TAMAYO, SAMANTHA JOIE G.

CLR – Oblicon Digests

2012-03655

Ong Guan Can vs. The Century Insurance Company, Ltd., G.R. No. L-21196, February 6, 1924

Facts Plaintiff filed an action to recover an amount due on the policy of insurance issued by the
defendant to the plaintiff. The defendant filed a notice of entry of appearance after the
period for filing its appearance had expired. As a result, judgment by default was entered.

The defendant filed a motion praying the judgment by default be set aside because the
notice of appearance was mailed within the period, but the steamship Vizcaya, carrying
mails, including the letter containing the notice of appearance, did not arrive at Iloilo in
the usual course until after the time had expired for filing its appearance due to the fact
that said ship encountered a storm at sea.

Ruling + If pleadings or other papers essential to a case are entrusted to the mails in due season and
Doctrine under proper precaution and are lost or miscarried, it will be ground for vacating a
judgment by default.

A delay of mail, such as occurred in the present case, in our opinion amounts to accident
or surprise for which judgments by default may be set aside, especially when the
defendant shows by affidavit or otherwise that he has a valid and meritorious defense. The
time fixed for filing papers in a cause is generally directory and the court always has it in
its power, in the exercise of a proper discretion, to extend the time fixed by law whenever
the ends of justice would seem to demand such an extension.

As such, the judgment of default rendered by the lower court is set aside.

SSS v Moonwalk

Facts SSS filed a complaint against Moonwalk Development & Housing Corp. alleging that
Moonwalk failed to compute the 12% interest due on delayed payments on the loan on
Moonwalk, resulting in an unpaid balance. After submission of the parties’ stipulation of
facts, the trial court dismissed the complaint on the ground that the obligation was already
extinguished by the payment by Moonwalk of its indebtedness to SSS and by the latter’s
act of cancelling the real estate mortgages executed in its favor by defendant Moonwalk.

Here, SSS raises the following issue: Are defendants still liable for the unpaid penalties
claimed by plaintiffs, or is their obligation extinguished? Otherwise stated, is the penalty
demandable even after the extinguishment of the principal obligation?

Ruling + A penal clause has been defined as “an accessory obligation which the parties attach to a
Doctrine principal obligation for the purpose of insuring the performance thereof by imposing on
the debtor a special presentation (generally consisting in the payment of a sum of money)
 in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.”

A penal clause is an accessory undertaking to assume greater liability in case of breach. 6

It has a double function: (1) to provide for liquidated damages, and (2) to strengthen the
coercive force of the obligation by the threat of greater responsibility in the event of
breach. 7 From the foregoing, it is clear that a penal clause is intended to prevent the
obligor from defaulting in the performance of his obligation. Thus, if there should be
default, the penalty may be enforced.

It is noteworthy that in the present case during all the period when the principal obligation
was still subsisting, although there were late amortizations there was no demand made by
the creditor, plaintiff-appellant for the payment of the penalty.

The penal clause which is an accessory obligation must also be deemed extinguished
considering that the principal obligation was considered extinguished. That being the case,
the demand for payment of the penal clause made AFTER the principal obligation was
extinguished was ineffective as there was nothing to demand.

National Marketing Corporation v Federation of United Namarco Distributors, Inc., G.R. No. L-22578
January 31, 1973

Facts NAMARCO and FEDERATION entered into a Contract of Sale. FEDERATION and
some of its members filed a complaint against the NAMARCO for specific performance
and damages alleging that after the NAMARCO had delivered a great portion of the
goods, it refused to deliver the other goods mentioned in the said contract. NAMARCO
filed its answer.

Two months later, they were informed that the payment of FEDERATION on the Sight
Drafts for the previous deliveries could not be effected. Due to FEDERATION’s refusal to
pay despite NAMARCO’s demands, the latter instituted the present action for the
collection of the payments. FEDERATION moved to dismiss the complaint, alleging that
NAMARCO’s claim in the present case against the FEDERATION, being a compulsory
counterclaim, must have been set up in said civil case and that the failure of NAMARCO
to set up, in the first civil case, such counterclaim, precludes NAMARCO from raising it
as an independent action, pursuant to Section 6 of Rule 10 of the Rules of Court.

Ruling + The Court ruled that NAMARCO’s present action is not barred by its failure to assert it as
Doctrine a counterclaim in the previous case. Even assuming that NAMARCO’s present claim is
logically related to the claim of the FEDERATION in the previous case, NAMARCO’s
claim having accrued or matured after the service of its answer in the earlier case is in the
nature of an after- acquired counterclaim which under the rules is not barred even if it is
not set up in the previous case as a counterclaim, as it is one of the recognized exceptions
to the general rule that a counterclaim is compulsory and must be asserted if it arises out
of the same transaction as the opposing party’s claim.

Loquellano v HSBC, GR 200553, Dec. 10, 2018

 Facts Petitioners filed a Complaint for Annulment of Sale against HSBC alleging that the
foreclosure of their mortgaged property was tainted with bad faith, considering that they
had paid all the arrears, interests and penalties due on their housing loan since August
1995, and were updated with their loan obligations up to June 1996. In their Answer,
respondents argued that the entire loan obligations accelerated when petitioner Rosalina
was terminated and ceased to be an employee.

Ruling + The foreclosure has no basis and is therefore invalid. While respondent HSBC-SRP wrote
Doctrine petitioner Rosalina a letter dated September 25, 1995 demanding payment of the latter's
entire unpaid housing loan obligation, however, petitioner Rosalina still received an
Installment Due Reminder dated September 27, 1995 reminding her of her monthly
installment and interest due, sans penalty charge, which she paid. Thereafter, petitioner
Rosalina continuously received Installment Due Reminders for the housing loan, which
showed a diminishing loan balance by reason of respondent HSBC-SRP's acceptance of
payments of her monthly installments and interests due from September 1995 up to June
1996. Therefore, respondent HSBC-SRP is now estopped from foreclosing the mortgage
property.

