Obligations and Contracts Case Updates 2005 2014 2doc PDF

TABLE OF
CONTENTS OBLIGATIONS AND CONTRACTS
OBLIGATIONS
GENERAL PROVISIONS
Ernesto Uypitching, et al. v. Ernesto Quiamco..........................................................10
Lourdes Dela Cruz v. Court of Appeals......................................................................10
Department of Health v. HTMC Engineers Co...........................................................10
International Finance Corporation v. Imperial Textile Mills, Inc.................................11
Sebastian Siga-An v. Alicia Villanueva......................................................................11
Makati Stock Exchange, Inc., et al. v. Miguel V. Campos, substituted By Julia Ortigas
Vda. De Campos....................................................................................................... 12
Spouses Patricio and Myrna Bernales v. Heirs Of Julian Sambaan............................12
Vitarich Corporation v. Chona Losin..........................................................................13
CBK Power Company Limited vs. Commissioner of Internal Revenue.......................13
NATURE AND EFFECT OF OBLIGATIONS
Cortes v. Court of Appeals........................................................................................ 13
Winifreda Ursal v. Court of Appeals, The Rural Bank of Larena (Siquijor), Inc. and
Spouses Jesus Moneset and Cristita Moneset...........................................................14
Prudential Bank v. Chonney Lim............................................................................... 14
YHT Realty Corporation, Erlinda Lainez and Anicia Payam v. Court of Appeals and
Maurice Mcloughlin................................................................................................... 14
Schimtz Transport and Brokerage Corporation v. Transport Venture Inc...................15
Lapreciosisima Cagungun, et. al. v. Planters Development Bank.............................15
Radio Communication of the Philippines vs. Alfonso Verchez, et al..........................15
Crisostomo Alcaraz v. Court of Appeals....................................................................16
Metropolitan Bank and Trust Company vs. Renato D. Cabilzo..................................16
Ma. Elizabeth Kind and Mary Ann King v. Megaworld Properties and Holdings, Inc.. 16
Autocorp Group v. Intra Strata Assurance Corporation.............................................16
J Plus Asia Development Corporation v. Utility Assurance Corporation.....................17
Polo S. Pantaleon v. American Express International, Inc.........................................18
Sps. Guanio v. Makati Shangri-La Hotel....................................................................18
Marques v. Far East Bank.......................................................................................... 18
Philippine Realty and Holding Corp. v. Ley Const. and Dev. Corp.............................19
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Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General Insurance Co.,
Inc............................................................................................................................ 19
Carlo F. Sunga v.Virjen Shipping Corporation, Nissho Odyssey Ship Management Pte.
Ltd., And/Or Capt. Angel Zambrano..........................................................................20
DIFFERENT KINDS OF OBLIGATIONS
PURE AND CONDITIONAL OBLIGATIONS
Sacobia Hills Development Corporation vs. Allan Ty.................................................20
Carrascoso v. Court of Appeals................................................................................. 21
Spouses William And Jeanette Yao v. Carlomagno B. Matela....................................21
Spouses Jaime Benos And Marina Benos v. Spouses Gregorio Lawilao And Janice Gail
Lawilao..................................................................................................................... 21
Darrel Cordero, et al. vs. F.S. Management and Development Corporation..............22
Yamamoto v. Nishino Leather Industries, Inc............................................................22
Spouses Jose T. Valenzuela and Gloria Valenzuela v. Kalayaan Development &

Industrial Corporation............................................................................................... 22
Solar Harvest, Inc. v. Davao Corrugated Carton Corporation....................................23
Republic v. Holy Trinity Realty Development Corporation.........................................24
Subic Bay Metropolitan Authority v. Court of Appeals..............................................24
Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc................................24
JOINT AND SOLIDARY OBLIGATIONS
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation...............25
Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al.........................25
Philippine Commercial International Bank v. CA.......................................................25
Crystal v. Bank of the Philippine Islands...................................................................26
The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc.,...........................26
Alba v. Yupangco...................................................................................................... 26
Sps. Rodolfo Berot v. Felipe Siapno...........................................................................27
Trade and Investment Development Corp. of the Philippines v. Asia Paces Corp... . .27
Olongapo City, V. Subic Water And Sewerage Co., Inc.,............................................27
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TABLE OF
OBLIGATIONS WITH A PENAL CLAUSE
First Fil-Sin Lending Corporation v. Gloria D. Padillo..................................................28
Filinvest Land, Inc. vs. Hon. Court of Appeals, Philippine American General Insurance
Company and Pacific Equipment Corporation...........................................................28
Development Bank of the Philippines v. Family Foods Manufacturing Co. Ltd., and
Spouses Julianco and Catalina Centeno....................................................................28
Ileana Dr. Macalinao v. Bank of the Philippine Islands..............................................29
EXTINGUISHMENT OF OBLIGATIONS
PAYMENT OR PERFORMANCE
Jaime Biana v. George Gimenez................................................................................ 29
G & M (Phil.), Inc. vs. Willie Batomalaque.................................................................29
Abacus Securities Corporation v. Ruben U. Ampil.....................................................30
Almeda v. Bathala Marketing Industries, Inc.............................................................30
ASJ Corporation v. Evangelista.................................................................................. 30
Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc......................................31
Dao Heng Bank, Inc. (Now Banco De Oro Universal Bank) v. Laigo..........................31
Royal Cargo Corporation v. DFS Sports Unlimited, Inc..............................................32
Allandale Sportsline, Inc. v. The Good Development Corporation.............................32
Annabelle Dela Peña and Adrian Villareal v. The Court of Appeals and Rural Bank of
Bolinao, Inc............................................................................................................... 32
D.B.T. Mar-Bay Construction, Incorporated v. Ricaredo Panes et al..........................33
Rockville Excel International Exim Corporation v. Spouses Oligario Culla and

Bernardita Miranda................................................................................................... 33
Premiere Development Bank v. Central Surety & Insurance Company, Inc..............33
Cecilleville Realty and Service Corporation v. Acuña................................................34
DBT Mar-Bay Construction, Inc. vs. Panes................................................................34
Manuel Go Cinco and Araceli S. Go Cinco v. Court Of Appeals, Ester Servacio and
Maasin Traders Lending Corporation........................................................................35
Land Bank of the Philippines vs. Alfredo Ong...........................................................35
Republic v. Thi Thu Thuy T. De Guzman....................................................................35
Dalton vs. FGR Realty and Development Corp.........................................................36
Elizabeth Del Carmen v. Sps. Sabordo......................................................................36
Erlinda Gajudo, Fernando Gajudo, Jr., Estelita Gajudo, Baltazar Gajudo And Danilo
Arahan Chua v. Traders Royal Bank..........................................................................36
Luzon Development Bank v. Enriquez......................................................................37
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Telengtan Brothers & Sons, Inc. v. United States Lines, Inc. and the Court of Appeals
................................................................................................................................. 37
Simplicio A. Palanca v. Ulyssis Guides......................................................................37
LOSS OF THE THING DUE
Ayala Construction and Development Corporation v. Philippine Commercial

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

Environmental Corporation....................................................................................... 51
Roxas v. Zuzuarregui, Jr............................................................................................ 51
Bonifacio Nakpil v. Manila Towers Development Corp...............................................52
Xavierville III Homeowners Association, Inc., v. Xavierville Ii Homeowners

Association, Inc.,....................................................................................................... 52
William Golangco Construction Corporation v. Philippine Commercial International

Bank......................................................................................................................... 53
Spouses Anthony and Percita Oco v. Victor Limbaring..............................................53
Rolando Limpo v. Court of Appeals...........................................................................53
Caltex (Philippines), Inc., v. PNOC Shipping and Transport Corporation....................54
Mr. & Mrs. George R. Tan v. G.V.T Engineering Services, Acting through its
Owner/Manager Gerino V. Tactaquin.........................................................................54
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William Ong Genato vs. Benjamin Bayhon et al........................................................54
Vicenta Cantemprate et al. vs. CRS Realty Development Corporation et al.............54
National Power Corporation vs. Premier Shipping Lines, Inc.....................................55
Patricia Halagueña et al. vs. Philippine Airlines Incorporated...................................55
Sta. Lucia Realty & Development, Inc. vs. SPOUSES Francisco & Emelia
Buenaventura........................................................................................................... 55
Sps. Isagani Castro and Diosdada Castro v. Angelina De Leon Tan, et. al.,..............56
Narvaez vs. Alciso.................................................................................................... 56
Herald Black Dacasin vs.Sharon Del Mundo Dacasin................................................56
PNCC Skyway Traffic Management and Security Division Workers Organization

(PSTMSDWO) vs. PNCC Skyway Corporation............................................................57
Heirs of Mario Pacres, vs. Heirs of Cecilia Ygoña......................................................57
Heirs of Fausto C. Ignacio v. Home Bankers Savings and Trust Company.................57
Spouses Ignacio F. Juico and Alice P. Juico v. China Banking Corporation..................58
Sps. Benjamin Mamaril v. The Boy Scout of the Philippines......................................58
Star Two (SPV-AMC), Inc. v. Paper City Corporation of the Philippines......................58
Land Bank of the Philippines vs. Heirs of Spouses Jorja Rigor-Soriano and Magin
Soriano..................................................................................................................... 59
Rodolfo G. Cruz and Esperanza Ibias v. Atty. Delfin Gruspe......................................59
Philippine National Bank vs. Spouses Enrique Manalo and Rosalinda Jacinto, et al.. 59
ESSENTIAL REQUISITES OF CONTRACTS
Spouses Azaro M. Zulueta and Perla Sucayan-Zulueta v. Jose Wong, et al...............59
Paulo Ballesteros v. Rolando Abion...........................................................................60
Estate of Orlando Llenado et al. vs. Eduardo Llenado et al......................................60
CONSENT
Dandoy v. Tongson................................................................................................... 60
Navotas Industrial Corporation V. Cruz, et al............................................................61
Epifania Dela Cruz, substituted by Laureana V. Alberto v. Sps. Eduardo C. Sison and
Eufemia S. Sison....................................................................................................... 61
Perpetua vda. de Ape v. Court of Appeals and Genorosa Cawit Vda. De Lumayno...62
Reynaldo Villanueva vs. Philippine National Bank....................................................62
Gaudencio Valerio et. al v. Vicenta Refresca et. al....................................................62
Heirs of Cayetano Pangan vs. Spouses Rogelio Perreras and Priscilla Perreras........62
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Cornelia Baladad vs. Sergio A. Rublico and Spouses Laureano F. Yupano.................63
Francisco Landicho et al. vs. Felix Sia.......................................................................63
XYST Corp. v. DMC Urban Properties Development Inc.............................................63
Gloria Ocampo and Teresita Tan v. Land Bank of the Philippines et al......................64
Government Service Insurance System vs. Abraham Lopez.....................................64
Sps. Ramon Lequin and Virginia Lequin vs. Sps. Raymundo Vizconde and Salome
Lequin Vizconde....................................................................................................... 65
Spouses Exequiel Lopez and Eusebia Lopez v. Spouses Eduardo Lopez and Marcelina
Lopez........................................................................................................................ 65
Heirs Of Dr. Mario S. Intac v. Court of Appeals..........................................................65
Korean Air Co., Ltd. V. Yuson..................................................................................... 66
Doña Rosana Realty and Development Corporation vs. Molave Development

Corporation............................................................................................................... 66
Jocelyn M. Toledo vs. Marilou M. Hyden....................................................................66
ECE Realty and Development Inc. v. Rachel G. Mandap...........................................67
OBJECT OF CONTRACTS
Atty. Pedro M. Ferrer vs. Spouses Alfredo Diaz and Imelda Diaz...............................67
CAUSE OF CONTRACTS
J.L.T. Agro Inc. v. Balansag........................................................................................ 68
Alvarez v. PICOP Resources...................................................................................... 68
FORM OF CONTRACTS
Manuel Mallari and Millie Mallari v. Rebecca Alsol....................................................69
Serafin Naranja et al. vs. Court of Appeals..............................................................69
REFORMATION OF INSTRUMENTS
Benny Go v. Eliodoro Bacaron................................................................................... 69
INTERPRETATION OF CONTRACTS
Holy Cross of Davao College, Inc. vs. Holy Cross of Davao Faculty Union – Kampi.. .70
Agas vs. Sabico........................................................................................................ 70
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Berman Memorial Park, Inc. and Luisa Chong v. Francisco Cheng............................70
Rosalina Tagle v. Court of Appeals, Fast International Corporation and/or Kuo Tung Yu
Huang....................................................................................................................... 71
Martha R. Horrigan v. Troika Commercial, Inc...........................................................71
Aurelio P. Alonzo and Teresita A. Sison v. Jaime and Perlita San Juan........................71
Vicente Go v. Pura Kalaw, Inc................................................................................... 72
Sps. Alvaro v. Sps. Returban..................................................................................... 72
Ayala Inc. v. Ray Burton Corp................................................................................... 72
Laureano T. Angeles v. Philippine National Railways (PNR) And Rodolfo Flores........73
Elenita Ishida and Continent Japan Co., Inc. v. Antusa de Mesa-Magno, Firmo de
Mesa et.al................................................................................................................. 73
Heirs of the Deceased Carmen Cruz-Zamora v. Multiwood International, Inc...........73
Antipolo Properties v. Nuyda................................................................................... 74
Adriatico Consortium, Inc., et al. vs. Land Bank of the Philippines...........................74
Manila International Airport Authority v. Avia Filipinas International, Inc.,................74
RESCISSIBLE CONTRACTS
Oliverio Laperal and Filipinas Golf & Country Club, Inc. v. Solid Homes, Inc.............75
C-J Yulo & Sons, Inc. v. Roman Catholic Bishop of San Pablo, Inc..............................75
Spouses Felipe and Leticia Cannu v. Spouses Gil And Fernandina Galang and
National Home Mortgage Finance Corporation.........................................................75
Bienvenido M. Casino Jr. v. Court of Appeals.............................................................76
Pryce Corporation (Formerly Pryce Properties Corporation), v. Philippine Amusement

And Gaming Corporation.......................................................................................... 76
Coastal Pacific Trading Inc., v. Southern Rolling Mills, Co., Inc. et al.........................77
Pan Pacific Industrial Sales Co., v. Court of Appeals.................................................77
Laurencio Ramel, et.al. v. Daniel Aquino and Guadaluper Abalahin.........................77
Union Bank of the Philippines v. Sps. Ong................................................................77
Philippine Leisure and Retirement Authority v. Court of Appeals..............................78
Uniwide Holdings, Inc. v. Jandecs Transportation Co., Inc.........................................78
Bonrostro v. Luna...................................................................................................... 79
Armand O. Raquel-Santos and Annalissa Mallari v. Court of Appeals and Finvest

Securities Co., Inc..................................................................................................... 79
Heirs of Sofia Quirong v. Development Bank of the Philippines................................79
“G” Holdings, Inc., v. National Mines and Allied Workers Union Local 103 (NAMAWU)
................................................................................................................................. 80
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VOIDABLE CONTRACTS
Jorge Gonzales v. Climax Mining Ltd.........................................................................80
Felicitas Asycong and Teresa Polan v. Court of Appeals and Moller Lending Investor
................................................................................................................................. 80
Development Bank of the Philippines and Privatization and Management Office v. CA

................................................................................................................................. 80
Barceliza P. Capistrano vs. Darryl Limcuando and Fe S. Sumiran.............................81
Hernania “Lani” Lopez vs. Gloria Umale-Cosme.......................................................81
First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities, Inc......82
ECE Realty And Development Inc. v. Rachel G. Mandap...........................................82
UNENFORCEABLE CONTRACTS
Spouses Mario and Elizabeth Torcuator v. Spouses Remigio and Gloria Bernabe and
Spouses Diosdado and Lourdes Salvador.................................................................82
Banco Filipino Savings v. Diaz................................................................................... 83
Lina Peñalber vs. Quirino Ramos et al......................................................................83
Orduña, et al. v. Fuentebella, et al............................................................................83
Municipality of Hagonoy, Bulacan vs. Dumdum, Jr....................................................84
Rogelio Dantis, v. Julio Maghinang, Jr........................................................................84
VOID OR INEXISTENT
Menchavez vs. Teves................................................................................................ 84
Department of Health v. C.V. Canchela & Associates, Architects (CVCAA), in

Association With MCS Engineers Co., and A.O. Mansueto IV – Electrical Engineering
Services, and Luis Alina, Sheriff IV, RTC, Manila.......................................................85
The Manila Banking Corporation v. Edmundo S. Silverio and The Court of Appeals, 85
La’o v. Republic of the Philippines and the Government Service Insurance System. 86
Potenciano Ramirez v. Ma. Cecilia Ramirez...............................................................86
Joaquin Villegas and Emma M. Villegas v. Rural Bank of Tanjay Inc.........................86
Land Bank of the Philippines v. Eduardo M. Cacayuran...........................................87
Queensland-Tokyo Commodities, Inc. vs. George.....................................................87
Anuel O. Fuentes and Leticia L. Fuentes vs. Conrado G. Roca..................................87
Domingo Gonzalo vs. John Tarnate, Jr.......................................................................87
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CASE DOCTRINES OBLIGATIONS AND CONTRACTS
OBLIGATIONS
CHAPTER 1. GENERAL PROVISIONS
Ernesto Uypitching, et al. v. Ernesto Quiamco

GR No. 146322, December 6, 2006
Corona, J.
ISSUE: Can an obligation to pay damages arise from an abuse of a right

which is exercised to the prejudice or injury of another person as when a
corporation seized a motorcycle with the assistance of policemen without a
search warrant or order?
DOCTRINE: A blatant disregard for the lawful procedure for the

enforcement of its right, to the prejudice of respondent violated the law as
well as public morals, and transgressed the proper norms of human
relations. Article 19, also known as the “principle of abuse of right,”
prescribes that a person should not use his right unjustly or contrary to
honesty and good faith, otherwise he opens himself to liability. There is an
abuse of right when it is exercised solely to prejudice or injure another. The
exercise of a right must be in accordance with the purpose for which it was
established and must not be excessive or unduly harsh; there must be no
intention to harm another. Otherwise, liability for damages to the injured
party will attach.
Lourdes Dela Cruz v. Court of Appeals

G.R No. 139442, December 6, 2006
Velasco, Jr. J.:
ISSUE: Can a person under a contract of lease possess such land by

tolerance even after the expiration of the contract of lease and after a
demand to vacate.
DOCTRINE: Obligations arising from contracts have the force of law

between the contracting parties and should be complied with in good faith.
Thus, initially petitioner as lessee is the legal possessor of the subject lot by
virtue of a contract of lease. When fire destroyed her house, the Reyeses
considered the lease terminated. It has been held that a person who
occupies the land of another at the latter’s tolerance or permission, without
any contract between them, is necessarily bound by an implied promise that
he will vacate upon demand, failing which a summary action for ejectment
is the proper remedy against them.
Department of Health v. HTMC Engineers Co.

G.R. No. 146120. January 27, 2006
Chico-Nazario, J.
ISSUE: Can a perfected contract be renounced unilaterally?
DOCTRINE: No. A contract properly executed between parties continues to

be the law between said parties and should be complied with in good faith.
There being a perfected contract, DOH cannot revoke or renounce the same
58
without the consent of the other party. Just as nobody can be forced to
enter into a contract, in the same manner, once a contract is entered
into, no party can renounce it unilaterally or without the consent of the
other. It is a general principle of law that no one may be permitted to
change his mind or disavow and go back upon his own acts, or to
proceed contrary thereto, to the prejudice of the other party. As no revision
to the original agreement was ever arrived at, the terms of the original
contract shall continue to govern over both the HTMC and the DOH with
respect to the infrastructure projects as if no amendments were ever
initiated. In the absence of a new perfected contract between HTMC and
DOH, both parties shall continue to be bound by the stipulations of the
original contract and all its natural effects.
International Finance Corporation v. Imperial Textile Mills, Inc.
G.R. No. 160324; November 15, 2005
Panganiban, J.:
ISSUES:
(1) What is the nature of the contract entered into between the parties
denominated as Guarantee Agreement?
(2) Under Suretyship, what are the obligations of the parties under the
contract?
DOCTRINES:
(1) The terms of a contract govern the rights and obligations of the
contracting parties. When the obligor undertakes to be "jointly and
severally" liable, it means that the obligation is solidary. If solidary liability
was instituted to "guarantee" a principal obligation, the law deems the
contract to be one of suretyship.
The creditor in the present Petition was able to show convincingly that,
although denominated as a "Guarantee Agreement," the Contract was
actually a surety. Notwithstanding the use of the words "guarantee" and
"guarantor," the subject Contract was indeed a surety, because its terms
were clear and left no doubt as to the intention of the parties.
The obligations of the guarantors are meticulously expressed in the

following provision:
"Section 2.01. The Guarantors jointly and severally, irrevocably,

absolutely and unconditionally guarantee, as primary obligors and not
as sureties merely, the due and punctual payment of the principal of,
and interest and commitment charge on, the Loan, and the principal
of, and interest on, the Notes, whether at stated maturity or upon
prematuring, all as set forth in the Loan Agreement and in the Notes."
The Agreement uses "guarantee" and "guarantors," prompting ITM to base

its argument on those words. This Court is not convinced that the use of the
two words limits the Contract to a mere guaranty. The specific stipulations
in the Contract show otherwise.
(2) While referring to ITM as a guarantor, the Agreement specifically

stated that the corporation was "jointly and severally" liable. To put
emphasis on the nature of that liability, the Contract further stated that ITM
was a primary obligor, not a mere surety. Those stipulations meant only one
thing: that at bottom, and to all legal intents and purposes, it was a surety.
58
Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for
the latter’s obligations under the Loan Agreement with IFC. ITM thereby
brought itself to the level of PPIC and could not be deemed merely
secondarily liable.
Sebastian Siga-An v. Alicia Villanueva

G.R. No. 173227, January 20, 2009
Chico-Nazario J.:
ISSUE: Whether solutio indebiti applies to situations wherein there was a

wrongful payment of interest?
DOCTRINE: Yes. Under Article 1960 of the Civil Code, if the borrower of
loan pays interest when there has been no stipulation therefor, the
provisions of the Civil Code concerning solutio indebiti shall be applied.
Article 2154 of the Civil Code explains the principle of solutio indebiti. Said
provision provides that if something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to
return it arises. In such a case, a creditor-debtor relationship is created
under a quasi-contract whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the
person who has no right to receive such payment becomes obligated to
return the same. The quasi-contract of solutio indebiti harks back to the
ancient principle that no one shall enrich himself unjustly at the expense of
another. The principle of solutio indebiti applies where (1) a payment is
made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment; and (2) the payment
is made through mistake, and not through liberality or some other cause.
We have held that the principle of solutio indebiti applies in case of
erroneous payment of undue interest.
Makati Stock Exchange, Inc., et al. v. Miguel V. Campos, substituted

By Julia Ortigas Vda. De Campos
G.R. No. 138814, April 16, 2009
Chico-Nazario, J.:
ISSUE: Whether the claim of a right or an obligation may be made even

without identifying its source.
DOCTRINE: No. Right and obligation are legal terms with specific legal
meaning. A right is a claim or title to an interest in anything whatsoever
that is enforceable by law. An obligation is defined in the Civil Code as a
juridical necessity to give, to do or not to do. For every right enjoyed by any
person, there is a corresponding obligation on the part of another person to
respect such right. Thus, Justice J.B.L. Reyes offers the definition given by
Arias Ramos as a more complete definition:
An obligation is a juridical relation whereby a person (called the
creditor) may demand from another (called the debtor) the
observance of a determinative conduct (the giving, doing or not
doing), and in case of breach, may demand satisfaction from the
assets of the latter.
Therefore, an obligation imposed on a person, and the corresponding right

granted to another, must be rooted in at least one of these five sources. The
mere assertion of a right and claim of an obligation in an initiatory pleading,
whether a Complaint or Petition, without identifying the basis or source
58
thereof, is merely a conclusion of fact and law. A pleading should state the
ultimate facts essential to the rights of action or defense asserted, as
distinguished from mere conclusions of fact or conclusions of law. Thus, a
Complaint or Petition filed by a person claiming a right to the Office of the
President of this Republic, but without stating the source of his purported
right, cannot be said to have sufficiently stated a cause of action. Also, a
person claiming to be the owner of a parcel of land cannot merely state that
he has a right to the ownership thereof, but must likewise assert in the
Complaint either a mode of acquisition of ownership or at least a certificate
of title in his name.
Spouses Patricio and Myrna Bernales v. Heirs Of Julian Sambaan

