Case digest

March 4, 2018 | Author: amsula_1990 | Category: Lease, Salary, Damages, Negligence, Rape
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Digest in Obligations and Contracts...

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OCAMPO III. VS. PEOPLE G.R Nos. 156547-51. February 4, 2008 FACTS: The Department of Budget and Management released the amount of Php 100 Million for the support of the local government unit of the province of Tarlac. However, petitioner Ocampo, governor of Tarlac, loaned out more than P 56.6 million in which he contracted with Lingkod Tarlac Foundation, Inc.. thus, it was the subject of 25 criminal charges against the petitioner. The Sandiganbayan convicted the petitioner of the crime of malversation of public funds. However, the petitioner contended that the loan was private in character since it was a loan contracted with the Taralc Foundation. ISSUE: Whether the amount loaned out was private in nature. RULING: Yes, the loan was private in nature because Art. 1953 of the New Civil Code provides that “a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality.” The fact that the petitioner-Governor contracted the loan, the public fund changed its nature to private character, thus it is not malversation which is the subject of this case, instead it must be a simple collection of money suit against the petitioner in case of non payment . therefore, the petitioner is acquitted for the crime of malversation.

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LEUNG BEN VS. O’ BRIEN GR No. 13602. April 6, 1918 FACTS: In 1917, O’ Brien filed a collection suit against Leung Ben for the lost of the latter in gamblings, games and banking percentage games. The amount to be collected was P 15,000.00. The respondent then filed the case for the fear that the petitioner might escape his obligation by going abroad and thus the respondent attached the property of the petitioner in payment of the winnings of O’ Brien. ISSUE: Whether there was a statutory obligation to pay the winnings in gambling. RULING: No. Although there can be a voluntary payment of money for the loser to the winner, necessarily that in civil actions, it is not an obligatory act to pay the winnings in a gambling because the act by nature is prohibited by law and by moral. Thus, in this case, the duty of the defendant to refund the money which he won from the plaintiff at gaming is a duty imposed by statute. It therefore arises “ex lege.” Furthermore, it is a duty to return a certain sum which had passed from the plaintiff to the defendant. By all the criteria which the common law supplies, this is a duty in the nature of debt and is properly classified into as an implied contract. It is well-settled that money lost in gambling or lottery, if recoverable at all, can be recovered by the loser. Thus Leung Ben can recover the property attached by the respondent.

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PELAYO VS. LAURON GR No. 4089. June 12 1909 FACTS: The wife of the petitioner was to deliver a child, however, when the time of delivery came, the parents - in- law of the wife called the physician since her husband was not present. Thus the husband refused to pay the service fee of the physician since the wife died during the delivery of the child. The defense of the husband was that he was not the one who called the aid of a physician ,thus his parents shall be liable for the services rendered by the physician. ISSUE: Who should pay the doctor? RULING: It is the husband who should pay the service of the doctor because even he was not the one who called the doctor, it is his duty to give mutual support to his wife and support includes medical assistance. This obligation to give is imposed by law.

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ASI CORPORATION VS. EVANGELISTA G.R No. 158086. February 14, 2008 FACTS: Private respondent Evangelista contracted Petitioner ASJ Corporation for the incubation and hatching of eggs and by products owned by Evangelista Spouses. The contract includes the scheduled payments of the service of ASJ Corporation that the amount of installment shall be paid after the delivery of the chicks. However, the ASJ Corporation detained the chicks because Evangelista Spouses failed to pay the installment on time. ISSUE: Was the detention of the alleged chicks valid and recognized under the law? RULING: No, because ASJ Corporation must give due to the Evangelista Spouses in paying the installment, thus, it must not delay the delivery of the chicks. Thus, under the law, they are obliged to pay damages with each other for the breach of the obligation. Therefore, in a contract of service, each party must be in good faith in the performance of their obligation, thus when the petitioner had detained the hatched eggs of the respondents spouses, it is an implication of putting prejudice to the business of the spouses due to the delay of paying installment to the petitioner.

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RAMAS VS. QUIAMCO G.R No. 146322. December 6, 2006 FACTS: Quiamco has amicably settled with Davalan, Gabutero and Generoso for the crime of robbery and that in return, the three had surrendered to Quiamco a motorcycle with its registration. However, Atty. Ramas has sold to Gabutero the motorcycle in installment but when the latter did not able to pay the installment, Davalon continued the payment but when he became insolvent, he said that the motorcycle was taken by Quiamco’s men. However, after several years, the petitioner Ramas together with policemen took the motorcycle without the respondent’s permit and shouted that the respondent Quiamco is a thief of motorcycle. Respondent then filed an action for damages against petitioner alleging that petitioner is liable for unlawful taking of the motorcycle and utterance of a defamatory remark and filing a baseless complaint. Also, petitioners claim that they should not be held liable for petitioner’s exercise of its right as seller-mortgagee to recover the mortgaged motorcycle preliminary to the enforcement of its right to foreclose on the mortgage in case of default. ISSUE: Whether the act of the petitioner is correct. RULING: No. The petitioner being a lawyer must know the legal procedure for the recovery of possession of the alleged mortgaged property in which said procedure must be conducted through judicial action. Furthermore, the petitioner acted in malice and intent to cause damage to the respondent when even without probable cause, he still instituted an act against the law on mortgage.

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HOTEL NIKKO MANILA VS. ROBERTO REYES G.R No. 154259. February 28, 2005

FACTS: Respondent Reyes also known as Amay Bisaya was having a coffee break at the lobby of Hotel Nikko Manila Garden when his friend Mrs. Filart invited him to attend the natal party of the owner of the hotel, thus respondent Reyes acceded to his friend but when they are going to take food in the buffet table , party organizer, Ruby Lim confronted the respondent since allegedly the latter was not invited and that the party was for limited guests. The respondent was so embarrassed especially when he was driven away by policemen. The trial court ruled in favor of Lim however, the Appellate Court favored the respondent. ISSUE: Whether Amay Bisaya (private respondent) is entitled to payment of damages. RULING: No. The respondent can not recover damages from the organizer of the party since the organizer acted in pursuance of the ordered of the celebrant that the party was for limited guests and thus, the latter approached the respondent to leave the area. The act of the respondent is considered as a self- inflicted injury when he, being a gate crasher has voluntary went to a party in which he is not invited. Therefore, the act of Ruby Lim is justified and reasonable.

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ST. MARY’S ACADEMY VS. CARPITANOS G.R. No. 143363. February 6, 2002

FACTS: The Petitioner Academy was conducting a visitation campaign in 1995 for the encouragement of prospective enrollees to enroll at St. Mary’s Academy of Dipolog City. The victim Sherwin Carpitanos was one of the high school students who was present in the campaign . thus, Sherwin and other students was riding then in a Mitsubishi jeepney owned by defendant Villanueva but was driven by James Daniel III, then 15 years old and a student of the same school. As they proceed to Larayan Elementary School in Dapitan City, the jeepney turned turtle causing the death of Sherwin. ISSUE: Whether the petitioner academy is liable for damages against the death of Sherwin Carpitanos. RULING: No, the petitioner can not be held liable for the death of the son of the respondent because the accident was not the proximate cause of the death of Sherwin, instead even Daniel explained that the accident was caused by the steering wheel guide of the jeepney, thus the petitioner has no negligence in the performance of its duties. Therefore, the owner or registered owner of the jeepney can be held liable for the death of Sherwin due to his negligence in maintaining the good condition of the vehicle which is necessarily required for the contract of common carriage.

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TSPIC CORPORATION VS. TSPIC EMPLOYEES UNION G.R No. 163419. February 13, 2008

FACTS: TSPI Corporation entered into a Collective Bargaining Agreement with the corporation Union for the increase of salary for the latter’s members for the year 2000 to 2002 starting from January 2000. thus, the increased in salary was materialized on January 1, 2000. However, on October 6, 2000, the Regional Tripartite Wage and production Board raised daily minimum wage from P 223.50 to P 250.00 starting November 1, 2000. Conformably, the wages of the 17 probationary employees were increased to P250.00 and became regular employees therefore receiving another 10% increase in salary. In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As a result, the nine employees who were senior to the 17 recently regularized employees, received less wages. On January 19, 2001, TSPIC’s HRD notified the 24 employees who are private respondents, that due to an error in the automated payroll system, they were overpaid and the overpayment would be deducted from their salaries starting February 2001. The Union on the other hand, asserted that there was no error and the deduction of the alleged overpayment constituted diminution of pay. ISSUE: Whether the alleged overpayment constitutes diminution of pay as alleged by the Union. RULING: Yes, because it is considered that Collective Bargaining Agreement entered into by unions and their employers are binding upon the parties and be acted in strict compliance therewith. Thus, the CBA in this case is the law between the employers and their employees. Therefore, there was no overpayment when there was an increase of salary for the members of the union simultaneous with the increasing of minimum wage for workers in the National Capital Region. The CBA should be followed thus, the senior employees who were first promoted as regular employees shall be entitled for the increase in their salaries and the same with lower rank workers.

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REGINO VS. PCST G.R No. 156109. November 18, 2004

FACTS: Petitioner Kristine Regino was a poor student enrolled at the Pangasinan College of Science and Technology. Thus, a fund raising project pertaining to a dance party was organized by PCST, requiring all its students to purchase two tickets in consideration as a prerequisite for the final exam. Regino, an underprivileged, failed to purchase the tickets because of her status as well as that project was against her religious belief, thus, she was not allowed to take the final examination by her two professors. ISSUE: Was the refusal of the university to allow Regino to take the final examination valid? RULING: No, the Supreme Court declared that the act of PCST was not valid, though, it can impose its administrative policies, necessarily, the amount of tickets or payment shall be included or expressed in the student handbooks given to every student before the start of the regular classes of the semester. In this case, the fund raising project was not included in the activities to be undertaken by the university during the semester. The petitioner is entitled for damages due to her traumatic experience on the acts of the university causing her to stop studying sand later transfer to another school.

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PSBA VS. CA G.R No. February 4, 1992 FACTS: On August 30, 1985, Carlitos Bautista was stabbed and killed inside the campus of Philippine School of Business Administration where the accused were outsiders, while the victim was an enrolled third year student of commerce. Thus, the parents of Bautista sued the school for the collection of damages due to the latter’s alleged negligence. ISSUE: Whether or not PSBA is liable for the damages against the death of Bautista RULING: Yes, although, the action does not fall under Ouasi – delicts, there is negligence on the part of the school in maintaining peace and order inside the premises; thus, there was a breach contractual relation committed by PSBA since the incident occurred inside the campus. The failure of the petitioner school in providing security measures inside the campus implies the negligence of the same and constitute the breach of contract entered into by the petitioner and the victim Bautista when the latter was enrolled and fall under the supervision of the petitioner.

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COSMOPOLITAN VS. LA VILLE G.R No. 152801. August 20, 2004 FACTS: Cosmo entertainment entered into a contract lease with the respondent owner La Ville Commercial Corporation for a parcel of land. The contract includes payment of the first three months of rental; hence, the lease is good for seven years. Thus, when Cosmo has paid the initial payment, it suffered business reverse and stopped operations over the land, however, the respondent demanded for the payment of lease up to 1997. Thus being insolvent Cosmo, sublease the land in favor of another party without the consent of the owner of the land. ISSUE: Was the petitioner has the right to sublease the property? RULING: No, because it was established in the contract that the owner – lessor has the right to approve sublease of the property, thus, Cosmo violated the condition of the contract. Thus, the ejectment of Cosmo from one lot is reasonable. The petitioner, having voluntarily given its consent thereto, was bound by this stipulation. And, having failed to pay the monthly rentals, the petitioner is deemed to have violated the terms of the contract, warranting its ejectment from the leased premises. The Court finds no cogent reason to depart from this factual disquisition of the courts below in view of the rule that findings of facts of the trial courts are, as a general rule, binding on this Court.

