit with the RTC, did not ask the trial court that respondents
be notified to receive the amount that they have deposited. In fact,
there was no tender of payment. Instead, what petitioner and her co-
heirs prayed for is that respondents and RPB be directed to
interplead with one another to determine their alleged respective
rights over the consigned amount; that respondents be likewise
directed to substitute the subject lots with other real properties as
collateral for their loan with RPB and that RPB be also directed to
accept the substitute real properties as collateral for the said loan.
It is settled that compliance with the requisites of a valid consignation
is mandatory. Failure to comply strictly with any of the requisites will
render the consignation void. One of these requisites is a valid prior
tender of payment. Under Article 1256, the only instances where
prior tender of payment is excused are: (1) when the creditor is absent
or unknown, or does not appear at the place of payment; (2) when
the creditor is incapacitated to receive the payment at the time it is
due; (3) when, without just cause, the creditor refuses to give a
receipt; (4) when two or more persons claim the same right to collect;
and (5) when the title of the obligation has been lost. None of these
instances are present in the instant case. Hence, the fact that the
subject lots are in danger of being foreclosed does not excuse
petitioner and her co-heirs from tendering payment to respondents,
as directed by the court.
 PHILIPPINE NATIONAL BANK v. LILIBETH S. CHAN
G.R. NO. 206037; MARCH 13, 2017

FACTS:
In 2000, Respondent Lilibeth S. Chan leased a commercial
building to petitioner Philippine National Bank (PNB) for a period of
five years from December 15, 1999 to December 14, 2004. When the
lease expired, PNB continued to occupy the property on a month-to-
month basis. PNB vacated the premises on March 23, 2006.
Meanwhile, respondent obtained a loan from PNB which was secured
by a Real Estate Mortgage constituted over the leased property. In
addition, respondent executed a Deed of Assignment over the rental
payments in favor of PNB.The amount of the respondent's loan was
subsequently increased to ₱7,500,000.00. Consequently, PNB and
the respondent executed an "Amendment to the Real Estate Mortgage
by Substitution of Collateral", where the mortgage over the leased
property was released and substituted by a mortgage over a parcel of
land.
The MeTC held a hearing where the parties agreed to apply the
rental proceeds from October 2004 to January 15, 2005 to the
respondent’s outstanding loan. PNB, too, consigned the amount of
₱l,348,643.92, representing rentals due from January 16, 2005 to
February 2006, with the court.
In the CA ruling, as regards the payment of legal interest, the
CA noted that PNB merely opened a non-drawing savings account
wherein it deposited the monthly rentals from January 16, 2005 to
February 2006. Such deposit of the rentals in a savings account,
however, is not the consignation contemplated by law. Thus, the CA
found PNB liable to pay the 6% legal interest rate prescribed under
Article 2209 of the Civil Code for having defaulted in the payment of
its monthly rentals to the respondent.

ISSUE:
Is there a valid consignation?

HELD:
None. For consignation to be valid, the debtor must comply with
the following requirements under the law:
1) there was a debt due;
2) valid prior tender of payment, unless the consignation was
made because of some legal cause provided in Article 1256;
3) previous notice of the consignation has been given to the
persons interested in the performance of the obligation;
4) the amount or thing due was placed at the disposal of the
court; and,
5) after the consignation had been made, the persons interested
were notified thereof.
 Failure in any of the requirements is enough ground to render
a consignation ineffective. In the present case, the records show that:
first, PNB had the obligation to pay respondent a monthly rental from
January 16, 2005 to March 23, 2006; second, PNB had the option to
pay the monthly rentals to respondent or to apply the same as
payment for respondent‘s loan with the bank, but PNB did neither;
third, PNB instead opened a non-drawing savings account at its Paco
Branch under Account No. 202- 565327-3, where it deposited the
subject monthly rentals, due to the claim of Chua of the same right
to collect the rent; and fourth, PNB consigned the amount of
Pl,348,643.92 with the Office of the Clerk of Court of the MeTC of
Manila on May 31, 2006.
PNB's deposit of the subject monthly rentals in a non-drawing
savings account is not the consignation contemplated by law,
precisely because it does not place the same at the disposal of the
court. Consignation is necessarily judicial; it is not allowed in venues
other than the courts. Consequently, PNB's obligation to pay rent for
the period of January 16, 2005 up to March 23, 2006 remained
subsisting, as the deposit of the rentals cannot be considered to have
the effect of payment. Moreover, PNB's obligation to pay the subject
monthly rentals had already fallen due and demandable before PNB
consigned the rental proceeds with the MeTC on May 31, 2006.
Although it is true that consignment has a retroactive effect, such
payment is deemed to have been made only at the time of the deposit
of the thing in court or when it was placed at the disposal of the
judicial authority.
PNB clearly defaulted in the payment of monthly rentals to the
respondent for the period January 16, 2005 up to March 23, 2006,
when it finally vacated the leased property, as such, it is liable to pay
interest in accordance with Article 2209 of the Civil Code.
LOSS OF THE THING DUE/IMPOSSIBILITY OF
PERFORMACE
COMGLASCO CORPORATION/AGUILA GLASS v. SANTOS CAR
CHECK CENTER CORPORATION
G.R. NO. 202989; MARCH 25, 2015

FACTS:
In 2000, Respondent Santos Car Check Center Corporation
leased a commercial space to petitioner Comglasco Corporation for a
period of five years. A year after, Comglasco advised Santos that it
was pre-terminating their lease contract effective December 1, 2001.
Santos refused to accede to the pre-termination, reminding
Comglasco that their contract was for five years. In 2002, Comglasco
vacated the leased premises and stopped paying any further rentals.
Santos sent several demand letters, which Comglasco completely
ignored. Thus, Santos filed suit for breach of contract.
The RTC rendered a decision in favor of Santos. In Comglasco‘s
petition, it argued that Paragraph 15 of the parties' lease
contractpermits pre-termination with cause in the first three years
and without cause after the third year. Citing business reverses
which it ascribed to the 1997 Asian financial crisis, Comglasco
insists that under Article 1267 of the Civil Code it is exempted from
its obligation under the contract, because its business setback is the
"cause" contemplated in their lease which authorized it to pre-
terminate the same.

ISSUE:
Is Comglasco exempt from its obligation under the contract?

HELD:
No. In Philippine National Construction Corporation v. CA
which also involves the termination of a lease of property by the
lessee "due to financial, as well as technical, difficulties, the Court
ruled: The obligation to pay rentals or deliver the thing in a contract
of lease falls within the prestation "to give"; hence, it is not covered
within the scope of Article 1266. At any rate, the unforeseen event
and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in said article.
Anent petitioner's alleged poor financial condition, the same will
neither release petitioner from the binding effect of the contract of
lease. As held in Central Bank v. Court of Appeals, cited by private
respondents, mere pecuniary inability to fulfill an engagement does
not discharge a contractual obligation, nor does it constitute a
defense to an action for specific performance.
Relying on Article 1267 of the Civil Code to justify its decision
to pre-terminate its lease with Santos, Comglasco invokes the 1997
Asian currency crisis as causing it much difficulty in meeting its
obligations. Article 1267 speaks of a prestation involving service
which has been rendered so difficult by unforeseen subsequent
events as to be manifestly beyond the contemplation of the parties.
To be sure, the Asian currency crisis befell the region from July 1997
and for sometime thereafter, but Comglasco cannot be permitted to
blame its difficulties on the said regional economic phenomenon
because it entered into the subject lease only on August 16, 2000,
more than three years after it began, and by then Comglasco had
known what business risks it assumed when it opened a new shop.
COMPENSATION
ADELAIDA SORIANO V. PEOPLE OF THE PHILIPPINES
G.R. NO. 181692; AUGUST 14, 2013

FACTS:
Accused Adelaida ordered 387 sacks of corn grits from the
Complainant Consolacion. Upon delivery of the goods, Adelaida let
Consolacion to sign cash vouchers representing that Consolacion
received P 85,000 as payment for the corn grits when in fact no
payment was made. Consolacion borrowed P10,000 from Adelaida
secured by a titled lot owede by her daughter Evelyn. Soon after,
Consolacion filed a case of estafa against Adelaida. During pre-trial,
the parties agreed and stipulated that the aforesaid debt was fully
paid with corn grains by the private complainant in February, 1994.
Parties also agreed that subsequent to this transaction, private
complainant's daughter Evelyn Alagao executed a Contract of Loan
secured by Real Estate Mortgage to secure the payment of
P40,000.00 which private complainant admitted to have received
P51,730.00 in the form of fertilizers and cash advances. It likewise
provides that the loan was to be paid two years from the date of
execution of the contract, or on February 18, 1996, and that Evelyn
agrees to give petitioner ¼ of every harvest from her cornland until
the full amount of the loan has been paid, starting from the first
harvest. Based on Alagao's testimony, the first harvest was made only
in September 1994. Petitioner on the other hand claims that from the
time the loan was obtained until September 1994, there were already
four harvests.
Adelaida was acquitted and ordered to pay P45,000 to the
complainants whereby the loan owed by the latter was set off from
the value of the corn grits which Adelaida received. Adelaida appealed
contending that the CA failed to offset the P51,730 worth of advances
and fertilizers which the complainants received from her. She also
claimed that she is entitled to one fourth of the harvested corn grits
which the lower court failed to appreciate and set off from her
obligation which will show that the complainants are in fact indebted
to her.

ISSUES:
1. Whether the P51,730 worth of advances and fertilizers
received by the Complainants should be set off from the Accused’s
Obligation.
2. Whether the one fourth share in the harvest as stipulated in
the loan contract signed by the parties in favor of the Accused should
be set off from the Accused’s Obligation.

HELD:
 YES. Off set or Compensation is a mode of extinguishing to the
concurrent amount, the debts of persons who in their own right are
creditors and debtors of each other. The object of compensation is
the prevention of unnecessary suits and payments through the
mutual extinction by operation of law of concurring debts. Article
1279 of the Civil Code provides for the requisites for compensation to
take effect:
ART. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due
time to the debtor.

All the above requisites for compensation are present in the

instant case. With the presence of all the requisites mentioned in
Article 1279, legal compensation took effect by operation of law as
provided in Article 1290 of the Civil Code, to wit:
ART. 1290. When all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation.

2. No. With respect to the 114 share in the harvest due to

petitioner as provided in the contract of loan, the same cannot be
considered in the legal compensation of the debts of the parties since
it does not consist in a sum of money, said share being in the form
of harvests. More importantly, it is not yet liquidated. There is still a
dispute as to how many harvests were made from the time of the
execution of contract of loan up to the time the action was
commenced against petitioner and even when the principal obligation
became due in February 1996. Thus, the harvests due petitioner is
not capable of determination.
MONDRAGON PERSONAL SALES, INC. v. VICTORIANO S. SOLA,
JR.
G.R. NO. 174882; JANUARY 21, 2013

FACTS:
Petitioner Mondragon Personal Sales Inc. entered into a
Contract of Services with respondent Victoriano S. Sola, Jr. for a
period of three years. Under the said contract, respondent would
provide service facilities, i.e., bodega cum office, to petitioner's
products, as such, he was entitled to commission or service fee.
Petitioner's goods were delivered to respondent's bodega. Prior to the
execution of the contract, however, respondent’s wife, Lina Sola, had
an existing obligation with petitioner arising from her Franchise
Distributorship Agreement with the latter. Respondent wrote a letter
addressed to petitioner's Vice-President for Finance, wherein he
acknowledged and confirmed his wife’s indebtedness to petitioner in
the amount of ₱1,973,154.73 and, together with his wife, bound
himself to pay on installment basis the said debt. Consequently,
petitioner withheld the payment of respondent's service fees from
February to April 1995 and applied the same as partial payments to
the debt which he obligated to pay. On April 1995, respondent closed
and suspended operation of his office cum bodega where petitioner's
products were stored and customers were being dealt with.
Then, respondent filed a Complaint for accounting and
rescission against petitioner alleging that petitioner withheld
portions of his service fees; that petitioner's act grossly hampered his
business operation, thus left with no other recourse, he suspended
operations to minimize losses. He prayed for the rescission of the
contract of services and for petitioner to render an accounting of his
service fees.