G.R. No. 163271, January 15, 2010
Del Castillo, J.:
ISSUE: Whether title to the subject parcel of land was transferred by virtue
of a forged deed of absolute sale allegedly executed by the late Julian and
Guillerma Sambaan in favor of Myrna Bernales and her husband.
DOCTRINE: No. With the presentation of the forged deed, even if

accompanied by the owner’s duplicate certificate of title, the registered
owner did not thereby lose his title, and neither does the assignee in the
forged deed acquire any right or title to the said property. The valid
execution of the Deed of Absolute Sale will convey and transfer ownership
in favor of appellants title based on the rule that by the contract of sale one
of the contracting parties obligates himself to transfer ownership of and to
deliver a determinate thing, and the other to pay therefor a sum certain in
money or its equivalent. The fact that the assailed Deed was not signed by
Julian and the signatures of Julian and Guillerma were forged per findings of
the NBI Senior Document Examiner, it can therefore be inferred that the
subsequent issuance of Transfer Certificate of Title No. T-14204 has no
basis at all since ownership was not conveyed to appellants by reason of the
forged Deed.
Vitarich Corporation v. Chona Losin

G.R. No. 181560, November 15, 2010
Mendoza, J.:
ISSUE: Whether Vitarich should be held liable for the conduct of its
employee, Dericto, in taking out dressed chickens from the bodega of
Vitarich and receiving the same but charging it as Charge Sales Invoice
against its client, Losin.
DOCTRINE: No. Pursuant to Article 2180 of the Civil Code, that vicarious
liability attaches only to an employer when the tortuous conduct of the
employee relates to, or is in the course of, his employment. The question to
ask should be whether at the time of the damage or injury, the employee is
engaged in the affairs or concerns of the employer or, independently, in that
of his own? Vitarich incurred no liability when Directo’s conduct, act or
omission went beyond the range of his employment.
CBK Power Company Limited vs. Commissioner of Internal Revenue
58
G.R. Nos. 198729-30 January 15, 2014

Sereno, C.J.:
ISSUE: Whether the principle of solutio indebiti applies in a claim for the
issuance of a tax credit certificate representing the latter's alleged
unutilized input taxes on local purchases of goods and services attributable
to effectively zero-rated sales to National Power Corporation (NPC) for the
second and third quarters of 2005.
DOCTRINE: No. Devoid of merit is the applicability of the principle of

solutio indebiti to the present case. According to this principle, if something
is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises. In that situation, a
creditor-debtor relationship is created under a quasi-contract, whereby the
payor becomes the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right to receive the
payment becomes obligated to return it. The quasi-contract of solutio
indebiti is based on the ancient principle that no one shall enrich oneself
unjustly at the expense of another .There is solutio indebiti when: (1)
Payment is made when there exists no binding relation between the payor,
who has no duty to pay, and the person who received the payment; and (2)
Payment is made through mistake, and not through liberality or some other
cause. Though the principle of solutio indebiti may be applicable to some
instances of claims for a refund, the elements thereof are wanting in this
case. First, there exists a binding relation between petitioner and the CIR,
the former being a taxpayer obligated to pay VAT. Second, the payment of
input tax was not made through mistake, since petitioner was legally
obligated to pay for that liability. The entitlement to a refund or credit of
excess input tax is solely based on the distinctive nature of the VAT system.
At the time of payment of the input VAT, the amount paid was correct and
proper.
CHAPTER 2. NATURE AND EFFECT OF OBLIGATIONS
Cortes v. Court of Appeals

GR No. 126083. July 12, 2006
Ynares-Santiago, J.
ISSUES: What is the effect if both parties incur in delay in a reciprocal

obligation?
DOCTRINE: Considering that both parties were in delay and that their
obligation was reciprocal, performance thereof must be simultaneous. The
mutual inaction of Cortes and the Corporation therefore gave rise to a
compensatio morae or default on the part of both parties because neither
has completed their part in their reciprocal obligation. This mutual delay of
the parties cancels out the effects of default such that it is as if no one is
guilty of delay.
Winifreda Ursal v. Court of Appeals, The Rural Bank of Larena

(Siquijor), Inc. and Spouses Jesus Moneset and Cristita Moneset
GR No. 142411. October 14, 2005
Austria-Martinez, J.:
58
ISSUE: Is the vendor liable for damages in reciprocal obligations?
DOCTRINE: Where the vendee in the contract to sell also took possession
of the property, the subsequent mortgage constituted by the owner over
said property in favor of another person was valid since the vendee
retained absolute ownership over the property. At most, the vendee in the
contract to sell was entitled only to damages pursuant to Art. 1169 of the
Civil Code on reciprocal obligations.
Prudential Bank v. Chonney Lim

G.R. No. 136371 November 11, 2005
Tinga, J.:
ISSUE: Whether the failure of the bank’s employees to credit the deposit to
respondent’s savings account constitutes actionable negligence in law.
DOCTRINE: Article 1172 of the Civil Code ordains that responsibility

arising from negligence in the performance of an obligation is demandable.
The failure of the bank’s employees to credit the amount of P34,000.00 to
respondent’s savings account, resulting as it did in the dishonor of
respondent’s checks, constitutes actionable negligence in law.
From another perspective, the negligence of the bank constitutes a breach

of duty to its client. It is worthy of note that the banking industry is
impressed with public interest. As such, it must observe a high degree of
diligence and observe lofty standards of integrity and performance. By the
nature of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary
nature of its relationship with them.
YHT Realty Corporation, Erlinda Lainez and Anicia Payam v. Court of

Appeals and Maurice Mcloughlin
G.R. No. 126780. February 17, 2005
Tinga, J.:
ISSUE: When will the hotelkeepers/innkeepers liable for the effects of their
guests?
DOCTRINE: Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not
liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to
2001 is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of

public policy precisely to apply to situations such as that presented in this
case. The hotel business like the common carrier's business is imbued with
public interest. Catering to the public, hotelkeepers are bound to provide
not only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the business. The law
in turn does not allow such duty to the public to be negated or diluted by
any contrary stipulation in so-called "undertakings" that ordinarily appear in
prepared forms imposed by hotel keepers on guests for their signature.
58
In an early case it was ruled that to hold hotelkeepers or innkeeper liable

for the effects of their guests, it is not necessary that they be actually
delivered to the innkeepers or their employees. It is enough that such
effects are within the hotel or inn. With greater reason should the liability of
the hotelkeeper be enforced when the missing items are taken without the
guest's knowledge and consent from a safety deposit box provided by the
hotel itself, as in this case.
Schimtz Transport and Brokerage Corporation v. Transport Venture

Inc.
G.R. No. 150255, April 22, 2005
Carpio-Morales J:
ISSUE: How must the liability of the common carrier, on one hand, and an
independent contractor, on the other hand, be described?
DOCTRINE: It would be solidary. A contractual obligation can be breached

by tort and when the same act or omission causes the injury, one resulting
in culpa contractual and the other in culpa aquiliana, Article 2194 of the
Civil Code can well apply. In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the contract. Stated differently,
when an act which constitutes a breach of contract would have itself
constituted the source of a quasi-delictual liability had no contract existed
between the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.
As for Black Sea, its duty as a common carrier extended only from the time
the goods were surrendered or unconditionally placed in its possession and
received for transportation until they were delivered actually or
constructively to consignee Little Giant.
Parties to a contract of carriage may, however, agree upon a definition of

delivery that extends the services rendered by the carrier. In the case at
bar, Bill of Lading No. 2 covering the shipment provides that delivery be
made “to the port of discharge or so near thereto as she may safely get,
always afloat.” The delivery of the goods to the consignee was not from
“pier to pier” but from the shipside of “M/V Alexander Saveliev” and into
barges, for which reason the consignee contracted the services of
petitioner. Since Black Sea had constructively delivered the cargoes to
Little Giant, through petitioner, it had discharged its duty. In fine, no
liability may thus attach to Black Sea.
Lapreciosisima Cagungun, et. al. v. Planters Development Bank

GR No. 158674. October 17, 2005
Chico-Nazario, J.:
ISSUE: What is the degree of diligence required in the performance of an

obligation?
DOCTRINE: The fiduciary nature of banking requires banks to assume a

degree of diligence higher than that of a good father of a family. Article
1172 of the New Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation
then the diligence of a family. In every case, the depositor expects the bank
58
to treat his account with utmost fidelity, whether such accounts consists
only of a few hundred pesos or of millions of pesos.
Radio Communication of the Philippines vs. Alfonso Verchez, et al.

G.R. No. 164349. January 31, 2006
Carpio Morales, J.:
ISSUE: Must a causal connection between the delay of the respondent in

the performance of its duty and the injury suffered by the plaintiffs be
proved in culpa contractual?
DOCTRINE: No. In culpa contractual, the mere proof of the existence of

the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force of
contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the
tenor thereof. A breach upon the contract confers upon the injured party a
valid cause for recovering that which may have been lost or suffered.
Crisostomo Alcaraz v. Court of Appeals

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

GR No. 154469. December 6, 2006
Chico-Nazario, J:
ISSUE: Can a Banking Institution Who Relied To Another Bank’s

indorsement of a check evade liability by failing to detect alterations made
in a check.
DOCTRINE: No. The point is that as a business affected with public

interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank must be a high degree of
diligence, if not the utmost diligence. In every case, the depositor expects
the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions.
Ma. Elizabeth Kind and Mary Ann King v. Megaworld Properties and
Holdings, Inc.
58
G.R. No. 162895. August 16, 2006

Quisumbing, J.:
ISSUE: Is refund a remedy in case there is a defect in the object of the

obligation?
DOCTRINE: There is nothing on record to show that the original structure

was unstable. One who alleges a fact has the burden of proving it. Aside
from the pictures and videos of the cracked perimeter fence, petitioners did
not present any other evidence. These pictures and videos are insufficient
to show that the townhouse’s foundation was structurally defective. The
cracks could be merely superficial. Other than that, the presumption is that
there was no irregularity regarding the approval of the building plan.
Moreover, respondent presented an affidavit of a structural engineer
attesting that the cracks and leaks on the perimeter fence do not affect the
structural integrity of the townhouse. Absent any showing that the
townhouse structure was unstable and unsafe for habitation, petitioners are
not entitled to a refund.
Autocorp Group v. Intra Strata Assurance Corporation

G.R. No. 166662, 556 SCRA 250
ISSUES:
(1) Is demand necessary to make an obligation become due and
demandable?
(2) Are defenses against the Bureau of Customs completely available
against ISAC, since the right of the latter to seek indemnity from petitioner
depends on the right of the BOC to proceed against the bonds?
DOCTRINE:
(1) Demand, whether judicial or extrajudicial, is not required before an
obligation becomes due and demandable-a demand is only necessary in
order to put an obligor in a due and demandable obligation in delay, which
in turn is for the purpose of making the obligor liable for interests or
damages for the period of delay.
(2) ISAC’s right to seek indemnity from petitioners does not constitute
subrogation under the Civil Code, considering that there has been no
payment yet by ISAC to the BOC. There are indeed cases in the
aforementioned Article 2071 of the Civil Code wherein the guarantor or
surety, even before having paid, may proceed against the principal debtor,
but in all these cases, Article 2071 of the Civil Code merely grants the
guarantor or surety an action “to obtain release from the guaranty, or to
demand a security that shall protect him from any proceedings by the
creditor and from the danger of insolvency of the debtor.” The benefit of
subrogation, an extinctive subjective novation by a change of creditor,
which “transfers to the person subrogated, the credit and all the rights
thereto appertaining, either against the debtor or against third persons,” is
granted by the Article 2067 of the Civil Code only to the “guarantor (or
surety) who pays.”
ISAC cannot be said to have stepped into the shoes of the BOC, because the
BOC still retains said rights until it is paid. ISAC’s right to file Civil Case
No. 95-1584 is based on the express provision of the Indemnity Agreements
making petitioners liable to ISAC at the very moment ISAC’s bonds become
due and demandable for the liability of Autocorp Group to the BOC, without
58
need for actual payment by ISAC to the BOC. But it is still correct to say
that all the defenses available to petitioners against the BOC can likewise
be invoked against ISAC because the latter’s contractual right to proceed
against petitioners only arises when the Autocorp Group becomes liable to
the BOC for non-compliance with its undertakings. Indeed, the arguments
and evidence petitioners can present against the BOC to prove that
Autocorp Group’s liability to the BOC is not yet due and demandable would
also establish that petitioners’ liability to ISAC under the Indemnity
Agreements has not yet arisen.
J Plus Asia Development Corporation v. Utility Assurance

Corporation
G.R. No. 199650, 700 SCRA 134
ISSUE: Can delay take place even if the obligation to perform or complete
the project was not yet demandable because the agreed completion date is
yet to come?
DOCTRINE: Default or mora on the part of the debtor is the delay in the
fulfillment of the prestation by reason of a cause imputable to the former. It
is the non-fulfillment of an obligation with respect to time.
In this jurisdiction, the following requisites must be present in order that

the debtor may be in default: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially or extrajudicially.
Since the parties contemplated delay in the completion of the entire project
as can be seen in the Construction Agreement, the CA concluded that the
failure of the contractor to catch up with schedule of work activities did not
constitute delay giving rise to the contractor’s liability for damages.
Article 1374 of the Civil Code requires that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. Here, the work
schedule approved by petitioner was intended, not only to serve as its basis
for the payment of monthly progress billings, but also for evaluation of the
progress of work by the contractor. Article 13.01 (g) (iii) of the Construction
Agreement provides that the contractor shall be deemed in default if,
among others, it had delayed without justifiable cause the completion of the
project "by more than thirty (30) calendar days based on official work
schedule duly approved by the OWNER."
Where a party to a building construction contract fails to comply with the

duty imposed by the terms of the contract, a breach results for which an
action may be maintained to recover the damages sustained thereby, and of
course, a breach occurs where the contractor inexcusably fails to perform
substantially in accordance with the terms of the contract.
Polo S. Pantaleon v. American Express International, Inc.

G.R. No. 174269, May 8, 2009
Tinga, J.:
ISSUE: Whether delay by itself gives rise to moral damages.
58
DOCTRINE: No. It should be emphasized that the reason why petitioner is

entitled to damages is not simply because respondent incurred delay, but
because the delay, for which culpability lies under Article 1170, led to the
particular injuries under Article 2217 of the Civil Code for which moral
damages are remunerative. Moral damages do not avail to soothe the
plaints of the simply impatient, so this decision should not be cause for
relief for those who time the length of their credit card transactions with a
stopwatch. The somewhat unusual attending circumstances to the purchase
at Coster – that there was a deadline for the completion of that purchase by
petitioner before any delay would redound to the injury of his several
traveling companions – gave rise to the moral shock, mental anguish,
serious anxiety, wounded feelings and social humiliation sustained by the
petitioner, as concluded by the RTC. Those circumstances are fairly unusual,
and should not give rise to a general entitlement for damages under a more
mundane set of facts.
Sps. Guanio v. Makati Shangri-La Hotel

GR No. 190601, February 7, 2011
ISSUE: Whether the doctrine of proximate cause is applicable to a breach

of contract.
DOCTRINE: No. The Court finds that since petitioners’ complaint arose
from a contract, the doctrine of proximate cause finds no application to it,
the latter applicable only to actions for quasi-delicts, not in actions involving
breach of contract. Breach of contract is defined as the failure without legal
reason to comply with the terms of a contract. The appellate court, and even
the trial court, observed that petitioners were remiss in their obligation to
inform respondent of the change in the expected number of guests.
Petitioners’ failure to discharge such obligation thus excused respondent
from liability for “any damage or inconvenience” occasioned thereby.
What applies in the present case is Article 1170 of the Civil Code which
reads:
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.
In culpa contractual the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief.
The law, recognizing the obligatory force of contracts, will not permit a
party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves
to preserve the interests of the promissee that may include
his “expectation interest,” which is his interest in having the benefit of
his bargain by being put in as good a position as he would have been in had
the contract been performed, or his “reliance interest,” which is his
interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract
not been made; or his “restitution interest,” which is his interest in
having restored to him any benefit that he has conferred on the other party.
Marques v. Far East Bank
58
G.R. No. 171379; January 10, 2011
ISSUE: Whether FEBTC is estopped from claiming that the insurance

premium in the contract has been paid, making it liable for damages.
DOCTRINE: Yes. In estoppel, a party creating an appearance of fact, which

is false, is bound by that appearance as against another person who acted in
good faith on it. In Santiago Syjuco, Inc. v. Castro, the Court stated that
“estoppel may arise from silence as well as from words.” ‘Estoppel by
silence’ arises where a person, who by force of circumstances is obliged to
another to speak, refrains from doing so and thereby induces the other to
believe in the existence of a state of facts in reliance on which he acts to his
prejudice.
As a consequence of its negligence, FEBTC must be held liable for damages

pursuant to Article 1172 in relation to Article 2176 of the Civil Code which
states “whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done.” Indisputably,
had the insurance premium been paid, through the automatic debit
arrangement with FEBTC, Maxilite’s fire loss claim would have been
approved.
Mondragon Leisure and Resorts Corporation v. Court of Appeals et

al.
G.R. No. 154188, June 15, 2005
Quisumbing, J.:
ISSUE: In 1997, the Asian Financial crisis occurred. Is this a fortuitous

event contemplated under Article 1174 such that a debtor cannot be held in
default under a loan agreement?
DOCTRINE: No. To exempt the obligor from liability for a breach of an

obligation by reason of a fortuitous event, the following requisites must
concur: (a) the cause of the breach of the obligation must be independent
of the will of the debtor; (b) the event must be either unforeseeable or
unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d) the debtor must
be free from any participation in, or aggravation of the injury to the
creditor. The following are excepted from the rule: (1) when the law
expressly so specifies; (2) when it is otherwise declared by the parties; and
(3) when the nature of the obligation requires the assumption of risks.
Every business venture involves risks. Risks are not unforeseeable; they are
inherent in business. Hence, a corporation that enters into a loan
agreement, being aware of the economic environment at the time it entered
into such agreement, can be declared in default despite events such as the
Asian financial crisis. It is not a fortuitous event so as to exonerate a party
from its obligation.
Philippine Realty and Holding Corp. v. Ley Const. and Dev. Corp.
G. R. No. 165548, June 13, 2011
ISSUE: Whether there is a fortuitous event that will exempt the obligor
from liability for the breach of an obligation.
DOCTRINE: Yes. Under Article 1174 of the Civil Code, to exempt the
obligor from liability for a breach of an obligation due to an "act of God" or
58
force majeure, the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must
be either unforeseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor. The shortage in supplies and
cement may be characterized as force majeure. In the present case,
hardware stores did not have enough cement available in their supplies or
stocks at the time of the construction in the 1990s. Likewise, typhoons,
power failures and interruptions of water supply all clearly fall under force
majeure. Since LCDC could not possibly continue constructing the building
under the circumstances prevailing, it cannot be held liable for any delay
that resulted from the causes aforementioned.
Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank

General Insurance Co., Inc.
G.R. No. 189563; April 7, 2014
Sereno, CJ:
ISSUE: Whether the delay started to run from the time it demanded the
fulfillment of respondent’s obligation under the suretyship contract.
DOCTRINE: Yes. As to the issue of when interest must accrue, the Civil
Code is explicit in stating that it accrues from the time judicial or
extrajudicial demand is made on the surety. This ruling is in accordance
with the provisions of Article 1169 of the Civil Code and of the settled rule
that where there has been an extra-judicial demand before an action for
performance was filed, interest on the amount due begins to run, not from
the date of the filing of the complaint, but from the date of that extra-
judicial demand.60 Considering that respondent failed to pay its obligation
on 30 May 2000 in accordance with the Purchase Agreement, and that the
extrajudicial demand of petitioner was sent on 5 June 2000,61 we agree
with the latter that interest must start to run from the time petitioner sent
its first demand letter (5 June 2000), because the obligation was already
due and demandable at that time.
Carlo F. Sunga v.Virjen Shipping Corporation, Nissho Odyssey Ship

Management Pte. Ltd., And/Or Capt. Angel Zambrano
Gr no. 198640; April 23, 2014
Brion, J.:
ISSUE: Whether Sunga’s injury was a result of an accident.
DOCTRINE: Yes. In Jarco Marketing Corporation, et al., v. Court of

Appeals, SC ruled that an accident pertains to an unforeseen event in which
no fault or negligence attaches to the defendant. It is "a fortuitous
circumstance, event or happening; an event happening without any human
agency, or if happening wholly or partly through human agency, an event
which under the circumstances is unusual or unexpected by the person to
whom it happens." In the present case, Sunga did not incur the injury while
solely performing his regular duties; an intervening event transpired which
brought upon the injury. To repeat, the two other oilers who were supposed
to help carry the weight of the 200-kilogram globe valve lost their grasp of
the globe valve. As a result, Sunga’s back snapped when the entire weight
of the item fell upon him. The sheer weight of the item is designed not to be
58
carried by just one person, but as was observed, meant to be undertaken by

several men and expectedly greatly overwhelmed the physical limits of an
average person. Notably, this incident cannot be considered as foreseeable,
nor can it be reasonably anticipated. Sunga’s duty as a fitter involved
changing the valve, not to routinely carry a 200-kilogram globe valve
singlehandedly. The loss of his fellow workers’ group was also unforeseen in
so far as Sunga was concerned.
CHAPTER 3. DIFFERENT KINDS OF OBLIGATIONS
SECTION 1. PURE AND CONDITIONAL OBLIGATIONS
Sacobia Hills Development Corporation vs. Allan Ty

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

G.R. No. 123672. December 14, 2005
Carpio Morales, J.:
ISSUE: May the partially unpaid seller rescind the sale for failure of the
buyer to pay the balance of the purchase price of the property in the
manner and within the period agreed upon?
DOCTRINE: Yes. Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously such that the performance
of one is conditioned upon the simultaneous fulfillment of the other. The
right of rescission of a party to an obligation under Article 1191 of the New
Civil Code is predicated on a breach of faith by the other party who violates
the reciprocity between them.
A contract of sale is a reciprocal obligation. The seller obligates itself to
transfer the ownership of and deliver a determinate thing, and the buyer
58
obligates itself to pay therefor a price certain in money or its equivalent

The non-payment of the price by the buyer is a resolutory condition which
extinguishes the transaction that for a time existed, and discharges the
obligations created thereunder. Such failure to pay the price in the manner
prescribed by the contract of sale entitles the unpaid seller to sue for
collection or to rescind the contract.
Spouses William And Jeanette Yao v. Carlomagno B. Matela

G.R. No. 167767. August 29, 2006
ISSUE: May a court annul a contract on the ground that its object is a
disastrous deal or an unwise investment? What is the role of the court in
determining the liability of the contracting parties who are both guilty of
violating the terms therein?
DOCTRINE: The well-entrenched doctrine is that the law does not relieve a
party from the effects of an unwise, foolish or disastrous contract, entered
into with full awareness of what he was doing and entered into and carried
out in good faith. Such a contract will not be discarded even if there was a
mistake of law or fact. Courts have no jurisdiction to look into the wisdom of
the contract entered into by and between the parties or to render a decision
different therefrom. They have no power to relieve parties from obligation
voluntarily assumed, simply because their contracts turned out to be
disastrous deals or unwise investments. However, in situations such as the
one discussed above, where it cannot be conclusively determined which of
the parties first violated the contract, equity calls and justice demands that
we apply the solution provided in Article 1192 of the Civil Code.
Spouses Jaime Benos And Marina Benos v. Spouses Gregorio Lawilao

And Janice Gail Lawilao
G.R. No. 172259, December 5, 2006
ISSUE: In reciprocal obligations in a pacto de retro sale, is the vendee

precluded to pay even after the date agreed upon due to a cross-claim found
in the answer?
DOCTRINE: Yes. While the vendors did not rescind the Pacto de Retro
Sale through a notarial act, they nevertheless rescinded the same in their
Answer with Counterclaim. Even a cross-claim found in the Answer could
constitute a judicial demand for rescission that satisfies the requirement of
the law. The counterclaim of the vendors in their answer satisfied the
requisites for the judicial rescission of the subject Pacto de Retro Sale
Darrel Cordero, et al. vs. F.S. Management and Development

Corporation
G.R. No. 167213. October 31, 2006
Carpio Morales, J.:
58
ISSUE: May the contract be rescinded in case of failure of a party to

comply with its obligations under a contract, such as the obligation to pay
the down payment of the purchase price in a contract to sell?
DOCTRINE: No. A contract to sell is not a contract of sale. Article 1191

applies only in reciprocal contracts. A contract to sell is not a reciprocal
contract. Under a contract to sell, the seller retains title to the thing to be
sold until the purchaser fully pays the agreed purchase price. The full
payment is a positive suspensive condition, the non-fulfillment of which is
not a breach of contract but merely an event that prevents the seller from
conveying title to the purchaser. The non-payment of the purchase price
renders the contract to sell ineffective and without force and effect.
Nevertheless, while rescission does not apply in this case, petitioners may
cancel the contract to sell, their obligation not having arisen.
Yamamoto v. Nishino Leather Industries, Inc.

G.R. No. 150283, 551 SCRA 447
ISSUE: Will an offer to a stockholder to that he could take out the

Machinery in the corporation if he wanted to so, provided that the value of
said machines would be deducted from his capital contribution, give rise to
an obligation to the corporation to deliver said properties to the prior?
DOCTRINE: Without acceptance, a mere offer produces no obligation.