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AYALA CORPORATION VS. ROSA- DIANA REALTY G.R No. 134284. December 1, 2000 FACTS: Ayala Corporation contracted a deed of sale over a parcel of land owned by the latter with Manuel Sy, with special conditions on the building construction at the area, Thus, restrictions on the height, area and structure of the building were stipulated. However, Sy contracted another sale of the subject property to Rosa Diana Realty, with the approval of Ayala as well as the promise of Rosa Diana to follow such conditions and restrictions upon building constructions. Thus, Rosa Diana violated the contract and restrictions when it passed different building plans to the city of Makati and to Ayala Corporation, where the former plan has exceeded the stipulated number of storey and the prescribed land area. ISSUE: Whether Rosa Diana Realty must follow the deed of restriction contained in the contract it entered with Ayala. RULING: Yes, because in contractual obligations the contract has the force of a law that the same is not contrary to law or public policy, thus, it must be performed with in good faith. Thus, the payment of damages is an obligation of Rosa Diana Realty to Ayala Corp. since the former violation can no longer lead to the destruction of the building because the building was already occupied by several persons and offices.

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BRICKTOWN VS. AMOR TIERRA G.R No. 112182 December 12, 1994 FACTS: Bricktown Development Corporation entered into a two contracts to sell in favor Amor Tierra Development Corporation. The total price of the sell was P21,639,875.00 was stipulated to be paid by private respondent in such amounts and maturity dates, as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31 December 1981; and the balance of P11,500,000.00 to be paid by means of an assumption by private respondent of petitioner corporation's mortgage liability to the Philippine Savings Bank or, alternately, to be made payable in cash. On the same date, parties executed a Supplemental Agreement providing that private respondent would additionally pay to petitioner corporation the amounts of P55,364.68, or 21% interest on the balance of down payment for the period from 31 march to 30 June 1981, and of P390,369.37 representing interest paid by petitioner corporation to the Philippine Savings Bank. Private respondent was only able to pay petitioner corporation for the subject land from the installment not covered by the initial payment up to the time the contract be nullified. ISSUE: Whether the act of Bricktown in filing the rescission of contract to sell valid. RULING: No, because necessarily a grace period must be given to the debtor in case it can not immediately deliver nor perform the obligation. The grace period must not be likened to an obligation, the non-payment of which, under Article 1169 of the Civil Code, would generally still require judicial or extrajudicial demand before "default" can be said to arise. Verily, in the case at bench, the 60-day grace period under the terms of the contracts to sell became ipso facto operative from the moment the due payments were not met at their stated maturities. In this case, the contract was not validly made because it is contrary to the principle that the contract can not be reneged without the consent of the contracting parties affected by the cancellation of contract, thus the petitioner did not give due for the respondent for the chance of performing the obligation.

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PILIPINAS HINO INC. VS. COURT OF APPEALS G.R No. 126570. August 18, 2000

FACTS: A contract of lease was entered into between herein parties, under which the defendants, as lessors, leased real property to plaintiff for a term of 2 years, from 16 August 1989 -15 August 1991. According to the contract, plaintiff-lessee deposited with the defendants-lessors the amount of P400,000.00 to answer for repairs and damages. After the expiration of the contract, the plaintiff and defendants made a joint inspection and both agreed that the cost of repairs would amount to P60,000.00 and that the amount of P340,000.00 shall be returned by to plaintiff. However, defendants returned to plaintiff only the amount of P200,000.00, still having a balance of P140,000.00. Defendants unjustifiably refused to return the balance of P140,000.00 holding that the true and actual damage on the lease premises amounted to P298,738.90. However, the subject property was made into a contract to sell where the petitioner has paid the initial installment but failed to pay the remaining payments., thus the owner of the property withhold the amount of P 924, 000.00 representing the interest due of the unpaid installments. ISSUE: Whether the owner of the property subject to sell is entitled to the interest due of unpaid installments. RULING: No, because paragraph 9 of the Memorandum of Agreement provides in very clear terms that "when the owners exercise their option to forfeit the downpayment, they shall return to the buyer any amount paid by the buyer in excess of the downpayment with no obligation to pay interest thereon." This should include all amounts paid, including interest. The court finds no basis in the conclusion reached by the lower courts that "interest paid" should not be returned to the buyer. Thus, the said interest of the unpaid installments shall be returned to the buyer since the seller will unjustly enriched himself at the expense of the buyer if he will collect undetermined amount.

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TITAN-IKEDA VS. PRIMETOWN G.R No. 158768. February 12, 2008

FACTS: The respondent Primetown Property Corporation entered into contract weith the petitioner Titan-Ikeda Construction Corporation for the structural works of a 32-storey prime tower. After the construction of the tower, respondent again awarded to the petitioner the amount of P 130,000,000.00 for the tower’s architectural design and structure. Howevere, in 1994, the respondent entered inot a contract of sale of the tower in favor of the petitioner in a manner called full-swapping. Since the respondent had allegedly constructed almost one third of the project as weel as selling some units to third persons unknown to the petitioner. Integrated Inc. took over the project, thus the petitioner is demanding for the return of its advanced payment in the amount of P2, 000,000.00 as weel as the keys of the unit. ISSUE: Whether the petitioner is entitled to damages. RULING: No, because in a contract necessarily that there is a meeting of the minds of the parties in which this will be the binding law upon them. Thus, in a reciprocal obligation. Both parties are obliged to perform their obligation simultaneously and in good faith. In this case, petitioner, Titan-Ikeda can not recover damages because it was found out there was no solutio indebiti or mistake in payment in this case since the latter is just entitled to the actual services it rendered to the respondent and thus it is ordered to return the condominium units to the respondent.

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PADCOM VS. ORTIGAS CENTER G.R No. 146807. May 9, 2002 FACTS: The petitioner Padilla Office Condominium acquired a lot from Ortigas and Company by Tierra Development Corporation for the construction of a building. Thus, petitioner originally took the land from Tierra Development under a deed of sale whereas among the terms and conditions of the deed was that, any successor in interest and long term lessee be automatically included as members of a future association in Ortigas area. In 1982, Ortigas realty owners association was organized and thus a membership due was established for the development and improvements of the buildings located at the said area. However, when the respondent association will collect the membership due of the petitioner, the latter refused and contended that it is not a member of the association and it can not be compelled to join the association. ISSUE: Whether the petitioner is a member of the association. RULIG: Yes. The petitioner is an automatic member of the association because it was clearly reminded and stated in the contract of sale and conditions on successor in interest that the latter is ipso facto included in any association to be formed for the benefit and protection of the Ortigas Center buildings, thus the time that the contract was signed signified the compliance of the petitioner. Furthermore, the petitioner is estopped when it claimed that there was only a delay in payment of the due, thus it has the intention of paying and acknowledging the dues. Moreover, the petitioner can invoke his freedom of association because it will tantamount to unjust enrichment when it refused to pay due to the respondent even it affords the protection and benefits given by the association.

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MC ENGINEERING VS. COURT OF APPEALS G.R No. 104047. April 3, 2002

FACTS: The petitioner entered into agreement with Surigao Development Corporation for the restoration of the latter. The original amount was P 5, 150, 000.00 of which, P2.5M was for the restoration of the damaged buildings and land improvement, while the P3M was for the restoration of the electrical and mechanical works. However, the petitioner contracted the service of Gerent Builders for the improvements of Surigao Development Corporation , thus an increased for the amount considered was made turning the original amount to P 3, 104, 851.51. It was alleged that Gerent Builders finished the improvement of the building but it cancelled the electrical and mechanical works and simultaneously, it demanded the amount of P 632, 590.13 as share in the adjusted contract cost. The petitioner refused to pay Gerent using the defense that there was a quitclaim which removed the petitioners liability. ISSUE: Whether the petitioner is obliged to pay Gerent Builders. RULING: No. Gerent builders can not collect additional payment from the petitioner because Quitclaims, being contracts of waiver, involve the relinquishment of rights, with knowledge of their existence and intent to relinquish them. Quitclaims deserve full credence and are valid and enforceable. In this case, Gerent was already estopped to demand additional payment when it accepted the payment of the subcontract made with it by the petitioner, in which the acceptance implied that the petitioner’s obligation to Gerent is already extinguished even for additional services rendered by the latter in the improvements because those services are deemed contained in the subcontract.

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BPI VS. PINEDA G.R No. L-62441. December 14, 1987

FACTS: Southern Industrial Project and Bacong Shipping Company purchased three vessels thru the financing furnished by Bank of the Philippine Island with the vessels as securities. To secure the payment of whatever amounts may be disbursed for the aforesaid purpose, the vessels were mortgaged to BPI. For the operation of the vessels, these were placed under respondent Interocean Shipping Corporation headed by respondent Pineda. As BPI was not fulfilled with the services of Interocean, it hired Gacet Inc for a period of six months. The contract between BPI and Gacet did not however terminate the services of Interocean. Due to Bacong and SIP’s inability to pay the mortgage, it sold the vessels to BPI. The transfer was entered into between BPI and SIP and Bacong through a Deed of Confirmation. Thus , the vessels suffered damages and successfully repaired by Pineda. However, Pineda demanded for the balance of the total amount paid by Southern Industrial Project but the new owner Bank refused to pay the balance for the repairs alleging that the debt was incurred during the ownership of Southern Shipping Project . ISSUE: Is BPI liable for the payment of debts incurred during the ownership of Southern Shipping Project? RULING: Yes, Bank of the Philippine Island can be held liable to pay Pineda for the remaining balance of the shipping company because the mere fact that the bank and the shipping company signed the Confirmation of the Obligation, the former bank already assumed any obligations in relations to the subject vessels. Thus, it can not escape from the liability of paying the past debts of the company in which it gave financial support otherwise it will result to unjust enrichment on the part of the petitioner bank to hide from a confirmed obligation.

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STATE INVESTMENTS VS. COURT OF APPEALS G.R No. 90676. June 19, 1991

FACTS: Private respondents Spouses Aquino pledged certain shares of stocks with petitioner State Investments for a loan of P120, 000.00, together with the pledge was the securing of another loan by another spouses Jose and Marcelina Aquino. When the original spouses Aquino were willing and available to pay the loan, the petitioner refused to accept payment and released of the shares of stocks for the reason that the second loaner Spouses Jose and Marcelina Aquino were not yet ready to pay their loan. Thus, the trial court ruled that the petitioner must accept the payment from Spouses Aquino as long as they pay the loan of P 120, 000.00 and there pledged shares of stocks be releases. However, there was confusion in the ruling of the trial court whether or not the interest be paid. ISSUE: Whether the spouses Aquino be obliged to pay the interest of the loan/ RULING: Yes. The claim of the spouses Aquino for the acceptance of their early payment must be accepted by the petitioner, however, the spouses can escape from the liability of paying the interest of the loan for it was stipulated that there must be a 17 % interest per annum of the loan even there was delay or payment before its maturity. Thus, the alleged interest is already a part of the contract and not as a penalty for it will constitute unjust enrichment on the part of the spouses Aquino at the expense and prejudice of the petitioner State Investments.