ISSUE:
Whether the petitioner validly withheld the payment of
respondent’s service fees and applied the same as partial payments
to the debt which he obligated to pay.

HELD:
Yes. The Court held that petitioner's act of withholding
respondent's service fees/commissions and applying them to the
latter's outstanding obligation with the former is merely an
acknowledgment of the legal compensation that occurred by
operation of law between the parties. Compensation is a mode of
extinguishing to the concurrent amount the obligations of persons
who in their own right and as principals are reciprocally debtors and
creditors of each other. Legal compensation takes place by operation
of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to
compensate their mutual obligations even in the absence of some
requisites.
In this case, all the requisites for legal compensation. Petitioner
and respondent are both principal obligors and creditors of each
other. Their debts to each other consist in a sum of money.
Respondent acknowledged and bound himself to pay petitioner the
amount of ₱1,973,154.73 which was already due, while the service
fees owing to respondent by petitioner become due every month.
Respondent's debt is liquidated and demandable, and petitioner's
payments of service fees are liquidated and demandable every month
as they fall due. Finally, there is no retention or controversy
commenced by third persons over either of the debts. Thus,
compensation is proper up to the concurrent amount where
petitioner owes respondent ₱125,040.01 for service fees, while
respondent owes petitioner ₱1,973,154.73.
As legal compensation took place in this case, there is no basis
for respondent to ask for rescission since he was the first to breach
their contract when he suddenly closed and padlocked his bodega
office occupied by petitioner.
UNION BANK OF THE PHILIPPINES v. DEVELOPMENT BANK OF
THE PHILIPPINES
G.R. NO. 191555; JANUARY 20, 2014

FACTS:
Foodmasters, Inc. (FI) had outstanding loan obligations to both
Union Bank’s predecessor-in-interest, Bancom Development
Corporation (Bancom), and to DBP. On May 21, 1979, FI and DBP,
among others, entered into a Deed of Cession of Property In Payment
of Debt (dacion en pago) whereby the former ceded in favor of the
latter certain properties (including a processing plant in Marilao,
Bulacan) in consideration of the following: (a) the full and complete
satisfaction of FI‘s loan obligations to DBP; and (b) the direct
assumption by DBP of FI‘s obligations to Bancom in the amount of
₱17,000,000.00 (assumed obligations). On the same day, DBP, as the
new owner of the processing plant, leased back for 20 years the said
property to FI (Lease Agreement) which was, in turn, obliged to pay
monthly rentals to be shared by DBP and Bancom.
DBP also entered into a separate agreement with Bancom
(Assumption Agreement) whereby the former: (a) confirmed its
assumption of FI‘s obligations to Bancom; and (b) undertook to remit
up to 30% of any and all rentals due from FI to Bancom (subject
rentals) which would serve as payment of the assumed obligations,
to be paid in monthly installments. Thereafter, FI assigned its
leasehold rights under the Lease Agreement to Foodmasters
Worldwide, Inc. (FW); while on May 9, 1984, Bancom conveyed all its
receivables, including, among others, DBP’s assumed obligations, to
Union Bank.
Claiming that the subject rentals have not been duly remitted
despite its repeated demands, Union Bank filed, on June 20, 1984, a
collection case against DBP before the RTC, docketed as Civil Case
No. 7648.13 In opposition, DBP countered, among others, that the
obligations it assumed were payable only out of the rental payments
made by FI. Thus, since FI had yet to pay the same, DBP’s obligation
to Union Bank had not arisen.

ISSUE:
Is there compensation?

HELD:
No. The Court held that under Art. 1279 of the Civil Code, in
order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
 (4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due
time to the debtor.

When all the requisites mentioned in Article 1279 are present,

compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and
debtors are not aware of the compensation.
In this case, Union Bank filed a motion to seek affirmation that
legal compensation had taken place in order to effectively offset (a)
its own obligation to return the funds it previously received from DBP
as directed under the September 6, 2005 Writ of Execution with (b)
DBP’s assumed obligations under the Assumption Agreement.
However, legal compensation could not have taken place
between these debts for the apparent reason that requisites 3 and 4
under Article 1279 of the Civil Code are not present. Since DBP’s
assumed obligations to Union Bank for remittance of the lease
payments are contingent on the prior payment thereof by FW to
DBP," it cannot be said that both debts are due. The Court likewise
observed that any deficiency that DBP had to make up for the full
satisfaction of the assumed obligations cannot be determined until
after the satisfaction of Foodmasters’ obligation to DBP. In this
regard, it cannot be concluded that the same debt had already been
liquidated, and thereby became demandable.
 FIRST UNITED CONSTRUCTORS CORPORATION AND BLUE
STAR CONSTRUCTION CORPORATION v. BAYANIHAN
AUTOMOTIVE CORPORATION
G.R. NO. 164985; JANUARY 15, 2014

FACTS:
First United Constructors Corporation (FUCC) and Blue Star
Construction Corporation (Blue Star), were associate construction
firms. Respondent, Bayanihan Automotive Corporation, is a domestic
corporation engaged in the business of importing and reconditioning
used Japan-made trucks, and of selling the trucks to interested
buyers who were mostly engaged in the construction business.
Previously, petitioners bought 6 trucks from the respondent.
The latter extends repair services to the units bought by the former.
Then, petitioners ordered one unit of Hino Prime Mover and Isuzu
Mixer which was delivered by the respondent. Those units were
partially paid in cash. For the remaining balance, petitioners issued
postdated checks. On presentment, respondent learned that FUCC
stopped the payment of the checks.
Despite demand, there was no payment. This compelled the
respondent to file a collection suit against the petitioners for the
balance covered by the checks. The petitioners insisted that they had
the right to withhold the payment because there was a breach of
warranty by the respondent as to the sale of the dump truck hence
they had to exercise their right of recoupment. Moreover, since
respondent failed to repair the dump truck, petitioners shouldered
the costs and offset their payment or obligation to the respondent as
to the two units. On the other hand, the respondent averred that
recoupment was improper for the sale of the dump trucks and the
last two units were separate and independent transactions. There
could be no set off or compensation also since the claim of the
petitioners was not yet liquidated and demandable. This being so
petitioners should pay the balance covered by the checks.

ISSUE:
Can there be set-off between the costs of the repairs and spare
parts for the dump truck delivered to FUCC with the petitioners’
obligations to the respondent?

HELD:
Yes. The Court held that considering that preponderant
evidence showing that petitioners had spent the amount of
P71,350.00 for the repairs and spare parts of the second dump truck
within the warranty period of three months supported the finding of
the two lower courts, the Court accepts their finding. Verily, factual
findings of the trial court, when affirmed by the CA, are conclusive
on the Court when supported by the evidence on record.
 A debt is liquidated when its existence and amount are
determined. Accordingly, an unliquidated claim set up as a
counterclaim by a defendant can be set off against the plaintiff’s
claim from the moment it is liquidated by judgment. Article 1290 of
the Civil Code provides that when all the requisites mentioned in
Article 1279 of the Civil Code are present, compensation takes effect
by operation of law, and extinguishes both debts to the concurrent
amount. With petitioners’ expenses for the repair of the dump truck
being already established and determined with certainty by the lower
courts, it follows that legal compensation could take place because
all the requirements were present. Hence, the amount of P71,350.00
should be set off against petitioners’ unpaid obligation of
P735,000.00, leaving a balance of P663,650.00, the amount
petitioners still owed to respondent.
 CESAR V. AREZA AND LOLITA B. AREZA v.
EXPRESS SAVINGS BANK, INC. AND MICHAEL POTENCIANO
G.R. NO. 176697; SEPTEMBER 10, 2014

FACTS:
Petitioners Cesar Areza maintained two bank deposits with
respondent Express Savings Bank (Bank). They were engaged in the
business of "buy and sell" of brand new and second-hand motor
vehicles. On 2 May 2000, they received an order from a certain
Mambuay for the purchase of a second-hand Mitsubishi Pajero and
a brand-new Honda CRV. Mambuay paid petitioners with 9
Philippine Veterans Affairs Office (PVAO) checks payable to different
payees and drawn against the Philippine Veterans Bank, each valued
at P200,000.00 for a total of P1,800,000.00. Petitioners claimed that
Potenciano, the branch manager of respondent Express Savings
Bank was present during the transaction and immediately offered the
services of the Bank for the processing and eventual crediting of the
said checks to petitioners’ account. Petitioners deposited the said
checks in their savings account with the Bank. The Bank, in turn,
deposited the checks with its depositary bank, Equitable-PCI Bank.
Equitable-PCI Bank presented the checks to the drawee, the
Philippine Veterans Bank, which honored the checks.
Sometime in July 2000, the subject checks were returned by
PVAO to the drawee on the ground that the amount on the face of the
checks was altered from the original amount of P4,000.00 to
P200,000.00. On 9 March 2001, petitioners issued a check in the
amount of P500,000.00. Said check was dishonored by the Bank for
the reason "Deposit Under Hold." Petitioners filed a Complaint for
Sum of Money with Damages against the Bank and Potenciano with
the RTC of Calamba.

ISSUE:
Is there was legal compensation?