Reparations Commission v Universal Deep Sea Fishing, 83 SCRA 764 (1978)

Facts Respondent Universal was awarded 6 trawl boats by the Reparations Commission. The
first four boats were delivered to Universal, two at a time, and the contracts of
Conditional Purchase and Sale of Reparations Goods, executed by and between the
parties provided among others, that "the first installment …shall be paid within 24
months from the date of complete delivery thereof.” A performance bond of P54,500
issued by Manila Surety & Fidelity Co., Inc., was submitted, and an indemnity agreement
was executed by UNIVERSAL in favor of the surety company.

The Reparations Commission instituted action against Universal and the surety company
to recover various amounts of money due under the 3 contracts of conditional purchase
and sale. The trial court ruled in favor of the plaintiff and ordered defendants to pay
jointly and severally, the sum of P53,643.00 in the first cause of action, P68,777.77 in
the second cause of action and P54,508.00 in the third cause of action.

Here, the surety company claims that the trial court erred in not applying the amount of
P10,000.00, paid as downpayment by UNIVERSAL to the Reparations Commission, to
the guaranteed indebtedness. According to the surety company, under Art. 1254 of the
Civil Code, where there is no imputation of payment made by either the debtor or
creditor, the debt which is the most onerous to the debtor shall be deemed to have been
satisfied, so that the amount of P10,000.00 paid by UNIVERSAL as down payment on
the purchase of the first two boats should be applied to the guaranteed portion of the debt,
thus releasing part of the liability hence the obligation of the surety company shall be
only P43,643, instead of P53,643.00.

Ruling + The rules contained in Articles 1252 to 1254 of judgment, Civil Code apply to a person
Doctrine owing several debts of judgment, same kind to a single creditor. They cannot be made
applicable to a person whose obligation as a mere surety is both contingent and singular,
which in this case is the full and faithful compliance with the terms of the contract of
 conditional purchase and sale of reparations goods, The obligation included the payment,
not only of the first installment in the amount of P53,643.00, but also of the ten (10)
equal yearly installments of P56,597.20 per annum. The amount of P10,000 was, indeed,
deducted from judgment, amount of P53,64, but then judgment, first of judgment, 10
equal yearly installments had also accrued, hence, no error was committed in holding
judgment, surety company to judgment, full extent of its undertaking.

Del Carmen v Sabordo, G.R. No. 181723, Aug. 11, 2014

Facts The Suico spouses (predecessors-in-interest of the petitioners) obtained a loan from DBP
and mortgaged 4 lots owned by them to secure the loan. They later failed to pay their loan
obligations and these properties were foreclosed and DBP consolidated its ownership over
the same. Nonetheless, DBP later allowed the Suico spouses  to repurchase the subject
lots by way of a conditional sale. The Suico spouses later sold their rights over the said
properties to respondents Sabordo, subject to the condition that the latter shall pay the
balance of the sale price. Respondents and the Suico spouses executed a supplemental
agreement whereby they affirmed that what was actually sold to respondents were Lots
512 and 513, while Lots 506 and 514 were given to them as usufructuaries.

Before the Suico spouses could exercise their option to purchase or redeem Lots 506 and
514 from respondents, they discovered that respondents mortgaged Lots 506 and 514 with
Republic Planters Bank (RPB) as security for a loan which, subsequently, became
delinquent.

Claiming that they are ready with the payment of ₱127,500, but alleging that they cannot
determine as to whom such payment shall be made, petitioners (legal heirs of the Suico
spouses) filed a Complaint seeking to compel herein respondents and RPB to interplead.
The amount of ₱127,500 was consigned with the court. 

Respondents filed their Answer with Counterclaim praying for the dismissal of the above
Complaint on the grounds that (1) the action for interpleader was improper since RPB is
not laying any claim on the sum of ₱127,500.00; (2) that the period within which the
complainants are allowed to purchase Lots 506 and 514 had already expired; (3) that there
was no valid consignation, and (4) that the case is barred by litis pendencia or res judicata.

Ruling + The complaint should be dismissed. There was no valid consignation since no prior tender
Doctrine of payment was made. 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. Tender and consignation, where
validly made, produces the effect of payment and extinguishes the obligation.

Under Article 1256, the only instances where prior tender of payment is excused are: (1)
when the creditor is absent or unknown, or does not appear at the place of payment; (2)
when the creditor is incapacitated to receive the payment at the time it is due; (3) when,
without just cause, the creditor refuses to give a receipt; (4) when two or more persons
claim the same right to collect; and (5) when the title of the obligation has been lost. None
of these instances are present in the instant case. Hence, the fact that the subject lots are in
danger of being foreclosed does not excuse petitioner and her co-heirs from tendering
payment to respondents, as directed by the court.
Mirasol v CA, 351 SCRA 44 (2001)

Facts The Mirasols are sugarland owners and planters. Private respondent PNB financed the
Mirasols' sugar production venture for crop years, 1973-1974 and 1974-1975 under a crop
loan financing scheme. Under said scheme, the Mirasols signed Credit Agreements, a
Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in favor of PNB. The
Chattel Mortgage empowered PNB as the petitioners' attorney-in-fact to negotiate and to
sell the latter's sugar in both domestic and export markets and to apply the proceeds to the
payment of their obligations to it. 

In November 1974, then President Marcos issued PD 579 which authorized respondent
PHILEX to purchase sugar allocated for export to the United States and to other foreign
markets. It also directed that whatever profit PHILEX might realize from sales of sugar
abroad was to be remitted to a special fund of the national government.

PNB continued to finance the sugar production of the Mirasols for crop years 1975-1976
and 1976-1977. Petitioners failed to settle their loan obligations, causing PNB to
extrajudicially foreclose the mortgaged properties, leaving a deficiency of
P12,551,252.93.

Petitioners continued to ask PNB to account for the proceeds of the sale of their export
sugar for crop years 1973-1974 and 1974-1975, insisting that said proceeds, if properly
liquidated, could offset their outstanding obligations with the bank. PNB remained
adamant in its stance that under PD 579, there was nothing to account as all earnings from
the export sales of sugar pertained to the National Government and were subject to the
disposition of the President for public purposes. Hence, the Mirasols filed a suit for
accounting, specific performance, and damages. 