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PEOPLE VS. MALICSI G.R No. 175833. January 29, 2008 FACTS: The accused-appellant was accused for the crime of rape against his niece. The incident was repeated trice by the appellant. The appellant contended that he and the victim were sweethearts but the trial court did not give weight to that theory. The trial court found appellant guilty of the crime of four counts of qualified rape and was sentenced to suffer the penalty of death for each count of rape, to pay P300,000.00 as civil indemnity (P75,000.00 for each count), and P200,000.00 as moral damages (P50,000.00 for each count). The CA however modified the findings of the RTC declaring that appellant is guilty of four counts of simple rape and to suffer the penalty of reclusion perpetua. ISSUE: Whether the award of damages was properly made. RULING: No, because the Supreme Court declared that the crime committed was four count of simple rape only and not qualified rape because the special aggravating circumstances of minority and relationship must be alleged in the information but the prosecution failed to do so. Since it is not included, four counts of simple rape should be undertaken. The penalty imposed then should be reclusion perpetua. The appellate court also correctly affirmed the award by the trial court of P200,000.00 for moral damages. Moral damages are automatically granted to rape victim. However, the award of civil indemnity is reduced to P200,000.00 in the amount of P50,000.00 for each count of simple rape is automatically granted.

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PEOPLE VS. SIA G.R No. 137457. November 21, 2001

FACTS: The accused-appellants conspired to kill the victim Bermudes and carried wqith them the victim’s taxicab. After several days of lost, Bermudez’s corpse was discovered inside a carton box located in a fishpond. Thus the appellants were convicted for separate crimes of anti-carnapping and murder, thus sentenced to suffer the penalty of reclusion perpetua. The trial court also awarded to the victim’s heirs, sums of P50,000.00 as compensatory damages for the death of Christian Bermudez, P200,000.00 as burial and other expenses incurred in connection with the death P3,307,199.60 (2/3 x [80-27] x 300 per day x 26 days x 12 months) representing the loss of earning capacity of Christian Bermudez as taxi driver. ISSUE: Whether the amount of damages awarded was correct. RULING: The Supreme Court affirmed the award of P 50, 000.00 as civil indemnity for the death of Bermudez without even presenting of evidence. The court also affirmed the award of moral damages for the suffering of the victim’s family. However, the compensatory or actual damages were deleted because of lack of proofs, thus in determining the loss of income , the following must be taken into account: the number of years for which the victim would have lived; and the rate of the loss sustained by the heirs of the deceased.

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PEOPLE VS. DOCTOLERO G.R No. 131866. August 20, 2001 FACTS: Ganongan and his friends went to Honeymoon road at Baguio City. While they were leaving the place, armed person stopped them, hence when Ganongan, the victim reacted the appellant Doctolero shot him twice causing the victim’s death as Saint Louis Hospital The RTC finds the accused Carlos Doctolero, Sr. guilty of the offense of Murder and hereby sentences him to Reclusion Perpetua and to indemnify the heirs of deceased, the sum of P50,000.00 as indemnity for his death; the sum of P227,808.80 as actual damages for expenses incurred for hospitalization, doctor’s fees, funeral expenses, vigil and burial as a result of his death, and P300,000.00 as Moral damages for the pain and mental anguish suffered by the heirs by reason of his death. ISSUE: Whether the award of actual damages is correct? RULING: No, the award of actual damages in incorrect thus Supreme Court reduced the award of actual damages to P112, 413.40 representing funeral expenses, which proven during the proceedings. Expenses relating to the 9th day, 40th day and 1st year anniversaries cannot be considered in the award of actual damages as these were incurred after a considerable lapse of time from the burial of the victim. However, the award of moral damages is reduced to P50, 000.00 in accordance with existing jurisprudence for the death of the victim.

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PEOPLE VS. ABULENCIA G.R No. 138403. August 22 2001

FACTS: The appellant had a drink with the brother of the victim, Rebelyn, when the appellant along with the victim who was then 12 years old to but dilis in the nearby store. The appellant and the victim never returned but the former surrendered to the authorities and alleged that the victim has accidentally fallen into the river. However, when the body was found, it was discovered that the victim was raped before thrown to the river. The trial court foud Abulencia guilty of the crime of aggravated rape with homicide and sentenced him to suffer the penalty of death. It was also ordered that the accused indemnify the heirs of Rebelyn Garcia, the sum of P75,000.00 damages, and another sum of P20,000.00 for exemplary damages plus P6,425.00 as actual damages. ISSUE: Whether the award of damages is correctly imposed. RULING: No. the award of damages and penalty was incorrect, thus the Supreme Court both modified the penalty by reducing it to reclusion perpetua and the award of civil damages. The court awarded the amount of P 50, 000.00 as moral damages for the moral suffering of the heirs of the raped victim. However, the award of civil indemnity was increasea from P 75, 000.00 to p 100, 000.00 based on current jurisprudence in cases of rape with homicide.

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BERMUDEZ VS. JUDGE MELENCIO-HERRERA G.R No. L-32055. February 26, 1988

FACTS: The victim Rogelio, a six years old son of the petitioners was killed in a vehicular accident caused by the alleged negligenc of Cordova, the driver of a jeep who bumped with the victim’s passenger seat. The parents instituted an action for collection of damages against the accused Cordova from the crime of homicide thru reckless imprudence. The petitioner parents reserved their right to file an independent action based on quasi-delicts. However, the trial court decided to order the dismissal of the complaint against defendant Cordova Ng Sun Kwan and to suspend the hearing of the case against Domingo Pontino until after the criminal case for Homicide Through Reckless Imprudence is finally terminated. ISSUE: Whether the action is based on quasi-delicts and can not stand independently from the criminal case. RULING: Yes. The action was based on quasi-delicts, thus it can be based on the provisions of the New Civil Code under Article 2176- 2194 where an action for damages from fault, omission or negligence can prosper independently even during the proceeding in the criminal case The parents of the victim made a reservation to file an independent civil action in accordance with the provisions of Section 2 of Rule 111, Rules of Court. In fact, even without such a reservation, the court has allowed the injured party in the criminal case which resulted in the acquittal of the accused to recover damages based on quasi-delict.

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PEOPLE VS. JUDGE RELOVA G.R No. L-45129

FACTS: Batangas Electric System together with police officers, has searched the premises of the Ice Plant building owned and managed by Opulencia. The authorities discovered that Opulencia made illegal installment of electrical wirings and devices causing the diminution of his electric bill. Thus, he was charge of violatin city ordinance enacted in 1974. Opulencia contended that the offense has already prescribed thus, the Batangas City Court granted the motion to dismiss on the ground of prescription, it appearing that the offense charged was a light felony which prescribes two months from the time of discovery thereof, and it appearing further that the information was filed by the fiscal more than nine months after discovery of the offense charged in February 1975. After two weeks, another violation was again filed against Opulencia, this time for theft of electric power under Article 308 in relation to Article 309 of the Revised Penal Code. ISSUE: Whether the electric company can file separate civil action for collection of damagers against Opulencia. RULING: Yes, the electric company may file another civil action for the theft of electric power by Opulencia. Although the criminal aspect was already prescribed in the first criminal case And by bar on double jeopardy in the second case, Opulencia can not escape his civil liability. Thus, the Supreme Court ordered Opulencia to pay the damages in the amount he stole from the city and or the electric company from the time he installed the electric wirings and devices.

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MANANTAN VS. COURT OF APPEALS G.R No. 107125. January 29, 2001 FACTS: The deceased Nicolas suggested to Fiscal Ambrocio that they will borrow the for fiera of the accused Manantan, in order for the former to have easy access for their planned activity. Thus, when they proceeded catching shrimps, they had drinking spree until they decided to go to Santiago City in the evening and have another drinking spree there. However, after they ate snacks in the city, they decided to go home. While the Manantan was driving the carat the speed of 40 kilometer per hour, the car bumped a coming jeepney causing the former car to swerve into the next line. Ruben Nicolas died , however Manantan and the Fiscal suffered injuries. The trial court acquitted the accused of the crime of Homicide through Reckless Imprudence. Thus, Manantan appealed for the civil liability he is going to fulfill to the heirs of the victim. However, it was found out that the proximate cause of the death of the victim was the negligence of Manantan and the latter was ordered to pay the heirs of the victim in the amount of P 174, 400.00. ISSUE: Whether the extinguishment of the criminal liability in the case carries also the extinguishment of the civil liability. RULING: No. the extinguishment of the criminal liability of Manantan does not carry the extinguishment of his civil liability because his acquittal was based on reasonable doubt or the failure to prove the guilt of the accused beyond reasonable doubt. However, it was not proven that he was acquitted as if he was not present at the happening of the crime which totally obliterates his civil liability. Thus, article 29 of the Civil Code can be applied in case of omission or fault.

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PEOPLE VS. BAYOTAS G.R No. 102007. September 2, 1994 FACTS: Appellant Bayotas was charged with rape and was convicted for the said crime in 1991. while his appeal was pending, he died at the New Bilibid Hospital due to respiratory attack. Thus, when the Supreme Court dismissed the criminal aspect, the Solicitor- General expressed that the civil liability of the accused was not also extinguish upon the death of the appellant. ISSUE: Whether the civil liability of the accused was extinguished upon his death.

RULING: No, the civil liability in general of the accused was not extinguished upon the death of the accused. However, necessarily, the civil liability in the rape case was extinguished since it was included in the act complained of but the remedy of the victim is to proceed to the estate of the accused through the filing of a separate independent action for collection of damages.

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Barredo vs. Garcia 73 Phil 607 FACTS: The taxicab owned by petitioner Barredo collided to a carratela. Thus, the carratela fall down and overturned causing the death of the son of respondent Garcia. The trial court convicted the driver of the taxicab. However, the respondent has reserved his right to file independent civil action for collection of damages for the death of his son. ISSUE: Whether Barredo can held primary liable for the death of the son of the respondent. RULING: Yes. Barredo can also be held primary and directly liable in the civil case because it was found out that being the owner and operator of the taxicab, his negligence to supervise and exert extraordinary diligence in the performance of his employees made him liable together with his convicted employee. Thus, the failure to prove that there was no negligence on the part of the owner of the taxicab made no way for the petitioner to escape his civil liability. Therefore, the acts of the employee reflects the act of the employer causing the latter liable in case of negligence in supervision.

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DY TEBAN VS. LIBERTY FOREST G.R No. 161803. February 4, 2008

FACTS: A Prime Mover Trailer suffered a tire blow out during the night of its travel at a national highway. The trailer was owned by the respondent Liberty Forest. The driver allegedly put earl warning devices but the only evidence being witnessed was a banana trunks and candles. Since the car was placed at the right wing of the road, thus it cause the swerving of a Nissan van owned by the petitioner when a passenger bus was coming in between the trailer. The Nissan van owner claimed for damages against the respondent. The trial court found that the proximate cause of the three –way accident is the negligence and carelessness of driver of the respondent . However reversed the decision of the trial court. ISSUE: Whether there was negligence on the part of the respondent. RULING: Yes. There was negligence on the part of the respondent when the latter failed to put and used an early warning device because it was found out that there was no early warning device being prescribed by law that was used by the driver in order to warn incoming vehicle. Furthermore, the proximate cause of the accident was due to the position of the trailer where it covered a cemented part of the road, thus confused and made trick way for other vehicles to pass by. Thus the respondent is declared liable due to violation of road rules and regulations.