HELD:
No. The Court held that petitioners insist that the Bank cannot
be considered a creditor of the petitioners because it should have
made a claim of the amount of ₱1,800,000.00 from Equitable-PCI
Bank, its own depositary bank and the collecting bank in this case
and not from them.
The Bank cannot set-off the amount it paid to Equitable-PCI
Bank with petitioners’ savings account. Under Article 1278 of the
New Civil Code, compensation shall take place when two persons, in
their own right, are creditors and debtors of each other. It is well-
settled that the relationship of the depositors and the Bank or similar
institution is that of creditor-debtor. Article 1980 of the New Civil
Code provides that fixed, savings and current deposits of money in
banks and similar institutions shall be governed by the provisions
concerning simple loans. The bank is the debtor and the depositor is
the creditor. The depositor lends the bank money and the bank
agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
But as previously discussed, petitioners are not liable for the
deposit of the altered checks. The Bank, as the depositary and
collecting bank ultimately bears the loss. Thus, there being no
indebtedness to the Bank on the part of petitioners, legal
compensation cannot take place.
 CALIFORNIA MANUFACTURING COMPANY, INC. v.
ADVANCED TECHNOLOGY SYSTEM, INC.
G.R. NO. 202454; APRIL 25, 2017

FACTS:
California Manufacturing Company, Inc. (CMCI) leased from
Advanced Technology Systems, Inc. (ATSI) a Prodopak machine. The
parties agreed to a monthly rental of ₱98,000 exclusive of tax. Upon
receipt of an open purchase order on August 6, 2001, ATSI delivered
the machine to CMCI's plant. In November 2003, ATSI filed a
Complaint for Sum of Money against CMCI to collect unpaid rentals
for the months of June, July, August, and September 2003. ATSI
alleged that CMCI was consistently paying the rents until June 2003
when the latter defaulted on its obligation without just cause. ATSI
also claimed that CMCI ignored all the billing statements and its
demand letter. CMCI moved for the dismissal of the complaint on the
ground of extinguishment of obligation through legal compensation.
CMCI averred that ATSI was one and the same with Processing
Partners and Packaging Corporation (PPPC), which was a toll packer
of CMCI products. To support its allegation, CMCI submitted copies
of the Articles of Incorporation and General Information Sheets (GIS)
of the two corporations. CMCI pointed out that ATSI was even a
stockholder of PPPC as shown in the latter's GIS. CMCI alleged that
in 2000, PPPC agreed to transfer the processing of CMCI's product
line from its factory in Meycauayan to Malolos, Bulacan. Upon the
request of PPPC, through its Executive Vice President Felicisima
Celones, CMCI advanced ₱4 million as mobilization fund. PPPC
President and Chief Executive Officer Francis Celones allegedly
committed to pay the amount in 12 equal instalments deductible
from PPPC's monthly invoice to CMCI beginning in October 2000. 11
CMCI likewise claims that in a letter, Felicisima proposed to set off
PPPC's obligation to pay the mobilization fund with the rentals for
the Prodopak machine. CMCI argued that the proposal was binding
on both PPPC and A TSI because Felicisima was an officer and a
majority stockholder of the two corporations.
Moreover, in a letter dated 16 September 2003, she allegedly
represented to the new management of CMCI that she was authorized
to request the offsetting of PPPC's obligation with ATSI's receivable
from CMCI. When ATSI filed suit in November 2003, PPPC's debt
arising from the mobilization fund allegedly amounted to
₱10,766.272.24. Based on the above, CMCl argued that legal
compensation had set in and that ATSI was even liable for the
balance of PPPC's unpaid obligation after deducting the rentals for
the Prodopak machine.

ISSUE:
Is there legal compensation?
HELD:
No. The Court held that in order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due
time to the debtor.

Thus, the law requires that the debts be liquidated and

demandable. Liquidated debts are those whose exact amounts have
already been determined.
CMCI has not presented any credible proof, or even just an
exact computation, of the supposed debt of PPPC. It claims that the
mobilization fund that it had advanced to PPPC was in the amount
of ₱4 million. Yet, Felicisima's proposal to conduct offsetting in her
letter dated 30 July 2001 pertained to a ₱3.2 million debt of PPPC to
CMCI. Meanwhile, in its Answer to ATSI's complaint, CMCI sought to
set off its unpaid rentals against the alleged ₱10 million debt of PPPC.
The uncertainty in the supposed debt of PPPC to CMCI negates the
latter's invocation of legal compensation as justification for its non-
payment of the rentals for the subject Prodopak machine.
ACE FOODS, INC. v. MICRO PACIFIC TECHNOLOGIES CO., LTD.
G.R. NO. 200602; DECEMBER 11, 2013

FACTS:
MTCL sent a letter proposal for the delivery and sale of the
subject products to be installed at various offices of ACE Foods. ACE
Foods accepted the proposal and accordingly issued a purchase order
for the subject products. MTCL delivered the products and installed
these products in the various offices of ACE Foods but reserved
ownership over the products until full payment of the purchase price.
ACE Foods instead of paying the purchase price manifested their
intention to return the products which MTCL through its
representative agreed to pull the subject products out. MTCL failed
to do so which prompted ACE Foods to lodge a complaint before the
RTC demanding the former to pull out the products. MTCL posited
that ACE Foods refused and failed to pay the purchase price for the
subject products despite the latter's use of the same for a period of
nine months. As such, MTCL prayed that ACE Foods be compelled to
pay the purchase price, as well as damages related to the transaction.

ISSUE:
Whether ACE Foods should pay MTCL the purchase price for
the subject products.

HELD:
Court must dispel the notion that the stipulation anent MTCL's
reservation of ownership of the subject products as reflected in the
Invoice Receipt, i.e., the title reservation stipulation, changed the
complexion of the transaction from a contract of sale into a contract
to sell. Records are bereft of any showing that the said stipulation
novated the contract of sale between the parties which, to repeat,
already existed at the precise moment ACE Foods accepted MTCL's
proposal. Novation is never presumed, and the animus novandi,
whether totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be
mistaken. Thus, absent any clear indication that the title reservation
stipulation was actually agreed upon, the Court must deem the same
to be a mere unilateral imposition on the part of MTCL which has no
effect on the nature of the parties' original agreement as a contract
of sale. Perforce, the obligations arising thereto, among others, ACE
Foods's obligation to pay the purchase price as well as to accept the
delivery of the goods, remain enforceable and subsisting.
 PHILIPPINE RECLAMATION AUTHORITY v. ROMAGO
G.R. NO. 174665; SEPTEMBER 18, 2013

FACTS:
Bases Conversion and Development Authority (BCDA) entered
into a Memorandum of Agreement with the petitioner as a project
manager. BCDA, the petitioner Philippine Reclamation Authority
(PRA), and Philippine National Bank entered into a Pool Formation
Trust Agreement (PFTA). After public bidding, the petitioner awarded
the outdoor electrical and lighting works to the Romago, Inc. as
manifested by their Construction Agreement. Romago completed
96.15% of the project. PFTA organized Heritage Park Management
Corporation (HPMC), and later elected Board of Trustees. All
engagements of PRA under the PFTA was then terminated after the
elections by the HPMC. As a consequence, the contract with Romago
was also terminated. Due to the refusal of HPMC to recognize the
PRA’s contract with it, Romago filed with the Construction Industry
Arbitration Commission (CIAC) a complaint, seeking to collect its
claims and it ruled in its favor.
On appeal, the CA rejected the PRA’s argument that it can no
longer be held liable to Romago after turning over and assigning the
project, including all its duties and obligations relating to it, to the
HPMC. Romago was not a party to the PFTA and it did not give
consent to the PRA’s supposed assignment of its obligations to the
HPMC. Hence, this petition where the PRA claims that its liability
under its contract with Romago had been extinguished by novation
when it assigned all its obligations to the HPMC pursuant to the
provisions of the PFTA.

ISSUE:
Is there novation?

HELD:
No. The Court held that in novation, a subsequent obligation
extinguishes a previous one through substitution either by changing
the object or principal conditions, by substituting another in place of
the debtor, or by subrogating a third person into the rights of the
creditor. Novation requires (a) the existence of a previous valid
obligation; (b) the agreement of all parties to the new contract; (c) the
extinguishment of the old contract; and (d) the validity of the new
one.
There cannot be novation in this case since the proposed
substituted parties did not agree to the PRA’s supposed assignment
of its obligations under the contract for the electrical and light works
at Heritage Park to the HPMC. The latter definitely and clearly
rejected the PRA’s assignment of its liability under that contract to
the HPMC. Romago tried to follow up its claims with the HPMC, not
because of any new contract it entered into with the latter, but simply
because the PRA told it that the HPMC would henceforth assume the
PRA’s liability under its contract with Romago.
Besides, Section 11.07 of the PFTA makes it clear that the
termination of the PRAs obligations is conditioned upon the turnover
of documents, equipment, computer hardware and software on the
geographical information system of the Park; and the completion and
faithful performance of its respective duties and responsibilities
under the PFTA. More importantly, Section 11.07 did not say that the
HPMC shall, thereafter, assume the PRA’s obligations. On the
contrary, Section 7.01 of the PFTA recognizes that contracts that the
PRA entered into in its own name and makes it liable for the same.
Thus: Section 7.01. Liability of BCDA and PRA. BCDA and PRA shall
be liable in accordance herewith only to the extent of the obligations
specifically undertaken by BCDA and PRA herein and any other
documents or agreements relating to the Project, and in which they
are parties.
VECTOR SHIPPING CORPORATION AND FRANCISCO SORIANO
v. AMERICAN HOME ASSURANCE COMPANY AND SULPICIO
LINES, INC.
G.R. NO. 159213; JULY 03, 2013

FACTS:
Vector Shipping was the operator of the motor tanker M/T
Vector, while Soriano was the registered owner of M/V Vector. The
respondent is an insurance company.
On September 30, 1987, Caltex entered into a contract of
affreightment with Vector for the transport of its petroleum cargo
through the M/T Vector. Caltex insured the petroleum cargo with
AHAC for P7,455,421.08 under Marine Open Policy No. 34-5093-6.
Unfortunately, M/T Vector and the M/V Doña Paz, the latter a vessel
owned and operated by Sulpicio Lines, Inc., collided in the open sea
which led to the sinking of both vessels. Then on July 12, 1988,
AHAC indemnified Caltex for the loss of the petroleum cargo in the
full amount.
On March 5, 1992, AHAC filed a complaint against Vector,
Soriano, and Sulpicio Lines, Inc. to recover the full amount of
P7,455,421.08 it paid to Caltex. The RTC dismissed the complaint on
the ground that it has prescribed considering that it is based on a
quasi-delict, hence, an action shall be filed four years from the
occurrence.

ISSUE:
Was there novation?

HELD:
No The Court held that the present action was not upon a
written contract, but upon an obligation created by law. Hence, it
came under Article 1144 (2) of the Civil Code. This is because the
subrogation of respondent to the rights of Caltex as the insured was
by virtue of the express provision of law embodied in Article 2207 of
the Civil Code, to wit:
Article 2207. If the plaintiff‘s property has been insured, and he
has received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than the
assured, then the insurer, upon payment to the assured, will be
subrogated to the rights of the assured to recover from the wrongdoer
to the extent that the insurer has been obligated to pay. Payment by
the insurer to the assured operates as an equitable assignment to
the former of all remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer.
Verily, the contract of affreightment that Caltex and Vector
entered into did not give rise to the legal obligation of Vector and
Soriano to pay the demand for reimbursement by respondent
because it concerned only the agreement for the transport of Caltex’s
petroleum cargo. As the Court has aptly put it in Pan Malayan
Insurance Corporation v. Court of Appeals, respondent‘s right of
subrogation pursuant to Article 2207 was “not dependent upon, nor
did it grow out of, any privity of contract or upon written assignment
of claim but accrued simply upon payment of the insurance claim by
the insurer.”
 ASIAN TERMINALS, INC v. PHILAM INSURANCE CO.
G.R NO. 181163; JULY 24, 2013

FACTS:
Nichimen Corporation shipped to Universal Motors 219
packages containing 120 units of brand new Nissan Pickup Truck
without engine, tires, and batteries on board the vessel S/S ―Calayan
Iris‖ from Japan to Manila. The shipment, which had a declared value
of P29,400,000 was insured with Philam against all risks. The
carrying vessel arrived at the port of Manila and when the shipment
was unloaded by the staff of ATI, it was found that the package
marked as 03-245-42K/1 and 03/237/7CK/2 are in bad order. The
cargoes were stored for temporary safekeeping inside CFS Warehouse
in Pier No. 5. Upon the request of Universal Motors, a bad order
survey was conducted on the cargoes and it was found that one
Frame Axle Sub without LWR was deeply dented in the buffle plate
while 6 Frame Assembly with Bush were deformed and misaligned.
Owing to the extent of the damage to said cargoes,
Universal Motors declared them a total loss. Universal Motors
filed a formal claim for damages in the amount of P643, 963. 84
against Westwind, ATI, and RF Revilla Customs Brokerage. When
Universal Motors’ demands remained unheeded, it sought reparation
from and was compensated in the sum of P633, 957. 15 by Phil Am.
Accordingly, Universal Motors issued a Subrogation Receipt dated 15
November 1999 in favor of Philam.
PhilAm as subrogee of Universal Motors, filed a Complaint for
Damages against Westwind, ATI, and RF Revilla Customs Brokerage
Inc before the RTC of Makati. The trial court rendered judgment in
favor of Philam which ruling was affirmed by the Court of Appeals
modifying the amount to be paid by Westwind and ATI.