Thus, under Article 1181 of the Civil Code, "in conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes
the condition." In the case at bar, there is no showing of compliance with
the condition for allowing Yamamoto to take the machineries and
equipment, namely, his agreement to the deduction of their value from his
capital contribution due him in the buy-out of his interests in the
corporation. Yamamoto’s allegation that he agreed to the condition
remained just that, no proof thereof having been presented.
The machineries and equipment, which comprised Yamamoto’s investment

in NLII, thus remained part of the capital property of the corporation.
Spouses Jose T. Valenzuela and Gloria Valenzuela v. Kalayaan

Development & Industrial Corporation
G.R. No. 163244, June 22, 2009
Peralta, J.:
ISSUE: Whether there can be a rescission of contract if a positive

suspensive condition under a contract to sell has not been complied with.
DOCTRINE: No. Under a contract to sell, the seller retains title to the thing
to be sold until the purchaser fully pays the agreed purchase price. The full
payment is a positive suspensive condition, the non-fulfillment of which is
not a breach of contract, but merely an event that prevents the seller from
conveying title to the purchaser. The non-payment of the purchase price
renders the contract to sell ineffective and without force and effect.
Since the obligation of respondent did not arise because of the failure of
petitioners to fully pay the purchase price, Article 1191 of the Civil Code
would have no application.
58
The non-fulfillment by the respondent of his obligation to pay, which is a

suspensive condition to the obligation of the petitioners to sell and deliver
the title to the property, rendered the contract to sell ineffective and
without force and effect. The parties stand as if the conditional obligation
had never existed. Article 1191 of the New Civil Code will not apply because
it presupposes an obligation already extant. There can be no rescission of
an obligation that is still non-existing, the suspensive condition not having
happened.
Solar Harvest, Inc. v. Davao Corrugated Carton Corporation

G.R. No. 176868 July 26, 2010
Nachura, J.:
ISSUE: Whether petitioner failed to establish a cause of action for

rescission it being shown that respondent did not commit any breach of its
contractual obligation.
DOCTRINE: Yes, in reciprocal obligations, as in a contract of sale, the

general rule is that no demand is generally necessary because, once a party
fulfills his obligation and the other party does not fulfill his, the latter
automatically incurs in delay. But when different dates for performance of
the obligations are fixed the other party would incur in delay only from the
moment the other party demands fulfillment of the former’s obligation.
Evident from the records and even from the allegations in the complaint
was the lack of demand by petitioner upon respondent to fulfill its obligation
to manufacture and deliver the boxes. The Complaint only alleged that
petitioner made a “follow-up” upon respondent, which, however, would not
qualify as a demand for the fulfillment of the obligation. Petitioner’s witness
also testified that they made a follow-up of the boxes, but not a
demand. Without a previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for rescission against
respondent as the latter would not yet be considered in breach of its
contractual obligation.
International Hotel Corporation, v. Francisco Joaquin, Jr. and Rafael

Suarez
G.R. No. 158361. April 10, 2013
Bersamin, J.:
ISSUES:
(1) Will the absence of intent on the part of the obligor to pre-empt the
fulfillment of the condition warrant the application of Art. 1186?
(2) Will substantial compliance warrant the application of Art. 1234?
DOCTRINE:
(1) No. This provision refers to the constructive fulfillment of a suspensive
condition, whose application calls for two requisites, namely: (a) the intent
of the obligor to prevent the fulfillment of the condition, and (b) the actual
prevention of the fulfillment. Since the debtor had no intent to prevent the
fulfillment of the condition, Art. 1186 cannot be applied.
(2) Generally, yes. Art. 1234 applies only when an obligor admits breaching
the contract after honestly and faithfully performing all the material
elements thereof except for some technical aspects that cause no serious
harm to the obligee. However, if incomplete performance amounts to a
material breach of the contract, the same shall no longer be applicable.
58
In order that there may be substantial performance of an obligation, there

must have been an attempt in good faith to perform, without any willful or
intentional departure therefrom. The deviation from the obligation must be
slight, and the omission or defect must be technical and unimportant, and
must not pervade the whole or be so material that the object which the
parties intended to accomplish in a particular manner is not attained. The
non-performance of a material part of a contract will prevent the
performance from amounting to a substantial compliance.
Conversely, the principle of substantial performance is inappropriate when

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

G.R. No. 172410, 551 SCRA 303
ISSUE: Will the effects of the fulfillment of a condition retroact to the date
of the constitution of the obligation?
DOCTRINE: The effects of a conditional obligation to give, once the

condition has been fulfilled, shall retroact to the day of the constitution of
the obligation. Hence, when HTRDC complied with the given conditions, as
determined by the RTC in its Order dated April 21, 2003, the effects of the
constructive delivery retroacted to the actual date of the deposit of the
amount in the expropriation account of DPWH.
Subic Bay Metropolitan Authority v. Court of Appeals

G.R. No. 192885, July 4, 2012.
ISSUE: Whether SBMA is entitled to receive service fees pursuant to the

contract despite failing to render the services required from them?
.
DOCTRINE: No. Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously such that the performance
of one is conditioned upon the simultaneous fulfillment of the other. For one
party to demand the performance of the obligation of the other party, the
former must also perform its own obligation. Accordingly, petitioner, not
having provided the services that would require the payment of service fees
as stipulated in the Lease Development Agreement, is not entitled to collect
the same.
The records show that petitioner did not actually provide most of the
services enumerated in the Lease and Development Agreement and that the
obligation involved in the agreement was reciprocal in nature; therefore,
private respondent's obligation to pay was dependent upon petitioner's
performance of its reciprocal duty to provide the agreed service, and since
petitioner failed to perform its part of the deal, it cannot exact compliance
from private respondent of its duty to pay.
58
Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.

G.R. No. 188288. January 16, 2012.
ISSUE: Whether annulment in Art 1390 is the same as rescission under Art.
1191.
DOCTRINE: No. Annulment and rescission are two inconsistent remedies.

In resolution, all the elements to make the contract valid are present; in
annulment, one of the essential elements to a formation of a contract, which
is consent, is absent. In resolution, the defect is in the consummation stage
of the contract when the parties are in the process of performing their
respective obligations; in annulment, the defect is already present at the
time of the negotiation and perfection stages of the contract. Accordingly,
by pursuing the remedy of rescission under Article 1191, there was implied
admission of the validity of the subject contracts, forfeiting their right to
demand their annulment. A party cannot rely on the contract and claim
rights or obligations under it and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking inconsistent positions.
The right to rescind a contract for non-performance of its stipulations is not

absolute. The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in
making the agreement. Whether a breach is substantial is largely
determined by the attendant circumstances.
Under Article 1192, in case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered by
the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his
own damages.
SECTION 4. JOINT AND SOLIDARY OBLIGATIONS
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass

Corporation
G.R. No. 147561. June 22, 2006
Panganiban, C.J.
ISSUE: Is a surety’s liability under a performance bond automatically

extinguished by the death of the principal?
DOCTRINE: No. A surety company’s liability under the performance bond

it issues is solidary. The death of the principal obligor does not, as a rule,
extinguish the obligation and the solidary nature of that liability. As a
general rule, the death of either the creditor or the debtor does not
extinguish the obligation. Obligations are transmissible to the heirs, except
when the transmission is prevented by the law, the stipulations of the
parties, or the nature of the obligation. Only obligations that are personal or
are identified with the persons themselves are extinguished by death.
Section 5 of Rule 86 of the Rules of Court expressly allows the prosecution

of money claims arising from a contract against the estate of a deceased
debtor. Evidently, those claims are not actually extinguished. What is
58
extinguished is only the obligee’s action or suit filed before the court, which
is not then acting as a probate court.
The death of the principal debtor will not work to convert, decrease or
nullify the substantive right of the solidary creditor. Evidently, despite the
death of the principal debtor, [the obligee] may still sue petitioner alone, in
accordance with the solidary nature of the latter’s liability under the
performance bond.
Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al.
G.R. No. 151038. January 18, 2012
ISSUE: Whether payment made by one of the solidary debtor is enough to

extinguish the liability of all the co-debtors.
DOCTRINE: According to Article 1217 of the Civil Code, payment made by

one of the solidary debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose which offer to accept.
The debtor who made the payment may claim from his co-debtors only the
share which corresponds to each, with the interest for the payment already
made. If the payment is made before the debt is due however, no interest
for the intervening period may be demanded.
Article 1208 provides for the share of solidary debtors which states that if
from the law, or the nature of the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit of debt
shall be presumed to be divided into as many equal shares as there are
creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits.
Philippine Commercial International Bank v. CA

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

G.R. No. 172428, 572 SCRA 697
ISSUE: Does a party who bind himself solidarily as ‘guarantor’ only become
secondarily liable to the creditor?
DOCTRINE: A solidary obligation is one in which each of the debtors is

liable for the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or all of the
debtors. A liability is solidary “only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so
58
requires.” Thus, when the obligor undertakes to be “jointly and severally”

liable, it means that the obligation is solidary, such as in this case.
If solidary liabilities were instituted to “guarantee” a principal obligation,

the law deems the contract to be one of suretyship; the surety is directly
and equally bound with the principal.
The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc.,

G.R. No. 156302, April 7, 2009
Chico-Nazario, J.:
ISSUE: Whether a solidary obligation must be expressly stated to hold a

party liable for the obligation.
DOCTRINE: A solidary or joint and several obligation is one in which each

debtor is liable for the entire obligation, and each creditor is entitled to
demand the whole obligation. In a joint obligation, each obligor answers
only for a part of the whole liability and to each obligee belongs only a part
of the correlative rights. Well-entrenched is the rule that solidary obligation
cannot lightly be inferred. There is solidary liability only when the
obligation expressly so states, when the law so provides or when the nature
of the obligation so requires.
Alba v. Yupangco
G.R. No. 188233
Carpio Morales, J:
ISSUE: Whether the respondent has solidary liability with obligor-

corporation despite the decision of the Labor Arbiter being silent as to the
matter.
DOCTRINE: No, there is solidary liability only when the obligation

expressly so states, when the law so provides, or when the nature of the
obligation so requires. MAM Realty Development Corporation v. NLRC on
solidary liability of corporate officers in labor disputes, enlightens: A
corporation being a juridical entity, may act only through its directors,
officers and employees. Obligations incurred by them, acting as such
corporate agents are not theirs but the direct accountabilities of the
corporation they represent. True solidary liabilities may at times be
incurred but only when exceptional circumstances warrant such as,
generally, in the following cases: 1.When directors and trustees or, in
appropriate cases, the officers of a corporation:(a) vote for or assent to
patently unlawful acts of the corporation;(b)act in bad faith or with gross
negligence in directing the corporate affairs.
Asset Builders Corporation v. Stronghold Insurance Company,

Incorporated
G.R. No. 187116, October 18, 2010
Mendoza, J.:
ISSUE: Whether a guarantor who binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so is a
solidary debtor?
DOCTRINE: Yes, if a person binds himself solidarily with the principal

debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be
58
observed. In such case the contract is called a suretyship. As provided

in Article 2047, the surety undertakes to be bound solidarily with the
principal obligor. That undertaking makes a surety agreement an ancillary
contract as it presupposes the existence of a principal contract. Although
the contract of a surety is in essence secondary only to a valid principal
obligation, the surety becomes liable for the debt or duty of another
although it possesses no direct or personal interest over the obligations nor
does it receive any benefit therefrom.
Sps. Rodolfo Berot v. Felipe Siapno

G. R. No. 188944; July 9, 2014
ISSUE: Whether the mortgage may be considered solidary despite the

absence of express terms making the obligation solidary.
DOCTRINE: No. Under Article 1207 of the Civil Code of the Philippines,
the general rule is that when there is a concurrence of two or more debtors
under a single obligation, the obligation is presumed to be joint. The law
further provides that to consider the obligation as solidary in nature, it must
expressly be stated as such, or the law or the nature of the obligation itself
must require solidarity. Upon examination of the contents of the real estate
mortgage, the Court found no indication in the plain wordings of the
instrument that the debtors had expressly intended to make their obligation
to respondent solidary in nature. Absent from the mortgage are the express
and indubitable terms characterizing the obligation as solidary. Respondent
was not able to prove by a preponderance of evidence that petitioners'
obligation to him was solidary. Hence, applicable to this case is the
presumption under the law that the nature of the obligation herein can only
be considered as joint. It is incumbent upon the party alleging otherwise to
prove with a preponderance of evidence that petitioners' obligation under
the loan contract is indeed solidary in character.
Trade and Investment Development Corp. of the Philippines v. Asia

Paces Corp.
G.R. No. 187403, February 12, 2014
Perlas-Bernabe, J.
ISSUE: Will an extension of payment granted to a third party extinguish the

suretyship in which one the parties is also a principal debtor to said third
party?
DOCTRINE: No. The theory behind Article 2079 is that an extension of

time given to the principal debtor by the creditor without the surety’s
consent would deprive the surety of his right to pay the creditor and to be
immediately subrogated to the creditor’s remedies against the principal
debtor upon the maturity date. The surety is said to be entitled to protect
himself against the contingency of the principal debtor or the indemnitors
becoming insolvent during the extended period.
Article 2079 of the Civil Code refers to a payment extension granted by the
creditor to the principal debtor without the consent of the guarantor or
surety. It will not apply in cases where the suretyship was entered to insure
a debt transaction distinct and separate from the transaction upon which
the extension for payment was made. The two sets of transactions should be
treated separately and distinctly from one another following the civil law
principle of relativity of contracts "which provides that contracts can only
58
bind the parties who entered into it, and it cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with knowledge
thereof.
Olongapo City, V. Subic Water And Sewerage Co., Inc.,

G.R. No. 171626, August 06, 2014
ISSUE: Can the Subic Water, who was not a party in the case, still be
subjected to a writ of execution, since it was identified as OCWD’s co-maker
and successor-in-interest in the compromise agreement?
DOCTRINE: No. Solidary liability must be expressly stated; it is not

presumed. Art. 1207 of the Civil Code provides, “There is a solidary liability
only when the obligation expressly so states, or when the law or the nature
of the obligation requires solidarity.”
In Palmares v. Court of Appeals, the Court did not hesitate to rule that
although a party to a promissory note was only labeled as a co-maker, his
liability was that of a surety, since the instrument expressly provided for his
joint and several liability with the principal.
The law explicitly states that solidary liability is not presumed and must be
expressly provided for. Not being a surety, Subic Water is not an insurer of
OCWD’s obligations under the compromise agreement. At best, Subic
Water was merely a guarantor against whom petitioner can claim, provided
it was first shown that: a) petitioner had already proceeded after the
properties of OCWD, the principal debtor; b) and despite this, the obligation
under the compromise agreement, remains to be not fully satisfied.
SECTION 6. OBLIGATIONS WITH A PENAL CLAUSE
First Fil-Sin Lending Corporation v. Gloria D. Padillo

G.R. No. 160533. January 12, 2005
ISSUE: Whether the penalty charges of 1% per day of delay is

unconscionable.
DOCTRINE: As regards the penalty charges, the Court agrees with the
Court of Appeals in ruling that the 1% penalty per day of delay is highly
unconscionable. Applying Article 1229 of the Civil Code, courts shall
equitably reduce the penalty when the principal obligation has been partly
or irregularly complied with, or if it is iniquitous or unconscionable.
Filinvest Land, Inc. vs. Hon. Court of Appeals, Philippine American

General Insurance Company and Pacific Equipment Corporation
G.R. No. 138980. September 20, 2005
Chico-Nazario, J.:
ISSUE: Is there a difference between penalty and liquidated damages in

cases where there has been partial or irregular compliance?
DOCTRINE: None. Courts may equitably reduce a stipulated penalty in the

contract in two instances: (1) if the principal obligation has been partly or
58
irregularly complied; and (2) even if there has been no compliance if the
penalty is iniquitous or unconscionable in accordance with Article 1229 of
the Civil Code. In cases where there has been partial or irregular
compliance, as in this case, there will be no substantial difference between
a penalty and liquidated damages insofar as legal results are concerned and
that either may be recovered without the necessity of proving actual
damages and both may be reduced when proper.
Development Bank of the Philippines v. Family Foods Manufacturing

Co. Ltd., and Spouses Julianco and Catalina Centeno
G.R. No. 180458; July 30, 2009
Nachura, J.:
ISSUE: Whether the stipulated penalty charge of 8% per annum and

interest rates of 18% and 22% per annum are unreasonable, iniquitous and
unconscionable.
DOCTRINE: No. Respondents’ own evidence shows that they agreed on the
stipulated interest rates of 18% and 22%, and on the penalty charge of 8%,
in each promissory note. It is a basic principle in civil law that parties are
bound by the stipulations in the contracts voluntarily entered into by them.
Parties are free to stipulate terms and conditions that they deem
convenient, provided these are not contrary to law, morals, good customs,
public order, or public policy. There is nothing in the records, and in fact,
there is no allegation, showing that respondents were victims of fraud when
they signed the promissory notes. Neither is there a showing that in their
contractual relations with DBP, respondents were at a disadvantage on
account of their moral dependence, mental weakness, tender age or other
handicap, which would entitle them to the vigilant protection of the courts
as mandated by Article 24 of the Civil Code.
Ileana Dr. Macalinao v. Bank of the Philippine Islands

G.R. No. 175490, September 17, 2009
Velasco, Jr., J.:
ISSUE: Whether the reduction of interest rate should be upheld since the
stipulated rate of interest was unconscionable and iniquitous, and thus
illegal.
DOCTRINE: Yes. The interest rate and penalty charge of 3% per month
should be equitably reduced to 2% per month or 24% per annum. Indeed, in
the Terms and Conditions Governing the Issuance and Use of the BPI Credit
Card, there was a stipulation on the 3% interest rate. Nevertheless, it
should be noted that this is not the first time that this Court has considered
the interest rate of 36% per annum as excessive and unconscionable. It was
held in Chua vs. Timan: The stipulated interest rates of 7% and 5% per
month imposed on respondents’ loans must be equitably reduced to 1% per
month or 12% per annum. We need not unsettle the principle we had
affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, iniquitous, unconscionable and exorbitant.
Such stipulations are void for being contrary to morals, if not against the
law. Since the stipulation on the interest rate is void, it is as if there was no
express contract thereon. Hence, courts may reduce the interest rate as
reason and equity demand. Thus, under the circumstances, the Court finds
it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to
1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1%
58
monthly or a total of 2% per month or 24% per annum in line with the
prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.
CHAPTER 4. EXTINGUISHMENT OF OBLIGATIONS
SECTION 1. PAYMENT OR PERFORMANCE

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

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

G.R. No. 151849 June 23, 2005
Carpio Morales, J.
ISSUE: Who has the burden of showing with legal certainty that the
obligation has been discharged by payment?
DOCTRINE: Debtor. It is settled that as a general rule, a party who alleges

payment as a defense has the burden of proving it. On repeated occasions,
this Court ruled that the debtor has the burden of showing with legal
certainty that the obligation has been discharged by payment. To discharge
means to extinguish an obligation, and in contract law discharge occurs
either when the parties have performed their obligations in the contract, or
when an event the conduct of the parties, or the operation of law releases
the parties from performing. Thus, a party who alleges that an obligation
has been extinguished must prove facts or acts giving rise to the extinction.
The fact of underpayment does not shift the burden of evidence to the
plaintiff-herein respondent because partial payment does not extinguish the
obligation. Only when the debtor introduces evidence that the obligation
has been extinguished does the burden of evidence shift to the creditor who
is then under a duty of producing evidence to show why payment does not
extinguish the obligation.
Abacus Securities Corporation v. Ruben U. Ampil

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

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

G.R. No. 158086, 545 SCRA 300
ISSUE: Was ASJ’s retention of the goods to be delivered on account of

Evangelista’s failure to pay the full amount plus service fees unjustified?
DOCTRINE: To begin with, ASJ’s obligation to deliver the chicks and by-
products corresponds to three dates: the date of hatching, the delivery/pick-
up date and the date of respondents’ payment. On several setting reports,
respondents made delays on their payments, but petitioners tolerated such
delay. When Evangelista’s accounts accumulated because of their
successive failure to pay on several setting reports, petitioners opted to
demand the full settlement of respondents’ accounts as a condition
precedent to the delivery. However, Evangelista was unable to fully settle
their accounts.
Evangelista’s offer to partially satisfy their accounts is not enough to

extinguish their obligation. Under Article 1248 of the Civil Code, the
creditor cannot be compelled to accept partial payments from the debtor,
unless there is an express stipulation to that effect. More so, respondents
cannot substitute or apply as their payment the value of the chicks and by-
products they expect to derive because it is necessary that all the debts be
for the same kind, generally of a monetary character. Needless to say, there
was no valid application of payment in this case.
Furthermore, it was Evangelista who violated the very essence of

reciprocity in contracts, consequently giving rise to ASJ’s right of
retention. This case is clearly one among the species of non-performance of
a reciprocal obligation. Reciprocal obligations are those which arise from
the same cause, wherein each party is a debtor and a creditor of the other,
such that the performance of one is conditioned upon the simultaneous
fulfillment of the other-from the moment one of the parties fulfills his
obligation, delay by the other party begins.
58
Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.

G.R. No. 137884, 550 SCRA 70
ISSUES:
(1) Is possession of the property a sufficient justification to grant the
motion to consign the rents due?
(2) Will a party’s non-compliance to some of the suspensive conditions in
an agreement result to extinguishment of the obligation of the other party?
DOCTRINES:
(1) Consignation is the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to
accept payment and it generally requires a prior tender of payment. In
order that consignation may be effective, the debtor must show that: (1)
there was a debt due; (2) the consignation of the obligation was made
because the creditor to whom tender of payment had been made refused to
accept it or was absent or incapacitated, or because several persons
claimed to be entitled to receive the amount due, or because the title to the
obligation was lost; (3) previous notice of the consignation was given to the
person interested in the performance of the obligation; (4) the amount due
was placed at the disposal of the court; and (5) after the consignation had
been made, the person interested was notified thereof. Failure in any of
these requirements is enough ground to render a consignation ineffective.
In the present case, Toyota failed to allege (2) and (3) above, much less
prove that any of the requirements was present. The mere fact
that Toyota had been in possession of the property since July 3, 1998, is not
a sufficient justification to grant the motion to consign the rents due.
(2) When a contract is subject to a suspensive condition, its birth or

effectivity can take place only if and when the event which constitutes the
condition happens or is fulfilled, and if the suspensive condition does not
take place, the parties would stand as if the conditional obligation has never
existed. Since Toyota was unable to comply with the last two conditions of
the agreement, which were suspensive conditions, Insular Life cannot be
compelled to comply with its obligation to end the present litigation. No
right in favor of Toyota arose and no obligation on the part of Insular Life
was created.
Dao Heng Bank, Inc. (Now Banco De Oro Universal Bank) v. Laigo
G.R. No. 173856, 571 SCRA 434
ISSUE: Is a separate written contract necessary to make a dacion en pago

binding upon the parties?
DOCTRINE: Dacion en pago as a mode of extinguishing an existing

obligation and partakes of the nature of sale whereby property is alienated
to the creditor in satisfaction of a debt in money.
Dacion en pago is an objective novation of the obligation, hence, common

consent of the parties is required in order to extinguish the obligation.
Being likened to that of a contract of sale, dacion en pago is governed by
the law on sales. The partial execution of a contract of sale takes the
transaction out of the provisions of the Statute of Frauds so long as the
58
essential requisites of consent of the contracting parties, object and cause

of the obligation concur and are clearly established to be present.
Royal Cargo Corporation v. DFS Sports Unlimited, Inc.

G.R. No. 158621, 573 SCRA 414
ISSUE: To whom does the burden of evidence lie in order to prove that
payment has been made?
DOCTRINE: As to the first issue raised, the settled rule is that one who
pleads payment has the burden of proving it. Even where the creditor
alleges non-payment, the general rule is that the onus rests on the debtor to
prove payment, rather than on the creditor to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation
has been discharged by payment. Where the debtor introduces some
evidence of payment, the burden of going forward with the evidence – as
distinct from the general burden of proof – shifts to the creditor, who is then
under a duty of producing some evidence to show non-payment.
Since respondent claims that it had already paid petitioner for the services
rendered by the latter, it follows that the former carries the burden of
proving such payment.
Allandale Sportsline, Inc. v. The Good Development Corporation

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

be followed by a valid consignation in order to produce the effect of
payment and extinguish an obligation.
Consignation has the following mandatory requirements: (1) there was a

debt due; (2) the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it, or
because he was absent or incapacitated, or because several persons claim
to be entitled to receive the amount due, or because the title to the
obligation has been lost; (3) previous notice of the consignation had been
given to the person interested in the performance of the obligation; (4) the
amount due was placed at the disposal of the court; and (5) after the
consignation had been made, the person interested was notified thereof.
Petitioners did not allege or prove that after their tender of payment was
refused by respondents, they attempted or pursued consignation of the
payment with the proper court. Their tender of payment not having been
followed by a valid consignation, it produced no effect whatsoever, least of
all the extinguishment of the loan obligation. Therefore, the first issue of
the validity or invalidity of their tender of payment is completely moot and
academic, for either way the discussion will go, it will lead to no other
conclusion but that, without an accompanying valid consignation, the tender
of payment did not result in the payment and extinguishment of the loan
58
obligation. The Court cannot take cognizance of such a purely hypothetical

issue.
Annabelle Dela Peña and Adrian Villareal v. The Court of Appeals and
Rural Bank of Bolinao, Inc.
G.R. No. 177828, February 13, 2009
Nachura, J.:
ISSUE: Whether the burden of proving the fact of payment lies on the
person alleging it.
DOCTRINE: Yes. Jurisprudence is replete with rulings that in civil cases,

the party who alleges a fact has the burden of proving it. Burden of proof is
the duty of a party to present evidence of the facts in issue necessary to
prove the truth of his claim or defense by the amount of evidence required
by law. Thus, a party who pleads payment as a defense has the burden of
proving that such payment has, in fact, been made. When the plaintiff
alleges nonpayment, still, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove
nonpayment.
D.B.T. Mar-Bay Construction, Incorporated v. Ricaredo Panes et al.