Petitioners now claim that the dacion en pago and the foreclosure of their mortgaged
properties were void for want of consideration. Petitioners insist that the loans granted
them by PNB from 1975 to 1982 had been fully paid by virtue of legal compensation. 

Ruling + Both the lower court and the appellate court found that the Mirasols admitted that they
Doctrine were indebted to PNB in the sum stated in the latter's counterclaim. Petitioners
nonetheless insist that the same can be offset by the unliquidated amounts owed them by
PNB for crop years 1973-74 and 1974-75. Petitioners' argument has no basis in law. For
legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of
the Civil Code must be present. Said articles read as follows: 

“Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. 
Art. 1279. In order that compensation may be proper, it is necessary: 
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other; 
(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated; 
(3) That the two debts are 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.”

In the present case, set-off or compensation cannot take place between the parties
because: First, neither of the parties are mutually creditors and debtors of each other.
Under PD 579, neither PNB nor PHILEX could retain any difference claimed by the
Mirasols in the price of sugar sold by the two firms. PD 579 prescribed where the profits
from the sales are to be paid, to wit: 

“SECTION 7. x x x After deducting its commission of two and one-half (2-1/2%) percent
of gross sales, the balance of the proceeds of sugar trading operations for every crop year
shall be set aside by the Philippine Exchange Company, Inc,. as profits which shall be
paid to a special fund of the National Government subject to the disposition of the
President for public purposes.”

Thus, there was nothing with which PNB was supposed to have off-set Mirasols' admitted
indebtedness.

Second, compensation cannot take place where one claim, as in the instant case, is still the
subject of litigation, as the same cannot be deemed liquidated.

Rey v Anson, GR 211206, Nov. 7, 2018

Facts Rey obtained loans from Anson with monthly interest on the first loan being 7%, the
second 7.5%, the third 3% and the fourth 4%. Rey through counsel sent Anson a letter
stating that the interest rates imposed on the four loans were irregular, if not contrary to
law. Petitioners then filed a Complaint for Recomputation of Loans and Recovery of
Excess Payments and Cancellation of Real Estate Mortgages and Checks against Anson.

Ruling + In regard to the third and fourth loans, since the said loans were not in writing, they could
Doctrine not legally earn interest in accordance with Article 195615 of the Civil Code. Therefore,
whatever amounts of money that were applied as interest payments in either Loan 3 or
Loan 4 were invalid.

Anent the first and second loans with stipulated monthly interest rates at 7.5% and 7%,
respectively, the the stipulated interest rates at 90% per annum and 84% per annum for
the first and second loans, respectively, were void. The appropriate interest for the first
two loans should be at the legal rate of 12% per annum. 

As such, petitioner has made excess payments for the four loans which ought to be
returned by Anson in accordance with the principle of solutio indebiti under Article 2154
of the Civil Code.

The 4 loans and the interest payments that obviously made Cesar Anson and Rosemarie
Rey in their own rights creditors and debtors to each other are money obligations that are
past due. In such a legal condition, compensation will extinguish the obligations as
explicitly provided by Article 1278 of the Civil Code.  The above two debts in this case
were not of the same amount, so the compensation that took place was partial. Thus,
 Anson is ordered to pay his remaining debt.

Heirs of Franco v Gonzalez, GR 159709, June 27, 2012

Facts Franco obtained 3 loans from Gonzales. They then consolidated their unpaid loans
totaling P440,000 and sought from Gonzales another loan in the amount of P60,000. The
executed a promissory note dated July 23, 1986  for their total indebtedness in the amount
of P500,000. Because they failed to pay, Gonzales filed a complaint for collection of the
full amount of the loan including interests and other charges. 

The court ruled in favor of Gonzales, who moved for execution. Franco opposed,
claiming that he and the respondents had agreed to fix the entire obligation at ₱775,000.
According to him, their agreement, which was allegedly embodied in a receipt dated
February 5, 1992, whereby he made an initial payment of ₱400,000 and promised to pay
the balance of ₱375,000 superseded the promissory note.

Ruling + A novation arises when there is a substitution of an obligation by a subsequent one that
Doctrine 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. 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.

The receipt did not create a new obligation incompatible with the old one under the
promissory note.  Instead, the respondents only thereby recognized the original obligation
by stating in the receipt that the ₱400,000.00 was "partial payment of loan" and by
referring to "the promissory note subject of the case in imposing the interest." The loan
mentioned in the receipt was still the same loan involving the ₱500,000.00 extended to
Franco. Advertence to the interest stipulated in the promissory note indicated that the
contract still subsisted, not replaced and extinguished, as the petitioners claim.

Lastly, the extension of the maturity date did not constitute a novation of the previous
agreement. It is settled that an extension of the term or period of the maturity date does
not result in novation.
 
Food Fest Land, Inc. vs. Siapno, G.R. No. 226088, February 27, 2019
 
Facts Respondents entered into a Contract of Lease with Food Fest,  local corporation who
wanted to use such land as the site of a fastfood restaurant. Food Fest assigned all its
rights and obligations under the Contract of Lease unto one Tuck:y Foods, which later
assigned all the said rights and obligations under such contract to petitioner Joyfoods. 

Respondents later instituted a complaint for sum of money against Food Fest and
 Joyfoods for unpaid rentals.

One of the petitioners’ plea is to limit liability for the unpaid balance solely with
Joyfoods. Food Fest and Joyfoods argue that the assignment by Food Fest of its rights and
obligations under the Contract of Lease to Tucky Foods, and the assignment by Tucky
Foods of the same rights and obligations to Joyfoods, ought to have resulted in Food
Fest's release from its obligations under the Contract of Lease and its substitution therein
by Joyfoods.