ISSUE:
May PhilAm claim against Westwind and ATI as subrogee?

HELD:
Yes. The Court held that Article 2207 of the Civil Code provides
that if the plaintiff‘s property has been insured and he has received
indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
In this case, Philam has adequately established the basis of its
claim against ATI and Westwind. Philam, as insurer, was subrogated
to the rights of the consignee, Universal Motors Corporation,
pursuant to the Subrogation receipt executed by the latter in favor of
the former. The right of subrogation accrues simply upon payment
by the insurance company of the insurance claim.
 NARCISO DEGAÑOS v. PEOPLE OF THE PHILIPPINES
G.R. No. 16282; OCTOBER 14, 2013

FACTS:
Narciso Degaños and Brigida D. Luz, alias Aida Luz are brother
and sister. Lydia knew them because they are the relatives of her
husband. The usual business practice of Sps. Bordador with the
accused was for Narciso to receive the jewelry and gold items for and
in behalf of Aida and for Narciso to sign the "Kasunduan at
Katibayan" receipts while Aida will pay for the price later on. The
subject items were usually given to Narciso only upon instruction
from Aida through telephone calls or letters. Said business
arrangement went on for quite some time since Narciso and Aida Luz
had been paying religiously.
When the accused defaulted in their payment, they sent
demand letters Aida sent a letter to Lydia Bordador requesting for an
accounting of her indebtedness. Lydia made an accounting which
contained the amount of P122,673.00 as principal and P21,483.00
as interest. Thereafter, she paid the principal amount through
checks. She did not pay the interest because the same was allegedly
excessive. Atty. Jose Bordador brought a ledger to her and asked her
to sign the same. The said ledger contains a list of her supposed
indebtedness to the private complainants. She refused to sign the
same because the contents thereof are not her indebtedness but that
of her brother Narciso. She even asked the private complainants why
they gave so many pieces of jewelry and gold bars to Narciso without
her permission, and told them that she has no participation in the
transactions covered by the subject "Kasunduan at Katibayan"
receipts. Co-accused Narciso categorically admitted that he is the
only one who was indebted to the private complainants and out of
his indebtedness, he already made partial payments in the amount
of P53,307.00. Included in the said partial payments is the amount
of P20,000.00 which was contributed by his brothers and sisters who
helped him and which amount was delivered by Aida to the private
complainants.
Luz and Degaños were charged with estafa under Article 315
paragraph 1 b) of the Revised Penal Code. RTC found Narciso guilty
beyond reasonable doubt of the crime chargede but acquitted Luz for
insufficiency of evidence.

ISSUE:
Had novation converted the liability of the accused into a civil
one?

HELD:
No. The Court held that novation is not one of the grounds
prescribed by the Revised Penal Code for the extinguishment of
criminal liability. Criminal liability for estafa is not affected by
compromise or novation of contract, for it is a public offense which
must be prosecuted and punished by the Government on its own
motion even though complete reparation should have been made of
the damage suffered by the offended party.
The partial payments Degaños made and his purported
agreement to pay the remaining obligations did not equate to a
novation of the original contractual relationship of agency to one of
sale. Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one that
terminates the first, either by (a) changing the object or principal
conditions; or (b) substituting the person of the debtor; or (c)
subrogating a third person in the rights of the creditor. In order that
an obligation may be extinguished by another that substitutes the
former, it is imperative that the extinguishment be so declared in
unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other. Obviously, in case of only
slight modifications, the old obligation still prevails. The changes
alluded to by petitioner consists only in the manner of payment.
There was really no substitution of debtors since private complainant
merely acquiesced to the payment but did not give her consent to
enter into a new contract.
 ARCO PULP AND PAPER CO., INC. v. DAN T. LIM
G.R. No. 206806; JUNE 25, 2014

FACTS:
Dan T. Lim works in the business of supplying scrap papers,
cartons, and other raw materials, under the name Quality Paper and
Plastic Products, Enterprises, to factories engaged in the paper mill
business. From February 2007 to March 2007, he delivered scrap
papers to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper).
The parties allegedly agreed that Arco Pulp and Paper would either
pay Dan T. Lim the value of the raw materials or deliver to him their
finished products of equivalent value.
Dan T. Lim alleged that when he delivered the raw materials,
Arco Pulp and Paper issued a postdated check as partial payment,
with the assurance that the check would not bounce. When he
deposited the check on April 18, 2007, it was dishonored for being
drawn against a closed account.
On the same day, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement10 where Arco Pulp and Paper
bound themselves to deliver their finished products to Megapack
Container Corporation, owned by Eric Sy, for his account. According
to the memorandum, the raw materials would be supplied by Dan T.
Lim, through his company, Quality Paper and Plastic Products.
On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper
demanding but no payment was made to him. Dan T. Lim filed a
complaint for collection of sum of money with prayer for attachment
with the Regional Trial Court. The trial court rendered a judgment in
favor of Arco Pulp and Paper and dismissed the complaint, holding
that when Arco Pulp and Paper and Eric Sy entered into the
memorandum of agreement, novation took place, which extinguished
Arco Pulp and Paper’s obligation to Dan T. Lim. The Court of Appeals
reversed this.

ISSUE:
Did the memorandum of agreement constitute a novation of the
original contract?

HELD:
No. The Court held that the Memorandum Agreement did not
constitute a novation of the original contract. When petitioner Arco
Pulp and Paper opted instead to deliver the finished products to a
third person, it did not novate the original obligation between the
parties.
Novation extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when there is
subrogation of the creditor. It occurs only when the new contract
declares so "in unequivocal terms" or that "the old and the new
obligations be on every point incompatible with each other."
 For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation. 2) The parties concerned
must agree to a new contract. 3) The old contract must be
extinguished. 4) There must be a valid new contract.
In the case, there is nothing in the memorandum of agreement
that states that with its execution, the obligation of petitioner Arco
Pulp and Paper to respondent would be extinguished. It also does not
state that Eric Sy somehow substituted petitioner Arco Pulp and
Paper as respondent’s debtor. It merely shows that petitioner Arco
Pulp and Paper opted to deliver the finished products to a third
person instead. If the memorandum of agreement was intended to
novate the original agreement between the parties, respondent must
have first agreed to the substitution of Eric Sy as his new debtor. The
memorandum of agreement must also state in clear and unequivocal
terms that it has replaced the original obligation of petitioner Arco
Pulp and Paper to respondent. Neither of these circumstances is
present in this case. Petitioner Arco Pulp and Paper‘s act of tendering
partial payment to respondent also conflicts with their alleged intent
to pass on their obligation to Eric Sy.
 LEONARDO BOGNOT v. RRI LENDING CORPORATION
G.R. NO. 180144; SEPTEMBER 24, 2014

FACTS:
Sometime in September 1996, the petitioner and his younger
brother, Rolando A. Bognot (Bognot siblings), applied for and
obtained a loan of from the respondent, payable on November 30,
1996. The loan was evidenced by a promissory note and was secured
by a post-dated check dated November 30, 1996.
The petitioner renewed the loan several times on a monthly
basis. Sometime in March 1997, the petitioner applied for another
loan renewal. He again executed as principal and signed a promissory
note payable on April 1, 1997; his co-maker was again Rolando. As
security for the loan, the petitioner also issued BPI check post-dated
to April 1, 1997.
Subsequently, the loan was again renewed on a monthly basis
(until June 30, 1997). The petitioner purportedly paid the renewal
fees and issued a post-dated check dated June 30, 1997 as security.
As had been done in the past, the respondent superimposed the date
"June 30, 1997" on the upper right portion of promissory note to
make it appear that it would mature on the said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta
Bognot (Mrs. Bognot), went to the respondent’s office and applied for
another renewal of the loan. She issued in favor of the respondent a
promissory note, and International Bank Exchange (IBE) check,
dated July 30, 1997, in the amount of ₱54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents
for the Bognot siblings’ signatures and replacement, Mrs. Bognot
asked the respondent’s clerk to release to her the promissory note,
the disclosure statement, and the check dated July 30, 1997. Mrs.
Bognot, however, never returned these documents nor issued a new
post-dated check.
Consequently, the respondent sent the petitioner follow-up
letters demanding payment of the loan, plus interest and penalty
charges. These demands went unheeded. On November 27, 1997, the
respondent filed a complaint for sum of money before the Regional
Trial Court (RTC) against the Bognot siblings, alleging that the loan
renewal payable on June 30, 1997 which the Bognot siblings applied
for remained unpaid.

ISSUE:
Were the obligations of the parties’ obligations extinguished by
novation by substitution of debtors?

HELD:
No. The Court held that the obligation was not extinguished,
either by payment or novation. Novation cannot be presumed and
must be clearly and unequivocally proven. To give novation legal
effect, the original debtor must be expressly released from the
obligation, and the new debtor must assume the original debtor’s
place in the contractual relationship. Depending on who took the
initiative, novation by substitution of debtor has two forms –
substitution by expromision and substitution by delegacion. But,
novation by substitution of debtor must alwaysv be made with the
consent of the creditor.
Contrary to the petitioner’s contention, Mrs. Bognot did not
substitute the petitioner as debtor. She merely attempted to renew
the original loan by executing a new promissory note41 and check.
The purported one-month renewal of the loan, however, did not push
through, as Mrs. Bognot did not return the documents or issue a new
post-dated check. Since the loan was not renewed for another month,
the original due date, June 30,1997, continued to stand. More
importantly, the respondent never agreed to release the petitioner
from his obligation. That the respondent initially allowed Mrs. Bognot
to bring home the promissory note, disclosure statement and the
petitioner’s previous check dated June 30, 1997, does not ipso facto
result in novation. Neither will this acquiescence constitute an
implied acceptance of the substitution of the debtor. Since the
petitioner failed to show that the respondent assented to the
substitution, no valid novation took place with the effect of releasing
the petitioner from his obligation to the respondent.
Moreover, in the absence of showing that Mrs. Bognot and the
respondent had agreed to release the petitioner, the respondent can
still enforce the payment of the obligation against the original debtor.
Mere acquiescence to the renewal of the loan, when there is clearly
no agreement to release the petitioner from his responsibility, does
not constitute novation.
 WELLEX GROUP v. U-LAND AIRLINES
G.R. NO. 167519; JANUARY 14, 2015

FACTS:
Wellex and U-Land agreed to develop a long- term business
relationship through the creation of joint interest in airline
operations and property development projects in the Philippines. The
agreement includes: 1) Acquisition of APIC and PEC shares; 2)
Operation and management of APIC/ PEC/ APC; 3) entering into and
funding a joint development agreement; and 4) the option to acquire
from Wellex shares of stock of Express Savings Bank up to 40% of
the outstanding capital stock of ESB of U-Land. The provisions of the
memorandum were agreed to be executed within 40 days from its
execution date.
The 40- day period lapsed but Wellex and U- Land were not able
to enter into any share purchase agreement although drafts were
exchanged between the two. However, despite the absence of a share
purchase agreement, U- Land remitted to Wellex a total of
US$7,499,945. Wellex acknowledged the receipt of these remittances
in a confirmation letter addressed to U-Land and allegedly delivered
stock certificates and TCTs of subject properties. Despite these
transactions, Wellex and U- Land still failed to enter into the share
purchase agreement and the joint development agreement. Thus, U-
Land filed a complaint praying for the rescission of the first MOA and
damages against Wellex and for the issuance of a Writ of Preliminary
Attachment. After verification with the SEC, U-Land discovered that
APIC did not own a single share of stock in APC.
The RTC ruled in favor of U-Land and ordered the rescission of
contract under Art 1911 of the Civil Code. Basis of rescission is the
misrepresentation that APIC was a majority shareholder of APC that
compelled it to enter into the agreement.