G.R. No. 167232, July 31, 2009
Nachura, J.
ISSUE: Whether an innocent purchaser for value and good faith which,
through a dacion en pago, acquire ownership over the property.
DOCTRINE: Yes. DBT is an innocent purchaser for value and good faith
which, through a dacion en pago duly entered into with B.C. Regalado,
acquired ownership over the subject property, and whose rights must be
protected under Section 32 of P.D. No. 1529.
Dacion en pago is the delivery and transmission of ownership of a thing by

the debtor to the creditor as an accepted equivalent of the performance of
the obligation. It is a special mode of payment where the debtor offers
another thing to the creditor, who accepts it as an equivalent of the
payment of an outstanding debt. In its modern concept, what actually takes
place in dacion en pago is an objective novation of the obligation where the
thing offered as an accepted equivalent of the performance of an obligation
is considered as the object of the contract of sale, while the debt is
considered as the purchase price.
It must also be noted that portions of the subject property had already been
sold to third persons who, like DBT, are innocent purchasers in good faith
and for value, relying on the certificates of title shown to them, and who had
no knowledge of any defect in the title of the vendor, or of facts sufficient to
induce a reasonably prudent man to inquire into the status of the subject
property.
Rockville Excel International Exim Corporation v. Spouses Oligario

Culla and Bernardita Miranda
G.R. No. 155716, October 2, 2009
Brion, J.
58
ISSUE: Whether the grant of extensions of the time to pay the loan belied
the contention that they had intended a dacion en pago.
DOCTRINE: Yes. Dacion en pago is the delivery and transmission of

ownership of a thing by the debtor to the creditor as an accepted equivalent
of the performance of an existing obligation. It is a special mode of payment
where the debtor offers another thing to the creditor who accepts it as
equivalent to the payment of an outstanding debt. For dacion en pago to
exist, the following elements must concur: (a) existence of a money
obligation; (b) the alienation to the creditor of a property by the debtor with
the consent of the former; and (c) satisfaction of the money obligation of the
debtor.
If the parties had truly intended a dacion en pago transaction to extinguish
the Sps. Culla’s P2,000,000.00 loan and Oligario had sold the property in
payment for this debt, it made no sense for him to continue to ask for
extensions of the time to pay the loan. More importantly, Rockville would
not have granted the requested extensions to Oligario if payment through a
dacion en pago had taken place. That Rockville granted the extensions
simply belied its contention that they had intended a dacion en pago.
Thus, we agree with the factual findings of the RTC and the CA that no
agreement of sale was perfected between Rockville and the Sps. Culla. On
the contrary, what they denominated as a Deed of Absolute Sale was in fact
an equitable mortgage.
Premiere Development Bank v. Central Surety & Insurance Company,

Inc.
G.R. No. 176246, February 13, 2009
Nachura, J.:
ISSUE: Whether the debtor may choose among his obligations in which he
may apply his payment and whether such right may be waived in favor of
the creditor.
DOCTRINE: Yes. The debtor’s right to apply payment is not mandatory.

This is clear from the use of the word "may" rather than the word "shall" in
the provision which reads: "He who has various debts of the same kind in
favor of one and the same creditor, may declare at the time of making the
payment, to which of the same must be applied."
Indeed, the debtor’s right to apply payment has been considered merely
directory, and not mandatory, following this Court’s earlier pronouncement
that "the ordinary acceptation of the terms ‘may’ and ‘shall’ may be
resorted to as guides in ascertaining the mandatory or directory character
of statutory provisions."
Article 1252 gives the right to the debtor to choose to which of several
obligations to apply a particular payment that he tenders to the creditor.
But likewise granted in the same provision is the right of the creditor to
apply such payment in case the debtor fails to direct its application. This is
obvious in Art. 1252, par. 2, viz.: "If the debtor accepts from the creditor a
receipt in which an application of payment is made, the former cannot
complain of the same." It is the directory nature of this right and the
subsidiary right of the creditor to apply payments when the debtor does not
elect to do so that make this right, like any other right, waivable.
58
A debtor, in making a voluntary payment, may at the time of payment direct

an application of it to whatever account he chooses, unless he has assigned
or waived that right. If the debtor does not do so, the right passes to the
creditor, who may make such application as he chooses. But if neither party
has exercised its option, the court will apply the payment according to the
justice and equity of the case, taking into consideration all its
circumstances. Verily, the debtor’s right to apply payment can be waived
and even granted to the creditor if the debtor so agrees.
Cecilleville Realty and Service Corporation v. Acuña

G.R. No. 162074; July 13, 2009
Carpio, J.
ISSUE: Whether Cecilleville Realty and Service Corporation is entitled to

reimbursement from the Acuña spouses
DOCTRINE: Yes Cecilleville paid the debt of the Acuña spouses to

Prudential as an interested third party. The second paragraph of Article
1236 of the Civil Code reads: Whoever pays for another may demand from
the debtor what he has paid, except that if he paid without the knowledge
or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. Even if the Acuña spouses insist that
Cecilleville’s payment to Prudential was without their knowledge or against
their will, Article 1302(3) of the Civil Code states that Cecilleville still has a
right to reimbursement, thus: When, even without the knowledge of the
debtor, a person interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter’s share.
DBT Mar-Bay Construction, Inc. vs. Panes

G.R. No. 167232; July 31, 2009
Nachura, J.
ISSUE: Whether DBT, as an innocent purchaser for value and good faith
which, through a dacion en pago duly entered into with B.C. Regalado,
acquired ownership over the subject property.
DOCTRINE: Yes. Dacion en pago is the delivery and transmission of

ownership of a thing by the debtor to the creditor as an accepted equivalent
of the performance of the obligation. It is a special mode of payment where
the debtor offers another thing to the creditor, who accepts it as an
equivalent of the payment of an outstanding debt. In its modern concept,
what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of
sale, while the debt is considered as the purchase price.
It must also be noted that portions of the subject property had already been
sold to third persons who, like DBT, are innocent purchasers in good faith
and for value, relying on the certificates of title shown to them, and who had
no knowledge of any defect in the title of the vendor, or of facts sufficient to
induce a reasonably prudent man to inquire into the status of the subject
property. To disregard these circumstances simply on the basis of alleged
continuous and adverse possession of respondents would not only be
inimical to the rights of the aforementioned titleholders, but would
ultimately wreak havoc on the stability of the Torrens system of registration.
58
Manuel Go Cinco and Araceli S. Go Cinco v. Court Of Appeals, Ester

Servacio and Maasin Traders Lending Corporation
G.R. No. 151903, October 9, 2009
Brion, J.:
ISSE: Whether unjust refusal of creditor to accept payment is equivalent to

payment.
DOCTRINE: No. Refusal without just cause is not equivalent to payment; to

have the effect of payment and the consequent extinguishment of the
obligation to pay, the law requires the companion acts of tender of payment
and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz
Realty, Inc., is the definitive act of offering the creditor what is due him or
her, together with the demand that the creditor accept the same. When a
creditor refuses the debtor’s tender of payment, the law allows the
consignation of the thing or the sum due. Tender and consignation have the
effect of payment, as by consignation, the thing due is deposited and placed
at the disposal of the judicial authorities for the creditor to collect.
Land Bank of the Philippines vs. Alfredo Ong

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

G.R. No. 175021; June 15, 2011
ISSUE: Is the payment made to a person other than the creditor

extinguishes the obligation?
DOCTRINE: No. In general, a payment in order to be effective to discharge

an obligation, must be made to the proper person. Thus, payment must be
made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though
actual authority had been given for its receipt. Likewise, if payment is made
to one who by law is authorized to act for the creditor, it will work a
58
discharge. The receipt of money due on a judgment by an officer authorized

by law to accept it will, therefore, satisfy the debt. The respondent was able
to establish that the LBP check was not received by her or by her
authorized personnel.
Dalton vs. FGR Realty and Development Corp

G.R. No. 172577; January 19, 2011
ISSUE: Whether the consignation made by the plaintiff-appellant was void

for failure to give notice to the defendants-appellees of her intention to so
consign her rental payments.
DOCTRINE: NO. Compliance with the requisites of a valid consignation is

mandatory. Failure to comply strictly with any of the requisites will render
the consignation void. Substantial compliance is not enough. The requisites
of a valid consignation: (1) a debt due; (2) the creditor to whom tender of
payment was made refused without just cause to accept the payment, or the
creditor was absent, unknown or incapacitated, or several persons claimed
the same right to collect, or the title of the obligation was lost; (3) the
person interested in the performance of the obligation was given notice
before consignation was made; (4) the amount was placed at the disposal of
the court; and (5) the person interested in the performance of the obligation
was given notice after the consignation was made. The consignation having
been made, the interested parties shall also be notified thereof.
The giving of notice to the persons interested in the performance of the

obligation is mandatory. Failure to notify the persons interested in the
performance of the obligation will render the consignation void. In Ramos v.
Sarao, the Court held that, "All interested parties are to be notified of
the consignation. Compliance with [this requisite] is mandatory.
Elizabeth Del Carmen v. Sps. Sabordo

G.R. No. 181723, August 11, 2014
ISSUE: Whether the judicial deposit or consignation of the money was valid
and binding to the parties and produced the effect of payment of the
purchase price of the subject lots.
DOCTRINE: NO. Consignation is the act of depositing the thing due with
the court or judicial authorities whenever the creditor cannot accept or
refuses to accept payment, and it generally requires a prior tender of
payment. It should be distinguished from tender of payment which is the
manifestation by the debtor to the creditor of his desire to comply with his
obligation, with the offer of immediate performance. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of
payment may be extrajudicial, while consignation is necessarily judicial, and
the priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation. Tender and consignation,
where validly made, produces the effect of payment and extinguishes the
obligation.
It is settled that compliance with the requisites of a valid consignation is

mandatory. Failure to comply strictly with any of the requisites will render
58
the consignation void. One of these requisites is a valid prior tender of

payment.
Erlinda Gajudo, Fernando Gajudo, Jr., Estelita Gajudo, Baltazar

Gajudo And Danilo Arahan Chua v. Traders Royal Bank
G.R. No. 151098. March 21, 2006
Panganiban, C.J.:
ISSUE: What is a means of proving a firm commitment to pay the

redemption price on a fixed period, which is essential in conventional
redemption?
DOCTRINE: Other than the Interbank check marked "for deposit" by

respondent bank, no other evidence was presented to establish that
petitioners had offered to pay the alleged redemption price of P40,135.53
on a fixed date. For that matter, petitioners have not shown that they
tendered payment of the balance and/or consigned the payment to the
court, in order to fulfill their part of the purported agreement. These
remedies are available to an aggrieved debtor under Article 1256 of the
Civil Code, when the creditor unjustly refuses to accept the payment of an
obligation.
Luzon Development Bank v. Enriquez

G.R. No. 168646; January 12, 2011
ISSUE: Whether the dacion en pago extinguished the loan obligation, such
that DELTA has no more obligations to the BANK.
DOCTRINE: The contractual intention determines whether the property

subject of the dation will be considered as the full equivalent of the debt
and will therefore serve as full satisfaction for the debt. "The dation in
payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless
the parties by agreement, express or implied, or by their silence, consider
the thing as equivalent to the obligation, in which case the obligation is
totally extinguished."
Telengtan Brothers & Sons, Inc. v. United States Lines, Inc. and the
Court of Appeals
Gr. No. 132284. February 28, 2006
Garcia, J.:
ISSUE: When can there be extraordinary inflation or deflation of the

currency stipulated so as to justify the application of payment under Article
1250?
DOCTRINE: Extraordinary inflation or deflation, as the case may be, exists

when there is an unusual increase or decrease in the purchasing power of
the Philippine peso which is beyond the common fluctuation in the value of
said currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation.
Even if the price index of goods and services may have risen during the
intervening period, this increase, without more, cannot be considered as
58
resulting to "extraordinary inflation" as to justify the application of Article

1250. The erosion of the value of the Philippine peso in the past three or
four decades, starting in the mid-sixties, is, as the Court observed in
Singson vs. Caltex (Phil), Inc., characteristics of most currencies. And while
the Court may take judicial notice of the decline in the purchasing power of
the Philippine currency in that span of time, such downward trend of the
peso cannot be considered as the extraordinary phenomenon contemplated
by Article 1250 of the Civil Code. Furthermore, absent an official
pronouncement or declaration by competent authorities of the existence of
extraordinary inflation during a given period, as here, the effects of
extraordinary inflation, if that be the case, are not to be applied.
Extraordinary inflation can never be assumed; he who alleges the existence

of such phenomenon must prove the same.
Simplicio A. Palanca v. Ulyssis Guides

G.R. No. 146365. February 28, 2005
Tinga, J.:
ISSUE: What is the effect of acceptance of payment without qualification on

the part of the creditor?
DOCTRINE: Art. 1235 of the Civil Code provides that “When the obligee
accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully
complied with.” Thus, when petitioner accepted respondent’s installment
payments despite the alleged charges incurred by the latter, and without
any showing that he protested the irregularity of such payment, nor
demanded the payment of the alleged charges, respondent’s liability, if any
for said charges, is deemed fully satisfied.
SECTION 2. LOSS OF THE THING DUE
Ayala Construction and Development Corporation v. Philippine

Commercial International Bank
G.R. No. 153827. April 25, 2006.
Garcia, J.:
ISSUE: In an obligation to give will a party be released from its obligation

when the prestation becomes legally of physically impossible?
DOCTRINE: No. It is a fundamental rule that contracts, once perfected,

bind both contracting parties, and obligations arising therefrom have the
force of law between the parties and should be complied with in good faith.
But the law recognizes exceptions to the principle of the obligatory force of
contracts. One exception is laid down in Article 1266 of the Civil Code,
which reads: ‘The debtor in obligations to do shall also be released when
the prestation becomes legally or physically impossible without the fault of
the obligor.
58
Petitioner cannot, however, successfully take refuge in the said article, since
it is applicable only to obligations “to do,” and not obligations “to give.” An
obligation “to do” includes all kinds of work or service; while an obligation
“to give” is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the
recipient, or for its simple possession, or in order to return it to its owner.
Raymundo S. De Leon vs. Benita T. Ong

G.R. No. 170405, February 2, 2010
Corona, J.:
ISSUE: Whether the respondent a purchaser in good faith.
DOCTRINE: YES. Article 1266 of the Civil Code provides: Article 1266. The
debtor in obligations to do shall be released when the prestation become
legally or physically impossible without the fault of the obligor.
Since respondent’s obligation to assume petitioner’s outstanding balance

with RSLAI became impossible without her fault, she was released from the
said obligation. Moreover, because petitioner himself willfully prevented the
condition vis-à-vis the payment of the remainder of the purchase price, the
said condition is considered fulfilled pursuant to Article 1186 of the Civil
Code. For purposes, therefore, of determining whether respondent was a
purchaser in good faith, she is deemed to have fully complied with the
condition of the payment of the remainder of the purchase price.
SECTION 3. CONDONATION OR REMISSION OF THE DEBT
Ruben Reyna V. COA

G.R. No. 167219; February 8, 2011
ISSUE: Whether the writing off of a loan is considered as condonation

which releases a debt by the creditor.
DOCTRINE: NO. This Court rules that writing-off a loan does not equate to
a condonation or release of a debt by the creditor. Write-off is not one of the
legal grounds for extinguishing an obligation under the Civil Code. It is not
a compromise of liability. Neither is it a condonation, since in condonation
gratuity on the part of the obligee and acceptance by the obligor are
required. In making the write-off, only the creditor takes action by
removing the uncollectible account from its books even without the
approval or participation of the debtor.
SECTION 4. CONFUSION OR MERGER OF RIGHTS
Cecilleville Realty and Service Corporation vs. Spouses Tito Acuña

and Ofelia B. Acuña
G.R. No. 162074, July 13, 2009
Carpio, J.
ISSUE: Whether a third-party accommodation mortgagor in a real estate

mortgage who paid the mortgaged debt in favor of the principal mortgagor
without his knowledge has the right to reimburse from the latter.
58
DOCTRINE: Yes. When, even without the knowledge of the debtor, a

person interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter’s share.
Cecilleville clearly has an interest in the fulfillment of the obligation

because it owns the properties mortgaged to secure the Acuña spouses’
loan. When an interested party pays the obligation, he is subrogated in the
rights of the creditor. Because of its payment of the Acuña spouses’ loan,
Cecilleville actually steps into the shoes of Prudential and becomes entitled,
not only to recover what it has paid, but also to exercise all the rights which
Prudential could have exercised. There is, in such cases, not a real
extinguishment of the obligation, but a change in the active subject.
Sps. Dominador R. Narvaez and Lilia W. Narvaez vs. Sps. Rose Ogas
Alciso and Antonio Alciso
G.R. No. 165907, July 27, 2009
Carpio, J.
ISSUE: Whether there could be a stipulation in favor of a third person.
DOCTRINE: Yes. In Limitless Potentials, Inc. v. Quilala, the Court laid down
the requisites of a stipulation pour autrui: (1) there is a stipulation in favor
of a third person; (2) the stipulation is a part, not the whole, of the contract;
(3) the contracting parties clearly and deliberately conferred a favor to the
third person — the favor is not an incidental benefit; (4) the favor is
unconditional and uncompensated; (5) the third person communicated his
or her acceptance of the favor before its revocation; and (6) the contracting
parties do not represent, or are not authorized by, the third party.
All the requisites are present in the instant case: (1) there is a stipulation in
favor of Alciso; (2) the stipulation is a part, not the whole, of the contract;
(3) Bate and the Spouses Narvaez clearly and deliberately conferred a favor
to Alciso; (4) the favor is unconditional and uncompensated; (5) Alciso
communicated her acceptance of the favor before its revocation — she
demanded that a stipulation be included in the 14 August 1981 Deed of Sale
of Realty allowing her to repurchase the property from the Spouses
Narvaez, and she informed the Spouses Narvaez that she wanted to
repurchase the property; and (6) Bate and the Spouses Narvaez did not
represent, and were not authorized by, Alciso.
SECTION 5. COMPENSATION
Mavest (USA) Inc. and Mavest Manila Liaison Office vs. Sampaguita
Garment Corporation
G.R. No. 127454. September 21, 2005
Garcia, J.:
ISSUE: In compensation, do the rights of creditors or obligations of debtors

need to spring from one and the same contract?
DOCTRINE: No. For compensation to validly take place, the governing Civil
Code provisions require the concurrence of well-defined conditions. At its
minimum, compensation presupposes two persons who, in their own right
and as principals, are mutually indebted to each other respecting equally
58
demandable and liquidated obligations over any of which no retention or

controversy commenced and communicated in due time to the debtor exists.
But while compensation, be it legal or conventional, requires the confluence
in the parties of the characters of mutual debtors and creditors, their rights
as such creditors, or their obligations as such debtors, need not spring
from one and the same contract or transaction.
Manuel B. Aloria v. Estrellita B. Clemente

G.R. No. 165644 . February 28, 2006
Carpio Morales, J.:
ISSUE: Can there be compensation for the amount of expenses due to a

possessor in bad faith as against the rentals due from him to the lawful
possessor?
DOCTRINE: Yes. The amount of reimbursable or refundable expenses due

to a possessor in bad faith under Articles 443 and 546 can be compensated
under Article 1278 which reads: Compensation shall take place when two
persons, in their own right, are creditors and debtors of each other.
Premiere Development Bank v. Flores
G.R. No. 175339, 574 SCRA 66
ISSUE: Must the principles of compensation or set-off be applied in a case

where there is foreclosure of mortgaged property since foreclosure does not
preclude the creditor from filing an action to recover any deficiency from
respondent corporations’ loan?
DOCTRINE: The Court cannot give due course to Premiere Development

Bank’s claim of compensation or set-off on account of the pending Civil Case
No. MC03-2202 before the RTC of Mandaluyong City. For compensation to
apply, among other requisites, the two debts must be liquidated and
demandable already.
A distinction must be made between a debt and a mere claim. A debt is an

amount actually ascertained. It is a claim which has been formally passed
upon by the courts or quasi-judicial bodies to which it can in law be
submitted and has been declared to be a debt. A claim, on the other hand, is
a debt in embryo. It is mere evidence of a debt and must pass thru the
process prescribed by law before it develops into what is properly called a
debt. Absent, however, any such categorical admission by an obligor or final
adjudication, no legal compensation or off-set can take place. Unless
admitted by a debtor himself, the conclusion that he is in truth indebted to
another cannot be definitely and finally pronounced, no matter how
convinced he may be from the examination of the pertinent records of the
validity of that conclusion the indebtedness must be one that is admitted by
the alleged debtor or pronounced by final judgment of a competent court. At
best, what Premiere Development Bank has against respondent
corporations is just a claim, not a debt. At worst, it is a speculative claim.
Soriano v. People
G.R. No. 181692, 703 SCRA 536
ISSUE: Can there be compensation for debt comprising of the debtor’s

harvest?
58
DOCTRINE: Compensation is a mode of extinguishing to the concurrent

amount, the debts of persons who in their own right are creditors and
debtors of each other.
Article 1279 of the Civil Code provides for the requisites for compensation
to take effect:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
Harvest due to petitioner as provided in the contract of loan, the same

cannot be considered in the legal compensation of the debts of the parties
since it does not consist in a sum of money, said share being in the form of
harvests.
United Planters Sugar Milling Co., Inc., (UPSUMCO) vs. Court of

Appeals, et al.
G.R. No. 126890, April 2, 2009
Tinga, J.:
ISSUE: Whether the absence of a mutual creditor-debtor relation between

the parties prevents them from extinguishing their obligations through
compensation.
DOCTRINE: No. It might seem that APT has no right to set-off payments
with UPSUMCO for under Article 1279 (1), it is necessary for compensation
that the obligors "be bound principally, and that he be at the same time a
principal creditor of the other." There is, concededly, no mutual creditor-
debtor relation between APT and UPSUMCO. However, we recognize the
concept of conventional compensation, defined as occurring "when the
parties agree to compensate their mutual obligations even if some requisite
is lacking, such as that provided in Article 1282." It is intended to eliminate
or overcome obstacles which prevent ipso jure extinguishment of their
obligations. Legal compensation takes place by operation of law when all
the requisites are present, as opposed to conventional compensation which
takes place when the parties agree to compensate their mutual obligations
even in the absence of some requisites. The only requisites of conventional
compensation are (1) that each of the parties can dispose of the credit he
seeks to compensate, and (2) that they agree to the mutual extinguishment
of their credits.
The right of PNB to set-off payments from UPSUMCO arose out of

conventional compensation rather than legal compensation, even though all
of the requisites for legal compensation were present as between those two
parties. The determinative factor is the mutual agreement between PNB
and UPSUMCO to set-off payments. Even without an express agreement
stipulating compensation, PNB and UPSUMCO would have been entitled to
set-off of payments, as the legal requisites for compensation under Article
1279 were present.
58
As soon as PNB assigned its credit to APT, the mutual creditor-debtor

relation between PNB and UPSUMCO ceased to exist. However, PNB and
UPSUMCO had agreed to a conventional compensation, a relationship
which does not require the presence of all the requisites under Article 1279.
And PNB too had assigned all its rights as creditor to APT, including its
rights under conventional compensation. The absence of the mutual
creditor-debtor relation between the new creditor APT and UPSUMCO
cannot negate the conventional compensation. Accordingly, APT, as the
assignee of credit of PNB, had the right to set-off the outstanding
obligations of UPSUMCO on the basis of conventional compensation before
the condonation took effect on 3 September 1987.
Lao v. Special Plans, Inc.