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SAFEGUARD SECURITY VS. TANGCO G.R No. 165732. December 14, 2006

FACTS: The victim Evangeline Tangco was depositor of Ecology Bank. She was also a licensed-fire arm holder, thus during the incident, she was entering the bank to renew her time deposit and along with her was her firearm. Suddenly, the security guard of the bank, upon knowing that the victim carries a firearm, the security guard shot the victim causing the latter’s instant death. The heirs of the victim filed a criminal case against security guard and an action against Safeguard Security for failure to observe diligence of a goof father implied upon the act of its agent. ISSUE: Whether Safeguard Security can be held liable for the acts of its agent. RULING: Yes. The law presumes that any injury committed either by fault or omission of an employee reflects the negligence of the employer. In quasi-delicts cases, in order to overcome this presumption, the employer must prove that there was no negligence on his part in the supervision of his employees. It was declared that in the selection of employees and agents, employers are required to examine them as to their qualifications, experience and service records. Thus, due diligence on the supervision and operation of employees includes the formulation of suitable rules and regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons with whom the employer has relations through his employees. Thus, in this case, Safeguard Security committed negligence in identifying the qualifications and ability of its agents.

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VILLANUEVA VS. DOMINGO G.R No. 144274. September 20, 2004 FACTS: In 1991, a collision was made by a green Mitsubishi lancer owned by Ocfemia against a silver Mitsubishi lancer driven by Leandro Domingo and owned by petitioner Priscilla Domingo. The incident caused the car of Domingo bumped another two parked vehicles. A charged was filed against Ocfemia and the owner Villanueva. Villanueva claimed that he must not be held liable for the incident because he is no longer the owner of the car, that it was already swapped to another car . however, the trial court ordered the petitioner to pay the damages incurred by the silver Mitsubishi lancer car. ISSUE: Whether the owner Villanueva be held liable for the mishap. RULING: Under the Motor Vehicle law, it was declared that the registered owner of any vehicle is primary land directly liable for any injury it incurs while it is being operated. Thus, even the petitioner claimed that he was no longer the present owner of the car, still the registry was under his name, thus it is presumed that he still possesses the car and that the damages caused by the car be charge against him being the registered owner. The primary function of Motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle, responsibility therefore can be fixed on a definite individual, the registered owner.

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CALALAS VS. COURT OF APPEALS G.R No. 122039. May 31, 2000

FACTS: Eliza Sunga was a passenger of a jeepney owned and operated by the petitioner Calalas. Private respondent Sunga sat in the rear protion of the jeepney where the conductor gave Sunga an extension seat. When the jeep stopped, Sunga gave way to a passenger going outside the jeep. However, an Isuzu Truck driven by Verene and owned by Salva, accidentally hit Sunga causing the latter to suffer physical injuries where the attending physician ordered a three months of rest. Sunga filed an action for damages against the petitioner for breach of contract of common carriage by the petitioner. On the other hand, the petitioner Calalas filed an action against Salva, being the owner of the truck. The lower court ruled in favor of ther petitioner, thus the truck owner is liable for the damage to the jeep of the petitioner. ISSUE: Whether the petitionerr is liable. RULING: Yes. The petitioner is liable for the injury suffered by Sunga. Under Article 1756 of the New Civil Code, it provides that common carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary diligence as defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the common carrier the burden of proof. In this case, the law presumes that any injury suffered by a passenger of the jeep is deemed to be due to the negligence of the driver. This is a case on Culpa Contractual where there was pre-existing obligations and that the fault is incidental to the performance of the obligation. Thus, it was clearly observed that the petitioner has negligence in the conduct of his duty when he allowed Sunga to seat in the rear portion of the jeep which is prone to accident.

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LUDO AND LUYM CORPORATION vs. COURT OF APPEALS G.R. No. 125483. FEBRUARY 1, 2001 FACTS:

Ludo & Luym Corporation is a domestic corporation engaged in copra processing. Private Respondent Gabisan Shipping Lines was the registered owner and operator of the motor vessel MV Miguela, while the other private respondent, Anselmo Olasiman, was its captain. On May 21, 1990, while MV Miguela was docking at petitioner’s wharf, it rammed and destroyed a fender pile cluster. Ireneo Naval, petitioner’s employee, guided the vessel to its docking place. After the small rope was thrown from the vessel and while the petitioner’s security guard was pulling the big rope to be tied to the bolar, MV Miguela did not slow down. The crew did not release the vessel’s anchor. Naval shouted “Reverse” to the vessel’s crew, but it was too late when the latter responded, for the vessel already rammed the pile cluster. Petitioner demanded for damages but private respondents denied the incident and the damage. Their witnesses claimed that the damage, if any, must have occurred prior to their arrival and caused by another vessel or by ordinary wear and tear. ISSUE: Is the doctrine of res ipsa loquitur applicable to this case? RULING: The doctrine of res ipsa loquitor provides that where the thing which causes injury is shown to be under the management of the defendant, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of an explanation by the defendant, that the accident arose from want of care. In this case, all the requisites for this doctrine exist. First, MV Miguela was under the exclusive control of its officers and crew. Second, aside from the testimony that MV Miguela rammed the cluster pile, private respondent did not show persuasively other possible causes of the damage. There exists a presumption of negligence against private respondents which they failed to overcome. Additionally, petitioner presented proof that demonstrated private respondents’ negligence. As testified by Capt. Olasiman, from command of “slow ahead” to “stop engine”, the vessel will still travel 100 meters before it finally stops. However, he ordered “stop engine” when the vessel was only 50 meters from the pier. Further, he testified that before the vessel is put to slow astern, the engine has to be restarted. However, Olasiman can not estimate how long it takes before the engine goes to slow astern after the engine is restarted. From these declarations, the conclusion is that it was already too late when the captain ordered reverse. By then, the vessel was only 4 meters from the pier, and thus rammed it. Respondent company’s negligence consists in allowing incompetent crew to man its vessel. As shown also by petitioner, both Captain Olasiman and Chief Mate Gabisan did not have a formal training in marine navigation. The former was a mere elementary graduate while the latter is a high school graduate. Their experience in navigationwas only as a watchman and a quartermaster, respectively. Gabisan Shipping Lines and the ship captain are held jointly and severally liable for damages caused to the petitioner.

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THERMOCHEM INCORPORATED vs. LEONORA NAVAL G.R. No. 131541. OCTOBER 20, 2000

FACTS: "On May 10, 1992, at around 12:00 o'clock midnight, Eduardo Edem was driving a "Luring Taxi" along Ortigas Avenue, near Rosario, Pasig, going towards Cainta. Thereafter, the driver executed a U-turn to traverse the same road, going to the direction of EDSA. At this point, the Nissan Pathfinder traveling along the same road going to the direction of Cainta collided with the taxicab. The point of impact was so great that the taxicab was hit in the middle portion and was pushed sideward, causing the driver to lose control of the vehicle. The taxicab was then dragged into the nearby Question Tailoring Shop, thus, causing damage to the said tailoring shop, and its driver, Eduardo Eden, sustained injuries as a result of the incident." Private respondent, as owner of the taxi, filed a damage suit against petitioner, Thermochem Incorporated, as the owner of the Nissan Pathfinder, and its driver, petitioner Jerome Castro. After trial, the lower court adjudged petitioner Castro negligent and ordered petitioners, jointly and severally, to pay private respondent actual, compensatory and exemplary damages plus attorney's fees and costs of suit. ISSUE: What are the liabilities of both parties? RULING: The driver of the oncoming Nissan Pathfinder vehicle was liable and the driver of the U-turning taxicab was contributorily liable. It is established that Castro was driving at a speed faster than 50 kilometers per hour because it was a downhill slope. But as he allegedly stepped on the brake, it locked causing his Nissan Pathfinder to skid to the left and consequently hit the taxicab. Malfunction or loss of brake is not a fortuitous event. Between the owner and his driver, on the one hand, and third parties such as commuters, drivers and pedestrians, on the other, the former is presumed to know about the conditions of his vehicle and is duty bound to take care thereof with the diligence of a good father of the family. A mechanically defective vehicle should avoid the streets. As petitioner's vehicle was moving downhill, the driver should have slowed down since a downhill drive would naturally cause the vehicle to accelerate. Moreover, the record shows that the Nissan Pathfinder was on the wrong lane when the collision occurred. The taxi driver is contributorily liable since he took a U-turn where it is not generally advisable. The taxi was hit on its side which means that it had not yet fully made a turn to the other lane. The driver of the taxi ought to have known that vehicles coming from the Rosario bridge are on a downhill slope. Obviously, there was lack of foresight on his part, making him contributorily liable. Considering the contributory negligence of the driver of private respondent's taxi, the award of P47,850.00, for the repair of the taxi, should be reduced in half. All other awards for damages are deleted for lack of merit.

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AMADO PICART vs. FRANK SMITH, JR. G.R. No. L-12219. MARCH 15, 1918 FACTS: The plaintiff, riding on his pony was half way across the Carlatan bridge when the defendant approached from the opposite direction in an automobile, going at the rate of about ten or twelve miles per hour. As the defendant neared the bridge he saw a horseman on it and blew his horn to give warning of his approach. He continued his course and after he had taken the bridge he gave two more successive blasts, as it appeared to him that the man on horseback before him was not observing the rule of the road. The plaintiff saw the automobile coming and heard the warning signals. However, thinking that he has no sufficient time to go to the other side of the road, he pulled the pony closely up against the railing on the right side of the bridge instead of going to the left. The defendant, instead of veering to the right while yet some distance away or slowing down, continued to approach directly toward the horse. When he had gotten quite near, there being then no possibility of the horse getting across to the other side, the defendant quickly turned his car sufficiently to the right to escape hitting the horse alongside of the railing where it as then standing; but in so doing the automobile passed in such close proximity to the animal that it became frightened and turned its body across the bridge with its head toward the railing. In so doing, it as struck on the hock of the left hind leg by the flange of the car and the limb was broken. The horse fell and its rider was thrown off with some violence. As a result of its injuries the horse died. The plaintiff received contusions which caused temporary unconsciousness and required medical attention for several days. ISSUE: Whether or not the defendant is guilty of negligence. RULING: As the defendant started across the bridge, he had the right to assume that the horse and the rider would pass over to the proper side; but as he moved toward the center of the bridge he clearly saw that this would not be done; and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. The control of the situation had then passed entirely to the defendant; and it was his duty either to bring his car to an immediate stop or, seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon the horse. The plaintiff himself was not free from fault, for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But it was the defendant who had the last clear chance to avoid the impending harm and when he failed to do so, he is deemed negligent, thus liable to pay damages in favor of the plaintiff.