ISSUE:
Was there novation of the First Memorandum of Agreement?

HELD:
No. The Court held that there was no express or implied
novation of the First Memorandum of Agreement. The subsequent
acts of the parties after the 40-day period were, therefore,
independent of the First Memorandum of Agreement.
Novation extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when there is
subrogation of the creditor. It occurs only when the new contract
declares so ―in unequivocal terms‖ or that “the old and the new
obligations be on every point incompatible with each other.”
For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation; 2) The parties concerned
must agree to a new contract; 3) The old contract must be
extinguished; and 4) There must be a valid new contract.
Because novation requires that it be clear and unequivocal, it is never
presumed, thus it is clear that there was no novation of the original
obligation.
After the 40-day period, the parties did not enter into any
subsequent written agreement that was couched in unequivocal
terms. The transaction of the First Memorandum of Agreement
involved large amounts of money from both parties. The parties
sought to participate in the air travel industry, which has always
been highly regulated and subject to the strictest commercial
scrutiny. Both parties admitted that their counsels participated in
the crafting and execution of the First Memorandum of Agreement as
well as in the efforts to enter into the share purchase agreement. Any
subsequent agreement would be expected to be clearly agreed upon
with their counsels’ assistance and in writing, as well. Given these
circumstances, there was no express novation.
There was also no implied novation of the original obligation. No
specific form is required for an implied novation, and all that is
prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine
what might constitute to be a sufficient change that can bring about
novation, the touchstone for contrariety, however, would be an
irreconcilable incompatibility between the old and the new
obligations.
There was no incompatibility between the original terms of the
First Memorandum of Agreement and the remittances made by
respondent U-Land for the shares of stock. These remittances were
actually made with the view that both parties would subsequently
enter into a share purchase agreement. It is clear that there was no
subsequent agreement inconsistent with the provisions of the First
Memorandum of Agreement.
There being no novation of the First Memorandum of
Agreement, respondent U-Land is entitled to the return of the amount
it remitted to petitioner Wellex. Petitioner Wellex is likewise entitled
to the return of the certificates of shares of stock and titles of land it
delivered to respondent U-Land. This is simply an enforcement of
Section 9 of the First Memorandum of Agreement. Pursuant to
Section 9, only the execution of a final share purchase agreement
within either of the periods contemplated by this stipulation will
justify the parties’ retention of what they received or would receive
from each other.
 BANK OF THE PHILIPPINE ISLANDS v. AMADOR DOMINGO
G.R. NO. 169407; MARCH 25, 2015

FACTS:
Respondent Amador Domingo and his wife, the late Mercy
Maryden Domingo executed a Promissory Note in favor of Makati
Auto Center, Inc. payable in 48 successive monthly installments.
They simultaneously executed a Deed of Chattel Mortgage over a
1993 Mazda 323 to secure the payment of their Promissory Note.
Makati Auto Center Inc. then assigned all its rights and interests over
the said Promissory Note and Chattel Mortgage to Far East Bank and
Trust Company (FEBTC).
On April 7, 2000 FEBTC and BPI merged with BPI as the
surviving corporation. By virtue of said merger all the assets of
FEBTC were transferred and absorbed by BPI. The Sps. Domingo
failed to pay 21 monthly installments from January 15,1996 to
September 15, 1997. BPI being the surviving corporation after the
merger, demanded that the spouses pay the balance of the
Promisssory Note including accrued late payment charges or to
return the possession of the subject vehicle for the purpose of
foreclosure in accordance with the undertaking stated in the chattel
mortgage. A complaint for replevin and damages was filed by BPI as
the spouses Domingo failed to comply. BPI included a John Doe as
defendant because at the time of filing of the Complaint, BPI was
aware that subject vehicle was in the possession of a third persons
but did not yet know the identity of said person.
MeTC decided in favor of BPI as it was able to establish by
preponderance of evidence a valid cause of action against the Sps.
Domingo. As per MeTC, Novation is never presumed and must be
clearly shown by express agreement or by acts of equal import. To
effect a subjective novation by a change in the person of the debtor,
it isss necessary that the old debtor be released expressly from the
obligation and that the third person/new debtor take his place.
Without such release, no novation takes place and the third person
who assumes the debtor’s obligation merely becomes a co-debtor or
surety.
On Appeal the RTC held the in cases of novation the consent of
the creditor to the substitution of the debtor need not be in express
agreement as it can be implied.

ISSUE:
Did novation take place resulting to the Sps. Domingo released
from their obligation and Carmelita substituted as debtor to BPI?

HELD:
No. It held that no novation took place. Article 1293 of the New
Civil Code provides: Novation which consists in substituting a new
debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor.
Under Article 1293, two forms of novation exist by substituting
the person of the debtor. The first is Expromision where the initiative
of the change does not come from the debtor but may even take place
without his knowledge, because it consists of a third person
assuming the obligation. It therefore requires the consent of the third
person and the creditor. The second form is called Delegacion where
the debtor offers and the creditor accepts a third person who
consents to the substitution and assumes the obligation. The consent
of the three persons are thus necessary. In the two modes of
substitution, the consent of the creditor is an indispensable
requirement.
Both the RTC and CA found that there was novation by
delegacion in the case at bar. The Deed of Sale with Assumption of
Mortgage was executed between Mercy and Carmelita, thus their
consent to the substitution as debtors and third person are deemed
undisputed.
It should be noted that to give novation its legal effect, the law
requires that the creditor should consent to the substitution of a new
debtor. Such consent must be given expressly for the reason that,
since novation extinguishes the personality of the first debtor who is
substituted by a new one, it implies a waiver of right on the part of
the creditor which he had before novation. Such waiver must be
express pursuant to the principle renuntiatio non praesumitor,
recognized by law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown by him who
hold the right.

PARADIGM DEVELOPMENT CORPORATION OF THE

PHILIPPINES v. BANK OF THE PHILIPPINE ISLANDS
G.R. No. 191174; JUNE 7, 2017

FACTS:
This case stemmed from a loan agreement between Far East
Bank and Trust Company (FEBTC) and Sengkon Trading (Sengkon)
under a credit facility denominated as Omnibus Line. Paradigm
Development Corporation of the Philippines‘ (PDCP) President
Anthony Go executed two real estate mortgage contracts to secure
the obligations of Sengkon under the Credit Line. Sengkon was able
to seek approval from the FEBTC to change the account name of
Sengkon Trading to Sengkon Trading, Inc. (STI).
Sengkon defaulted in payment of its obligations prompting
FEBTC to demand payment form PDCP. Pending the negotiations for
a comprehensive repayment scheme between PDCP and the FEBTC,
the latter was acquired by Bank of the Philippine Islands (BPI). With
the failed negotiations, FEBTC initiated foreclosure proceedings
against the mortgaged properties of PDCP. A verification of the
records in the Registry of Deeds by the PDCP revealed that FEBTC
extrajudicially foreclosed the first and second mortgage without
notice to it as the mortgagor and sold the mortgaged properties to
FEBTC as the lone bidder. It was also issued a Certificate of Sale.
PDCP filed a Complaint for the Annulment of Mortgage,
Foreclosure, Certificate of Sale and Damages against BPI as the
successor of FEBTC alleging that the REMs and their foreclosure
were null and void.

ISSUE:
Did novation take place when FEBTC approved Sengkon‘s
request to change the account name to STI?

HELD:
No. The Court held that the rule is that novation is never
presumed. Novation will not be allowed unless it is clearly shown by
express agreement, or by acts of equal import. Thus, to effect an
objective novation it is imperative that the new obligation is thereby
extinguished, or that the new obligation expressly declare that the
old obligation is thereby extinguished, or that a new obligation be on
every point incompatible with the new one. In the same vein, to effect
a subjective novation by a change in the person of the debtor it is
necessary that the old debtor be released expressly from the
obligation, and the third person who has assumed the debtor’s
obligation becomes merely a codebtor or surety.
In this case, PDCP failed to probe by preponderance of evidence
that Sengkon was already expressly released from the obligation and
that STI assumed the former’s obligation. The Deed of Assumption of
Line/Loan with Mortgage which was supposed to embody STI‖s
assumption of all the obligations of Sengkon under the line, including
but not necessarily limited to the repayment of all the outstanding
availments thereon, as well as all applicable interests and damages,
was not signed by the parties.
Also, the mere approval of FEBTC of Sengkon‘s request for the
change in account name from Sengkon to STI does not meet the
required degree of certainty to establish novation absent any other
circumstance to bolster said conclusion.
SPS CELONES v. METROPOLITAN BANK AND TRUST COMPANY
G.R. NO. 215691; NOVEMBER 21, 2018

FACTS:
The Spouses Celones together with their company, Processing
Partners and Packaging Corporation (PPPC), obtained various loans
from Metrobank and for which they mortgaged various properties.
Upon spouses’ default, Metrobank foreclosed all the mortgaged
properties. During the foreclosure sale, Metrobank was declared as
the winning bidder and the certificates of sale were issued.
Sometime in 2007, the spouses Celones offered to redeem the
properties from Metrobank. The latter issued a Conditional Notice of
Approval for Redemption (CNAR). Pressed for time, Spouses Celones
sought for help and found Atty. Dionido who agreed to loan them the
said amount. In a Memorandum of Agreement, the parties agreed for
the subrogation of Atty. Dionido to all the rights and interests of
Metrobank over the loan obligation of Spouses Celones and the
foreclosed properties.
On the belief that they have redeemed the foreclosed properties,
the Spouses Celones demanded from Metrobank the issuance of a
Certificate of Redemption. However, the latter refused to issue the
same on the ground that all its rights and interests over the
foreclosed properties had been transferred to Atty. Dionido, as such,
he should be the one to issue the said certificate.
Meanwhile, Atty. Dionido sent several demand letters to Spouses
Celones to vacate the foreclosed properties in view of the expiration
of the redemption period without Spouses Celones redeeming the
same.
Aggrieved, Spouses Celones filed before the trial court a case for
Declaratory Relief and Injunction to compel Metrobank to issue the
certificates of redemption and to deliver to them the certificates of
title over the foreclosed properties.

ISSUE:
Was there novation?