Ruling + Novation of an obligation by substituting the person of the debtor, as the term suggests,
Doctrine entails the replacement of the debtor by a third person. When validly made, it releases the
debtor from the obligation which is then assumed by the third person as the new debtor.
To validly effect such kind of novation, however, it is not enough for the debtor to merely
assign his debt to a third person, or for the latter to assume the debt of the former; the
consent of the creditor to the substitution of the debtor is essential and must be had. 

This kind of substitution may take place without the knowledge of the debtor when a third
party assumes the obligation of the debtor with the consent of the creditor. The novation
effected in this way is called expromision. Substitution may also take place when the
debtor offers and the creditor accepts a third party who assumes the obligation of the
debtor. The novation made in this manner is called delegacion. In these two modes of
substitution, the consent of the creditor is always required.

The settled facts do not show that respondents had expressly consented in writing to the
substitution of Food Fest by Joyfoods. The consent of respondents to such substitution
has to be in writing, in light of the non-waiver clause of the Contract of Lease. Novation
is never presumed.

PNCC v CA, G.R. No. 116896, May 5, 1997

Facts PNCC and private respondents entered into a 5-year Lease Agreement , commencing on
the date of issuance of the industrial clearance by the Ministry of Human Settlements to
the petitioner. It was also stated in the Agreement that rental shall be paid by the
petitioner yearly.

Upon obtaining aTemporary Use Permit from the Ministry of Human Settlement by the
petitioner, private respondents wrote a letter requesting the petitioner to pay the first
annual rental. However, petitioner failed to do so and expressed its intention to terminate
the contract due to financial as well as technical difficulties. This prompted the
respondent to file an action against the petitioner for specific performance with damages.

Ruling + The principle rebus sic stantibus (a treaty or agreement remains valid only if the same
Doctrine conditions prevailing at the time of contracting continue to exist at the time of
performance) does not fit in with the facts of this case. It was noted that the petitioner has
entered into the Contract of Lease with private respondents with open eyes of the
deteriorating conditions of the country since the assassination of the late Senator Ninoy
Aquino. 

Tagaytay Realty v. Gacutan, G.R. No. 160033, July 01, 2015

 Facts Respondent, as buyer, entered into a contract to sell with the petitioner for the purchase
on installment of a residential lot. Later, respondent sued the petitioner for specific
performance in the HLURB, praying that the petitioner be ordered to accept his payment
of the balance of the contract without interest and penalty, and to deliver to him the title
of the property.

In its Answer, the petitioner sought to be excused from performing its obligations under
the contract, invoking Article 1267 of the Civil Code as its basis. It contended that the
depreciation of the Philippine Peso since the time of the execution of the contract, the
increase in the cost of labor and construction materials, and the increase in the value of
the lot in question were valid justifications for its release from the obligation to construct
the amenities.

Ruling + For Article 1267 to apply, the following conditions should concur, namely: (a) the event
Doctrine or change in circumstances could not have been foreseen at the time of the execution of
the contract; (b) it makes the performance of the contract extremely difficult but not
impossible; (c) it must not be due to the act of any of the parties; and (d) the contract is
for a future prestation. The requisites did not concur herein because the difficulty of
performance under Article 1267 of the Civil Code should be such that one party would be
placed at a disadvantage by the unforeseen event. Mere inconvenience, or unexepected
impediments, or increased expenses did not suffice to relieve the debtor from a bad
bargain. 

The unilateral suspension of the construction had preceded the worsening of economic
conditions in 1983; hence, the latter could not reasonably justify the petitioner's plea for
release from its statutory and contractual obligations to its lot buyers, particularly the
respondent. Besides, the petitioner had the legal obligation to complete the amenities
within one year from the issuance of the license (under Section 20 of Presidential Decree
No. 957), or within two years from July 15, 1976 (under the express undertaking of the
petitioner). Hence, it should have complied with its obligation by July 15, 1978 at the
latest, long before the worsening of the economy in 1983. 

R.S. Tomas, Inc. v Rizal, G.R. No. 173155, March 21, 2012

Facts Respondent and petitioner entered into a Contract for the supply of labor, materials, and
technical supervision of 3 projects. Later, in various letters to respondent, the petitioner
requested for extensions to complete the projects, asked for price adjustments to cover the
higher costs of materials, requested for respondent’s assistance in the acquisition of the
materials and supplies needed, and asked to back out from the third project. In response,
respondent manifested its observation that petitioner’s financial status showed that it
could no longer complete the projects as agreed upon.  Respondent also informed
petitioner that it was already in default having failed to complete the projects within 120
days from the effectivity of the contract and notified petitioner that it was terminating the
contract. It also demanded for the refund of the amount already paid to petitioner. Hence,
the instant Complaint for Sum of Money filed by respondent against petitioner. 

Ruling + There was not only delay but non-completion of the projects undertaken by petitioner
Doctrine without justifiable ground. Undoubtedly, petitioner is guilty of breach of contract. Breach
 of contract is defined as 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. 

In the present case, petitioner did not complete the projects. This gives respondent the
right to terminate the contract by serving petitioner a written notice.

PNB v. Dee, et al., G.R. No. 182128, February 19, 2014

Facts Respondent Dee bought from respondent PEPI a residential lot on installment basis.
Subsequently, PEPI assigned its rights over the property to respondent AFP-RSBS, which
included the property purchased by Dee. Thereafter, PEPI obtained a loan from petitioner
PNB, secured by a mortgage over several properties including Dee’s property. After
Dee’s full payment of the purchase price, a deed of sale was executed by respondents
PEPI and AFP–RSBS in Dee’s favor. 

Dee then sought from petitioner the delivery of the owner’s duplicate title over the
property, to no avail. Thus, she filed with the HLURB a complaint for specific
performance 

Ruling + The petitioner is correct in arguing that it is not obliged to perform any of the undertaking
Doctrine of respondent PEPI and AFP-RSBS in its transactions with Dee because it is not a privy
thereto. The basic principle of relativity of contracts is that contracts can only bind the
parties who entered into it, and cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof. “Where there is no privity
of contract, there is likewise no obligation or liability to speak about.”