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JOSE V. LAGON vs. HOOVEN COMALCO INDUSTRIES, INC G.R. No. 135657. JANUARY 17, 2001 FACTS: Sometime in April 1981 Lagon, a businessman and HOOVEN entered into two (2) contracts, denominated Proposal, whereby for a total consideration of P104,870.00 HOOVEN agreed to sell and install various aluminum materials in Lagon’s commercial building in Tacurong, Sultan Kudarat. HOOVEN filed an action against Lagon claiming that the latter failed to pay his due despite HOOVEN’s performance of its obligation. Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of breach of contract by failing to deliver and install some of the materials specified in the proposals; that as a consequence he was compelled to procure the undelivered materials from other sources; that as regards the materials duly delivered and installed by HOOVEN, they were fully paid. ISSUE: Who among the parties is entitled to damages? RULING: HOOVEN's bad faith lies not so much on its breach of contract - as there was no showing that its failure to comply with its part of the bargain was motivated by ill will or done with fraudulent intent - but rather on its appalling temerity to sue petitioner for payment of an alleged unpaid balance of the purchase price notwithstanding knowledge of its failure to make complete delivery and installation of all the materials under their contracts. Although petitioner was found to be liable to respondent to the extent of P6,377.66, petitioner's right to withhold full payment of the purchase price prior to the delivery and installation of all the merchandise cannot be denied since under the contracts the balance of the purchase price became due and demandable only upon the completion of the project. Consequently, the resulting social humiliation and damage to petitioner's reputation as a respected businessman in the community, occasioned by the filing of this suit provide sufficient grounds for the award of P50,000.00 as moral damages. On the part of Lagon, he is ordered by the court to pay HOOVEN the amount corresponding to the value of the materials admittedly delivered to him.

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SPOUSES FRANCISCO vs. HONORABLE COURT OF APPEALS G.R. No. 118749. APRIL 25, 2003 FACTS: On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and Engineer Bienvenido C. Mercado entered into a Contract of Development for the development into a subdivision of several parcels of land in Pampanga. Under the Contract, respondent agreed to undertake at his expense the development work for the Franda Village Subdivision. Respondent committed to complete the construction within 27 months. Respondent also advanced P200,000.00 for the initial expenses of the development work. In return, respondent would receive 50% of the total gross sales of the subdivision lots and other income of the subdivision. Respondent also enjoyed the exclusive and irrevocable authority to manage, control and supervise the sales of the lots within the subdivision. The Contract required respondent to submit to petitioners, within the first 15 days of every month, a report on payments collected from lot buyers with copies of all the contracts to sell. However, respondent failed to submit the monthly report. On 27 February 1987, respondent filed with the trial court an action to rescind the Contract with a prayer for damages. Petitioners countered that respondent breached the Contract by failing to finish the subdivision within the 27 months agreed upon, and therefore respondent was in delay. ISSUE: Did Engr. Mercado incur delay in the case at bench? RULING: The petitioners breached the Contract by: (1) hiring Rosales to do development work on the subdivision within the 27-month period exclusively granted to respondent; (2) interfering with the latter's development work; and (3) stopping respondent from managing the sale of lots and collection of payments. Because petitioners were the first to breach the Contract and even interfered with the development work, respondent did not incur delay even if he completed only 28% of the development work. Further, the HSRC extended the Contract up to July 1987. Since the Contract had not expired at the time respondent filed the action for rescission, petitioners' defense that respondent did not finish the development work on time was without basis. The law provides that delay may exist when the obligor fails to fulfill his obligation within the time expressly stipulated. In this case, the HSRC extended the period for respondent to finish the development work until 30 July 1987. Respondent did not incur delay since the period granted him to fulfill his obligation had not expired at the time respondent filed the action for rescission on 27 February 1987. Moreover, since petitioners stopped respondent from selling lots and collecting payments from lot buyers, which was the primary source of development funds, they in effect, rendered respondent incapable, or at least made it difficult for him, to develop the subdivision within the allotted period. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply with what is incumbent upon him. It is only when one of the parties fulfills his obligation that delay by the other begins.

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JACINTO TANGUILIG vs. COURT OF APPEALS and VICENTE HERCE JR. G.R. No. 117190. JANUARY 2, 1997 FACTS: Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. Respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation. He also disowned any obligation to repair or reconstruct the system since its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. ISSUE: Whether or not the payment for the deep well is part of the contract price. Whether or not Tanguilig is liable to reconstruct the damaged windmill considering that its collapse is due to a typhoon. RULING: There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. Respondent is directed to pay petitioner Tanguilig the balance of P15,000.00 plus legal interest. Regarding the second issue, the Supreme Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code four (4) 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. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous. On the contrary, a strong wind should be present in places where windmills are constructed. Petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty".

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DR. FERNANDO PERIQUET, JR. vs. THE COURT OF APPEALS G.R. No. L-69996. DECEMBER 5, 1994 FACTS: Spouses Fernando Periquet and Petra Francisco were left childless after the death of their only child, Elvira, so they took in a son out of wedlock of Marta Francisco-Reyes, sister of Petra. Though he was not legally adopted, the boy was given the name Fernando Periquet, Jr. and was reared to manhood by the spouses Periquet. On March 20, 1966, Fernando Periquet died. When Petra died, she was survived by her siblings, nieces and nephews and by the petitioner. But a few days before her death, Petra asked her lawyer to prepare her last will and testament. However, she died before she could sign it. In the said will, Petra left her estate to petitioner, Fernando Periquet, Jr. and provided for certain legacies to her other heirs. Felix Franciso, brother of Petra, assigned his hereditary rights to the petitioner. However, later on, he filed an action for annulment of the Assignment of Hereditary Rights claiming "gross misrepresentation and fraud," "grave abuse of confidence," "mistake and undue influence," and "lack of cause and/or consideration" in the execution of the challenged deed of assignment. ISSUE: Whether or not the Assignment of Hereditary Rights is tainted with fraud. RULING: The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. In the case at bench, no such fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights executed by Felix Francisco in favor of herein petitioner is valid and effective. Felix Francisco could not be considered to have been deceived into signing the subject deed of assignment for the following reasons: The assignment was executed and signed freely and voluntarily by Felix Francisco in order to honor, respect and give full effect to the last wishes of his deceased sister, Petra. The same was read by him and was further explained by Atty. Diosdado Guytingco. Furthermore, witnesses for petitioner, who also served as witnesses in the execution and signing of the deed of assignment, declared that Felix Francisco was neither forced nor intimidated to sign the assignment of hereditary rights.

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LEGASPI OIL CO., INC. vs. THE COURT OF APPEALS G.R. No. 96505 JULY 1, 1993

FACTS: Bernard Oseraos had several transactions with Legaspi Oil Co. for the sale of copra to the latter. The price at which appellant sells the copra varies from time to time, depending on the prevailing market price when the contract is entered into. On February 16, 1976, appellant's agent Jose Llover signed contract No. 3804 for the sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976. After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance of 53,666 kilos. Accordingly, demands were made upon appellant to deliver the balance with a final warning that failure to deliver will mean cancellation of the contract, the balance to be purchased at open market and the price differential to be charged against appellant. On October 22, 1976, since there was still no compliance, appellee exercised its option under the contract and purchased the undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant. ISSUE: Whether or not private respondent is guilty of breach of contact. RULING: Private respondent is guilty of fraud in the performance of his obligation under the sales contract whereunder he bound himself to deliver to petitioner 100 metric tons of copra. However within the delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner. Petitioner made repeated demands upon private respondent to deliver the balance of 53,666 kilograms but private respondent ignored the same. Petitioner made a final demand with a warning that, should private respondent fail to complete delivery of the balance of 53,666 kilograms of copra, petitioner would purchase the balance at the open market and charge the price differential to private respondent. Still private respondent failed to fulfill his contractual obligation to deliver the remaining 53,666 kilograms of copra and since there was still no compliance by private respondent, petitioner exercised its right under the contract and purchased 53,666 kilograms of copra, the undelivered balance, at the open market at the then prevailing price of P168.00 per 100 kilograms, a price differential of P46,152.76. The conduct of private respondent clearly manifests his deliberate fraudulent intent to evade his contractual obligation for the price of copra had in the meantime more than doubled from P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil Code of the Philippines, those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said article, private respondent is liable for damages.

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TITAN-IKEDA CONSTRUCTION vs. PRIMETOWN G.R. No. 158768, FEBRUARY 12, 2008 FACTS: In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural works of its 32-storey Makati Prime Tower (MPT) to petitioner TitanIkeda Construction and Development Corporation. In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the progress of the project. In its report, ITI informed respondent that petitioner, at that point, had only accomplished 31.89% of the project (or was 11 months and six days behind schedule). Meanwhile, petitioner and respondent were discussing the possibility of the latter’s take over of the project’s supervision. Despite ongoing negotiations, respondent did not obtain petitioner’s consent in hiring ITI as the project’s construction manager. Neither did it inform petitioner of ITI’s September 7, 1995 report. Subsequently, both parties agreed that Primetown will take over the project. Petitioner then demanded for the payment due him in relation to its partial performance of its obligation. For failure of Primetown to pay despite repeated demands, petitioner filed a case for specific performance against Primetown. Meanwhile, Primetown demanded reimbursement for the amount it spent in having the project completed. ISSUE: Whether or not Titzn-Ikeda is responsible for the project’s delay. RULING: It was found that because respondent modified the MPT's architectural design, petitioner had to adjust the scope of work. Moreover, respondent belatedly informed petitioner of those modifications. It also failed to deliver the concrete mix and rebars according to schedule. For this reason, petitioner was not responsible for the project's delay. Mora or delay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the creditor from the time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay. Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. In view of the foregoing, we hold that petitioner did not incur delay in the performance of its obligation.

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PNB MADECOR vs. GERARDO C. UY G.R. No. 129598. AUGUST 15, 2001 FACTS: Guillermo Uy assigned to respondent Gerardo Uy his receivables due from Pantranco North Express Inc. (PNEI). The deed of assignment included sales invoices containing stipulations regarding payment of interest and attorney’s fees. On January 23, 1995, Gerardo Uy filed with the RTC a collection suit against PNEI. He alleged that PNEI was guilty of fraud in contracting the obligation sued upon, hence his prayer for a writ of preliminary attachment. The sheriff issued a notice of garnishment addressed to the Philippine National Bank (PNB) and PNB MADECOR attaching the “goods, effects, credits, monies and all other personal properties” of PNEI in the possession of the bank. PNB MADECOR however claimed that the receivables of Guillermo Uy have been applied to PNEI’s unpaid rentals to the bank thru compensation, thus private respondent is no longer entitled to such. Respondent pointed out that the demand letter sent by PNEI to petitioner was made before petitioner’s obligation to PNEI became due. This being so, respondent argues that there can be no compensation since there was as yet no compensable debt in 1984 when PNEI demanded payment from petitioner. ISSUE: Whether or not PNB MADECOR is correct in its contention that compensation is applicable to its receivables from and its payables to PNEI. RULING: Petitioner’s obligation to PNEI appears to be payable on demand. However, the Court found that the letter sent by PNEI to PNB MADECOR was not one demanding payment, but one that merely informed petitioner of the conveyance of a certain portion of its obligation to PNEI. Since petitioner’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject to compensation for lack of a requisite under the law. Without compensation having taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt. As regards respondent’s averment that there was as yet no compensable debt when PNEI sent petitioner a demand letter on September 1984, since PNEI was not yet indebted to petitioner at that time, the law does not require that the parties’ obligations be incurred at the same time. What the law requires only is that the obligations be due and demandable at the same time.