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

Castañares
G.R. No. 172020 December 6, 2010
Villarama, Jr., J.:
ISSUE: Whether petitioner has a right by way of set-off the telegraphic

transfer in the sum of $4,220.00 against the unpaid loan account of private
respondents, both being bound as principals and debtors of each other, the
debts consisting of a sum of money and due, liquidated and demandable,
and are not claimed by a third person.
DOCTRINE: Yes. Agreements for compensation of debts or any obligations

when the parties are mutually creditors and debtors are allowed under Art.
1282 of the Civil Code even though not all the legal requisites for legal
compensation are present. Voluntary or conventional compensation is not
limited to obligations which are not yet due. The only requirements for
conventional compensation are (1) that each of the parties can fully dispose
of the credit he seeks to compensate, and (2) that they agree to the
extinguishment of their mutual credits. Consequently, no error was
58
committed by the trial court in holding that petitioner validly applied, by

way of compensation, the $4,220.00 telegraphic transfer remitted by
respondents’ foreign client through the petitioner.
Cesar V. Areza and Lolita B. Areza v. Express Savings Bank, Inc.

G.R. No. 176697, September 10, 2014
ISSUE: Whether the Bank can set-off the amount it paid to Equitable-PCI
Bank with petitioner’s savings account.
DOCTRINE: No. Under Art. 1278 of the New Civil Code, compensation
shall take place when two persons, in their own right, are creditors and
debtors of each other. And the requisites for legal compensation are:
Art. 1279. In order that compensation may be proper, it is necessary:
(1)That each one of the obligors be bound principally, and that he be at the
(2)That both debts consist in a sum of money, or if the things due are
(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,
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.33cralawred
Mondragon Personal Sales, Inc. v. Victoriano S. Sola, Jr.

G.R. No. 174882. January 21, 2013
Peralta, J.:
ISSUE: Is petitioner's act of withholding respondent's service fees and

thereafter applying them as partial payment to the obligation of
respondent's wife with petitioner unlawful?
DOCTRINE: No. Petitioner’s act of withholding respondent's service

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

(1) That each one of the obligors be bound principally, and that he be at the
58
(2) That both debts consist in a sum of money, or if the things due are
(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,
SECTION 6. NOVATION
Philippine Savings Bank v. Sps. Rodelfo Malanac Jr.

G.R. No. 145441, April 26, 2005
Ynares-Santiago J:
ISSUE: Is moral damages proper in case a bank misrepresents that they

would accept a request of a party and then does an act that is legal under
the circumstances?
DOCTRINE: Yes. While the bank had the legal basis to withhold the release
of the mortgaged properties, nevertheless, it was not forthright and was
lacking in candor in dealing with Mañalac. In accepting the PCIB Check,
the bank knew fully well that the payment was conditioned on its
commitment to release the specified properties. At the first instance, the
bank should not have accepted the check or returned the same had it
intended beforehand not to honor the request of Mañalac. In accepting the
check and applying the proceeds thereof to the loan accounts of Mañalac
and Galicia, the former were led to believe that the bank was favorably
acting on their request. In justifying the award of moral damages, the Court
of Appeals correctly observed that “there is the unjustified refusal of the
appellant bank to make a definite commitment while profiting from the
proceeds of the check by applying it to the principal and the interest of the
Galicias and plaintiff-appellants.”
Isaisas F. Fabrigas and Marcelina R. Fabrigas v. San Francisco del

Monte, Inc.
G.R. No. 152346. November 25, 2005
Tinga, J.:
ISSUE: Is there a novation when at first, there is a contract to sell which

was rescinded but subsequently a second contract to sell was created to
replace the first contract?
DOCTRINE: Novation, in its broad concept, may either be extinctive or

modificatory. It is extinctive when an old obligation is terminated by the
creation of a new obligation that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. An extinctive novation results
either by changing the object or principal conditions (objective or real), or
by substituting the person of the debtor or subrogating a third person in the
rights of the creditor (subjective or personal). Under this mode, novation
would have dual functions—one to extinguish an existing obligation, the
other to substitute a new one in its place—requiring a conflux of four
essential requisites: (1) a previous valid obligation; (2) an agreement of all
58
parties concerned to a new contract; (3) the extinguishment of the old

obligation; and (4) the birth of a valid new obligation.
Notwithstanding the improper rescission, the facts of the case show

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

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

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

Corporation
G.R. No. 144792. January 31, 2006
58
Tinga, J.
ISSUE: Is there a novation when a subsequent agreement is entered into by

the parties changing the agreed price in the previous contract?
DOCTRINE: No. Novation cannot be presumed. The animus novandi,

whether partial or total, must appear by the express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken.
Thus, in order than an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point
incompatible with each other.
Ek Lee Steel Works Corporation v. Manila Castor Oil Corporation

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

G.R. No. 174711, 565 SCRA 611
ISSUE: Is there a valid novation entered by parties for the extension of the
redemption period?
DOCTRINE: The elements of novation clearly do not exist in the instant

case. While it is true that there is a previous valid obligation (i.e., the
obligation of LBP to honor Sueno’s right to redeem the subject property
within a period of one year), such obligation expired at the same time as the
redemption period on 6 March 2001. There is, however, no clear agreement
between the parties to a new contract, again imposing upon LBP the
obligation of honoring Sueno’s right to redeem the subject properties within
an extended period of six months. Without a new contract, the old contract
cannot be considered extinguished.
58
The condition of LBP for the extension of the redemption period for the
subject properties was plain and simple, that Sueno pay an initial amount of
P115,000.00 for the extension of the redemption period. Sueno tendered a
check for P50,000.00 in partial payment of the amount demanded by LBP.
By accepting the check payment, LBP merely accepted partial compliance of
Sueno with its demand, but it does not mean that LBP had conceded to the
extension of the redemption period for such reduced amount. In fact, LBP
promptly sent Sueno a letter dated 6 March 2001, which was duly received
by the latter, explicitly and consistently requiring payment of the full
amount of P115,000.00 for the extension of the redemption period. It is
without doubt that LBP was still expecting Sueno to pay the balance of
P65,000.00. Hence, not until full payment of the amount it demanded, for
LBP had not yet agreed to extend the period for redemption of the subject
properties.
The consent of LBP to an extension of the period to redeem is subject to the

suspensive condition that Sueno shall pay the initial amount of P115,000.00
in full. With Sueno’s failure to remit the balance of P65,000.00 to LBP, then
there is non-perfection of a new contract.
Novation is never presumed, and the animus novandi, whether totally or

partially, must appear by express agreement of the parties, or by their acts
that are too clear and unmistakable.
S.C. Megaworld Construction And Development Corporation v.

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

its objects or principal obligations, by substituting a new debtor in place of
the old one, or by subrogating a third person to the rights of the creditor. It
is "the substitution of a new contract, debt, or obligation for an existing one
between the same or different parties." Article 1293 of the Civil Code
defines novation as which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him rights mentioned in Articles 1236 and 1237.
Thus, in order to change the person of the debtor, the former debtor must
be expressly released from the obligation, and the third person or new
debtor must assume the former’s place in the contractual relation. Article
1293 speaks of substitution of the debtor, which may either be in the form
of expromision or delegacion, as seems to be the case here. In both cases,
the old debtor must be released from the obligation, otherwise, there is no
valid novation.
In general, there are two modes of substituting the person of the debtor: (1)
expromision and (2) delegacion. In expromision, the initiative for the change
does not come from—and may even be made without the knowledge of—the
debtor, since it consists of a third person’s assumption of the obligation. As
such, it logically requires the consent of the third person and the creditor.
In delegacion, the debtor offers, and the creditor accepts, a third person
who consents to the substitution and assumes the obligation; thus, the
58
consent of these three persons are necessary. Both modes of substitution by

the debtor require the consent of the creditor.
Foundation Specialists, Inc., vs. Betonval Ready Concrete, Inc. and

Stronghold Insurance Co., Inc.
G.R. No. 170674 August 24, 2009
Corona, J.
ISSUE: Whether extinctive novation can be presumed.
DOCTRINE: No. Novation is one of the modes of extinguishing an

obligation.21 It is done by the substitution or change of the obligation by a
subsequent one which extinguishes the first, either by changing the object
or principal conditions, or by substituting the person of the debtor, or by
subrogating a third person in the rights of the creditor. Novation may:
Either be extinctive or modificatory, much being dependent on the nature of

the change and the intention of the parties. Extinctive novation is never
presumed; there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent to
dissolve the old obligation as the moving consideration for the emergence of
the new one. Implied novation necessitates that the incompatibility between
the old and new obligation be total on every point such that the old
obligation is completely superseded by the new one. The test of
incompatibility is whether they can stand together, each one having an
independent existence; if they cannot and are irreconcilable, the
subsequent obligation would also extinguish the first.
There can be no other conclusion but that Betonval had reduced the
imposable interest rate from 30% to 24% p.a. and this reduced interest rate
was accepted, albeit impliedly, by FSI when it proposed a new schedule of
payments and, in fact, actually made payments to Betonval with 24% p.a.
interest. By its own actions, therefore, FSI is estopped from questioning the
imposable rate of interest.
Salazar v. J.Y. Brothers Marketing Corporation

G.R. No. 171998, October 20, 2010
Peralta, J.:
ISSUE: Whether acceptance of a new check in replacement of the previous

one is a novation?
DOCTRINE: No, the obligation to pay a sum of money is not novated by an

instrument that expressly recognizes the old, changes only the terms of
payment, adds other obligations not incompatible with the old ones or the
new contract merely supplements the old one. In the instant case, there was
no express agreement that BA Finance's acceptance of the SBTC check will
discharge Nyco from liability. Neither is there incompatibility because both
checks were given precisely to terminate a single obligation arising from
Nyco's sale of credit to BA Finance. As novation speaks of two distinct
obligations, such is inapplicable to this case.
Lourdes Azarcon vs. People of the Philippines and Marcos Gonzales

G.R. No. 185906. June 29, 2010
Carpio Morales, J.:
58
ISSUE: Whether petitioner’s obligations under the various checks had been
released, superseded and novated by her husband’s assumption of her
liabilities?
DOCTRINE: No. The novation which petitioner suggests as having taken

place, whereby Manuel was supposed to assume her obligations as debtor,
is neither express nor implied. There is no showing of Marcosa explicitly
agreeing to such a substitution, nor of any act of her from which an
inference may be drawn that she had agreed to absolve petitioner from her
financial obligations and to instead hold Manuel fully accountable.
Carolina Hernandez-Nievera v. Wilfredo Hernandez

GR No. 171165; February 14, 2011
ISSUE: Whether the Memorandum of Agreement to deliver option money

and agree to a more flexible term by agreeing instead to receive shares of
stock resulted to novation of PMRDC’s integral obligations.
DOCTRINE: Yes. There are two ways which could indicate, in fine, the
presence of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is when
novation has been explicitly stated and declared in unequivocal terms. The
second is when the old and the new obligations are incompatible on every
point. The test of incompatibility is whether the two obligations can stand
together, each one having its independent existence. If they cannot, they
are incompatible, and the latter obligation novates the first.
Sime Darby Pilipinas, Inc. v. Goodyear Philippines, Inc.

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

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

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

G.R. 159709; June 27, 2012
ISSUE: Whether irreconcilable incompatibility between the old and the

new obligation is essential for a valid novation to be effected.
58
DOCTRINE: YES. For a valid novation to take place, there must be,
therefore: (a) a previous valid obligation; (b) an agreement of the parties to
make a new contract; (c) an extinguishment of the old contract; and (d) a
valid new contract. In short, the new obligation extinguishes the prior
agreement only when the substitution is unequivocally declared, or the old
and the new obligations are incompatible on every point. A compromise of a
final judgment operates as a novation of the judgment obligation upon
compliance with either of these two conditions.A novation arises when there
is a substitution of an obligation by a subsequent one that extinguishes the
first, either by changing the object or the principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in
the rights of the creditor.
Roberto R. David vs. Eduardo C. David

G.R. No. 162365 January 15, 2014
Bersamin, J.
ISSUE: Whether there was novation of the Deed of Sale with assumption of
mortgage when the parties executed a memorandum of Agreement for the
sale of the subject house and lot and, thereafter sold the said property to
third persons.
DOCTRINE: No. The issue of novation involves a question of fact, as it

necessarily requires the factual determination of the existence of the
various requisites of novation, namely: (a) there must be a previous valid
obligation; (b) the parties concerned must agree to a new contract; (c) the
old contract must be extinguished; and (d) there must be a valid new
contract. With both the RTC and the CA concluding that the MOA was
consistent with the deed of sale, novation whereby the deed of sale was
extinguished did not occur.
First United Constructors Corporation vs. Bayanihan Automotiv

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

G.R. No. 161904. April 26, 2005
Callejo, Sr., J.
ISSUE: May the principle of estoppel be applied in determining whether

the obligation contemplated in the contract had already been completed?
DOCTRINE: Yes. The application of the principle of estoppel is proper and

timely in heading off plaintiff’s shrewd efforts at renouncing his previous
acts to the prejudice of parties who had dealt with him honestly and in good
faith t is provided, as one of the conclusive presumptions under Rule 131,
Section 3(a), of the Rules of Court that, “Whenever a party has, by his own
declaration, act or omission, intentionally and deliberately led another to
believe a particular thing to be true, and to act upon such belief, he cannot,
in any litigation arising out of such declaration, act or omission, be
permitted to falsify it.” Hence, when the appellant corporation manifested
its approval in the purchase orders and progress billings it cannot,
thereafter, refute such act or renege on the effects of the same to the
prejudice of the appellee who merely relied on it.
The terms and conditions of the contract between the petitioner and the
respondent unequivocally expressed in the purchase orders and progress
billings must govern the contractual relation of the parties, for these serve
as the terms of the agreement, which are binding and conclusive between
them. When the words of the contract are clear and readily
understandable, there is no room for construction. The contract is the law
between the parties.
Tanay Recreation Center and Development Corp. v. Catalina

Matienzo Fausto and Anunciacion Fausto Pacunayen
GR No. 140182. April 12, 2005
ISSUE: Is the rule of transmissibility of rights and obligations applicable in

a lease contract entered into by the decedent?
DOCTRINE: A lease contract is not essentially personal in character.

Applying Article 1311 of the New Civil Code, the rights and obligations are
transmissible to the heirs. The general rule is that heirs are bound by
contracts entered into by their predecessors-in-interest except when the
rights and obligations arising therefrom are not transmissible by: (1) their
nature; (2) stipulation; or (3) provision of law. Whatever rights and
obligations the decedent had over the property, including his obligation
under the lease contract, were transmitted to his heirs by way of
succession, a mode of acquiring the property, rights and obligation of the
decedent to the extent of the value of the inheritance of the heirs.
Litonjua v. Litonjua
G.R. Nos. 166299-300. December 13, 2005
Garcia, J.:
58
ISSUE: Can an actionable document create a demandable right in favor of a

person who filed a suit for specific performance and accounting in a joint
venture/partnership arrangement (innominate contract)?
DOCTRINE: No. A complaint for delivery and accounting of partnership

property based on such void or legally non-existent actionable document is
dismissible for failure to state of action. Whether the actionable document
creates a partnership, joint venture, or whatever, is a legal matter. What us
determinative for purposes of sufficiency of one’s allegations, is whether the
actionable document bears out an actionable contract – be it a partnership a
joint venture or whatever or some innominate contract (Article 1307, New
Civil Code). It may be noted that one kind of innominate contract is what is
known as du utfacias (I give that you may do).
Bortikey v. AFP Retirement and Separation Benefits System

G.R. No. 146708. December 13, 2005
Corona, J.:
ISSUE: Given a statement in a contract to sell that, “In case of failure on

the part of the BUYER to pay the amortization due on the specified maturity
date, the Buyer shall be given a seven-day grace period xxx. However, in
the event that the BUYER fails to pay within the seven-day grace period, he
shall be charged a penalty of 24% per annum to be reckoned from the first
day of default”, may the buyer say that the 24% annual interest stipulated in
the contract was contrary to law and public morals?
DOCTRINE: No. Basic is the principle that contracting parties may

establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided these are not contrary to law, morals, good customs,
public order or public policy (Article 1306, New Civil Code). Obligations
arising from contracts have the force of law between the contracting parties
and should be complied with in good faith (Article 1159, New Civil
Code).Petitioner was free to decide on the manner of payment, either in
cash or installment. Since he opted to purchase the land on installment
basis, he consented to the imposition of interest on the contract price. He
cannot now unilaterally withdraw from it by disavowing the obligation
created by the stipulation in the contract. Therefore, the stipulated 24%
annual interest on the price of the parcel of land purchased by petitioner
from respondent on installment basis is hereby declared valid and binding.
GF Equity, Inc. vs. Arturo Valenzona

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

or performance or compliance of which cannot be left to the will of only one
of the parties. This is enshrined in Article 1308 of the New Civil Code,
which states “The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.” The stated legal
provision is a virtual reproduction of Article 1256 of the old Civil Code but it
was so phrased as to emphasize the principle that the contract must
bind both parties. This, of course is based firstly, on the principle that
obligations arising from contracts have the force of law between the
contracting parties and secondly, that there must be mutuality between the
58
parties based on their essential equality to which is repugnant to have one

party bound by the contract leaving the other free therefrom. Its ultimate
purpose is to render void a contract containing a condition, which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties.
The ultimate purpose of the mutuality principle is thus to nullify a contract

containing a condition which makes its fulfillment or pre-termination
dependent exclusively upon the uncontrolled will of one of the contracting
parties. Not all contracts though which vest to one party their
determination of validity or compliance or the right to terminate the same
are void for being violative of the mutuality principle. Jurisprudence is
replete with instances of cases where this Court upheld the legality of
contracts, which left their fulfillment or implementation to the will of either
of the parties. In these cases, however, there was a finding of the presence
of essential equality of the parties to the contracts, thus preventing the
perpetration of injustice on the weaker party.

G.R. No. 140182. April 12, 2005



GR No. 140182. April 12, 2005


58
Sunace International vs. NLRC

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

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

G.R. No. 152072, January 31, 2006
Chico-Nazario, J.:
ISSUE: In the contract, the petitioners offered to be the legal

representatives of the petitioner in the expropriation proceeding. In return,
contingency fees shall be paid. Is there a valid and binding contract
between the parties?
DOCTRINE: Under Article 1318 of the Civil Code, there are three essential
requisites which must concur in order to give rise to a binding contract: (1)
consent of the contracting parties; (2) object certain which is the subject
matter of the contract; and (3) cause of the obligation which is established.
All these requisites were present in the execution of the Letter-Agreement.
Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The
Zuzuarreguis, in entering into the Letter-Agreement, fully gave their
consent thereto. In fact, it was them (the Zuzuarreguis) who sent the said
letter to Attys. Roxas and Pastor, for the purpose of confirming all the
matters which they had agreed upon previously. There is absolutely no
58
evidence to show that anybody was forced into entering into the Letter-
Agreement. Verily, its existence, due execution and contents were admitted
by the Zuzuarreguis themselves.
The second requisite is the object certain. The objects in this case are
twofold. One is the money that will go to the Zuzuarreguis (P17.00 per
square meter), and two, the money that will go to Attys. Roxas and Pastor
(any and all amount in excess of P17.00 per square meter). There was
certainty as to the amount that will go to the Zuzuarreguis, and there was
likewise certainty as to what amount will go to Attys. Roxas and Pastor.
The cause is the legal service that was provided by Attys. Roxas and Pastor.
In general, cause is the why of the contract or the essential reason which
moves the contracting parties to enter into the contract.
Bonifacio Nakpil v. Manila Towers Development Corp.

GR No. 160867. September 20, 2006
Callejo, Sr., J.:
ISSUE: What is a breach of contract? What is the extent of liability of an

obligor who performed a breach of contract?
DOCTRINE: Breach of contract is the failure without legal reason to

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

Homeowners Association, Inc.,
G.R. No. 170092. December 6, 2006
Carpio Morales, J.:
ISSUE: What is the legal effect of entering into a compromise agreement?
DOCTRINE: Under Article 1306 of the Civil Code, contracting parties may
convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy. Thus, a compromise agreement whereby the
parties make reciprocal concessions to resolve their differences to thereby
put an end to litigation is binding on the contracting parties and is expressly
acknowledged as a juridical agreement between them. To have the force of
res judicata, however, the compromise agreement must be approved by final
order of the court.
58
William Golangco Construction Corporation v. Philippine

Commercial International Bank
G.R. No. 142830. March 24, 2006
Corona, J.:
ISSUE: Is the construction company liable for defects that occurred after
the lapse of the one-year defects liability period stipulated in the contract?
DOCTRINE: No, the construction company is not liable for defects that
occurred after the lapse of the one-year defects liability period stipulated in
the contract. The autonomous nature of contracts is enunciated in Article
1306 of the Civil Code. Obligations arising from contracts have the force of
law between the parties and should be complied with in good faith. In
characterizing the contract as having the force of law between the parties,
the law stresses the obligatory nature of a binding and valid agreement.
The provision in the construction contract providing for a defects liability

period was not shown as contrary to law, morals, good customs, pubic order
or public policy. By the nature of the obligation in such contract, the
provision limiting liability for defects and fixing specific guaranty periods
was not only fair and equitable; it was also necessary. The Court cannot
countenance an interpretation that undermines a contractual stipulation
freely and validly agreed upon. The courts will not relieve a party from the
effects of an unwise or unfavorable contract freely entered into.
Spouses Anthony and Percita Oco v. Victor Limbaring

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

G.R. No. 144732, February 13, 2006
Azcuna, J.:
ISSUE: Whether a Compromise Agreement binds a person who did not take
part in its execution.
58
DOCTRINE: No. It is settled that a compromise agreement cannot bind

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

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

through its Owner/Manager Gerino V. Tactaquin
G.R. No. 153057. August 7, 2006
ISSUE: May an obligor be held liable for damages in case of breach of

contract?
DOCTRINE: Article 1313 of the Civil Code provides that “creditors are
protected in cases of contracts intended to defraud them.” Further, Article
1381 of the Civil Code provides that contracts entered into in fraud of
creditors may be rescinded when the creditors cannot in any manner collect
the claims due them. Article 1381 applies to contracts where the creditors
are not parties, for such contracts are usually made without their
knowledge. Thus, a creditor who is not a party to a contract can sue to
rescind the contract to prevent fraud upon him. Or, the same creditor can
instead choose to enforce the contract if a specific provision in the contract
allows him to collect his claim, and thus protect him from fraud.
William Ong Genato vs. Benjamin Bayhon et al.

G.R. No. 171035 August 24, 2009
Puno, C.J.:
58
ISSUE: Whether a party’s contractual rights and obligation are

transmissible to the successors.
DOCTRINE: Yes. The rule is a consequence of the progressive

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

et al.
G.R. No. 171399, May 8, 2009
Tinga, J.:
ISSUE: Whether rescission of a contract gives rise to mutual restitution.
DOCTRINE: Rescission creates the obligation to return the object of the

contract. It can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore. Rescission abrogates the
contract from its inception and requires a mutual restitution of the benefits
received.
National Power Corporation vs. Premier Shipping Lines, Inc.