Based on the final contract of sale between them, the obligation of PEPI, as owners and
vendors of Lot 12, is to transfer the ownership of and to deliver Lot 12, to Dee, who, in
turn, shall pay, and has in fact paid, the full purchase price of the property. Nevertheless,
despite the apparent validity of the mortgage between the petitioner and PEPI, the former
is still bound to respect the transactions between respondents PEPI and Dee.

Gironella v. PNB, G.R. No. 194515, September 16, 2015

Facts Spouses Gironella obtained 2 loans from PNB. Seeking to expand their hotel operations,
they applied for a third loan. The Spouses Gironella began to default in paying their prior
2 loans. They averred that their default in payment is attributable to PNB whose
representatives and officers made them believe that their loan application would be
approved and directed them to proceed with their expansion plans. The spouses
negotiated with PNB for a restructuring of their loans, and made a qualified acceptance
of  PNB’s proposed restructuring program. However, PNB rejected this counter-offer and
filed a Petition for Extrajudicial Foreclosure of the mortgaged property. Forthwith, the
spouses Gironella filed a Complaint against PNB for: (1) the proper construction of
events between the parties relative to the proposed Restructuring Agreement; (2) fraud,
gross negligence, and/or at the very least, abuse of right under Article 19, 20 and 21 of the
Civil Code; and (3) corollary thereto, payment of actual and compensatory damages,
moral damages, attorney's fees and litigation expenses.
 Ruling + PNB is not liable either for fraud, gross negligence or abuse of right. It did not breach any
Doctrine agreement there having been no restructured loan agreement at all that was perfected. 

A contract is perfected by mere consent. In turn, 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 offer must be certain and the acceptance seasonable and absolute. If
qualified, the acceptance would merely constitute a counter-offer as what occurred in this
case.

To reach that moment of perfection, the parties must agree on the same thing in the same
sense, so that their minds meet as to all the terms. So long as there is any uncertainty or
indefiniteness, or future negotiations or considerations to be had between the parties, there
is not a completed contract, and in fact, there is no contract at all.

Rosenstock v Burke, 46 Phil 217 (1924)

Facts Plaintiff Elser is a wealthy merchant planning to establish a yacht club, while respondent
Burke is an owner of a yacht, which was mortgaged by a loan with Asia Banking
Corporation. Burke wanted to sell this yacht in order to pay off the maturing debts. Elser,
with the permission of Burke, used the yacht for marketing purpose and also paid for the
repairs which he deemed necessary. Elser also wanted to purchase a new engine, so Burke
made an agreement with ABC to obtain the loan (for the purpose of procuring the
engine), with the assurance that Elser will purchase the yacht. Elser, in turn, wrote a letter
addressed to Burke with a phrase “In connection with the yacht Bronzewing, I am in
position and am willing to entertain the purchase of it under the following terms...” Burke
and the manager of ABC both signed at the bottom of the letter. Later, however, the
plaintiff returned the boat to the defendant, since no loan was granted by ABC to replace
the engine.

Elser then brought this action against the defendant to recover the value of the repairs
made on the yacht which he had paid for. The defendant alleges as a defense that the
agreement he had with the plaintiff about these repairs was that the letter was to pay for
them for his own account in exchange for the gratuitous use of the yacht. Furthermore,
alleging that the plaintiff purchased the vessel in accordance with his letter, he prays as a
cross-complaint that the plaintiff be compelled to comply with the terms of this contract
and to pay damages.

Ruling + To constitute a contract there must be an acceptance of the offer. A contract may be
Doctrine formed by accepting a paper containing terms. If an offer is made by delivering to another
a paper containing the terms of a proposed contract, and the paper is accepted, the
acceptor is bound by its terms; and this is true as a rule whether he reads the paper or not.

The letter of the plaintiff not containing a definite offer but a mere invitation to an offer
being made to him, the acceptance of the defendant placed at the bottom of this letter has
no other meaning than that of accepting the proposition to make this offer, as must have
been understood by the plaintiff. 

The conclusion is that the letter of the plaintiff of April 3, 1922, was not a definite offer
 and that the plaintiff is bound to pay the amount of the repairs of the yacht in exchange
for the use thereof. Hence, the defendant is absolved from the complaint.

Blas v Santos, 1 SCRA 899 (1961)

Facts Plaintiffs filed this action against the estate of Maxima Santos, to secure a judicial
declaration that one-half of the properties left by her, the greater bulk of which are set
forth and described in the project of partition presented in the proceedings for the
administration of the estate of her husband Simeon Blas, had been promised by the
deceased Maxima Santos to be delivered upon her death and in her will to the plaintiffs.

Ruling + A document signed by the testator's wife, promising that she would respect and obey all
Doctrine the dispositions in the latter's will, and that she would hold one-half of her share in the
conjugal assets in trust for the heirs and legatees of her husband in his will, with the
obligation of conveying the same to such of his heirs or legatees as she might choose in
her last will and testament, is a compromise and at the same time a contract with
sufficient cause or consideration.

We do not think that Exhibit "A", the document executed by Maxima Santos, is a contract
on future inheritance. It is an obligation or promise made by the maker to transmit one-
half of her share in the conjugal properties acquired with her husband, which properties
are stated or declared to be conjugal properties in the will of the husband. The conjugal
properties were in existence at the time of the execution of Exhibit "A”. The promise does
not refer to any properties that the maker would inherit upon the death of her husband,
because it is her share in the conjugal assets. 

WT Construction, Inc. v. The Province of Cebu, G.R. No. 208984, September 16, 2015

Facts Province of Cebu was chosen by former PGMA to host the 12th ASEAN) Summit. To
cater to the event, it decided to construct the Cebu International Convention Center
(CICC) which would serve as venue. WTCI emerged as the winning bidder for the
construction of Phase I thereof. As Phase II neared completion, the Province of Cebu
caused WTCI to perform additional works on the project which included site
development, and additional structural, architectural, electric, and plumbing works.

What is at issue is whether the liability of the Province of Cebu involves a forbearance of
money, based on WTCI's claim that it merely advanced the cost of the additional works.