HELD:
No. The Court held that novation is a mode of extinguishing an
obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating
a third person to the rights of the creditor. In order that an obligation
may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old
and the new obligations be on every point incompatible with each
other. Thus, "novation must be stated in clear and unequivocal terms
to extinguish an obligation. It cannot be presumed and may be
implied only if the old and new contracts are incompatible on every
point." Examination of the MOA showed no express stipulation as to
the novation or extinction of the CNAR. Thus, for implied novation to
exist, it is necessary to determine whether the CNAR and the MOA
are incompatible on every point such that they cannot be reconciled
and stand together.
Under the CNAR, it is provided that Metrobank approved the
offer of Spouses Celones to redeem the property in the amount of P55
Million. While under the MOA, Metrobank assigned all its rights and
interests to Atty. Dionido over the foreclosed properties including the
issuance of a certificate of redemption.
After careful scrutiny of the records, we find that the CNAR only
deals with the redemption right of Spouses Celones while the MOA
deals with the assignment of credit of Metrobank to Atty. Dionido. As
such, the CNAR and the MOA can be reconciled and can both stand
together.
Under the MOA, Metrobank assigned all its rights and interests
over the foreclosed properties to Atty. Dionido. "An assignment of
credit has been defined as the process of transferring the right of the
assignor to the assignee who would then have the right to proceed
against the debtor." Atty. Dionido being an assignee of Metrobank,
he merely steps into the shoes of the assignor, Metrobank. Atty.
Dionido can acquire no greater right than that pertaining to his
assignor. Thus, when Atty. Dionido agreed to the assignment of
Metrobank's rights and interests over the foreclosed properties under
the MOA, he acquires exactly the rights and interests over the
foreclosed properties as of the date of the signing of the MOA.
However, Atty. Dionido has the right to demand payment of the
amount of P55 Million from Spouses Celones since it is undisputed
that such amount came from Atty. Dionido. It is unjust enrichment
on the part of Spouses Celones to acquire the amount of P55 Million
and not be required to pay the same.
ACE FOODS, INC. v. MICRO PACIFIC TECHNOLOGIES CO., LTD.
G.R. NO. 200602; DECEMBER 11, 2013

FACTS:
ACE Foods is a domestic corporation engaged in the trading and
distribution of consumer goods in wholesale and retail bases, while
Micro Pacific Technologies Co., Ltd. (MTCL) is one engaged in the
supply of computer hardware and equipment.
On September 26, 2001, MTCL sent a letter-proposal for the
delivery and sale of the subject products to be installed at various
offices of ACE Foods, which the later accepted. Thereafter, or on
March 4, 2002, MTCL delivered the said products to ACE Foods. The
fine print of the invoice states, inter alia, that "title to sold property
is reserved in MTCL until full compliance of the terms and conditions
of above and payment of the price". After delivery, the subject
products were then installed and configured in ACE Foods’ premises.
MTCL’s demands against ACE Foods to pay the purchase price,
however, remained unheeded. Instead of paying the purchase price,
ACE Foods informed MTCL that the former will pull out the said
products but had failed to do so up to now.
On October 16, 2002, ACE Foods lodged a Complaint against
MTCL before the RTC, praying that the latter pull out from its
premises the subject products and that the subject products MTCL
delivered are defective and not working.
In its Answer with Counterclaim, MTCL maintained that it had
duly complied with its obligations to ACE Foods and that the subject
products were in good working condition when they were delivered,
installed and configured in ACE Foods’ premises. MTCL even
conducted a training course for ACE Foods’
representatives/employees. It posited that ACE Foods refused and
failed to pay the purchase price for the subject products despite the
latter’s use of the same for a period of nine (9) months. As such,
MTCL prayed that ACE Foods be compelled to pay the purchase price,
as well as damages related to the transaction.

ISSUE:
Is there a valid contract?

HELD:
Yes. The Court held that the parties have agreed to a contract
of sale and not to a contract to sell. Article 1475 of the Civil Code
makes this clear in its provision stating that “The contract of sale is
perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts.”
Bearing in mind its consensual nature, a contract of sale had
been perfected at the precise moment ACE Foods, as evinced by its
act of sending MTCL the Purchase Order, accepted the latter’s
proposal to sell the subject products in consideration of the purchase
price of ₱646,464.00. From that point in time, the reciprocal
obligations of the parties – i.e., on the one hand, of MTCL to deliver
the said products to ACE Foods, and, on the other hand, of ACE
Foods to pay the purchase price therefor within thirty (30) days from
delivery – already arose and consequently may be demanded.
In the case, the Court also dispelled the notion that the
stipulation anent MTCL’s reservation of ownership of the subject
products as reflected in the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the transaction from a
contract of sale into a contract to sell. Furthermore, it has not been
shown that the title reservation stipulation appearing in the Invoice
Receipt had been included or had subsequently modified or
superseded the original agreement of the parties. However, absent
any clear indication that the title reservation stipulation was actually
agreed upon, the Court deemed the same to be a mere unilateral
imposition on the part of MTCL which has no effect on the nature of
the parties’ original agreement as a contract of sale. Perforce, the
obligations arising thereto, among others, ACE Foods’s obligation to
pay the purchase price as well as to accept the delivery of the goods,
remain enforceable and subsisting.
 HUR TIN YANG v. PEOPLE OF THE PHILIPPINES
G.R. NO. 195117; AUGUST 14, 2013

FACTS:
Supermax Philippines, Inc. (Supermax) is a domestic
corporation engaged in the construction business. Metropolitan
Bank and Trust Company (Metrobank) extended several commercial
letters of credit (LCs) to Supermax to pay for the delivery of several
construction materials which will be used in their construction
business. Thereafter, Metrobank required petitioner, as
representative and Vice-President for Internal Affairs of Supermax, to
sign twenty-four (24) trust receipts as security for the construction
materials and to hold those materials or the proceeds of the sales in
trust for Metrobank to the extent of the amount stated in the trust
receipts.
When the 24 trust receipts fell due and despite the receipt of a
demand letter, Supermax failed to pay or deliver the goods or
proceeds to Metrobank. Instead, Supermax, through petitioner,
requested the restructuring of the loan. When the intended
restructuring of the loan did not materialize, Metrobank sent another
demand letter. As the demands fell on deaf ears, Metrobank, through
its representative, Winnie M. Villanueva, filed the instant criminal
complaints against petitioner.
For his defense, while admitting signing the trust receipts,
petitioner argued that said trust receipts were demanded by
Metrobank as additional security for the loans extended to Supermax
for the purchase of construction equipment and materials. In support
of this argument, petitioner presented as witness, Priscila Alfonso,
who testified that the construction materials covered by the trust
receipts were delivered way before petitioner signed the
corresponding trust receipts. Further, petitioner argued that
Metrobank knew all along that the construction materials subject of
the trust receipts were not intended for resale but for personal use of
Supermax relating to its construction business.

ISSUE:
Is there a valid contract?

HELD:
Yes. The Court held that in determining the nature of a contract,
courts are not bound by the title or name given by the parties. The
decisive factor in evaluating such agreement is the intention of the
parties, as shown not necessarily by the terminology used in the
contract but by their conduct, words, actions and deeds prior to,
during and immediately after executing the agreement. As such,
therefore, documentary and parol evidence may be submitted and
admitted to prove such intention.
 In the instant case, the factual findings of the trial and appellate
courts reveal that the dealing between petitioner and Metrobank was
not a trust receipt transaction but one of simple loan. Petitioner’s
admission that he signed the trust receipts on behalf of Supermax,
which failed to pay the loan or turn over the proceeds of the sale or
the goods to Metrobank upon demand does not conclusively prove
that the transaction was, indeed, a trust receipts transaction. In
contrast to the nomenclature of the transaction, the parties really
intended a contract of loan. The Court in Ng v. People and Land Bank
of the Philippines v. Perez, cases which are in all four corners the
same as the instant case ruled that the fact that the entruster bank
knew even before the execution of the trust receipt agreements that
the construction materials covered were never intended by the
entrustee for resale or for the manufacture of items to be sold is
sufficient to prove that the transaction was a simple loan and not a
trust receipts transaction.
 RODOLFO CRUZ AND IBIAS v. ATTY. GRUSPE
G.R. 191431; MARCH 13, 2013

FACTS:
On October 24, 1999, the mini bus owned and operated by Cruz
and driven by one Arturo Davin collided with the Toyota Corolla car
of Gruspe. The next day, Cruz and Ibias went to Gruspe‘s office,
apologized for the incident, and executed a Joint Affidavit of
Undertaking promising jointly and severally to replace the Gruspe‘s
damaged car 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 ₱350,000.00, with interest at 12% per
month for any delayed payment after November 15, 1999, until fully
paid. When Cruz and Leonardo failed to comply with their
undertaking, Gruspe filed a complaint for collection of sum of money
against them on November 19, 1999 before the RTC.
In their answer, Cruz and Leonardo claimed that Gruspe, a
lawyer, prepared the Joint Affidavit of Undertaking and forced them
to affix their signatures thereon, without explaining and informing
them of its contents. Leonardo died during the pendency of the case
and was substituted by his widow, Esperanza. Meanwhile, Gruspe
sold the wrecked car.

ISSUE:
Is the agreement a contract?

HELD:
Yes. The Court, in ruling so, held that a simple reading of the
terms of the Joint Affidavit of Undertaking readily discloses that it
contains stipulations characteristic of a contract. Contracts are
obligatory no matter what their forms may be, whenever the essential
requisites for their validity are present. In determining whether a
document is an affidavit or a contract, the Court looks beyond the
title of the document, since the denomination or title given by the
parties in their document is not conclusive of the nature of its
contents. In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. If the
terms of the document are clear and leave no doubt on the intention
of the contracting parties, the literal meaning of its stipulations shall
control. If the words appear to be contrary to the parties’ evident
intention, the latter shall prevail over the former.
In this case, the Joint Affidavit of Undertaking contained a
stipulation where Cruz and Leonardo promised to replace the
damaged car of Gruspe up to November 15, 1999, of the same model
and of at least the same quality. In the event that they cannot replace
the car within the same period, they would pay the cost of Gruspe‘s
car in the total amount of ₱350,000.00, with interest at 12% per
month for any delayed payment after November 15, 1999, until fully
paid. These are very simple terms that both Cruz and Leonardo could
easily understand.
 SPS CABAHUG V NAPOCOR
GR NO. 186069; JANUARY 30, 2013

FACTS:
Spouses Cabahug were the owners of a parcel of land subject of
expropriation filed by the National Power Corporation (NPC).
However, the same was dismissed when NPC opted to settle with the
landowners by paying an easement fee equivalent to 10% of value of
their property. Thereafter, Jesus Cabahug executed two documents
denominated as Right of Way Grant in favor of NPC. For and in
consideration of the easement fees, he granted NPC a continuous
easement of right of way for the latter’s transmissions lines over the
land. Under paragraph 4 of the grant, however, Jesus reserved the
option to seek additional compensation for easement fee, based on
the Supreme Court’s 18 January 1991 Decision in G.R. No. 60077,
entitled National Power Corporation v. Spouses Misericordia
Gutierrez and Ricardo Malit, et al. (Gutierrez).
Then, Spouses Cabahug filed the complaint for the payment of
just compensation, damages and attorney’s fees against NPC.
Claiming to have been totally deprived of the use of the land, the
Spouses alleged that with the reservation provided under paragraph
4 of the aforesaid grant, they have demanded from NPC payment of
the balance of the just compensation for the subject properties.
However, NPC averred that it already paid in full the easement fee
and that the reservation in the grant referred to was additional
compensation for easement fee, not the full just compensation sought
by the Spouses Cabahug.

ISSUE:
Is the Grant of Right of Way a valid and binding contract
between the Spouses and NPC?