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

Ynares-Santiago, J.,
ISSUE: Whether the principle of autonomy of contracts is absolute.
DOCTRINE: No. The principle of party autonomy in contracts is not,

however, an absolute principle. The rule in Article 1306, of our Civil Code is
that the contracting parties may establish such stipulations as they may
deem convenient, “provided they are not contrary to law, morals, good
customs, public order or public policy.” Thus, counter-balancing the
principle of autonomy of contracting parties is the equally general rule that
provisions of applicable law, especially provisions relating to matters
affected with public policy, are deemed written into the contract. Put a little
differently, the governing principle is that parties may not contract away
applicable provisions of law especially peremptory provisions dealing with
matters heavily impressed with public interest. The law relating to labor
and employment is clearly such an area and parties are not at liberty to
insulate themselves and their relationships from the impact of labor laws
and regulations by simply contracting with each other.
Sta. Lucia Realty & Development, Inc. vs. SPOUSES Francisco &
Emelia Buenaventura
G.R. No. 177113. October 2, 2009
Ynares-Santiago, J.
ISSUE: Whether rights and obligations arising from a contract may be

transmitted.
DOCTRINE: Yes. Article 1311 of the New Civil Code states that, “contracts
take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.” In
this case, the rights and obligations between petitioner and Alfonso are
transmissible. There was no mention of a contractual stipulation or
provision of law that makes the rights and obligations under the original
sales contract for Lot 3, Block 4, Phase II intransmissible. Hence, Alfonso
can transfer her ownership over the said lot to respondents and petitioner is
bound to honor its corresponding obligations to the transferee or new lot
owner in its subdivision project.
Having transferred all rights and obligations over Lot 3, Block 4, and Phase
II to respondents, Alfonso could no longer be considered as an
indispensable party. Contrary to petitioner’s claim, Alfonso no longer has an
interest on the subject matter or the present controversy, having already
sold her rights and interests on Lot 3, Block 4, Phase II to herein
respondents.
Sps. Isagani Castro and Diosdada Castro v. Angelina De Leon Tan,

et. al.,
G.R. No. 168940; November 24, 2009
Del Castillo, J.
ISSUE: Whether freedom of contract is absolute.
DOCTRINE: No. Freedom of contract is not absolute. The same is

understood to be subject to reasonable legislative regulation aimed at the
58
promotion of public health, morals, safety and welfare. One such legislative
regulation is found in Article 1306 of the Civil Code which allows the
contracting parties to "establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order or public policy." To reiterate, we
fully agree with the Court of Appeals in holding that the compounded
interest rate of 5% per month, is iniquitous and unconscionable. Being a
void stipulation, it is deemed inexistent from the beginning. The debt is to
be considered without the stipulation of the iniquitous and unconscionable
interest rate.
Narvaez vs. Alciso

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

G.R. No. 168785, February 05, 2010
Carpio, J.:
ISSUE: Whether the Agreement, the object of which was to establish a

post-divorce joint custody regime between respondent and petitioner over
their child under seven years old contravenes Philippine law.
DOCTRINE: YES. In this jurisdiction, parties to a contract are free to

stipulate the terms of agreement subject to the minimum ban on
stipulations contrary to law, morals, good customs, public order, or public
policy. Otherwise, the contract is denied legal existence, deemed “inexistent
and void from the beginning.”
PNCC Skyway Traffic Management and Security Division Workers

Organization (PSTMSDWO) vs. PNCC Skyway Corporation
58
G.R. No. 171231, February 17, 2010

Peralta, J.
ISSUE: Whether the rule that a contract freely entered into between the
parties should be respected since a contract is the law between the parties
is absolute.
DOCTRINE: No. There are certain exceptions to the rule, specifically

Article 1306 of the Civil Code, which provides: “The contracting parties may
convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.”
Moreover, the relations between capital and labor are not merely
contractual. "They are so impressed with public interest that labor contracts
must yield to the common good." The supremacy of the law over contracts is
explained by the fact that labor contracts are not ordinary contracts; they
are imbued with public interest and therefore are subject to the police
power of the state. However, it should not be taken to mean that provisions
agreed upon in the CBA are absolutely beyond the ambit of judicial review
and nullification. If the provisions in the CBA run contrary to law, public
morals, or public policy, such provisions may very well be voided.
Heirs of Mario Pacres, vs. Heirs of Cecilia Ygoña

G.R. No. 174719. May 5, 2010.
Del Castillo, J.:
ISSUE: Whether third parties may sue for the enforcement of the supposed
obligations arising from said contracts pursuant to stipulation pour autri.
DOCTRINE: NO. Under Article 1311 of the Civil Code, contracts take effect
only between the parties, their assigns and heirs (subject to exceptions not
applicable here). Thus, only a party to the contract can maintain an action
to enforce the obligations arising under said contract. It is true that third
parties may seek enforcement of a contract under the second paragraph of
Article 1311, which provides that “if a contract should contain some
stipulation in favor of a third person, he may demand its fulfillment.” This
refers to stipulations pour autrui, or stipulations for the benefit of third
parties. However, the written contracts of sale in this case contain no such
stipulation in favor of the petitioners.
Heirs of Fausto C. Ignacio v. Home Bankers Savings and Trust

Company
G.R. No. 177783. January 23, 2013
Villarama Jr., J.
ISSUE: When is a contract deemed perfected?
DOCTRINE: Contracts that are consensual in nature, like a contract of

sale, are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer must
be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal,
58
constitutes a counter-offer and is a rejection of the original offer.

Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the
offer.
Spouses Ignacio F. Juico and Alice P. Juico v. China Banking

Corporation
G.R. No. 187678. April 10, 2013
Villarama, Jr., J.:
ISSUE: Whether the interest rates imposed by virtue of escalation clause in

the promissory notes upon them by respondent violate the principle of
mutuality of contracts?
DIOCTRINE: Escalation clauses refer to stipulations allowing an increase

in the interest rate agreed upon by the contracting parties. This Court has
long recognized that there is nothing inherently wrong with escalation
clauses which are valid stipulations in commercial contracts to maintain
fiscal stability and to retain the value of money in long term
contracts. Hence, such stipulations are not void per se.
Nevertheless, an escalation clause "which grants the creditor an unbridled

right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in
the agreement" is void. A stipulation of such nature violates the principle of
mutuality of contracts. Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of increases in
the rate of interest provided in loan contracts.
There is no indication that petitioners were coerced into agreeing with the
foregoing provisions of the promissory notes. In fact, petitioner Ignacio, a
physician engaged in the medical supply business, admitted having
understood his obligations before signing them. At no time did petitioners
protest the new rates imposed on their loan even when their property was
foreclosed by respondent.
This notwithstanding, we hold that the escalation clause is still void because
it grants respondent the power to impose an increased rate of interest
without a written notice to petitioners and their written consent.
Respondent’s monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing statement
based on the new imposed interest with corresponding computation of the
total debt should have been provided by the respondent to enable
petitioners to make an informed decision. An appropriate form must also be
signed by the petitioners to indicate their conformity to the new rates.
Compliance with these requisites is essential to preserve the mutuality of
contracts. For indeed, one-sided impositions do not have the force of law
between the parties, because such impositions are not based on the parties’
essential equality.
Sps. Benjamin Mamaril v. The Boy Scout of the Philippines
58
G.R. No. 179382. January 14, 2013

Perlas-Bernabe, J.
ISSUE: When can a third person benefit from a stipulation pour autrui?
DOCTRINE: The following requisites must concur: (1) There is a stipulation

in favor of a third person; (2) The stipulation is a part, not the whole, of the
contract; (3) The contracting parties clearly and deliberately conferred a
favor to the third person - the favor is not merely incidental; (4) The favor is
unconditional and uncompensated; (5) The third person communicated his
or her acceptance of the favor before its revocation; and (6) The contracting
parties do not represent, or are not authorized, by the third party.22
However, none of the foregoing elements obtains in this case.
Star Two (SPV-AMC), Inc. v. Paper City Corporation of the

Philippines
GR No. 169211. March 6, 2013
Perez, J.
ISSUE: Whether the machineries should be included in the foreclosure of

the real estate mortgage?
DOCTRINE: Yes. Repeatedly, the parties stipulated that the properties

mortgaged by Paper City to RCBC are various parcels of land including the
buildings and existing improvements thereon as well as the machineries and
equipment, which as stated in the granting clause of the original mortgage,
are "more particularly described and listed that is to say, the real and
personal properties listed in Annexes 'A' and 'B' . . . of which the [Paper
City] is the lawful and registered owner." Significantly, Annexes "A" and "B"
are itemized listings of the buildings, machineries and equipment typed
single spaced in twenty-seven pages of the document made part of the
records. As held in Gateway Electronics Corp. v. Land Bank of the
Philippines, the rule in this jurisdiction is that the contracting parties may
establish any agreement, term, and condition they may deem advisable,
provided they are not contrary to law, morals or public policy. The right to
enter into lawful contracts constitutes one of the liberties guaranteed by the
Constitution.
Land Bank of the Philippines vs. Heirs of Spouses Jorja Rigor-

Soriano and Magin Soriano
G.R. No. 178312. January 30, 2013
Bersamin, J:
ISSUE: When is a compromise valid?
DOCTRINE: The validity of a compromise is dependent upon its

compliance with the requisites and principles of contracts dictated by law.
Also, the terms and conditions of a compromise must not be contrary to law,
morals, good customs, public policy and public order.
Rodolfo G. Cruz and Esperanza Ibias v. Atty. Delfin Gruspe

GR No. 191431. March 13, 2013
Brion, J.
ISSUE: Is a joint affidavit considered a contract and binding upon the

parties?
58
DOCTRINE: Yes. Contracts are obligatory no matter what their forms may
be, whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the Court
looks beyond the title of the document, since the denomination or title given
by the parties in their document is not conclusive of the nature of its
contents. In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. If the terms of
the document are clear and leave no doubt on the intention of the
contracting parties, the literal meaning of its stipulations shall control. If
the words appear to be contrary to the parties' evident intention, the latter
shall prevail over the former. A simple reading of the terms of the Joint
Affidavit of Undertaking readily discloses that it contains stipulations
characteristic of a contract.
Philippine National Bank vs. Spouses Enrique Manalo and Rosalinda

Jacinto, et al.
G.R. No. 174433; February 24, 2014
Bersamin, J.
ISSUE: Whether the credit agreement which stipulated that the loan would
be subjected to interest at a rate "determined by the Bank to be its prime
rate plus applicable spread, prevailing at the current month" contravened
the principle of mutuality of contracts.
DOCTRINE: Yes. The unilateral determination and imposition of the

increased rates is violative of the principle of mutuality of contracts under
Article 1308 of the Civil Code, which provides that ‘[t]he contract must bind
both contracting parties; its validity or compliance cannot be left to the will
of one of them.’ A perusal of the Promissory Note will readily show that the
increase or decrease of interest rates hinges solely on the discretion of
petitioner. It does not require the conformity of the maker before a new
interest rate could be enforced. Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an unconscionable
result, thus partaking of the nature of a contract of adhesion, is void. Any
stipulation regarding the validity or compliance of the contract left solely to
the will of one of the parties is likewise invalid.
CHAPTER 2. ESSENTIAL REQUISITES OF CONTRACTS
Spouses Azaro M. Zulueta and Perla Sucayan-Zulueta v. Jose Wong,

et al.
G.R. No. 153514, June 8, 2005
Callejo, Sr., J.:
ISSUE: What is the distinction between failure to pay the consideration and
lack of consideration? What is the status of a deed of sale where the
purchase price has been paid but in fact has never been paid?
DOCTRINE: Failure to pay the consideration results in a right to demand

the fulfillment or cancellation of the obligation under an existing contract,
while lack of consideration prevents the existence of a valid
contract. Where there was no price or consideration for the sale and in fact
58
had not received any consideration for the said sale, it is null and void ab
initio for lack of consideration.
Paulo Ballesteros v. Rolando Abion

G.R. No. 143361. February 9, 2006
Corona, J.:
ISSUE: May a contract, the object of which was already transferred to a

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

G.R. No. 145736. March 4, 2009.
Ynares-Santiago, J.
ISSUE: Whether the heirs are bound by the contracts entered into by their
predecessors in interest.
DOCTRINE: Yes. Under Article 1311 of the Civil Code, the heirs are bound
by the contracts entered into by their predecessors-in-interest except when
the rights and obligations therein are not transmissible by their nature, by
stipulation or by provision of law. A contract of lease is, therefore, generally
transmissible to the heirs of the lessor or lessee. It involves a property right
and, as such, the death of a party does not excuse non-performance of the
contract. The rights and obligations pass to the heirs of the deceased and
the heir of the deceased lessor is bound to respect the period of the lease.
The same principle applies to the option to renew the lease. As a general
rule, covenants to renew a lease are not personal but will run with the land.
Consequently, the successors-in-interest of the lessee are entitled to the
benefits, while that of the lessor are burdened with the duties and
obligations, which said covenants conferred and imposed on the original
parties.
SECTION 1. CONSENT
Dandoy v. Tongson
G.R. No. 144652 December 16, 2005
Austria-Martinez, J.
ISSUE: May a contract to transfer rights be null and void for failure to
obtain the consent of the government?
DOCTRINE: Yes. Section 29 of the Commonwealth Act 141 or the Public

Land Act provides in part: “After the cultivation of the land has been begun,
58
the purchaser, with the approval of the Secretary of Agriculture and

Commerce, may convey or encumber his rights to any person, corporation,
or association legally qualified under this Act to purchase agricultural
public lands, provided such conveyance or encumbrance does not affect any
right or interest of the Government in the land: And provided, further, That
the transferor is not delinquent in the payment of any installment due and
payable. Any sale and encumbrance made without the previous approval of
the Secretary of Agriculture and Commerce shall be null and void and shall
produce the effect of annulling the acquisition and reverting the property
and all rights thereto to the State, and all payments on the purchase price
theretofore made to the Government shall be forfeited.
Said provision contemplates a sale and encumbrance that a purchaser may

desire to make during the pendency of his application and before his
compliance with the requirements of the law. The reason for the prior
approval is obvious. Since the application is still pending consideration and
the rights of the applicant have not yet been determined, he cannot make
any transfer that may affect the land without the approval of the
Government. Such approval is necessary to protect the interest of the
Government. Thus, the law allows an applicant after the cultivation of the
land has been begun to convey or encumber his rights to any person
provided such conveyance or encumbrance does not affect any right or
interest of the Government on the land. And to safeguard such right or
interest previous approval of the Secretary is required.
Given that the "Transfer of Sales Rights" from which respondents base their
capacity to enter into the contracts is null and void, respondents have no
legal justification whatsoever to enter into these agricultural leasehold
contracts, thus rendering the contracts invalid.
Navotas Industrial Corporation V. Cruz, et al.

G.R. No. 159212. September 12, 2005
Callejo, Sr., J.:
ISSUE: Is there a valid option contract in a lease agreement providing for

an option to buy property but without stating the period for its exercise?
DOCTRINE: No. An option contract is a preparatory contract in which one

party grants to the other, for a fixed period and under specified conditions,
the power to decide Whether to enter into a principal contract.
Epifania Dela Cruz, substituted by Laureana V. Alberto v. Sps.

Eduardo C. Sison and Eufemia S. Sison
G.R. No. 163770. February 17, 2005
ISSUE: Whether the person assailing that either he is unable to read, or the
contract is in a language not understood by him or that there has been
fraud or mistake in the contract executed must prove the facts claimed by
him in determining whether Article 1332 applies – the person asserting the
contract has fulfilled his duty to explain the terms of the contract to the
other party?
DOCTRINE: ART. 1332. When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or fraud is
58
alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former.
The contradictory statements do not establish the fact that Epifania was
unable to read and understand the English language. There being no
evidence adduced to support her bare allegations, thus, Epifania failed to
satisfactorily establish her inability to read and understand the English
language. It is well settled that a party who alleges a fact has the burden of
proving it. Consequently, the provisions of Article 1332 does not apply.
Perpetua vda. de Ape v. Court of Appeals and Genorosa Cawit Vda. De

Lumayno
GR No. 133638. April 15, 2005
Chico-Nazario, J.:
ISSUE: Whether a person enforcing a contract of sale has the burden of

proving that the terms of the agreement were fully explained to the other
party, who was an illiterate?
DOCTRINE: As a general rule, he who alleges fraud or mistake in a

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

G.R. No. 154493. December 6, 2006
ISSUE: What is the effect of making a qualified acceptance of an offer?
DOCTRINE: A qualified acceptance, or one that involves a new proposal,

constitutes a counter-offer and a rejection of the original offer (Art. 1319,
id.). Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the
offer.
Gaudencio Valerio et. al v. Vicenta Refresca et. al.

G.R. No. 163687. March 28, 2006
Puno, J.:
ISSUE: Whether a Deed of Sale with no monetary consideration involved

may be considered as an absolutely simulated or fictitious contract which
produces no legal effect.
DOCTRINE: Article 1345 of the Civil Code provides that the simulation of a
contract may either be absolute or relative. In absolute simulation, there is
58
a colorable contract but it has no substance as the parties have no intention

to be bound by it. The main characteristic of an absolute simulation is that
the apparent contract is not really desired or intended to produce legal
effect or in any way alter the juridical situation of the parties. As a result, an
absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the
contract. However, if the parties state a false cause in the contract to
conceal their real agreement, the contract is relatively simulated and the
parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the
content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest.
Heirs of Cayetano Pangan vs. Spouses Rogelio Perreras and Priscilla

Perreras
G.R. No. 157374 August 27, 2009
Brion, J.
ISSUE: Whether there was a perfected contract of sale of one of the co-
owners of his share despite the no consent of the other owners to such sale.
DOCTRINE: Yes. There was a perfected contract between the parties since
all the essential requisites of a contract were present.
Article 1318 of the Civil Code declares that no contract exists unless the
following requisites concur: (1) consent of the contracting parties; (2) object
certain which is the subject matter of the contract; and (3) cause of the
obligation established. Since the object of the parties’ agreement involves
properties co-owned by Consuelo and her children, the petitioners-heirs
insist that their approval of the sale initiated by their mother, Consuelo, was
essential to its perfection. Accordingly, their refusal amounted to the
absence of the required element of consent.
That a thing is sold without the consent of all the co-owners does not
invalidate the sale or render it void. Article 493 of the Civil
Code8 recognizes the absolute right of a co-owner to freely dispose of
his pro indiviso share as well as the fruits and other benefits arising from
that share, independently of the other co-owners. Thus, when Consuelo
agreed to sell to the respondents the subject properties, what she in fact
sold was her undivided interest that, as quantified by the RTC, consisted of
one-half interest, representing her conjugal share, and one-sixth interest,
representing her hereditary share.
Cornelia Baladad vs. Sergio A. Rublico and Spouses Laureano F.

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

of Estate with Absolute Sale executed by parties through their attorney-in-
fact was valid.
DOCTRINE: Yes. While contained in one document, the two are severable
and each can stand on its own. Hence, for its validity, each must comply
with the requisites prescribed in Article 1318 of the Civil Code, namely (1)
58
consent of the contracting parties; (2) object certain, which is the subject
matter of the contract; and (3) cause of the obligation which is established.
And, most important of all is the fact that the subject deed is, on its face,
unambiguous. When the terms of a contract are lawful, clear and
unambiguous, facial challenge cannot be allowed. We should not go beyond
the provisions of a clear and unambiguous contract to determine the intent
of the parties thereto, because we will run the risk of substituting our own
interpretation for the true intent of the parties.
It is immaterial that Cornelia’s signature does not appear on the

Extrajudicial Settlement of Estate with Absolute Sale. A contract of sale is
perfected the moment there is a meeting of the minds upon the thing which
is the object of the contract and upon the price. 29 The fact that it was
Cornelia herself who brought Atty. Francisco to Corazon’s house to notarize
the deed shows that she had previously given her consent to the sale of the
two lots in her favor. Her subsequent act of exercising dominion over the
subject properties further strengthens this assumption.
Francisco Landicho et al. vs. Felix Sia

G.R. No. 169472. January 20, 2009.
Puno C.J.:
ISSUE: Whether old age and illiteracy incapacitates a person to execute a

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

G.R. No. 171968; July 31, 2009
Quisumbing, J.
ISSUE: Whether there exists a perfected contract of sale between the

parties despite the terms, conditions and amendments which the offeror
tried to impose upon the other.
DOCTRINE: No. By introducing amendments to the contract, XYST

presented a counter-offer to which DMC did not agree. Clearly, there was
only an offer and a counter-offer that did not sum up to any final
arrangement containing the elements of a contract. No meeting of the
minds was established. The rule on the concurrence of the offer and its
acceptance did not apply because other matters or details–in addition to the
subject matter and the consideration–would still be stipulated and agreed
upon by the parties. Therefore, since the element of consent is absent, there
is no contract to speak of. Where the parties merely exchanged offers and
counter-offers, no agreement or contract is perfected.
Gloria Ocampo and Teresita Tan v. Land Bank of the Philippines et

al.
58
G.R. No. 164968; July 3, 2009

Peralta, J.
ISSUE: Whether the deceit employed must be serious.
DOCTRINE: Yes. Verily, fraud refers to all kinds of deception -- whether

through insidious machination, manipulation, concealment or
misrepresentation -- that would lead an ordinarily prudent person into error
after taking the circumstances into account. The deceit employed must be
serious. It must be sufficient to impress or lead an ordinarily prudent
person into error, taking into account the circumstances of each case.
Unfortunately, Ocampo was unable to establish clearly and precisely how
the Land Bank committed the alleged fraud. She failed to convince Us that
she was deceived, through misrepresentations and/or insidious actions, into
signing a blank form for use as security to her previous loan.
Granting, for the sake of argument, that appellant bank did not apprise the
appellees of the real nature of the real estate mortgage, such stratagem,
deceit or misrepresentations employed by defendant bank are facts
constitutive of fraud which is defined in Article 1338 of the Civil Code as
that insidious words or machinations of one of the contracting parties, by
which the other is induced to enter into a contract which without them, he
would not have agreed to. When fraud is employed to obtain the consent of
the other party to enter into a contract, the resulting contract is merely a
voidable contract that is a valid and subsisting contract until annulled or set
aside by a competent court. It must be remembered that an action to
declare a contract null and void on the ground of fraud must be instituted
within four years from the date of discovery of fraud. In this case, it is
presumed that the appellees must have discovered the alleged fraud since
1991 at the time when the real estate mortgage was registered with the
Register of Deeds of Lingayen, Pangasinan. The appellees cannot now feign
ignorance about the execution of the real estate mortgage.
Government Service Insurance System vs. Abraham Lopez

G.R. No. 165568; July 13, 2009
Carpio, J.:
ISSUE: Whether when there is merely an offer by one party without

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

insidious machinations, manipulations, concealments or misrepresentations,
for the purpose of leading another party into error and thus execute a
particular act.” Fraud has a “determining influence” on the consent of the
prejudiced party, as he is misled by a false appearance of facts, thereby
producing error on his part in deciding Whether to agree to the offer.
One form of fraud is misrepresentation through insidious words or

machinations. Under Art. 1338 of the Civil Code, there is fraud when,
through insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which without them he would
not have agreed to. Insidious words or machinations constituting deceit are
those that ensnare, entrap, trick, or mislead the other party who was
induced to give consent which he or she would not otherwise have given.
Deceit is also present when one party, by means of concealing or omitting to

state material facts, with intent to deceive, obtains consent of the other
party without which, consent could not have been given. Art. 1339 of the
Civil Code is explicit that failure to disclose facts when there is a duty to
reveal them, as when the parties are bound by confidential relations,
constitutes fraud.
Spouses Exequiel Lopez and Eusebia Lopez v. Spouses Eduardo Lopez

and Marcelina Lopez
G.R. No. 161925; November 25, 2009
Nachura, J.
ISSUE: Whether where the essential requisites of a contract are present

and the simulation refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable between the parties and
their successors in interest.
DOCTRINE: Yes. Simulation takes place when the parties do not really
want the contract they have executed to produce the legal effects expressed
by its wordings. Article 1345 of the Civil Code provides that the simulation
of a contract may either be absolute or relative. In absolute simulation,
there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. The main characteristic of an absolute
simulation is that the apparent contract is not really desired or intended to
produce legal effect or in any way alter the juridical situation of the parties.
As a result, an absolutely simulated or fictitious contract is void, and the
parties may recover from each other what they may have given under the
contract. However, if the parties state a false cause in the contract to
58
conceal their real agreement, the contract is relatively simulated and the
parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the
content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest.
Heirs Of Dr. Mario S. Intac v. Court of Appeals

G.R. No. 173211; October 11, 2012
ISSUE: Whether the deed of sale executed by Ireneo and Salvacion was
absolutely simulated for lack of consideration and cause and, therefore,
void.
DOCTRINE: NO. Article 1345 provides that simulation of a contract may

be absolute or relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal their true
agreement.
While Article 1346 states that an absolutely simulated or fictitious contract

is void. A relative simulation, when it does not prejudice a third person and
is not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement. If the
parties state a false cause in the contract to conceal their real agreement,
the contract is only relatively simulated and the parties are still bound by
their real agreement. Hence, where the essential requisites of a contract
are present and the simulation refers only to the content or terms of the
contract, the agreement is absolutely binding and enforceable between the
parties and their successors in interest. In absolute simulation, there is a
colorable contract but it has no substance as the parties have no intention
to be bound by it. The main characteristic of an absolute simulation is that
the apparent contract is not really desired or intended to produce legal
effect or in any way alter the juridical situation of the parties. As a result, an
absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract."
Korean Air Co., Ltd. V. Yuson

G.R. No. 170369
Carpio, J.
ISSUE: Whether the offer of MNLSM Management is equivalent to an

offering of said early retirement program to its staff was certain.
DOCTRINE: No, the offer must be definite, complete and intentional. There
is an ‘offer’ in the context of Article 1319 only if the contract can come into
existence by the mere acceptance of the offeree, without any further act on
the part of the offeror. Hence, the ‘offer’ must be definite, complete and
intentional. In the present case, the offer is not certain since (1) the 21
August 2001 memorandum clearly states that, “MNLSM Management, on
its discretion, is hereby offering the said early retirement program to its
staff.
Doña Rosana Realty and Development Corporation vs. Molave

Development Corporation
G.R. No. 180523; March 26, 2010
Abad, J.
58
ISSUE: Whether consent of the buyer is vitiated when the President of

buyer-corporation executed a document acknowledging the receipt of PhP
1.3 million as consideration for the cancellation of its contract to sell by
reason of the actuation of the seller’s lawyer that the check would not be
released without such document.
DOCTRINE: No, the President of buyer-corporation asserted that she

signed the above receipt because seller’s lawyer would not have released
the check to her. But this is not a valid ground for claiming that consent is
vitiated. If she did not want to agree to the cancellation, she had no
business signing the receipt and accepting the check. She could very well
have stood her ground and pressed for complete performance of the
contract to sell. Having received the P1.3 million, the buyer-corporation’s
remaining remedy was to pursue a claim for the balance of P1 million that it
paid the seller upon the execution of the contract to sell.
Jocelyn M. Toledo vs. Marilou M. Hyden