Ruling + In Estores v. Supangan, the Court explained that forbearance of money, goods, or credit
Doctrine refers to arrangements other than loan agreements where a person acquiesces to the
temporary use of his money, goods or credits pending the happening of certain events or
fulfilment of certain conditions such that if these conditions are breached, the said person
is entitled not only to the return of the principal amount given, but also to compensation
for the use of his money equivalent to the legal interest since the use or deprivation of
funds is akin to a loan.

Applying the foregoing standards to the case at hand, the Court finds that the liability of
 the Province of Cebu to WTCI is not in the nature of a forbearance of money as it does
not involve an acquiescence to the temporary use of WTCI's money, goods or credits.
Rather, this case involves WTCI's performance of a particular service, i.e., the
performance of additional works on CICC, consisting of site development, additional
structural, architectural, plumbing, and electrical works thereon

The Court has repeatedly recognized that liabilities arising from construction contracts do
not partake of loans or forbearance of money but are in the nature of contracts of service.

SMPI vs. BF Homes, G.R. No. 169343, August 5, 2015

Facts BF Homes entered into 3 Deeds of Absolute Sale with SMPI whereby the former sold to
the latter a total of 130 Italia II lots. Upon completion of payment by SMPI, BF Homes
delivered the TCTs for 110 out of the 130 lots.

To justify its refusal to deliver the remaining 20 TCTs to SMPI, BF Homes asserts that 1)
the Deeds of Absolute Sale were undated and not notarized; 2) Orendain did not have or
exceeded his authority as receiver in entering into the contracts of sale of the Italia II lots
with SMPI; and 3) the consideration for the said Italia II lots were grossly inadequate and
disadvantageous for BF Homes.

Ruling + Here, the Deeds were not notarized and, therefore, were not public documents as required
Doctrine by Article 1358(1). However, the requirement of a public document in Article 1358 is not
for the validity of the instrument but for its efficacy.

By law, contracts are obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when the law
requires that a contract be in some form in order that it may be valid or enforceable, or
that a contract be proved in a certain way, that requirement is absolute and indispensable.
Consequently, the effect of non-compliance with the requirement of the Statute of Frauds
is simply that no action can be enforced unless the requirement is complied with. 

The Statute of Frauds is applicable only to contracts which are executory and not to those
which have been consummated either totally or partially. If a contract has been totally or
partially performed, the exclusion of parol evidence would promote fraud or bad faith, for
it would enable the defendant to keep the benefits already derived by him from the
transaction in litigation, and at the same time, evade the obligations, responsibilities or
liabilities assumed or contracted by him thereby. This rule, however, is predicated on the
fact of ratification of the contract within the meaning of Article 1405 of the Civil Code
either (1) by failure to object to the presentation of oral evidence to prove the same, or (2)
by the acceptance of benefits under them.

Based on the above discussion, the Deeds of Absolute Sale are enforceable. First, the
Deeds are already in writing and signed by the parties, and only lack notarization, a
formality which SMPI could compel BF Homes to comply with. As private documents,
the Deeds are still binding between the parties and the conveyance of the 130 Italia II lots
by BF Homes to SMPI by virtue of said Deeds is valid. And second, the Deeds were
already ratified as BF Homes had accepted the benefits from said contracts when it
 received full payment from SMPI of the purchase price for the 130 Italia II lots. The
Deeds were also substantially performed considering that BF Homes had previously
delivered to SMPI the TCTs for 110 out of the 130 lots, only refusing to deliver the TCTs
for the remaining 20 lots.

Wellex Group vs. U-Land Airlines, G.R. No. 167519, January 14, 2015

Facts Wellex, a Philippine corporation and U-Land, a Taiwanese corporation entered into a
MOA under which they agreed to enter into a share purchase agreement and a joint
development agreement.

Despite the absence of a share purchase agreement, U-Land remitted to Wellex a total of
US$7,499,945. After receipt of this amount, Wellex delivered to U-Land stock certificates
representing 60,770,000 PEC shares and 72,601,000 APIC shares. Despite these
transactions, Wellex and U-Land still failed to enter into the share purchase agreement
and the joint development agreement.

Later, U-Land demanded the return of the US$7,499,945 claiming Wellex had
unjustifiably refused to enter into the Share Purchase Agreement. As such, U-Land
offered to return all the stock certificates covering APIC shares and PEC shares as well as
the titles to real property given by Wellex as security for the amount remitted by U-Land.
U-Land filed a Complaint praying for rescission of the MOA. 

Wellex argues that U-Land is seeking rescission under Art. 1381, which cannot be
allowed because this is a subsidiary action and is available only in the absence of any
other legal remedy under Article 1384.

Ruling + For Article 1191 to be applicable, there must be reciprocal prestations as distinguished
Doctrine from mutual obligations between or among the parties. Parties may be mutually obligated
to each other, but the prestations of these obligations are not necessarily reciprocal. The
reciprocal prestations must necessarily emanate from the same cause that gave rise to the
existence of the contract. The failure of one of the parties to comply with its reciprocal
prestation allows the wronged party to seek the remedy of Article 1191. It is a principal
action precisely because it is a violation of the original reciprocal prestation. 

When a party seeks the relief of rescission as provided in Article 1381, there is no need
for reciprocal prestations to exist between or among the parties. All that is required is that
the contract should be among those enumerated in Article 1381 for the contract to be
considered rescissible. Unlike Article 1191, rescission under Article 1381 must be a
subsidiary action because of Article 1383.

Contrary to Wellex’s argument, this is not a case of rescission under Article 1381 of the
Civil Code. This case does not involve prejudicial transactions affecting guardians,
absentees, or fraud of creditors. Article 1381(3) pertains in particular to a series of
fraudulent actions on the part of the debtor who is in the process of transferring or
alienating property that can be used to satisfy the obligation of the debtor to the creditor.
The actions of the parties involving the terms of the MOA do not fall under any of the
enumerated contracts that may be subject to such rescission.
 Thus, respondent U-Land correctly sought the principal relief of rescission or resolution
under Article 1191. The obligation of the parties gave rise to reciprocal prestations, which
arose from the same cause: the desire of both parties to enter into a share purchase
agreement that would allow both parties to expand their respective airline operations in
the Philippines and other neighboring countries.