HELD:
Yes. It ruled that the Grant of Right of Way executed by Jesus
Cabahug in favor of NPC is a valid and binding contract between the
parties, a fact affirmed by the OSG in its Comment. Indeed, the rule
is settled that a contract constitutes the law between the parties who
are bound by its stipulations which, when couched in clear and plain
language, should be applied according to their literal tenor. Courts
cannot supply material stipulations, read into the contract words it
does not contain or, for that matter, read into it any other intention
that would contradict its plain import. Neither can they rewrite
contracts because they operate harshly or inequitably as to one of
the parties, or alter them for the benefit of one party and to the
detriment of the other, or by construction, relieve one of the parties
from the terms which he voluntarily consented to, or impose on him
those which he did not.
 Moreover, based from paragraph 4 of the Grant, and
considering that Gutierrez was specifically made the point of
reference for Jesus Cabahug‘s reservation to seek further
compensation from NPC, it is evident that the Spouses Cabahug‘s
receipt of the easement fee did not bar them from seeking further
compensation from NPC. Even by the basic rules in the interpretation
of contracts, the payment of additional sums to the Spouses Cabahug
would not be violative of the parties’ contract and amount to unjust
enrichment.
HILLTOP MARKET FISH VENDORS’ ASSOCIATION INC. v. HON.
BRAULIO YARANON
GR NO. 188057; JULY 12, 2017

FACTS:
Petitioner Hilltop Market Fish Vendors' Association, Inc., and
respondent City of Baguio, represented by its then Mayor Luis
Lardizabal, entered into a Contract of Leaseover a lot owned by the
City of Baguio.
The contract provided that the period of lease is 25 years,
renewable for the same period at the option of both parties, and the
annual lease rental is P25,000, with the first payment commencing
upon the issuance by the City Engineer's Office of the Certificate of
full occupancy (Certificate) of the building to be constructed by
Hilltop on the let. Before the Certificate is issued, the City of Baguio
can continue collecting market fees from the vendors who are allowed
to occupy any portion of the building. At the termination of the lease
period, the City of Baguio will own the building without payment or
reimbursement for Hilltop's costs.
Hilltop constructed the building, thereafter known as the Rillera
building, on the lot. Even though the City Engineer's Office did not
issue a Certificate, Hilltop's members occupied the Rillera building
and conducted business in it. The City Council of Baguio, through
its then Mayor Ernesto Bueno, issued Resolution No. 74-
80rescinding the contract of lease with Hilltop, for its continued
failure to comply with its obligation to complete the Rillera building.
Hilltop filed with the RTC a Complaint with Very Urgent
Application for Temporary Restraining Order and Writ of Preliminary
Injunction praying that the court issue an injunction against the
implementation of AO No. 30 and order the concerned office to issue
the Certificate to make the contract of lease effective. In their Answer,
Yaranon and respondent Galo Weygan alleged that the Certificate
was not issued to Hilltop because the Rillera building was not
completed. In any case, they argued that the issuance of the
Certificate shall only signal the start of payment of annual lease
rental and not the effectivity of the contract. They further alleged that
even without the Certificate, Hilltop's members occupied the building
and conducted business in it; hence, Hilltop already waived the
condition.

ISSUE:
Was the contract of lease entered into by the parties already
perfected?

HELD:
Yes. In a contract of lease, one of the parties binds himself to
give to another the enjoyment or use of a thing for a price certain,
and for a period which may be definite or indefinite. Being a
consensual contract, a lease is perfected at the moment there is a
meeting of the minds upon the thing and the cause or consideration
which are to constitute the contract. Thereafter, the lessor is obliged
to deliver the thing which is the object of the contract in such a
condition as to render it fit for the use intended, and the lessee is
obliged to use the thing leased as a diligent father of a family,
devoting it to the use stipulated or that which may be inferred from
the nature of the thing leased.
In a contract of lease, the cause or essential purpose is the use
and enjoyment of the thing. The thing or subject matter of the
contract in this case was clearly identified and agreed upon as the lot
where the building would be constructed by Hilltop. The
consideration were the annual lease rental and the ownership of the
building upon the termination of the lease period. Considering that
Hilltop and the City of Baguio agreed upon the essential elements of
the contract, the contract of lease had been perfected.
From the moment that the contract is perfected, the parties are
bound to fulfill what they have expressly stipulated. Thus, the City
of Baguio gave the use and enjoyment of its lot to Hilltop. Since
Hilltop exercised its right as lessee based on the contract of lease and
the law, it has no basis in claiming that the contract of lease did not
commence.
STAGES OF A CONTRACT

HEIRS OF IGNACIO v. HOME BANKERS SAVINGS AND TRUST

CO.
GR NO. 177783; JANUARY 23, 2013

FACTS:
Petitioner Fausto Ignacio mortgaged two parcels of land to Home
Savings Bank and Trust Company, the predecessor of respondent
Home Bankers Savings and Trust Company, as security for the loan
extended to him by said bank. When petitioner defaulted in the
payment of his loan obligation, respondent bank was the highest
bidder. The Certificate of Sale issued to respondent bank was
registered with the Registry of Deeds. White the failure of petitioner
to redeem the foreclosed properties within one year from such
registration, title to the properties were consolidated in favor of
respondent bank.
Despite the lapse of the redemption period and consolidation of
title in respondent bank, petitioner offered to repurchase the
properties. While the respondent’s bank considered petitioner’s offer
to repurchase, there was no repurchase contract executed. The
present controversy was fuelled by petitioner's stance that a verbal
repurchase/compromise agreement was actually reached and
implemented by the parties.
In a letter addressed to respondent bank, petitioner expressed his
willingness to pay the amount of P600,000.00 in full, as balance of
the repurchase price, and requested respondent bank to release to
him the remaining parcels of land. Respondent bank however, turned
down his request.

ISSUE:
Was the contract for the repurchase of the foreclosed properties
perfected between petitioner and respondent bank?

HELD:
No. Contracts are perfected by mere consent, which is
manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. If the
acceptance of the offer was not absolute, such acceptance is
insufficient to generate consent that would perfect a contract.
Once there is concurrence between the offer and the acceptance
upon the subject matter, consideration, and terms of payment, a
contract is produced. The offer must be certain. To convert the offer
into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A
qualified acceptance, or one that involves a new proposal, constitutes
a counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer
annuls the offer.
The acceptance must be identical in all respects with that of the
offer so as to produce consent or meeting of minds. Where a party
sets a different purchase price than the amount of the offer, such
acceptance was qualified which can be at most considered as a
counter-offer; a perfected contract would have arisen only if the other
party had accepted this counter-offer. More particularly on the
matter of the consideration of the contract, the offer and its
acceptance must be unanimous both on the rate of payment and on
its term. An acceptance of an offer which agrees to the rate but varies
the term is ineffective.
The foregoing clearly shows that petitioner’s acceptance of the
respondent’s bank terms and conditions for the repurchase of the
foreclosed properties were not absolute. Petitioner set a different
repurchase price and also modified the terms of payment. In the
absence of conformity or acceptance by properly authorized bank
officers of petitioner’s counter-proposal, no perfected repurchase
contract was born out of the talks or negotiations between petitioner
and respondent bank.
 ROBERN DEVELOPMENT CORP. v. PEOPLE’S LANDLESS
ASSOCIATION
G.R. NO. 173622; MARCH 11, 2013

FACTS:
Al-Amanah owned a 2000-square meter lot. Al-Amanah Davao
Branch, thru its officer-in-charge Febe O. Dalig, asked some of the
members of PELA to desist from building their houses on the lot and
to vacate the same, unless they are interested to buy it. The informal
settlers thus expressed their interest to buy the lot at ₱100.00 per
square meter, which Al-Amanah turned down for being far below its
asking price. Consequently, Al-Amanah reiterated its demand to the
informal settlers to vacate the lot.
In a letter, the informal settlers together with other members
comprising PELA offered to purchase the lot for ₱300,000.00, half of
which shall be paid as down payment and the remaining half to be
paid within one year. PELA had deposited ₱150,000.00 as evidenced
by four bank receipts. In the meantime, the PELA members remained
in the property and introduced further improvements.
Al-Amanah, thru Davao Branch Manager Abraham D.
Ututalum-Al Haj, wrote then PELA President Bonifacio Cuizon, Sr.
informing him of the Head Office’s disapproval of PELA’s offer to buy
the said 2,000-square meter lot.
Meanwhile, Al-Amanah issued a Recommendation Sheet
indicating therein that Robern Development Corp. is interested to
buy the lot; that it has already deposited 20% of the offered purchase
price; that it is buying the lot on "as is" basis; and, that it is willing
to shoulder the relocation of all informal settlers therein. The Head
Office informed the Davao Branch Manager that the Board
Operations Committee had accepted Robern‘s offer.
Three months later, as its members were already facing eviction
and possible demolition of their houses, and in order to protect their
rights as vendees, PELA filed a suit for Annulment and Cancellation
of Void Deed of Sale against Al-Amanah, and Robern’s President and
General Manager, petitioner Rodolfo Bernardo. It insisted that as
early as March 1993 it has a perfected contract of sale with Al-
Amanah. However, in an apparent act of bad faith and in cahoots
with Robern, Al-Amanah proceeded with the sale of the lot despite
the prior sale to PELA.

ISSUE:
Is there a perfected contract of sale between PELA and Al-
Amanah?

HELD:
No. A contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract
and upon the price. Thus, for a contract of sale to be valid, all of the
following essential elements must concur: "a) consent or meeting of
the minds; b) determinate subject matter; and c) price certain in
money or its equivalent."
In the case at bench, there is no controversy anent the
determinate subject matter, i.e., the 2,000-square meter lot. This
leaves us to resolve whether there was a concurrence of the
remaining elements. As for the price, fixing it can never be left to the
decision of only one of the contracting parties. "But a price fixed by
one of the contracting parties, if accepted by the other, gives rise to
a perfected sale." As regards consent, "when there is merely an offer
by one party without acceptance of the other, there is no contract."
The decision to accept a bidder’s proposal must be communicated to
the bidder. However, a binding contract may exist between the
parties whose minds have met, although they did not affix their
signatures to any written document, as acceptance may be expressed
or implied. It "can be inferred from the contemporaneous and
subsequent acts of the contracting parties."
The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and
must be evidenced by some acts or conduct communicated to the
offeror, it may be made either in a formal or an informal manner, and
may be shown by acts, conduct, or words of the accepting party that
clearly manifest a present intention or determination to accept the
offer to buy or sell. Thus, acceptance may be shown by the acts,
conduct, or words of a party recognizing the existence of the contract
of sale.
There is no perfected contract of sale between PELA and Al-
Amanah for want of consent and agreement on the price. The parties
did not agree on the price and no consent was given, whether express
or implied.
Contracts undergo three stages: "a) negotiation which begins
from the time the prospective contracting parties indicate interest in
the contract and ends at the moment of their agreement[; b)
perfection or birth, which takes place when the parties agree upon
all the essential elements of the contract; and c) consummation,
which occurs when the parties fulfill or perform the terms agreed
upon, culminating in the extinguishment thereof."
In the case at bench, the transaction between Al-Amanah and
PELA remained in the negotiation stage. The offer never materialized
into a perfected sale, for no oral or documentary evidence
categorically proves that Al-Amanah expressed amenability to the
offered ₱300,000.00 purchase price. Al-Amanah‘s act of selling the
lot to another buyer is the final nail in the coffin of the negotiation
with PELA. Clearly, there is no double sale, thus, we find no reason
to disturb the consummated sale between Al-Amanah and Robern.
CE CONSTRUCTION CORPORATION v. ARANETA CENTER INC.
G.R. NO. 192725; AUGUST 9, 2017