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IGNACIO BARZAGA vs. COURT OF APPEALS and ANGELITO ALVIAR G.R. No. 115129. FEBRUARY 12, 1997 FACTS: Barzaga went to the hardware store of respondent Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. The following morning, Barzaga went back to the store and told the employees that the materials he was buying would have to be delivered at the Memorial Cemetery by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. A store employee agreed to deliver the items at the designated time, date and place. With this assurance, Barzaga purchased the materials and paid in full. The construction materials did not arrive at eight o'clock as promised. After follow-ups and several hours later, when there was yet no delivery made, Barzaga went back to the store. He saw the delivery truck but the things he purchased were not yet ready for loading. Distressed by the seeming lack of concern on the store’s part, Barzaga decided to cancel his transaction with the store and buy from another store. Not being able to fulfill the scheduled burial of his wife, Barzaga demanded damages from Alviar but the latter refused claiming that he is not liable for damages considering that he did not incur legal delay since there was no specific time of delivery agreed upon. ISSUE: Whether or not the respondent incurred delay in the performance of his obligation. RULING: Respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner's wife. This case is clearly one of non-performance of a reciprocal obligation. In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach.

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JACINTO TANGUILIG vs. COURT OF APPEALS and VICENTE HERCE JR. G.R. No. 117190. JANUARY 2, 1997 FACTS: Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. Respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. Petitioner refused to pay and argued that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss. ISSUE: Whether or not petitioner is correct in his contention that respondent is already in default thus he should bear the loss of the windmill. RULING: Petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In 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. When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

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TAYAG vs. COURT OF APPEALS G.R. No. 96053. MARCH 3, 1993 FACTS: Juan Galicia, Sr. executed a deed of conveyance, prior to his demise in 1979 in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00. There is no dispute that the first installment was received by Juan Galicia, Sr. And according to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979. It was also agreed upon that private respondent will assume the vendors' obligation to the Philippine Veterans Bank, however, he paid only the sum of P6,926.41 while the difference of the indebtedness was paid by Juan Galicia, Sr.’s sister. Moreover, petitioners claimed that not a single centavo of the P27,000.00 representing the remaining balance was paid to them. Petitioners averred that private respondent’s failure to pay full consideration of the agreement to sell gave them the right to have the contract rescinded. ISSUE: Whether or not the petitioners have the right to rescind the contract in the present case. RULING: Considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting the latter's delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance, petitioners' actuation is susceptible of but one construction that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent. Indeed, the right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments. Private respondent is ordered to pay the balance of the purchase price and to reimburse the sum paid by Juan Galicia Sr.’s sister to the Philippine Veteran’s bank, minus the attorney's fees and damages awarded in favor of private respondent.

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DR. FERNANDO PERIQUET, JR. vs. THE COURT OF APPEALS G.R. No. L-69996. DECEMBER 5, 1994 FACTS: Spouses Fernando Periquet and Petra Francisco were left childless after the death of their only child, Elvira, so they took in a son out of wedlock of Marta Francisco-Reyes, sister of Petra. Though he was not legally adopted, the boy was given the name Fernando Periquet, Jr. and was reared to manhood by the spouses Periquet. On March 20, 1966, Fernando Periquet died. When Petra died, she was survived by her siblings, nieces and nephews and by the petitioner. But a few days before her death, Petra asked her lawyer to prepare her last will and testament. However, she died before she could sign it. In the said will, Petra left her estate to petitioner, Fernando Periquet, Jr. and provided for certain legacies to her other heirs. Felix Franciso, brother of Petra, assigned his hereditary rights to the petitioner. However, later on, he filed an action for annulment of the Assignment of Hereditary Rights claiming "gross misrepresentation and fraud," "grave abuse of confidence," "mistake and undue influence," and "lack of cause and/or consideration" in the execution of the challenged deed of assignment. ISSUE: Whether or not the Assignment of Hereditary Rights is tainted with fraud. RULING: The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. In the case at bench, no such fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights executed by Felix Francisco in favor of herein petitioner is valid and effective. Felix Francisco could not be considered to have been deceived into signing the subject deed of assignment for the following reasons: The assignment was executed and signed freely and voluntarily by Felix Francisco in order to honor, respect and give full effect to the last wishes of his deceased sister, Petra. The same was read by him and was further explained by Atty. Diosdado Guytingco. Furthermore, witnesses for petitioner, who also served as witnesses in the execution and signing of the deed of assignment, declared that Felix Francisco was neither forced nor intimidated to sign the assignment of hereditary rights.

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RIZAL COMMERCIAL BANKING CORPORATION vs. COURT OF APPEALS G.R. No. 133107. MARCH 25, 1999 FACTS: Private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the purchase price to be paid in 24 equal monthly installments. Private respondent thus issued 24 postdated checks for the amount of P14,976.00 each. To secure the balance, he executed a promissory note and a contract of chattel mortgage over the vehicle in favor of Toyota Shaw, Inc. The contract of chattel mortgage, in paragraph 11 thereof, provided for an acceleration clause stating that should the mortgagor default in the payment of any installment, the whole amount remaining unpaid shall become due. In addition, the mortgagor shall be liable for 25% of the principal due as liquidated damages. On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel mortgage to petitioner Rizal Commercial Banking Corporation (RCBC). On the theory that respondent defaulted in his payments, the check representing the payment for August 10, 1991 being unsigned, petitioner demanded from private respondent the payment of the remaining balance of the debt pursuant to the acceleration clause, and also of the liquidated damages,. The latter refused, prompting petitioner to file an action for replevin and damages against him. ISSUE: Whether or not petitioner is correct that private respondent is in default thus justifying its treating the balance of the purchase price as due and demandable. RULING: In the case at bench, plaintiff-appellant's imputation of default to defendantappellee rested solely on the fact that the 5 th check issued by appellee was recalled for lack of signature. The "default" was not a case of failure to pay, the check being sufficiently funded, and which amount was in fact already debited from appellee's account by the appellant bank which subsequently re-credited the amount to defendantappellee's account for lack of signature. All these actions RCBC did on its own without notifying defendant until sixteen (16) months later when it wrote its demand letter dated January 21, 1993. Article 1170 of the Civil Code states that those who in the performance of their obligations are guilty of delay are liable for damages. The delay in the performance of the obligation, however, must be either malicious or negligent. Thus, assuming that private respondent was guilty of delay in the payment of the value of the unsigned check, private respondent cannot be held liable for damages. There is no imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check. Indeed, we agree with the Court of Appeals' finding that such omission was mere "inadvertence" on the part of private respondent. As pointed out by the trial court, this whole controversy could have been avoided if only petitioner bothered to call up private respondent and ask him to sign the check.

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STATE INVESTMENT HOUSE INC. vs. COURT OF APPEALS G.R. No. 115548. MARCH 5, 1996 FACTS: Spouses Oreta and the Solid Homes, Inc. (SOLID) entered into a Contract to Sell involving a parcel of land for a consideration of P39,347.00. Upon signing of the contract, the spouses Oreta paid the downpayment with the agreement that the balance shall be payable in monthly installments of P45 1.70, at 12% interest per annum. On November 4, 1976, SOLID executed several real estate mortgage contracts in favor of State Investment House Inc. (STATE) over its subdivided parcels of land, one of which is the subject lot which is the one subject of the above stated Contract to Sell. For failure of SOLID to comply with its mortgage obligations contract, STATE extra-judicially foreclosed the mortgaged properties including the subject lot on April 6, 1983. As a result of the foreclosure, the spouses filed a complaint against SOLID and STATE for SOLID’s failure to execute the absolute deed of sale despite full payment of the purchase price as of 1981. ISSUE: Who has the better right over the subject lot? RULING: Petitioner admits the superior rights of respondents-spouses Oreta over the subject property as it did not pray for the nullification of the contract between respondents-spouses and SOLID, but instead asked for the payment of the release value of the property in question, plus interest, attorney’s fees and costs of suit against SOLID or, in case of the latter’s inability to pay, against respondents-spouses before it can be required to release the title of the subject property in favor of the respondent spouses. And even if we were to pass upon the first assigned error, we find respondent court’s ruling on the matter to be well-founded. STATE’s registered mortgage right over the property is inferior to that of respondents-spouses’ unregistered right. The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner (SOLID, in this case) had parted with his ownership of the thing sold then he no longer had ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the mortgage is of no moment since it is understood to be without prejudice to the better right of third parties.

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BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS G.R. No. 133632. FEBRUARY 15, 2002 FACTS: Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), predecessor of petitioner BPIIC for the construction of a house on his lot. Said house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua. They paid P350,000 in cash and assumed the P500,000 balance of Roa’s indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan of P500,000 to be applied to Roa’s debt and secured by the same property, at an interest rate of 20% per annum. In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness. Private respondents on the other hand alleged that they were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. ISSUE: Whether or not petitioner may be held liable for moral and exemplary damages. RULING: Petitioner claims that it should not be held liable for moral and exemplary damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract because private respondents were irregular in their monthly amortization. Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted on the payment of amortization on the loan even before it was released. Further, it did not make the corresponding deduction in the monthly amortization to conform to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private respondents failed to make timely payment. But as admitted by private respondents themselves, they were irregular in their payment of monthly amortization. Thus, we can not properly declare BPIIC in bad faith. Consequently, we should rule out the award of moral and exemplary damages. However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking and correspondingly adjusting its records on the amount actually released to private respondents and the date when it was released. Such negligence resulted in damage to private respondents, for which an award of nominal damages should be given in recognition of their rights which were violated by BPIIC. For this purpose, the amount of P25,000 is sufficient. Lastly, we sustain the award of P50,000 in favor of private respondents as attorney’s fees since they were compelled to litigate.

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CARMELITA LEAÑO vs. COURT OF APPEALS G.R. No. 129018. NOVEMBER 15, 2001 FACTS: Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell involving a piece of land. In the contract, Leaño bound herself to pay Fernando P10,775.00 at the signing of the contract with the balance of P96,975.00 to be paid within a period of TEN (10) years at a monthly amortization of P1,747.30. The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments. ISSUE: Whether petitioner was in delay in the payment of the monthly amortizations. RULING: On the issue of whether petitioner Leaño was in delay in paying the amortizations, we rule that while the contract provided that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leaño cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed. Article 1169 of the Civil Code provides that in 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. In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leaño to continue in possession and use of the property. Clearly, when petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages. However, we agree with the trial court that the default committed by petitioner Leaño in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question.

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HEIRS OF LUIS BACUS vs. HON. COURT OF APPEALS G.R. No. 127695. DECEMBER 3, 2001 FACTS: Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land. The contract contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract. Close to the expiration of the contract, Luis Bacus died. Thereafter, the Duray spouses informed one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. Due to the refusal of petitioners to sell the property, Duray filed a complaint for specific performance against the heirs of Luis Bacus asking that he be allowed to purchase the lot specifically referred to in the lease contract with option to buy. On the other hand, petitioners alleged that before Luis Bacus’ death, private respondents conveyed to them the former’s lack of interest to exercise their option because of insufficiency of funds. They further alleged that private respondents did not deposit the money as required by the Lupon and instead presented a bank certification which cannot be deemed legal tender. ISSUE: Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract? RULING: Obligations under an option to buy are reciprocal obligations. The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation. In other words, in an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In this case, when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners’ actual execution and delivery of the deed of sale were they required to pay. Notice of the creditor’s decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required. Private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the expiration of the contract. In 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. Only from the moment one of the parties fulfills his obligation, does delay by the other begin. In this case, as there was no compliance yet with what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay when the cashier’s check was issued even after the contract expired.