Siguan v Lim, 318 SCRA 725 (1999)

Facts The petitioner is a creditor of the respondent. She filed a petition for accion pauliana
alleging that the donations of land executed by Lim in favor of her children was done in
fraud of creditors. Said deeds of donation were executed a year before the debt was
incurred.

Ruling + The petition must fail for failure to satisfy all the requisites for an action to rescind
Doctrine contracts in fraud of creditors, or accion pauliana: (1) the plaintiff asking for rescission
has a credit prior to the alienation, although demandable later; (2) the debtor has made a
subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has
no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5)
the third person who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud.

The general rule is that rescission requires the existence of creditors at the time of the
alleged fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior existing debt, there can
neither be injury nor fraud. While it is necessary that the credit of the plaintiff in the
accion pauliana must exist prior to the fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment is subsequent to the alienation, it is
merely declaratory, with retroactive effect to the date when the credit was constituted.

The following have been denominated by the court as “badges of fraud” although it is not
an exclusive list:
1) The fact that the consideration of the conveyance is fictitious or is inadequate;
2) A transfer made by a debtor after suit has begun and while it is pending against him;
3) A sale upon credit by an insolvent debtor;
4) Evidence of large indebtedness or complete insolvency;
5) The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially;
6) The fact that the transfer is made between father and son, when there are present other
of the above circumstances;
7) The failure of the vendee to take exclusive possession of all the property.

Singsong v Isabela Sawmill, 88 SCRA 623 (1979)

Facts Defendants Saldajeno, Garibay and Tubungbanua entered into a contract of partnership.
Later, Saldajeno withdrew and brought an action to dissolve the partnership. The suit
resulted in the execution of an Assignment of Rights with Chattel Mortgage in favor of
Saldajeno. Garibay and Tubungbanua, however, continued the business under the same
 firm name. Meanwhile, plaintiffs extended credits to the partnership. Later, the chattel
mortgage was foreclosed and the mortgaged properties were sold at public auction to
Saldajeno, who in turn sold the same to another party. Plaintiffs sued defendants to
recover the sums of money they advanced to the partnership and asked for the nullity of
the chattel mortgage between Saldajeno and her former partners.

Ruling + As a rule, a contract cannot be assailed by one who is not a party thereto. However, when
Doctrine a contract prejudices the rights of a third person, he may file an action to annul the
contract. This Court has held that a person, who is not a party obliged principally or
subsidiarily under a contract, may exercise an action for nullity of the contract if he is
prejudiced in his rights with respects to one of the contracting parties, and can show
detriment which would positively result to him from the contract in which he has no
intervention. 

The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel
mortgage over the properties of the partnership “Isabela Sawmill” in favor of Saldajeno
by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said
appellees have a right to file the action to nullify the chattel mortgage in question.

Tongson v Emergency Pawnshop, G.R. No. 167874, January 15, 2010

Facts Napala offered to purchase a parcel of land from the Spouses Tongson, which was
accepted. Upon signing the Deed of Absolute Sale, Napala paid partially in cash to and
issued a postdated PNB check in the amount of the balance. When presented for payment,
the PNB check was dishonored for the reason "Drawn Against Insufficient Funds."
Spouses Tongson filed a Complaint for Annulment of Contract and Damages. 

Ruling + Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
Doctrine 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 order that fraud may vitiate consent,
it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. Additionally, the fraud must be serious.

We find no causal fraud in this case to justify the annulment of the contract of sale
between the parties. It is clear from the records that the Spouses Tongson agreed to sell
their 364-square meter Davao property to Napala who offered to pay ₱3,000,000 as
purchase price therefor. Contrary to the Spouses Tongson’s belief that the fraud employed
by Napala was "already operational at the time of the perfection of the contract of sale,"
the misrepresentation by Napala that the postdated PNB check would not bounce on its
maturity hardly equates to dolo causante. Napala’s assurance that the check he issued was
fully funded was not the principal inducement for the Spouses Tongson to sign the Deed
of Absolute Sale. Even before Napala issued the check, the parties had already consented
and agreed to the sale transaction. The Spouses Tongson were never tricked into selling
their property to Napala. On the contrary, they willingly accepted Napala’s offer to
purchase the property at ₱3,000,000. In short, there was a meeting of the minds as to the
object of the sale as well as the consideration therefor.

However, the contract may be rescinded under Art. 1191 on the ground of substantial
 breach of the contract.

Limketkai v CA, March 29, 1996

Facts BPI, as trustee of a real estate property of Philippine Remnants Co, gave ]Revilla Jr, a
licensed real estate broker, formal authority to sell the lot. Revilla contacted Alfonso Lim
of Limketkai who agreed to buy the land. Limketkai went to BPI to confirm the sale,
agreeing to the price of P1k/sqm. Notwithstanding the final agreement to pay P1k/sqm on
a cash basis, Alfonso Lim asked if it was possible to pay on terms. It was the
understanding that should the term payment be disapproved, then the price shall be paid
in cash. 

Limketkai learned that its offer to pay on terms had been frozen. Alfonso Lim went to
BPI and tendered the full payment of P33,056,000 to BPI VP Albano, but it was refused
because Albano stated that the authority to sell that particular piece of property had been
withdrawn from his unit. The same check was tendered to BPI VP Bona who also refused
to receive payment. 

An action for specific performance with damages was filed by Limketkai against BPI.
BPI informed the trial court it had sold the property to National Bookstore.

Ruling + Petitioner’s case failed to hurdle the strict requirements of the Statute of Frauds. In this
Doctrine case there is a patent absence of any deed of sale categorically conveying the subject
property from respondent BPI to petitioner. Exhibits “E,” “G,” “I” which petitioner
claims as proof of perfected contract of sale between it and respondent BPI were not
subscribed by the party charged and did not constitute the memoranda or notes that the
law speaks of. To consider them sufficient compliance with the Statute of Frauds is to
betray the avowed purpose of the law to prevent fraud and perjury in the enforcement of
obligations.