G.R. No. 172139 December 8, 2010
Del Castillo, J.:
ISSUE: Whether the "Acknowledgment of Debt" is an inexistent contract

rendering it void from the very beginning pursuant to Article 1409 of the
New Civil Code.
DOCTRINE: No, the "Acknowledgment of Debt" is valid and binding

contract. Even if there was indeed such threat made by Marilou, the same is
not considered as that kind of threat that would vitiate consent. Article
1335 of the New Civil Code is very specific on this matter. It provides: " Art.
1335. There is violence when in order to wrest consent, serious or
irresistible force is employed. x xxx A threat to enforce one’s claim through
competent authority, if the claim is just or legal, does not vitiate consent.
Here, it is uncontested that petitioner had in fact signed the

"Acknowledgment of Debt" in April 1998 and two of her subordinates served
as witnesses to its execution, knowing fully well the nature of the contract
she was entering into. Next, petitioner issued five checks in favor of
respondent representing renewal payment of her loans amounting to
P290,000.00. In June 1998, she asked to recall Check No. 0010761 in the
amount of P30,000.00 and replaced the same with six checks, in staggered
amounts. All these are indicia that Jocelyn treated the "Acknowledgment of
Debt" as a valid and binding contract.
ECE Realty and Development Inc. v. Rachel G. Mandap

G.R. No. 196182, September 01, 2014
ISSUE: Whether fraud attended the perfection of the contract which should
be a ground to invalidate the contract.
DOCTRINE: YES. Article 1338 of the Civil Code provides that “[t]here is
fraud when through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to.” In addition, under Article 1390
of the same Code, a contract is voidable or annullable “where the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud.”
58
Jurisprudence has shown that in order to constitute fraud that provides

basis to annul contracts, it must fulfill two conditions. First, the fraud must
be dolo causante or it must be fraud in obtaining the consent of the party.
This is referred to as causal fraud. The deceit must be serious. Second, the
fraud must be proven by clear and convincing evidence and not merely by a
preponderance thereof. insofar as the present case is concerned, the Court
agrees that the misrepresentation made by petitioner in its advertisements
does not constitute causal fraud which would have been a valid basis in
annulling the Contract to Sell between petitioner and respondent.
SECTION 2. OBJECT OF CONTRACTS
Atty. Pedro M. Ferrer vs. Spouses Alfredo Diaz and Imelda Diaz
G.R. No. 165300. April 23, 2010
Del Castillo, J.:
ISSUE: Whether a waiver of hereditary rights in favor of another executed

by a future heir while the parents are still living valid.
DOCTRINE: No. Pursuant to the second paragraph of Article 1347 of the

Civil Code, no contract may be entered into upon a future inheritance
except in cases expressly authorized by law. For the inheritance to be
considered “future,” the succession must not have been opened at the time
of the contract. A contract may be classified as a contract upon future
inheritance, prohibited under the second paragraph of Article 1347, where
the following requisites concur: (1) That the succession has not yet been
opened; (2) That the object of the contract forms part of the inheritance;
and, (3) That the promissor has, with respect to the object, an expectancy of
a right which is purely hereditary in nature.
SECTION 3. CAUSE OF CONTRACTS
J.L.T. Agro Inc. v. Balansag

G.R. No. 141882. March 11, 2005
Tinga, J.:
ISSUE: What will be the effect on the contract if it was entered into without
cause or with unlawful cause?
DOCTRINE: Article 1318 of the New Civil Code enumerates the requisites
of a valid contract, namely: (1) consent of the contracting parties; (2) object
certain which is the subject matter of the contract; and (3) Cause of the
obligation which is established.
Thus, Article 1352 declares that contracts without cause, or with unlawful
cause produce no effect whatsoever. Those contracts lack an essential
element and they are not only voidable but void or inexistent pursuant to
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Article 1409, paragraph (2). The absence of the usual recital of

consideration in a transaction which normally should be supported by a
consideration such as the assignment made by Don Julian of all nineteen
(19) lots he still had at the time, coupled with the fact that the assignee is a
corporation of which Don Julian himself was also the President and Director,
forecloses the application of the presumption of existence of consideration
established by law.
Alvarez v. PICOP Resources

G.R. No. 162243 December 3, 2009
ISSUE: Whether in onerous contracts the cause is understood to be, for

each contracting party, the prestation or promise of a thing or service by
the other.
DOCTRINE: Yes. According to Article 1350 of the Civil Code, "(i)n onerous
contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other." Private
investments for one’s businesses, while indeed eventually beneficial to the
country and deserving to be given incentives, are still principally and
predominantly for the benefit of the investors. Thus, the "mutual" contract
considerations by both parties to this alleged contract would be both for the
benefit of one of the parties thereto, BBLCI, which is not obligated by the
1969 Document to surrender a share in its proceeds any more than it is
already required by its TLA and by the tax laws.
PICOP’s argument that its investments can be considered as contract

consideration derogates the rule that "a license or a permit is not a contract
between the sovereignty and the licensee or permittee, and is not a
property in the constitutional sense, as to which the constitutional
proscription against the impairment of contracts may extend." All licensees
obviously put up investments, whether they are as small as a tricycle unit or
as big as those put up by multi-billion-peso corporations. To construe these
investments as contract considerations would be to abandon the foregoing
rule, which would mean that the State would be bound to all licensees, and
lose its power to revoke or amend these licenses when public interest so
dictates.
The power to issue licenses springs from the State’s police power, known as
"the most essential, insistent and least limitable of powers, extending as it
does to all the great public needs." Businesses affecting the public interest,
such as the operation of public utilities and those involving the exploitation
of natural resources, are mandated by law to acquire licenses. This is so in
order that the State can regulate their operations and thereby protect the
public interest. Thus, while these licenses come in the form of
"agreements," e.g., "Timber License Agreements," they cannot be
considered contracts under the non-impairment clause.
CHAPTER 3. FORM OF CONTRACTS
Manuel Mallari and Millie Mallari v. Rebecca Alsol
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G.R. No. 150866. March 6, 2006

Carpio, J.:
ISSUE: Will a defect in the notarization of a private document nullify the

transaction of the parties indicated therein?
DOCTRINE: Notarization converts a private document into a public

document. However, the non-appearance of the parties before the notary
public who notarized the document does not necessarily nullify nor render
the parties’ transaction void ab initio.
Serafin Naranja et al. vs. Court of Appeals

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

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

whether a contract is one of sale or of mortgage. In the present case, one of
the parties to the contract raises as an issue the fact that their true
intention or agreement is not reflected in the instrument. Under Article
1605 of the New Civil Code, the supposed vendor may ask for the
reformation of the instrument, should the case be among those mentioned
in Articles 1602 and 1604. Because respondent has more than sufficiently
established that the assailed Contract is in fact an equitable mortgage
rather than an absolute sale, he is allowed to avail himself of the remedy of
reformation of contracts as provided in Article 1359 of the New Civil Code.
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CHAPTER 5. INTERPRETATION OF CONTRACTS
Holy Cross of Davao College, Inc. vs. Holy Cross of Davao Faculty
Union – Kampi
G.R. No. 156098 June 27, 2005
Sandoval-Gutierrez, J.
ISSUE: How are non-ambiguous contracts to be interpreted?
DOCTRINE: Contracts, which are not ambiguous are to be interpreted

according to their literal meaning and not beyond their obvious intendment.
When the provisions of a CBA state that academic teaching personnel as
recipient of a scholarship grant are entitled to a leave of absence with a
grant-in-aid equivalent to their monthly salary and allowance, provided such
grant is to promote their professional growth or to enhance their studies in
institutions of higher learning. Such provisions need no interpretation for
they are clear.
In Mactan Workers Union vs. Aboitiz, the court held that "the terms and
conditions of a collective bargaining contract constitute the law between
the parties. Those who are entitled to its benefits can invoke its
provisions. In the event that an obligation therein imposed is not fulfilled,
the aggrieved party has the right to go to court for redress."
Agas vs. Sabico

G.R. No. 156447. April 26, 2005
Callejo, Sr., J.
ISSUE: May the Court declare a deed of sale to be a deed of absolute

mortgage, taking into consideration the circumstances attendant in a
certain case?
DOCTRINE: Yes. In determining the nature of a contract, courts are not

bound by the title or name given by the parties. The decisive factor in
evaluating such agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by their conduct,
words, actions and deeds prior to, during and immediately after executing
the agreement. As such, therefore, documentary and parol evidence may be
submitted and admitted to prove such intention. If both parties offer a
conflicting interpretation of a contract or several contracts, then judicial
determination of the intention of the parties’ intention is inevitable.
A contract may be embodied in two or more separate writings, in which

event the writings should be read and interpreted together in such a way as
to eliminate seeming inconsistencies and render the parties’ intention
effectual. In construing a written contract, the reason behind and the
circumstances surrounding its execution are of paramount importance to
place the interpreter in the situation occupied by the parties concerned at
the time the writing was executed. Construction of the terms of a contract,
which would amount to impairment or loss of right, is not favored.
Conservation and preservation, not waiver, abandonment or forfeiture of a
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right, is the rule. In case of doubts in contracts, the same should be settled
in favor of the greatest reciprocity of interests. Moreover, such doubts must
be resolved against the person who drafted the deed and who is responsible
for the ambiguities in the deed.
Further, the notary public who notarized the said deed merely asked the
respondent if the latter knew the contents of the deed of absolute sale, and
the respondent purportedly replied in the affirmative. The notary public
never even bothered to explain to the respondent the nature and the rights
and obligations of the parties under the deed, as mandated by Article 1332
of the New Civil Code
Berman Memorial Park, Inc. and Luisa Chong v. Francisco Cheng

G.R. No. 154630. May 6, 2005
Callejo, Sr., J.:
ISSUE: Do the stipulations embodied in an agreement reflect the true

agreement of the parties?
DOCTRINE: Yes. Article 1370 of the New Civil Code provides that if the
terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control. No
amount of extrinsic aids are required and no further extraneous sources are
necessary in order to ascertain the parties’ intent, determinable as it is,
from the contract itself. The records are clear that the respondent
understood the nature of the contract he entered into.
If, indeed, the agreement were not the true intention of the parties, the
party should file a corresponding action for reformation of the contract.
The hornbook rule on interpretation of contracts gives primacy to the

intention of the parties, which is the law among them. Ultimately, their
intention is to be deciphered not from the unilateral post facto assertions of
one of the parties, but from the language used in the contract. And when
the terms of the agreement, as expressed in such language, are clear, they
are to be understood literally, just as they appear on the face of the
contract.
Rosalina Tagle v. Court of Appeals, Fast International Corporation

and/or Kuo Tung Yu Huang
G. R. No. 148235. August 11, 2005
Carpio Morales, J.:
ISSUE: Can a widow who filed a claim for death benefits be entitled to the
additional labor insurance she is entitled to as provided for in her deceased
husband’s employment contract on compensation and benefits which
explicitly states that “Benefits . . . include compensation for . . . death in
accordance with social insurance laws and other pertinent provisions of the
Taiwan Labor Law. . . Additional Labor Insurance shall be provided to the
Fisherman with a limit of NT$300,000.00 per person (or its equivalent)
for accident insurance covering fisherman regardless of whether accident
occurs within and/or beyond work hours”?
DOCTRINE: No. Death is defined as “loss of life resulting from injury or

sickness. Death could be a result of accident, but accident does not
necessarily result to death. Compensation benefits
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for illness, death, accident which does not result to death, and partial or
total disability are treated separately and differently in the 3-paragraph
provision of Article II, Section 10 of the employment contract. The said
provision in the employment contract being clear and unambiguous, its
literal meaning controls (Article 1370, New Civil Code). To uphold
petitioner’s claim for additional insurance for accident, assuming that one
for the purpose was secured, after receiving insurance benefits
for death arising from accident, would violate the clear provision of Article
II, Section 10 of the employment contract, the law between the parties. And
it would trifle with the Release, Waiver and Quitclaim, another contract
between the parties, barring petitioner from claiming other or additional
benefits arising from petitioner’s husband’s death-basis of the release of the
insurance proceeds to her.
Martha R. Horrigan v. Troika Commercial, Inc.

G.R. No. 148411. November 29, 2005
Sandoval-Gutierrez, J.:
ISSUE: Who bears the responsibility for causing obscurities in a contract?
DOCTRINE: The party who draws up the contract, in which obscure words
or phrases appear, bears the responsibility for causing the ambiguity or
obscurity, and hence, these must be construed against him. In this case, it
was petitioner’s spouse who prepared the sub-lease contract in question.
Consequently, the ambiguity must be construed against herein petitioner as
she is presumed to have
Aurelio P. Alonzo and Teresita A. Sison v. Jaime and Perlita San Juan
G.R. No. 137549. February 11, 2005
Chico-Nazario, J.:
ISSUE: How conflicting stipulations in a compromise agreement must be

interpreted?
DOCTRINE: Article 1374 of the Civil Code requires that the various
stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.
In this case, we find it was error on the part of the trial court to have
interpreted the compromise agreement in the manner it has done so.
Applying the rule that the various stipulations of a contract should be taken
together, the trial court should have interpreted paragraph 10, in relation to
paragraphs 11 and 12. If we were to follow the interpretation of the trial
court, the respondents would only have to default in the payment of their
obligation and the contract would be rendered null and void to their benefit
and advantage leaving the petitioners without any recourse at all. This
surely was not what was envisioned when the parties entered into the
compromise. The Court itself would not have approved the same for being
contrary to law, morals and public policy. Certainly, to sustain the
interpretation of the trial court would be to sanction an absurdity as it
would go against the very rationale of entering into a Compromise
Agreement, i.e., to put an end to litigation. If we were to follow the
argument of the trial court to its logical conclusion, then it would mean that
the parties would have to go back to square one and re-litigate what they
58
had already put to rest when they entered into the subject Compromise
Agreement
Vicente Go v. Pura Kalaw, Inc.

G.R. No. 131408. July 31, 2006
Sandoval-Gutierrez, J.
ISSUE: How should agreements in a contract be interpreted?
DOCTRINE: Article 1370 of the Civil Code governs the interpretation of

the terms of agreement in a written contract. Simply put, the literal
meaning of the stipulations shall control the intention of the parties, to be
deciphered not from the unilateral post facto assertions of one of the
parties, but from the language used in the contract. The language is to be
understood literally, just as it so appears in the contract.
Sps. Alvaro v. Sps. Returban

G.R. No. 166183. January 20, 2006
ISSUE: Is the nomenclature used by the parties decisive in the

interpretation of a contract?
DOCTRINE: No. The nomenclature used by the contracting parties to

describe a contract does not determine its nature. The decisive factor is the
intention of the parties to the contract – as shown by their conduct, words,
actions and deeds – prior to, during and after executing the agreement.
Ayala Inc. v. Ray Burton Corp

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

G.R. No. 163680. January 24, 2006
Carpio Morales, J.
ISSUE: What is the effect if the terms of the contract are clear?
DOCTRINE: Paragraph No. 1 of the contract relied upon by petitioner is

clearly worded. It provides that “an agricultural leasehold relation
iscreatedon a farm lot which is a portion of a parcel of land” covered by a
transfer certificate of title consisting of three hectares, clearly referring to
respondent’s father’s TCT No. 98.728 (M) containing three hectares. Art.
58
1370 of the New Civil Code which provides that if the terms of the contract
are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control.
Laureano T. Angeles v. Philippine National Railways (PNR) And

Rodolfo Flores
G.R. No. 150128. August 31, 2006
Garcia, J.:
ISSUE: What is the probative value of the acts of a contracting party if

there is doubt as to the language used in the contract or as to the intention
of such party in entering into the said contract?
DOCTRINE: Article 1374 of the Civil Code provides that the various
stipulations of a contract shall be read and interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken
jointly. In fine, the real intention of the parties is primarily to be determined
from the language used and gathered from the whole instrument.
Article 1371 of the Civil Code provides that to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. In other words, in case of doubt, resort may be made
to the situation, surroundings, and relations of the parties.
Elenita Ishida and Continent Japan Co., Inc. v. Antusa de Mesa-

Magno, Firmo de Mesa et.al.
G. R. No. 136260. July 28, 2006
Garcia, J.:
ISSUE: Is a declaration of nullity of a contract warranted where the parties

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

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

International, Inc.
G.R. No. 146428. January 19, 2009.
Leonardo-De Castro, J.:
ISSUE: Whether clear and explicit terms in contracts warrant court

interpretation.
DOCTRINE: No. When the terms of the agreement are clear and explicit,
such that they do not justify an attempt to read into them any alleged
intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract. It is only in instances when the language
of a contract is ambiguous or obscure that courts ought to apply certain
58
established rules of construction in order to ascertain the supposed intent

of the parties. However, these rules will not be used to make a new contract
for the parties or to rewrite the old one, even if the contract is inequitable
or harsh. They are applied by the court merely to resolve doubts and
ambiguities within the framework of the agreement.
Antipolo Properties v. Nuyda

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

considered in knowing the intention of the contracting parties.
DOCTRINE: Yes. Petitioner moreover unequivocally obligated itself to

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

G.R. No. 187838; December 23, 2009
Velasco, Jr., J.
ISSUE: Whether the literal meaning of a contract’s stipulations shall

control if the terms are clear and leave no doubt upon the intention of the
contracting parties.
DOCTRINE: Yes. The cardinal rule in the interpretation of contracts is

embodied in the first paragraph of Article 1370 of the Civil Code: “[i]f the
terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.”
In the case at bar, the word “action” should be defined according to its plain
and ordinary meaning, i.e., as the process of doing something; conduct or
behavior; a thing done. It is not limited to actions before a court or a judicial
proceeding. Therefore, the only logical conclusion that can be derived from
the use of the word “action” in Sec. 5 of the agreement is that the parties
intentionally used it in its plain and ordinary sense and did not limit it to
mean any specific legal term. Moreover, a compromise agreement
compromises not only those objects definitely stated in it, but also those,
which by necessary implication, should be deemed to have been included in
it. Ergo, the term “action” includes the sale of the receivables as a
necessary implication. Furthermore, Sec. 5 of the Partial Compromise
Agreement speaks of cooperation between the parties to determine the
person or persons ultimately liable. It states, “x x x until it is finally
adjudged and determined who are the parties liable thereto; toward this
end, the parties herein agree to cooperate with each other in order for
respondent Land Bank of the Philippines to recover the same as against the
person/s liable thereon.”
In other words, the parties agreed to cooperate and collaborate with each
other in order to determine the person or persons who are ultimately liable.
By selling the receivables, Land Bank did not cooperate with petitioners.
58
Manila International Airport Authority v. Avia Filipinas International,

Inc.,
G.R. No. 180168; February 27 2012
ISSUE: Whether the stipulations of the contract, in case of doubt, should be

read in its entirety?
DOCTRINE: Yes. Article 1374 of the Civil Code clearly provides that “the
various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken
jointly.” Indeed, in construing a contract, the provisions thereof should not
be read in isolation, but in relation to each other and in their entirety so as
to render them effective, having in mind the intention of the parties and the
purpose to be achieved.7 In other words, the stipulations in a contract and
other contract documents should be interpreted together with the end in
view of giving effect to all.
CHAPTER 6. RESCISSIBLE CONTRACTS
Oliverio Laperal and Filipinas Golf & Country Club, Inc. v. Solid
Homes, Inc.
G.R. No. 130913. June 21, 2005
Garcia, J.:
ISSUE: Is mutual restitution under Article 1385 proper where one party
successfully rescinds a contract under Article 1191?
DOCTRINE: Yes. The right to rescind under Article 1191 of the Civil Code
carries with it the corresponding obligation for restitution. It is not correct
to say that mutual restitution under Article 1385 applies only if the
rescission is made under the instances enumerated in Article 1381. Mutual
restitution is required in cases involving rescission under Article 1191.
Rescission creates the obligation to return the object of the contract. It is so
required to bring back the parties to their original situation prior to the
inception of the contract.
C-J Yulo & Sons, Inc. v. Roman Catholic Bishop of San Pablo, Inc.
G.R. No. 133705. March 31, 2005
Garcia, J.:
ISSUE: What should be the nature of the breach of contract before a

rescission may be allowed?
DOCTRINE: The violations of the conditions of the donation committed by

the donee were merely casual breaches of the conditions of the donation
and did not detract from the purpose by which the donation was made, i.e.,
for the establishment of a home for the aged and the infirm. In order for a
contract which imposes a reciprocal obligation, which is the onerous
donation in this case wherein the donor is obligated to donate a 41,117
square meter property in Canlubang, Calamba, Laguna on which property
the donee is obligated to establish a home for the aged and the infirm
(Exhibit C), may be rescinded per Article 1191 of the New Civil Code, the
58
breach of the conditions thereof must be substantial as to defeat the

purpose for which the contract was perfected The right to rescind the
contract for non-performance of one of its stipulations is not absolute.
The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement. The question of whether a breach of a contract is substantial
depends upon the attendant circumstances.
Spouses Felipe and Leticia Cannu v. Spouses Gil And Fernandina

Galang and National Home Mortgage Finance Corporation
G.R. No. 139523. May 26, 2005
Chico-Nazario, J.:
ISSUE: Does failure to pay the balance of the purchase price constitute a
substantial breach of the obligation?
DOCTRINE: Yes. Settled is the rule that rescission or, more accurately,
resolution, of a party to an obligation under Article 1191 is predicated on a
breach of faith by the other party that violates the reciprocity between
them. Rescission will not be permitted for a slight or casual breach of the
contract. Rescission may be had only for such breaches that are substantial
and fundamental as to defeat the object of the parties in making the
agreement. The question of whether a breach of contract is substantial
depends upon the attending circumstances and not merely on the
percentage of the amount not paid.
Bienvenido M. Casino Jr. v. Court of Appeals

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

Corporation), v. Philippine Amusement And Gaming Corporation
G.R. No. 157480. May 6, 2005
Panganiban, J.:
ISSUE: Is there a difference between the terms

“termination” and “rescission”?
DOCTRINE: Yes. The term “rescission” is found in 1) Article 1191 of the

Civil Code, the general provision on rescission of reciprocal obligations; 2)
Article 1659, which authorizes rescission as an alternative remedy, insofar
58
as the rights and obligations of the lessor and the lessee in contracts of
lease are concerned; and 3) Article 1380 with regard to the rescission of
contracts.
There is a distinction in law between cancellation of a contract and its

rescission. To rescind is to declare a contract void in its inception and to put
an end to it as though it never were. It is not merely to terminate it and
release parties from further obligations to each other but to abrogate it
from the beginning and restore the parties to relative positions which they
would have occupied had no contract ever been made.
Rescission has likewise been defined as the “unmaking of a contract, or

its undoing from the beginning, and not merely its
termination.” Rescission may be effected by both parties by mutual
agreement; or unilaterally by one of them declaring a rescission of contract
without the consent of the other, if a legally sufficient ground exists or if a
decree of rescission is applied for before the courts. On the other
hand, termination refers to an “end in time or existence; a close, cessation
or conclusion.” With respect to a lease or contract, it means an ending,
usually before the end of the anticipated term of such lease or contract, that
may be effected by mutual agreement or by one party exercising one of its
remedies as a consequence of the default of the other.
Thus, mutual restitution is required in a rescission (or resolution), in order

to bring back the parties to their original situation prior to the inception of
the contract.
In contrast, the parties in a case of termination are not restored to their

original situation; neither is the contract treated as if it never existed. Prior
to its termination, the parties are obliged to comply with their contractual
obligations. Only after the contract has been cancelled will they be released
from their obligations.
Coastal Pacific Trading Inc., v. Southern Rolling Mills, Co., Inc. et al.
G.R. No. 118692. July 28, 2006
Panganiban, CJ:
ISSUE: Whether respondent consortium banks disposed of VISCO’s assets

in fraud of the creditors?
DOCTRINE: Yes. Director owe loyalty and fidelity to the corporation they
serve and to its creditors. When these directors sit on the board as
representatives of shareholders who are also major creditors, they cannot
be allowed to use their offices to secure undue advantage for those
shareholders, in fraud of other creditors who do not have similar
representation in the board of directors.
Pan Pacific Industrial Sales Co., v. Court of Appeals

G.R. No. 125283. February 10, 2006
Tinga, J:
58
ISSUE: Whether rescission can be availed of when one party denies the
existence of a contract.
DOCTRINE: A non-existent contract need not be cancelled. In asking for

"rescission," under Article 1191 of the Civil Code provides that the "power
to rescind," really means to resolve or cancel, is implied in reciprocal
obligations "in case one of the obligors should not comply with what is
incumbent upon him." When a party asks for the resolution or cancellation
of a contract it is implied that he recognizes its existence.
Laurencio Ramel, et.al. v. Daniel Aquino and Guadaluper Abalahin

G.R. No. 133208. July 31, 2006
Puno, J.:
ISSUE: When a party fails to pay the mortgage obligation, is the other party
entitled to a rescission of the contract?
DOCTRINE: Violation of an agreement gives entitles the other party to

rescind the contract under Art. 1191 of the Civil Code. Non-payment of the
mortgage obligation assumed by petitioners in this case constitute
substantial, not merely casual and slight breach, that entitles the
respondents to rescind the contract.
Union Bank of the Philippines v. Sps. Ong

G.R. No. 152347. June 21, 2006
Garcia, J.:
ISSUE: Does mere fact of injury to the creditor mean that a contract is
rescissible for having been entered into to defraud the creditor?
DOCTRINE: No. Contracts in fraud of creditors are those executed with

the intention to prejudice the rights of creditors. They should not be
confused with those entered into without such mal-intent, even if, as a
direct consequence thereof, the creditor may suffer some damage. In
determining whether a certain conveying contract is fraudulent, what
comes to mind first is the question of whether the conveyance was a bona
fide transaction or a trick and contrivance to defeat creditors. To creditors
seeking contract rescission on the ground of fraudulent conveyance rest the
onus of proving by competent evidence the existence of such fraudulent
intent on the part of the debtor, albeit they may fall back on the disputable
presumptions, if proper, established under Article 1387 of the Code.
The existence of fraud or the intent to defraud creditors cannot plausibly be

presumed from the fact that the price paid for a piece of real estate is
perceived to be slightly lower, if that really be the case, than its market
value. To be sure, it is logical, even expected, for contracting minds, each
having an interest to protect, to negotiate on the price and other conditions
before closing a sale of a valuable piece of land. The negotiating areas could
cover various items. The purchase price, while undeniably an important
consideration, is doubtless only one of them.
It may be stressed that, when the validity of sales contract is in issue, two
veritable presumptions are relevant: first, that there was sufficient
consideration of the contract; and, second, that it was the result of a fair
and regular private transaction. If shown to hold, these presumptions
infer prima facie the transaction's validity, except that it must yield to the
58
evidence adduced which the party disputing such presumptive validity has
the burden of overcoming.
Parenthetically, the rescissory action to set aside contracts in fraud of

creditors is accion pauliana, essentially a subsidiary remedy accorded under
Article 1383 of the Civil Code which the party suffering damage can avail of
only when he has no other legal means to obtain reparation for the same. In
net effect, the provision applies only when the creditor cannot recover in
any other manner what is due him.
For a contract to be rescinded for being in fraud of creditors, both

contracting parties must be shown to have acted maliciously so as to
prejudice the creditors who were prevented from collecting their claims.
Philippine Leisure and Retirement Authority v. Court of Appeals

G.R. No. 156303, 541 SCRA 85
ISSUE: May a party be allowed to unilaterally rescind a contract absent any

provision in the contract providing for a right to rescind?
DOCTRINE: The power to rescind obligations is implied in reciprocal ones,

in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
Therefore, even if a provision providing for a right to rescind is not in

agreement, a party may still rescind a contract should one obligor fail to
comply with its obligations.
Uniwide Holdings, Inc. v. Jandecs Transportation Co., Inc.