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INTEGRATED PACKAGING CORP. vs. COURT OF APPEALS G.R. No. 115117. JUNE 8, 2000 FACTS: Petitioner and private respondent executed an order agreement whereby private respondent bound itself to deliver to petitioner 3,450 reams of printing papers under specified schedule of delivery. As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance because further delay would greatly prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered again to petitioner various quantities of printing paper amounting to P766,101.70. However, petitioner encountered difficulties paying private respondent said amount. Accordingly, private respondent made a formal demand upon petitioner to settle the outstanding account. Private respondent filed a collection suit against petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on credit. In its answer, petitioner denied the material allegations of the complaint. It alleged that private respondent was able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total disregard of their agreement; that private respondent failed to deliver the balance of the printing paper despite demand therefor, hence, petitioner suffered actual damages and failed to realize expected profits. ISSUE: Whether or not private respondent violated the order agreement. RULING: The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay its equivalent (price). Both parties concede that the order agreement gives rise to a reciprocal obligation such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Thus, private respondent undertakes to deliver printing paper of various quantities subject to petitioner’s corresponding obligation to pay, on a maximum 90-day credit, for these materials. Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September and October 1980. Thus, private respondent did not violate the order agreement.

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LAFORTEZA vs. MACHUCA G.R. No. 137552. JUNE 16, 2000 FACTS: In the exercise of the Special Power of Attorney executed by their co-heirs, by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff over the subject house and lot for the sum of P630,000.00. On September 18, 1998, defendant heirs, through their counsel wrote a letter to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to produce the balance of P600,000.00 under the Memorandum of Agreement which plaintiff received on the same date. The plaintiff requested a 30-day extension within which he would pay the balance of the purchase price. This was granted by Roberto Laforteza but not by Gonzalo Laforteza, the second attorney-in-fact. On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already has the money. However, the defendants, refused to accept the told him that the subject property was no longer for sale. Thereafter, plaintiff reiterated his request to tender payment of the balance but the defendants insisted on the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific performance. ISSUE: Whether or not defendants may rescind the contract of sale entered with Machuca. RULING: Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers of Attorney. However, the evidence reveals that after the expiration of the six-month period provided for in the contract, the petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of the reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after the execution of the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of the reconstituted title and demanded the payment of the balance of the purchase price. The respondent could not therefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what was incumbent upon him. Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we find that rescission of the contract will still not prosper. Delay in payment was only thirty days which was caused by the respondent’s justified but mistaken belief that an extension to pay was granted to him. We agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents to rescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and Page | 53

fundamental breach as would defeat the very object of the parties in making the agreement. THE INTERNATIONAL CORPORATE vs. SPS. GUECO G.R. No. 141968. FEBRUARY 12, 2001 FACTS: The Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. After some negotiations and computation, the amount of car loan was lowered. Finally, Dr. Gueco delivered a manager’s check in the amount of reduced car loan but the car was not released because of his refusal to sign the Joint Motion to Dismiss. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. ISSUE: Whether or not there was fraud in the part of herein petitioner. RULING: Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as “wanton, fraudulent, reckless, oppressive or malevolent.”

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REPUBLIC OF THE PHILIPPINES vs. THE COURT OF TAX APPEALS G.R. No. 139050. OCTOBER 2, 2001 FACTS: On 12 December 1992, a shipment of bales of textile gray cloth arrived at the Manila International Container Port (MICP). There has been a mistake in the name of the consignee provided in the shipment's Inward Foreign Manifest. Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment of the Inward Foreign Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc. Subsequently, FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment under Hold Order on the ground that GQ GARMENTS, Inc., could not be located in its given address and was thus suspected to be a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff and Customs Code were initiated. ISSUE: Whether or not the private respondent is guilty of fraud in relation to the shipment subject of the case at bench. RULING: Petitioner asserts that all of the requisites for forfeiture proceedings under the Tariff and Customs Code are present in this case. Private respondent AGFHA, Inc., on the other hand, maintains that there has only been an inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due. Fraud must be proved to justify forfeiture. It must be actual, amounting to intentional wrong-doing with the clear purpose of avoiding the tax. Forfeiture is not favored in law nor in equity. Mere negligence is not equivalent to the fraud contemplated by law. What is here involved is an honest mistake, not even directly attributable to private respondent, which will not deprive the government of its right to collect the proper tax. The conclusion of the appellate court, being consistent with the evidence on record and not contrary to law and jurisprudence, hardly can be overturned by this Court.

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YAMBAO vs. ZUÑIGA G.R. No. 146173. DECEMBER 11, 2003 FACTS: At around 3:30 p.m. of May 6, 1992, the bus owned by the petitioner was being driven by her driver, Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA). Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the impact that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter. Private respondents, heirs of the victim, filed a Complaint against petitioner and her driver, Venturina, for damages. The complaint alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules and regulations, without due regard to public safety, thus resulting in the victim’s premature death. In her Answer, the petitioner denied the allegations of the complaint, trying to shift the blame to the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was chasing him. She further alleged that she was not liable for any damages because as an employer, she exercised the proper diligence of a good father of a family, both in the selection and supervision of her bus driver. ISSUE: Whether petitioner exercised the diligence of a good father of a family in the selection and supervision of her employees, thus absolving her from any liability. RULING: Petitioner claimed that she exercised due diligence in the selection and supervision of her driver, Venturina. Her allegation that before she hired Venturina she required him to submit his driver’s license and clearances is worthless, in view of her failure to offer in evidence certified true copies of said license and clearances. Moreover, petitioner contradicted herself. She declared that Venturina applied with her sometime in January 1992 and she then required him to submit his license and clearances. However, the record likewise shows that Venturina submitted the said requirements only on May 6, 1992, or on the very day of the fatal accident itself. In other words, petitioner’s own admissions clearly and categorically show that she did not exercise due diligence in the selection of her bus driver. In any case, assuming arguendo that Venturina did submit his license and clearances when he applied with petitioner in January 1992, the latter still fails the test of due diligence in the selection of her bus driver. Petitioner failed to present convincing proof that she went to this extent of verifying Venturina’s qualifications, safety record, and driving history. Nor did petitioner show that she exercised due supervision over Venturina after his selection. For as pointed out by the Court of Appeals, petitioner did not present any proof that she drafted and implemented training programs and guidelines on road safety for her employees. In fact, the record is bare of any showing that petitioner required Venturina to attend periodic seminars on road safety and traffic efficiency. Hence, petitioner cannot claim exemption from any liability arising from the recklessness or negligence of Venturina. Page | 56

SMITH BELL DODWELL vs. CATALINO BORJA G.R. No. 143008. JUNE 10, 2002 FACTS: Smith Bell filed a written request with the Bureau of Customs for the attendance of the latter’s inspection team on vessel M/T King Family which was due to arrive at the port of Manila on September 24, 1987. In response, Catalino Borja was instructed to board the said vessel and inspect the vessel. At about 11 o’clock in the morning on September 24, 1987, while M/T King Family was unloading chemicals unto two (2) barges owned by respondent ITTC, a sudden explosion occurred setting the vessels afire. Upon hearing the explosion, Borja, who was at that time inside the cabin preparing reports, ran outside to check what happened. Again, another explosion was heard. Seeing the fire Borja hurriedly jumped over board to save himself. However, the water was likewise on fire due mainly to the spilled chemicals. Despite the tremendous heat, Borja swam his way until he was rescued by the people living in the squatters’ area and sent to San Juan De Dios Hospital. After weeks of intensive care at the hospital, Borja was diagnosed to be permanently disabled due to the incident. Thus, he made demands against Smith Bell and ITTC for the damages caused by the explosion. However, both denied liabilities and attributed to each other negligence.” ISSUES: Who, if any, is liable for Borja’s injuries? RULING: Both the RTC and the CA ruled that the fire and the explosion had originated from petitioner’s vessel. The attempts of Smith Bell to shift the blame on ITTC were all for naught. First, the testimony of its alleged eyewitness was stricken off the record for his failure to appear for cross-examination. Second, the documents offered to prove that the fire originated from barge ITTC-101 were all denied admission by the court for being, hearsay. Thus, there is nothing in the record to support petitioner’s contention that the fire and explosion originated from barge ITTC-101. The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b) fault or negligence of the defendant, and (c) the connection of cause and effect between the fault or negligence of the defendant and the damages inflicted on the plaintiff. All these elements were established in this case. Knowing fully well that it was carrying dangerous chemicals, petitioner was negligent in not taking all the necessary precautions in transporting the cargo. As a result of the fire and the explosion during the unloading of the chemicals from petitioner’s vessel, Respondent Borja suffered severe injuries. Hence, the owner or the person in possession and control of a vessel and the vessel are liable for all natural and proximate damage caused to persons and property by reason of negligent management or navigation.

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RAMON K. ILUSORIO vs. HON. COURT OF APPEALS G.R. No. 139130. NOVEMBER 27, 2002 FACTS: Petitioner is a prominent businessman and was a depositor in good standing of respondent bank, the Manila Banking Corporation. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine E. Eugenio, his credit cards and his checkbook with blank checks. Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa thru falsification. Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent bank refused. Hence, petitioner filed the instant case. ISSUE: Is Manila Bank liable for damages for its negligence in failing to detect the discrepant checks? RULING: Petitioner’s contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis. Manila Bank employees exercised due diligence in cashing the checks. Its verifiers first verified the drawer’s signatures thereon as against his specimen signature cards, and when in doubt, the verifier went further, such as by referring to a more experienced verifier for further verification. In some instances the verifier made a confirmation by calling the depositor by phone. It is only after taking such precautionary measures that the subject checks were given to the teller for payment. Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any forgery -- if indeed there was. However, a mistake is not equivalent to negligence if they were honest mistakes. In the instant case, we believe and so hold that if there were mistakes, the same were not deliberate, since the bank took all the precautions. As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts.

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NATIONAL POWER CORPORATION vs. THE COURT OF APPEALS G.R. No. 124378. MARCH 8, 2005 FACTS: On 15 November 1973, the Office of the President of the Philippines issued Memorandum Order No. 398 instructing the NPC to build the Agus Regulation Dam at the mouth of Agus River in Lanao del Sur, at a normal maximum water level of Lake Lanao at 702 meters elevation. Pursuant thereto, petitioner built and operated the said dam in 1978. Private respondents Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Ali Langco and Diamael Pangcatan own fishponds along the Lake Lanao shore. In October and November of 1986, all the improvements were washed away when the water level of the lake escalated and the subject lakeshore area was flooded. Private respondents blamed the inundation on the Agus Regulation Dam built and operated by the NPC in 1978. They theorized that NPC failed to increase the outflow of water even as the water level of the lake rose due to the heavy rains. ISSUE: Whether or not the Court of Appeals erred in affirming the trial court’s verdict that petitioner was legally answerable for the damages endured by the private respondents. RULING: Memorandum Order No. 398 clothes the NPC with the power to build the Agus Regulation Dam and to operate it for the purpose of generating energy. Twin to such power are the duties: (1) to maintain the normal maximum lake elevation at 702 meters, and (2) to build benchmarks to warn the inhabitants in the area that cultivation of land below said elevation is forbidden. With respect to its job to maintain the normal maximum level of the lake at 702 meters, the Court of Appeals, echoing the trial court, observed with alacrity that when the water level rises due to the rainy season, the NPC ought to release more water to the Agus River to avoid flooding and prevent the water from going over the maximum level. And yet, petitioner failed to do so, resulting in the inundation of the nearby estates. Consequently, even assuming that the fishponds were erected below the 702-meter level, NPC must, nonetheless, bear the brunt for such damages inasmuch as it has the duty to erect and maintain the benchmarks precisely to warn the owners of the neighboring properties not to build fishponds below these marks. Without such points of reference, the inhabitants in said areas are clueless whether or not their improvements are within the prohibited area. Conversely, without such benchmarks, NPC has no way of telling if the fishponds, subject matter of the present controversy, are indeed below the prescribed maximum level of elevation. Due to NPC’s negligence in the performance of its duties, it shall be held liable for the resulting damages suffered by private respondents.