In adherence to the provisions of the Statute of Frauds, the examination and evaluation of
the notes or memoranda adduced by the petitioner was confined and limited to within the
four corners of the documents. To go beyond what appears on the face of the documents
constituting the notes or memoranda, stretching their import beyond what is written in
black and white, would certainly be uncalled for, if not violative of the Statute of Frauds
and opening the doors to fraud, the very evil sought to be avoided by the statute. In fine,
considering that the documents adduced do not embody the essentials of the contract of
sale aside from not having been subscribed by the party charged or its agent, the
transaction involved definitely falls within the ambit of the Statute of Frauds.

Tolentino vs. Sps. Latagan, G.R. No. 179874, June 22, 2015

Facts Petitioners, all surnamed Dio filed a Complaint for quieting of title, recovery of property
and damages alleging that they are the successors-in-interest of Amado over the subject
property. They claimed that Amado acquired the property from the original registered
owners, Servillano, Dionesia, Teofilo (Teopisto) , Cipriano (Ceferino) and Heirs of Rosa,
all surnamed Jerera. Petitioners assert that the Deed of Sale executed on January 14, 1970
by the Spouses Amado and Modesta, conveying the property to Servillano, is simulated
 and/or fictitious for being a forgery, hence, all transactions emanating from it are null and
void. 

Ruling + A forged deed of sale is null and void and conveys no title, for it is a well-settled principle
Doctrine that no one can give what one does not have; nemo dat quod non habet.  Due to the
forged Deed of Absolute Sale dated January 14, 1970, Servillano acquired no right over
the subject property which he could convey to his daughter, Maria. All the transactions
subsequent to the falsified sale between the Servillano and his daughter are likewise void,
namely, the Deeds of Absolute Sale of the subject property that Servillano executed on
May 25, 1971 and November 24, 1977 in favor his daughter, as well as the Self-
Adjudication of Real Property. 
 
However, it has also been consistently ruled that that a forged or fraudulent document
may become the root of a valid title, if the property has already been transferred from the
name of the owner to that of the forger, and then to that of an innocent purchaser for
value. This doctrine emphasizes that a person who deals with registered property in good
faith will acquire good title from a forger and be absolutely protected by a Torrens title.

Pena v De Los Santos, GR 202223, March 2, 2016

Facts Jesus and Rosita Delos Santos Flores were judgment awardees of the two-thirds portion
of four adjoining lots. During execution proceedings, Pena filed a Motion for Substitution
with a Motion for a Writ of Execution and Demolition with the RTC. Peña averred that he
is the transferee of Jesus and Rosita's adjudged allotments over the subject lots. He
claimed that he bought the same from Atty. Robiso who in turn, acquired the properties
from Jesus and Rosita through assignment and sale.

Ruling + The basis of Peña's motion for substitution is infirm because the lots were transferred to
Doctrine his predecessor-in-interest, Atty. Robiso, through a prohibited sale transaction. Article
1491(5) of the Civil Code expressly prohibits lawyers from acquiring property or rights
that may be the object of any litigation in which they may take part by virtue of their
profession.

A property is in litigation if there is a contest or litigation over it in court or when it is

subject of a judicial action. Records show that the judicial action over the subject lots was
still in the appellate proceedings stage when they were conveyed to Jesus and Rosita's
counsel, Atty. Robiso. 

There is no need to bring a separate action for the declaration of the subject deeds of
conveyance as void. A void or inexistent contract is one which has no force and effect
from the very beginning. The need to bring a separate action for declaration of nullity
applies only if the void contract is no longer fully executory. Contrary to Peña's stance,
the deeds of conveyance made in favor of Atty. Robiso in 2005 cannot be considered as
executory because at that time the judgment award ceding the subject lots to Jesus and
Rosita was not yet implemented.

If the void contract is still fully executory, no party need bring an action to declare its
nullity; but if any party should bring an action to enforce it, the other party can simply set
up the nullity as a defense.
Gonzalo v Tarnate, Jr., G.R. No. 160600, January 15 2014

Facts DPWH awarded the contract for the improvement of the Sadsadan-Maba-ay Section of
the Mountain Province-Benguet Road to petitioner’s company, Gonzalo Construction.
Petitioner subcontracted to respondent Tarnate the supply of materials and labor for the
project.In furtherance of their agreement, Gonzalo executed a deed of assignment
whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of
the total collection from the DPWH for the project. This 10% retention fee was the rent
for Tarnate’s equipment that had been utilized in the project. Later however, Tarnate
learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an
affidavit of cancellation of deed of assignment filed in the DPWH. Thus, he brought this
suit against Gonzalo o recover the retention fee, moral and exemplary damages for breach
of contract, and attorney’s fees.

Ruling + There is no question that every contractor is prohibited from subcontracting with or
Doctrine assigning to another person any contract or project that he has with the DPWH unless the
DPWH Secretary has approved the subcontracting or assignment pursuant to Sec. 6 of
P.D. No.  1594.

Gonzalo, who was the sole contractor of the project in question, subcontracted the
implementation of the project to Tarnate in violation of the statutory prohibition. Their
subcontract was illegal, therefore, because it did not bear the approval of the DPWH
Secretary. Necessarily, the deed of assignment was also illegal, because it sprung from the
subcontract.  Under Article 1409(1) of the Civil Code, a contract whose cause, object or
purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot
produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares
that “a contract, which is the direct result of a previous illegal contract, is also void and
inexistent.” 

However, the letter and spirit of Article 22 of the Civil Code command Gonzalo to make a
full reparation or compensation to Tarnate. The illegality of their contract should not be
allowed to deprive Tarnate from being fully compensated through the imposition of legal
interest. As regards damages claimed by Tarnate, the Court ruled that no damages may be
recovered under a void contract, which, being nonexistent, produces no juridical tie
between the parties involved.