FACTS:
Araneta Center Inc. (ACI) sent invitations to different
construction companies, including CECON, for them to bid on a
project identified as "Package #4‖ a part of its redevelopment plan for
Araneta Center Complex. As part of its invitation to prospective
contractors, ACI furnished bidders with Tender Documents. The
Tender Documents described the project's contract sum to be a
"lump sum" or "lump sum fixed price" and restricted cost
adjustments, as follows:
This is a Lump Sum Contract and the price is a fixed price not
subject to measurement or recalculation should the actual quantities
of work and materials differ from any estimate available at the time
of contracting, except in regard to Cost-Bearing Changes which may
be ordered by the Owner which shall be valued under the terms of
the Contract in accordance with the Schedule of Rates, and with
regard to the Value Engineering Proposals under Clause 27. The
Contract Sum shall not be adjusted for changes in the cost of labour,
materials or other matters.
CECON submitted its bid, indicating a tender amount of
P1,449,089,174.00. This amount was inclusive of "both the act of
designing the building and executing its construction." Its bid and
tender were based on schematic drawings, i.e., conceptual designs
and suppositions culled from ACI's Tender Documents. CECON's
proposal "specifically stated that its bid was valid for only ninety (90)
days, or only until 29 November 2002." This tender proposed a total
of 400 days, or until January 10, 2004, for the implementation and
completion of the project.
CECON offered the lowest tender amount. However, ACI did not
award the project to any bidder, even as the validity of CECON's
proposal lapsed on November 29, 2002. ACI only subsequently
informed CECON that the contract was being awarded to it. ACI
elected to inform CECON verbally and not in writing.
As the details of the project had yet to be finalized, ACI and
CECON pursued further negotiations. Despite these developments,
ACI still failed to formally award the project to CECON. With the
project yet to be formally awarded, the prices of steel products had
increased by 5% and of cement by P5.00 per bag. CECON wrote ACI
notifying it of these increasing costs and specifically stating that
further delays may affect the contract sum. Subsequently, ACI
informed CECON that it was taking upon itself the design component
of the project, removing from CECON's scope of work the task of
coming up with designs.
With many changes to the project and ACI's delays in delivering
drawings and specifications, CECON increasingly found itself unable
to complete the project on January 10, 2004. Exasperated, CECON
served notice upon ACI that it would avail of arbitration.

ISSUE:
Is there an established contract between ACI and CECON?

HELD:
No. There is no established contract that simply required
interpretation and application. The Contract Documents expressly
characterize the construction contract between ACI and CECON as
"lump-sum" and "fixed price" in nature. As a consequence, the
Contract Documents expressly prohibit any adjustment of the
contract sum due to any changes or fluctuations in the cost of labor,
materials or other matters.
However, there was never a meeting of minds on the price of
P1,540,000,000.00. Thus, that stipulation could not have been the
basis of any obligation. The only thing that ACI has in its favor is its
initial delivery of tender documents to prospective bidders.
Everything that transpired after this delivery militates against ACI's
position.
By delivering tender documents to bidders, ACI made an offer.
By these documents, it specified its terms and defined the
parameters within which bidders could operate. These tender
documents, therefore, guided the bidders in formulating their own
offers to ACI, or, even more fundamentally, helped them make up
their minds if they were even willing to consider undertaking the
proposed project. In responding and submitting their bids,
contractors, including CECON, did not peremptorily become
subservient to ACI's terms. Rather, they made their own
representations as to their own willingness and ability. They adduced
their own counter offers, although these were already tailored to work
within ACI's parameters.
Subsequent events do not only show that there was no meeting
of minds on CECON's initial offered contract sum. They also show
that there was never any meeting of minds on the contract sum at
all. In accordance with Article 1321 of the Civil Code, an offeror may
fix the time of acceptance. Thus, CECON's offer of P1,449,089,174.00
"specifically stated that its bid was valid for only ninety (90) days
lapsed and ACI failed to manifest its acceptance of CECON's offered
contract sum.
It was only sometime after November 29, 2002 that ACI verbally
informed CECON that the contract was being awarded to it. However,
there is no indication that an agreement was reached on the contract
sum in any of these conversations. Still without settling on a contract
sum, even the object of the contract was subjected to multiple
modifications. Absent a concurrence of consent and object, no
contract was perfected.
 ACI's supposed acceptance was not an effective, unqualified
acceptance, as contemplated by Article 1319 of the Civil Code. At
most, it was a counter-offer to revert to P1,540,000,000.00. There
having been no meeting of minds on the contract sum, the amount
due to CECON became susceptible to reasonable adjustment, subject
to proof of legitimate costs that CECON can adduce.
 METRO RAIL TRANSIT DEVELOPMENT CORP. v. GAMMON
PHILIPPINES
GR NO. 200401; JANUARY 17, 2018

FACTS:
This case involves MRT's MRT-3 North Triangle Description
Project. Half of the commercial center would be used for a podium
structure (Podium). Parsons Interpro JV (Parsons) was the
Management Team authorized to oversee the construction’s
execution.
Gammon Philippines received from Parsons an invitation to bid
for the complete concrete works of the Podium. Gammon submitted
three (3) separate bids and several clarifications on certain provisions
of the Instruction to Bidders and the General Conditions of Contract.
Gammon won the bid. Parsons issued a Letter of Award and Notice
to Proceed (First Notice to Proceed) to Gammon. It was accompanied
by the formal contract documents. The First Notice to Proceed stated:
“We are pleased to inform you that you have been awarded the work
on the construction of the Podium Structure for the MRT-3 EDSA-
North Triangle Development Project. The formal contract document,
which is the product of a series of discussions and negotiation, is
herewith attached for your signature.”
In a Letter (Second Letter), Gammon transmitted to Parsons a
signed Letter of Comfort to guarantee its obligations in the Project.
However, MRT wrote Gammon that it would need one (1) or two (2)
weeks before it could issue the latter the Formal Notice to Proceed.
MRT issued in favor of Gammon another Notice of Award and Notice
to Proceed (Third Notice to Proceed). Gammon acknowledged receipt
of the Third Notice to Proceed and requested clarification of certain
items.
Gammon received from Parsons the terms of the Fourth Notice
to Proceed were different from those of the First and the Third Notices
to Proceed. The Fourth Notice to Proceed also expressly cancelled the
First and Third Notices to Proceed. Gammon qualifiedly accepted the
Fourth Notice to Proceed.
MRT treated Gammon's qualified acceptance as a new offer. In a
Letter, MRT rejected Gammon's qualified acceptance and informed
Gammon that the contract would be awarded instead to Filsystems
if Gammon would not accept the Fourth Notice to Proceed within five
(5) days.
In a Letter, Gammon wrote MRT, acknowledging the latter’s
intent to grant the Fourth Notice to Proceed to another party despite
having granted the First Notice to Proceed to Gammon. Thus, it
notified MRT of its claims for reimbursement for costs, losses,
charges, damages, and expenses it had incurred due to the rapid
mobilization program in response to MRT’s additional work
instructions, suspension order, ongoing discussions, and the
consequences of its award to another party. MRT expressed its
disagreement with Gammon and its amenability to discussing claims
for reimbursement.

ISSUE:
Is there a perfected contract between MRT and Gammon?

HELD:
Yes. There is a perfected contract between MRT and Gammon.
A contract is perfected when both parties have consented to the
object and cause of the contract. There is consent when the offer of
one party is absolutely accepted by the other party. The acceptance
of the other party may be express or implied. However, the offering
party may impose the time, place, and manner of acceptance by the
other party, and the other party must comply.
Thus, there are three (3) stages in a contract: negotiation,
perfection, and consummation. Negotiation refers to the time the
parties signify interest in the contract up until the time the parties
agree on its terms and conditions. The perfection of the contract
occurs when there is a meeting of the minds of the parties such that
there is a concurrence of offer and acceptance, and all the essential
elements of the contract—consent, object and cause—are present.
The consummation of the contract covers the period when the parties
perform their obligations in the contract until it is finished or
extinguished.
To determine when the contract was perfected, the acceptance
of the offer must be unqualified, unconditional, and made known to
the offeror. Before knowing of the acceptance, the offeror may
withdraw the offer. Moreover, if the offeror imposes the manner of
acceptance to be done by the offerree, the offerree must accept it in
that manner for the contract to be binding. If the offeree accepts the
offer in a different manner, it is not effective, but constitutes a
counter-offer, which the offeror may accept or reject.
In bidding contracts, this Court has ruled that the award of the
contract to the bidder is an acceptance of the bidder's offer. Its effect
is to perfect a contract between the bidder and the contractor upon
notice of the award to the bidder. Thus, the award of a contract to a
bidder perfects the contract. Failure to sign the physical contract
does not affect the contract's existence or the obligations arising from
it.
Applying this principle to the case at bar, this Court finds that
there is a perfected contract between the parties. MRT has already
awarded the contract to Gammon, and Gammon's acceptance of the
award was communicated to MRT before MRT rescinded the contract.
 ONG v. BPI FAMILY SAVINGS BANK
G.R. NO. 208638; JANUARY 24, 2018

FACTS:
Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph
Ong Chuan and Esperanza Ong Chuan (collectively referred to as the
petitioners) are engaged in the business of printing. Bank of
Southeast Asia's (BSA) managers, Ronnie Denila and Rommel Nayve,
visited petitioners' office and discussed the various loan and credit
facilities offered by their bank. In view of petitioners' business
expansion plans and the assurances made by BSA's managers, they
applied for the credit facilities offered by the latter.
They executed a real estate mortgage (REM) over their property
situated in Paco, Manila, covered by Transfer Certificate of Title No.
143457, in favor of BSA as security for a P15,000,000.00 term loan
and P5,000,000.00 credit line or a total of P20,000,000.00.
With regard to the term loan, only P10,444,271.49 was released
by BSA (the amount needed by the petitioners to pay out their loan
with Ayala life assurance, the balance was credited to their account
with BSA). With regard to the P5,000,000.00 credit line, only
P3,000,000.00 was released. BSA promised to release the remaining
P2,000,000.00 conditioned upon the payment of the P3,000,000.00
initially released to petitioners.
Petitioners acceded to the condition and paid the P3,000,000.00
in full. However, BSA still refused to release the P2,000,000.00.
Petitioners then refused to pay the amortizations due on their term
loan. Later on, BPI Family Savings Bank (BPI) merged with BSA,
thus, acquired all the latter's rights and assumed its obligations. BPI
filed a petition for extrajudicial foreclosure of the REM for petitioners'
default in the payment of their term loan.

ISSUE:
Is there an existing and binding contract between petitioners
and BSA?

HELD:
Yes. As a rule, a contract is perfected upon the meeting of the
minds of the two parties. It is perfected by mere consent, that is, from
the moment that there is a meeting of the offer and acceptance upon
the thing and the cause that constitute the contract.
A loan contract is perfected only upon the delivery of the object
of the contract. In that case, although therein petitioners applied for
a P3,000,000.00 loan, only the amount of P1,000,000.00 was
approved by therein respondent bank because petitioners became
collaterally deficient. Nonetheless, the loan contract was deemed
perfected on March 17, 1997, the date when petitioners received the
P1,000,000.00 loan, which was the object of the contract and the
date when the REM was constituted over the property.