G.R. No. 168522, 541 SCRA 158
ISSUE: Does mere failure of a party in a reciprocal obligation to deliver his

end of the contract warrant the other party to rescind the contract even if
the latter has already delivered his part of said obligation?
DOCTRINE: The right of rescission is implied in every reciprocal obligation

where one party fails to perform what is incumbent upon him while the
other is willing and ready to comply. Certainly, petitioner's failure to deliver
the units on the commencement date of the lease on October 1, 1997 gave
respondent the right to rescind the contract after the latter had already
paid the contract price in full.
Furthermore, respondent's right to rescind the contract cannot be

prevented by the fact that petitioner had the option to substitute the stalls.
Even if petitioner had that option, it did not, however, mean that it could
insist on the continuance of the contract by forcing respondent to accept
the substitution. Neither did it mean that its previous default had been
obliterated completely by the exercise of that option.
58
Bonrostro v. Luna
G.R. No. 172346, 702 SCRA 1
ISSUE: Whether the failure of spouses Bonrostro to pay the installments of

P300,000.00 on April 30, 1993 and P330,000.00 on July 31, 1993 is a
substantial breach of their obligation under the contract as to warrant the
rescission of the same.
DOCTRINE: The defendants’ delay in the payment of the two installments

is not so substantial as to warrant rescission of contract. Although, the
defendant failed to pay the two installments in due time, she was able to
communicate with the plaintiffs through letters requesting for an extension
of two months within which to pay the installments. In fact, on November
24, 1993 defendant informed Atty. Arlene Carbon that she was ready to pay
the installments and the money is ready for pick-up. However, plaintiff did
not bother to get or pick-up the money without any valid reason. It would be
very prejudicial on the part of the defendant if the contract to sell be
rescinded considering that she made a downpayment of P200,000.00 and
made partial amortization to the Bliss Development Corporation. In fact, the
defendant testified that she is willing and ready to pay the balance including
the interest on November 24, 1993.
The Court is of the opinion that the delay in the payment of the balance of
the purchase price of the house and lot is not so substantial as to warrant
the rescission of the contract to sell. The question of whether a breach of
contract is substantial depends upon the attendant circumstance.
Armand O. Raquel-Santos and Annalissa Mallari v. Court of Appeals

and Finvest Securities Co., Inc.
G.R. No. 174986 July 7, 2009
Nachura, J.:
ISSUE: Whether rescission of a contract gives rise to mutual restitution.
DOCTRINE: Yes. Rescission creates the obligation to return the object of

the contract. To rescind is to declare a contract void at its inception and to
put an end to it as though it never was. Rescission does not merely
terminate the contract and release the parties from further obligations to
each other, but abrogates it from the beginning and restores the parties to
their relative positions as if no contract has been made.
Heirs of Sofia Quirong v. Development Bank of the Philippines

G.R. No. 173441 December 3, 2009
Abad, J.
ISSUE: Whether the action to claim rescission must be commenced within

four years.
DOCTRINE: Yes. The next question that needs to be resolved is the

applicable period of prescription. The DBP claims that it should be four
years as provided under Article 1389 of the Civil Code. 16 Article 1389
provides that "the action to claim rescission must be commenced within
four years." The Quirong heirs, on the other hand, claim that it should be 10
years as provided under Article 1144 which states that actions "upon a
58
written contract" must be brought "within 10 years from the date the right
of action accrues."
Now, was the action of the Quirong heirs "for rescission" or "upon a written
contract"? There is no question that their action was for rescission, since
their complaint in Civil Case CV-98-02399-D asked for the rescission of the
contract of sale between Sofia Quirong, their predecessor, and the DBP and
the reimbursement of the price of P78,000.00 that Sofia Quirong paid the
bank plus damages. The prescriptive period for rescission is four years.
Here, the Quirong heirs alleged in their complaint that they were entitled to
the rescission of the contract of sale of the lot between the DBP and Sofia
Quirong because the decision in Civil Case D-7159 deprived her heirs of
nearly the whole of that lot. But what was the status of that contract at the
time of the filing of the action for rescission? Apparently, that contract of
sale had already been fully performed when Sofia Quirong paid the full
price for the lot and when, in exchange, the DBP executed the deed of
absolute sale in her favor. There was a turnover of control of the property
from DBP to Sofia Quirong since she assumed under their contract, "the
ejectment of squatters and/or occupants" on the lot, at her own expense.
“G” Holdings, Inc., v. National Mines and Allied Workers Union

Local 103 (NAMAWU)
G.R. No. 160236; October 16, 2009
Nachura, J.:
ISSUE: Whether there is presumption of fraud in an involuntary alienation
DOCTRINE: No. We also cannot agree that the presumption of fraud in

Article 1387 of the Civil Code relative to property conveyances, when there
was already a judgment rendered or a writ of attachment issued, authorizes
piercing the veil of corporate identity in this case. We find that Article 1387
finds less application to an involuntary alienation such as the foreclosure of
mortgage made before any final judgment of a court. We thus hold that
when the alienation is involuntary, and the foreclosure is not fraudulent
because the mortgage deed has been previously executed in accordance
with formalities of law, and the foreclosure is resorted to in order to
liquidate a bona fide debt, it is not the alienation by onerous title
contemplated in Article 1387 of the Civil Code wherein fraud is presumed.
CHAPTER 7. VOIDABLE CONTRACTS
Jorge Gonzales v. Climax Mining Ltd.

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

contracts is a judicial question. It may, in some instances, involve questions
of fact especially with regard to the determination of the circumstances of
the execution of the contracts. But the resolution of the validity or voidness
of the contracts remains a legal or judicial question as it requires the
58
exercise of judicial function. It requires the ascertainment of what laws are

applicable to the dispute, the interpretation and application of those laws,
and the rendering of a judgment based thereon. It is essentially judicial.
Felicitas Asycong and Teresa Polan v. Court of Appeals and Moller

Lending Investor
GR No. 153758. February 22, 2006
Carpio, J.:
ISSUE: What is the effect of a voidable contract where the consent is

vitiated by intimidation?
DOCTRINE: Contracts where the consent is vitiated by mistake, violence,

intimidation, undue influence or fraud are voidable. These contracts are
binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.
Development Bank of the Philippines and Privatization and

Management Office v. CA
G.R. No. 138703. June 30, 2006
Azcuna, J.:
ISSUE: What is “undue influence”? When may it be considered to exist?

Can the fact that a party had no “choice” but to sign a contract may be
interpreted that the other party exerted undue influence.
DOCTRINE: There is undue influence when a person takes improper

advantage of his power over the will of another, depriving the latter f
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between
the parties or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in
financial distress.
For undue influence to be present, the influence exerted must have so

overpowered or subjugated the mind of a contracting party as to destroy the
latter’s free agency, making such party express the will of another rather
than its own. The alleged lingering financial woes of a debtor per se cannot
be equated with the presence of undue influence.
Yes. The law grants an aggrieved party the right to obtain the annulment of
a contract on account of factors such as mistake, violence, intimidation,
undue influence and fraud which vitiate consent. However, the fact that
respondents were “forced” to sign the promissory notes and mortgage
contracts in order to have respondents’ original loans restructured and to
prevent the foreclosure of their properties does not amount to vitiated
consent. The financial condition of respondents may have motivated them
to contract with DBP, but undue influence cannot be attributed to DBP
simply because the latter had lent money. While respondents were
purportedly financially distressed, there is no clear showing that those
acting on their behalf had been deprived of their free agency when they
executed the promissory notes representing respondents’ refinanced
obligations to DBP.
Barceliza P. Capistrano vs. Darryl Limcuando and Fe S. Sumiran

G.R. No. 152413 February 13, 2009
58
Leonardo-De Castro, J.
ISSUE: Whether the person who caused fraud can annul the contract.
DOCTRINE: No. We simply cannot uphold petitioner’s contention that the

deed of sale she executed in favor of respondents should be declared null
and void on the basis of the previous deed of sale with right of repurchase
petitioner executed in favor the spouses Zuasola and Subida. Ostensibly,
when petitioner sold the subject property to herein respondents, she no
longer had any right to do so for having previously sold the same property
to other vendees. However, it is elementary that he who comes to court
must do so with clean hands. Being the vendor in both sales, petitioner
knew perfectly well that when she offered the subject property for sale to
respondents she had already previously sold it to the spouses Zuasola and
Subida. It is undeniable then that petitioner fraudulently obtained the
consent of respondents in the execution of the assailed deed of sale. She
even admits her conviction of the crime of estafa for the deception she
perpetrated on respondents by virtue of the double sale.
Certainly, petitioner’s action for annulment of the subject deed should be

dismissed based on Article 1397 of the Civil Code which provides that the
person who employed fraud cannot base his action for the annulment of
contracts upon such flaw of the contract, thus:
Art. 1397. The action for the annulment of contracts may be
instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot allege
the incapacity of those with whom they contracted; nor can
those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these
flaws of the contract.
One who has caused the ground to annul a contract such as fraud is
precluded from seeking the annulment of the said contract.
Hernania “Lani” Lopez vs. Gloria Umale-Cosme

G.R. No. 171891. February 24, 2009.
Puno, C.J.:
ISSUE: Whether the oral agreement has force and effect of law between
the parties as in the case of a contract.
DOCTRINE: It is well-settled that where a contract of lease is verbal and

on a monthly basis, the lease is one with a definite period which expires
after the last day of any given thirty-day period. In the recent case of Wee v.
De Castro, 562 SCRA 695 (2008), where the lease contract between the
parties did not stipulate a fixed period.
First Philippine Holdings Corporation vs. Trans Middle East (Phils.)

Equities, Inc.
G.R. No. 179505; December 4, 2009
ISSUE: Whether contracts where consent is given through fraud are void.
DOCTRINE: No. These circumstances surrounding the questioned

transaction fit in with what Article 1390 of the Civil Code contemplates as
voidable contracts, viz: Art. 1390. The following contracts are voidable or
58
annullable, even though there may have been no damage to the contracting
parties: xxxx (2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud. Thus, contracts where consent is
given through fraud, are voidable or annullable. These are not void ab initio
since voidable or annullable contracts are existent, valid, and binding,
although they can be annulled because of want of capacity or the vitiated
consent of one of the parties. However, before such annulment, they are
considered effective and obligatory between parties.
ECE Realty And Development Inc. v. Rachel G. Mandap

G.R. No. 196182, September 01, 2014
ISSUE: Whether the false representations made were ratified by the

signature of the respondent.
DOCTRINE: Yes. Respondent's act of affixing her signature to the said

Contract, after having acquired knowledge of the property's actual location,
can be construed as an implied ratification thereof. Ratification of a
voidable contract under Article 1393 of the Civil Code may be effected
expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it should
execute an act which necessarily implies an intention to waive his right.
CHAPTER 8. UNENFORCEABLE CONTRACTS
Spouses Mario and Elizabeth Torcuator v. Spouses Remigio and

Gloria Bernabe and Spouses Diosdado and Lourdes Salvador
G.R. No. 134219. June 08, 2005
Tinga, J.:
ISSUE: What is the purpose of the Statute of Frauds?
Doctrine: The term "Statute of Frauds" is descriptive of statutes which

require certain classes of contracts, such as agreements for the sale of real
property, to be in writing. It does not deprive the parties the right to
contract with respect to the matters therein involved, but merely regulates
the formalities of the contract necessary to render it enforceable. The
purpose of the statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of
witnesses by requiring certain enumerated contracts and transactions to be
evidenced by a writing signed by the party to be charged. The written note
or memorandum, as contemplated by Article 1403 of the Civil Code, should
embody the essentials of the contract.
Banco Filipino Savings v. Diaz

G.R. No. 153134. June 27, 2006
Callejo, Sr., J.:
58
ISSUE: Can the obligor(s) withdraw the amount previously consigned with
the regional trial court after a higher court (court of appeals) has declared
the consignment as invalid?
DOCTRINE: Yes. Before the consignation has been accepted by the

creditor or judicially declared as properly made, the debtor is still the
owner of the thing or amount deposited, and, therefore, the other parties
liable for the obligation have no right to oppose his withdrawal of such thing
or amount. The debtor merely uses his right, and unless the law expressly
limits that use of his right, it cannot be prevented by the objections of
anyone. Our law grants to the debtor the right to withdraw, without any
limitation, and we should not read a non-existing limitation into the law.
Although the other parties liable for the obligation would have been
benefited if the consignation had been allowed to become effective, before
that moment they have not acquired such an interest as would give them a
right to oppose the exercise of the right of the debtor to withdraw the
consignation.
Thus, under Article 1260 of the Civil Code, the debtor may withdraw, as a
matter of right, the thing or amount deposited on consignation in the
following instances:
(1) Before the creditor has accepted the consignation; or
(2) Before a judicial declaration that the consignation has been properly
made.
Lina Peñalber vs. Quirino Ramos et al.

G.R. No. 178645. January 30, 2009.
Chico-Nazario J.:
ISSUE: Whether statute of frauds deprive the parties of the right to

contract with respect to the matters therein involved.
DOCTRINE: We subscribe to the ruling of the RTC in its Order dated 17

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

G.R. No. 176841 June 29, 2010
Velasco, Jr., J.
58
ISSUE: Whether the Statute of Frauds is inapplicable to partially executed

contracts.
DOCTRINE: Yes. Statute of Frauds expressed in Article 1403, par. (2),of

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

G.R. No. 168289; March 22, 2010
Peralta, J.
ISSUE: Whether the court can declare a reciprocal contract unenforceable

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

G.R. No. 191696. April 10, 2013
Mendoza, J.:
ISSUE: Is the Statute of Frauds applicable in the absence of a perfected

contract?
DOCTRINE: No. The application of the Statute of Frauds presupposes the

existence of a perfected contract. In the absence thereof, there is no basis
for the application of the Statute of Frauds.
CHAPTER 9. VOID OR INEXISTENT CONTRACTS
58
Menchavez vs. Teves

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

(CVCAA), in Association With MCS Engineers Co., and A.O.
Mansueto IV – Electrical Engineering Services, and Luis Alina,
Sheriff IV, RTC, Manila
G.R. Nos. 151373-74. November 17, 2005
Carpio-Morales, J.:
ISSUE: Is the Sole Arbitrator’s Decision may nullified on the light that it did
not comply with requirements of the law?
DOCTRINE: An inquiry into the fundamental issue of nullity of the

Agreements is then warranted to determine if petitioner duly observed the
constitutional prescription for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures, or
uses of public funds and properties.
58
The Agreements, it bears noting, expressly stated that payments arising

therefrom shall be "subject to the usual accounting and auditing rules and
regulations. Being government contracts, they are governed and regulated
by special laws, failure to comply with which renders them void.
The illegality of the subject Agreements proceeds, it bears emphasis, from

an express declaration or prohibition by law, not from any intrinsic illegality.
As such, the Agreements are not illegal per se and the party claiming
thereunder may recover what had been paid or delivered.
The Manila Banking Corporation v. Edmundo S. Silverio and The

Court of Appeals,
G.R. No. 132887. August 11, 2005
Chico-Nazario, J.:
ISSUE: Is the contract void if badges of fraud and simulation permeate the
whole transaction?
DOCTRINE: Yes. An absolutely simulated contract, under Article 1346 of

the Civil Code, is void. It takes place when the parties do not intend to be
bound at all. The characteristic of simulation is the fact that the apparent
contract is not really desired or intended to produce legal effects or in any
way alter the juridical situation of the parties. Thus, where a person, in
order to place his property beyond the reach of his creditors, simulates a
transfer of it to another, he does not really intend to divest himself of his
title and control of the property; hence, the deed of transfer is but a
sham. Lacking, therefore, in a fictitious and simulated contract is consent
which is essential to a valid and enforceable contract.
Such failure is a clear badge of simulation that renders the whole

transaction void pursuant to Article 1409 of the Civil Code. When a contract
is void, the right to set-up its nullity or non-existence is available to third
persons whose interests are directly affected thereby.
The remedy of accion pauliana is available when the subject matter is a

conveyance, otherwise valid¸ undertaken in fraud of creditors. Such a
contract is governed by the rules on rescission which prescribe, under Art.
1383 of the Civil Code, that such action can be instituted only when the
party suffering damage has no other legal means to obtain reparation for
the same.
A void or inexistent contract is one which has no force and effect from the
very beginning, as if it had never been entered into; it produces no effect
whatsoever either against or in favor of anyone. Rescissible contracts, on
the other hand, are not void ab initio, and the principle, “quod nullum est
nullum producit effectum,” in void and inexistent contracts is
inapplicable. Until set aside in an appropriate action, rescissible contracts
are respected as being legally valid, binding and in force.
Absolute simulation implies that there is no existing contract, no real act

executed; while fraudulent alienation means that there is a true and existing
transfer or contract. The former can be attacked by any creditor, including
one subsequent to the contract; while the latter can be assailed only by the
creditors before the alienation. In absolute simulation, the insolvency of the
debtor making the simulated transfer is not a prerequisite to the nullity of
the contract; while in fraudulent alienation, the action to rescind, or accion
58
pauliana, requires that the creditor cannot recover in any other manner
what is due him. Finally, the action to declare a contract absolutely
simulated does not prescribe (Articles 1409 and 1410); while the accion
pauliana to rescind a fraudulent alienation prescribes in four years (Article
1389).
La’o v. Republic of the Philippines and the Government Service

Insurance System
GR No. 166183. January 23, 2006
Corona, J.:
ISSUE: Is a contract entered into in violation of the Anti-Graft and Corrupt

Practices act void?
DOCTRINE: Yes. Art. 1409 of the Civil Code provides, among others, that
those expressly prohibited or declared void by law are inexistent and void
from the beginning.
The foregoing clearly shows that the second contract caused undue injury to
the government, gave petitioner unwarranted benefits and was grossly
disadvantageous to the government. The act of entering into the contract
was a corrupt practice and was therefore unlawful. It was a contract
expressly prohibited by RA 3019. As a result, it was null and void from the
beginning under Art. 1409(7) of the Civil Code.
Potenciano Ramirez v. Ma. Cecilia Ramirez

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

G.R. No. 161407; June 5, 2009
Nachura, J.
ISSUE: Whether parties who are in pari delicto can obtain relief from the
court.
DOCTRINE: Even assuming both parties were guilty of the violation, it

does not always follow that both parties, being in pari delicto, should be left
where they are. We recognized as an exception a situation when courts
must interfere and grant relief to one of the parties because public policy
requires their intervention, even if it will result in a benefit derived by a
plaintiff who is in equal guilt with defendant.
58
Land Bank of the Philippines v. Eduardo M. Cacayuran

G.R. No. 191667. April 17, 2013
Perlas-Bernabe J.
ISSUE: May a public plaza be the subject of a private redevelopment plan?
DOCTRINE: Article 1409(1) of the Civil Code provides that a contract

whose purpose is contrary to law, morals, good customs, public order or
public policy is considered void and as such, creates no rights or obligations
or any juridical relations. Consequently, given the unlawful purpose behind
the Subject Loans which is to fund the commercialization of the Agoo Plaza
pursuant to the Redevelopment Plan, they are considered as ultra vires in
the primary sense thus, rendering them void and in effect, non-binding on
the Municipality.
Queensland-Tokyo Commodities, Inc. vs. George

G.R. No. 172727; September 8, 2010
Nachura, J.
ISSUE: Whether respondent may recover in a void contract.
DOCTRINE: Yes, it is settled that a void contract is equivalent to nothing; it

produces no civil effect. It does not create, modify, or extinguish a juridical
relation. Parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari delicto or in
equal fault. This rule, however, is not absolute. Article 1412 of the Civil
Code provides an exception, and permits the return of that which may have
been given under a void contract. The evidence on record established that
petitioners indeed permitted an unlicensed trader and salesman, like
Mendoza, to handle respondent’s account. On the other hand, the record is
bereft of proof that respondent had knowledge that the person handling his
account was not a licensed trader. Respondent can, therefore, recover the
amount he had given under the contract.
Anuel O. Fuentes and Leticia L. Fuentes vs. Conrado G. Roca

G.R. No. 178902. April 21, 2010
Abad J.
ISSUE: Whether the action for the declaration of nullity of the sale to the
spouses already prescribed.
DOCTRINE: NO. Under the provisions of the Civil Code governing

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

G.R. No. 160600; January 15, 2014
Bersamin, J.
58
ISSUE: Whether the respondent may recover even though both parties are
in pari delicto.
DOCTRINE: Yes. According to Article 1412 (1) of the Civil Code, the guilty
parties to an illegal contract cannot recover from one another and are not
entitled to an affirmative relief because they are in pari delicto or in equal
fault. The doctrine of in pari delicto is a universal doctrine that holds that
no action arises, in equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the property agreed
to be sold or delivered, or the money agreed to be paid, or damages for its
violation; and where the parties are in pari delicto, no affirmative relief of
any kind will be given to one against the other.
Nonetheless, the application of the doctrine of in pari delicto is not always

rigid. An accepted exception arises when its application contravenes well-
established public policy. In this jurisdiction, public policy has been defined
as "that principle of the law which holds that no subject or citizen can
lawfully do that which has a tendency to be injurious to the public or
against the public good."
58

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TABLE OF

CONTENTS OBLIGATIONS AND CONTRACTS

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

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

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

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

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

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

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

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

NATURE AND EFFECT OF OBLIGATIONS

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

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

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

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

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

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

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

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

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

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

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

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

DIFFERENT KINDS OF OBLIGATIONS

PURE AND CONDITIONAL OBLIGATIONS

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

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

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

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

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

Spouses Jose T. Valenzuela and Gloria Valenzuela v. Kalayaan Development &

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

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

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

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

JOINT AND SOLIDARY OBLIGATIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rockville Excel International Exim Corporation v. Spouses Oligario Culla and

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

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

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

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

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

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

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

Luzon Development Bank v. Enriquez......................................................................37

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