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MUAJE-TUAZON vs. WENPHIL G.R. No. 162447. DECEMBER 27, 2006 FACTS: Petitioners Annabelle M. Tuazon and Almer R. Abing worked as branch managers of the Wendy's food chains. In Wendy’s “Biggie Size It! Crew Challenge" promotion contest, branches managed by petitioners won first and second places, respectively. Because of its success, respondent had a second run of the contest from April 26 to July 4, 1999. The Meycauayan branch won again. The MCU Caloocan branch failed to make it among the winners. Before the announcement of the third round winners, management received reports that as early as the first round of the contest, the Meycauayan, MCU Caloocan, Tandang Sora and Fairview branches cheated. An internal investigation ensued. Petitioners were summoned to the main office regarding the reported anomaly. Petitioners denied there was cheating. Immediately thereafter, petitioners were notified, in writing, of hearings and of their immediate suspension. Thereafter, petitioners were dismissed. ISSUE: Is the respondent guilty of illegal suspension and dismissal in the case at bench? RULING: There is no denying that petitioners were managerial employees. They executed management policies, they had the power to hire personnel and assign them tasks; and discipline the employees in their branch. They recommended actions on employees to the head office.Article 212 (m) of the Labor Code defines a managerial employee as one who is vested with powers or prerogatives to lay down and execute management policies and/or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees. Consequently, as managerial employees, in the case of petitioners, the mere existence of grounds for the loss of trust and confidence justify their dismissal. Pursuant to our ruling in Caoile v. National Labor Relations Commission, as long as the employer has a reasonable ground to believe that the managerial employee concerned is responsible for the purported misconduct, or the nature of his participation renders him unworthy of the trust and confidence demanded by his position, the managerial employee can be dismissed. In the present case, the tape receipts presented by respondents showed that there were anomalies committed in the branches managed by the petitioners. On the principle of respondeat superior or command responsibility alone, petitioners may be held liable for negligence in the performance of their managerial duties, unless petitioners can positively show that they were not involved. Their position requires a high degree of responsibility that necessarily includes unearthing of fraudulent and irregular activities. Their bare, unsubstantiated and uncorroborated denial of any participation in the cheating does not prove their innocence nor disprove their alleged guilt. Additionally, some employees declared in their affidavits that the cheating was actually the idea of the petitioners.

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RCPI vs. VERCHEZ G.R. No. 164349. JANUARY 31, 2006 FACTS: Editha Hebron Verchez (Editha) was confined in the hospital due to an ailment. Her daughter Grace immediately went to the Sorsogon Branch of RCPI whose services she engaged to send a telegram to her sister Zenaida. As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid. Immediately after she received Grace’s letter, Zenaida, along with her husband left for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram. The telegram was finally delivered to Zenaida 25 days later. On inquiry from RCPI why it took that long to deliver it, RCPI claimed that delivery was not immediately effected due to the occurrence of circumstances which were beyond the control and foresight of RCPI. ISSUE: Whether or not RCPI is negligent in the performance of its obligation. RULING: Article 1170 of the Civil Code provides: 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. Considering the public utility of RCPI’s business and its contractual obligation to transmit messages, it should exercise due diligence to ascertain that messages are delivered to the persons at the given address and should provide a system whereby in cases of undelivered messages the sender is given notice of non-delivery. Messages sent by cable or wireless means are usually more important and urgent than those which can wait for the mail. RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award of moral damages. RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption. For breach of contract then, RCPI is liable to Grace for damages. RCPI’s liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father of a family to prevent damage.

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VICTORY LINER, INC. vs. GAMMAD G.R. No. 159636. NOVEMBER 25, 2004 FACTS: Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine which resulted in the death of Marie Grace and physical injuries to other passengers. On May 14, 1996, respondent heirs of the deceased filed a complaint for damages arising from culpa contractual against petitioner. In its answer, the petitioner claimed that the incident was purely accidental and that it has always exercised extraordinary diligence in its 50 years of operation. ISSUE: Whether petitioner should be held liable for breach of contract of carriage. RULING: Petitioner was correctly found liable for breach of contract of carriage. A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence. In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of Marie Grace’s death was the negligence of petitioner. Hence, the courts below correctly ruled that petitioner was guilty of breach of contract of carriage.

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FGU INSURANCE CORP. vs. G.P. SARMIENTO TRUCKING CORPORATION G.R. No. 141910. AUGUST 6, 2002 FACTS: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc. to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles. Respondents asserted that that the cause of damage was purely accidental. ISSUE: Whether or not GPS is liable for damages arising from negligence. RULING: In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioner and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation – in this case, the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioner and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their personality or their juridical position. Petitioner’s civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove negligence or fault on the part of the defendant.

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LRTA vs. NAVIDAD G.R. No. 145804. FEBRUARY 6, 2003 FACTS: On 14 October 1993, in the evening, Nicanor Navidad, then drunk, entered the EDSA LRT station. While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area approached Navidad. A misunderstanding or an altercation between the two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how the fight started or who, between the two, delivered the first blow or how Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was struck by the moving train, and he was killed instantaneously. The widow of Nicanor, along with her children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and Roman filed a counterclaim against Navidad and a cross-claim against Escartin and Prudent. Prudent, in its answer, denied liability and averred that it had exercised due diligence in the selection and supervision of its security guards. ISSUE: Who, if any, is liable for damages in relation to the death of Navidad? RULING: The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage. Regrettably for LRTA, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad, this Court is concluded by the factual finding of the Court of Appeals that “there is nothing to link Prudent to the death of Navidad, for the reason that the negligence of its employee, Escartin, has not been duly proven. There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or omission, he must also be absolved from liability.

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RODZSSEN SUPPLY CO, INC. VS. FAR EAST BANK & TRUST CO. GR No. 109087 May 9, 2001 FACTS: Defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank and Trust Co. a 30-day domestic letter of credit in the amount of P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the purchase from the latter of five units of hydraulic loaders, to expire on February 15, 1979. Defendant refused to pay without any valid reason. Plaintiff prays for judgment ordering defendant to pay the abovementioned P76,000.00 plus due interest thereon, plus 25% of the amount of the award as attorney’s fees. Knowing that the two units of hydraulic loaders had been delivered to defendant after the expiry date of subject LC; and that in view of the breach of contract, defendant offered to return to plaintiff the two units of hydraulic loaders, ‘presently still with the defendant’ but plaintiff refused to take possession thereof. Under the contract of sale of the five loaders between Ekman and defendant, upon Ekman’s delivery to, and acceptance by, defendant of the two remaining units of the five loaders, defendant became liable to Ekman for the payment of said two units. However, as defendant did not pay Ekman, the latter pressed plaintiff for the payment of said two loaders in the amount of P76,000.00. In the honest belief that it was still under obligation to Ekman for said amount, considering that Ekman had presented all the necessary documents, plaintiff voluntarily paid the said amount to Ekman. The CA rejected petitioner’s imputation of bad faith and negligence to respondent bank for paying for the two hydraulic loaders, which had been delivered after the expiration of the subject letter of credit. To absolve defendant from liability for the price of the same," the CA explained, "is to allow it to get away with its unjust enrichment at the expense of the plaintiff." ISSUE: Whether petitioner is liable to respondent. RULING: Petitioner claims that it accepted the late delivery of the equipment, only because it was bound to accept it under the company’s trust receipt arrangement with respondent bank. Granting that petitioner was bound under such arrangement to accept the late delivery of the equipment, we note its unexplained inaction for almost four years with regard to the status of the ownership or possession of the loaders. Bewildering was its lack of action to validate the ownership and possession of the loaders, as well as its stolidity over the purported failed sales transaction. Significant too is the fact that it formalized its offer to return the two pieces of equipment only after respondent’s demand for payment, which came more than three years after it accepted delivery. When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the other and, as in this case, their rights and obligations may be determined equitably under the law proscribing unjust enrichment. Page | 65

Petitioner Rodzssen Supply Co., Inc. is orderd to reimburse Respondent Far East Bank and Trust Co., Inc. P76,000 plus interest thereon at the rate of 6 percent per annum computed from April 7, 1983. After this judgment becomes final, the interest shall be 12 percent per annum. UNIVERSITY OF THE EAST VS. JADER GR. No. 132344 February 17, 2000 FACTS: Plaintiff was enrolled in the defendants' College of Law from 1984 up to 1988. In the first semester of his last year (School year 1987-1988), he failed to take the regular final examination in Practice Court I for which he was given an incomplete grade. He enrolled for the second semester as fourth year law student and on February 1, 1988 he filed an application for the removal of the incomplete grade given him by Professor Carlos Ortega which was approved by Dean Celedonio Tiongson after payment of the required fee. He took the examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortega submitted his grade. It was a grade of five. In the meantime, the Dean and the Faculty Members of the College of Law met to deliberate on who among the fourth year students should be allowed to graduate. The plaintiff's name appeared in the Tentative List of Candidates for graduation for the Degree of Bachelor of Laws (LL.B) as of Second Semester (1987-1988). The plaintiff attended the investiture ceremonies at F. dela Cruz Quadrangle, U.E., Recto Campus, during the program of which he went up the stage when his name was called. He thereafter prepared himself for the bar examination. He took a leave of absence without pay from his job from April 20, 1988 to September 30, 1988 and enrolled at the pre-bar review class in Far Eastern University. Having learned of the deficiency he dropped his review class and was not able to take the bar examination. [A check with the Attorney's List in the Court shows that private respondent is not a member of the Philippine Bar.] ISSUE: Whether petitioner is liable for damages under culpa contractual. RULING: When a student is enrolled in any educational or learning institution, a contract of education is entered into between said institution and the student. The professors, teachers or instructors hired by the school are considered merely as agents and administrators tasked to perform the school's commitment under the contract. Since the contracting parties are the school and the student, the latter is not duty-bound to deal with the former's agents, such as the professors with respect to the status or result of his grades, although nothing prevents either professors or students from sharing with each other such information. The Court takes judicial notice of the traditional practice in Page | 66

educational institutions wherein the professor directly furnishes his/her students their grades. It is the contractual obligation of the school to timely inform and furnish sufficient notice and information to each and every student as to whether he or she had already complied with all the requirements for the conferment of a degree or whether they would be included among those who will graduate. Prior or subsequent to the ceremony, the school has the obligation to promptly inform the student of any problem involving the latter's grades and performance and also most importantly, of the procedures for remedying the same. Petitioner, in belatedly informing respondent of the result of the removal examination, particularly at a time when he had already commenced preparing for the bar exams, cannot be said to have acted in good faith. WHEREFORE, Petitioner is ordered to pay respondent the sum of Thirty-five Thousand Four Hundred Seventy Pesos (P35,470.00), with legal interest of 6% per annum computed from the date of filing of the complaint until fully paid; the amount of Five Thousand Pesos (P5,000.00) as attorney's fees; and the costs of the suit. The award of moral damages is deleted.

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BAYNE ADJUSTERS VS. CA GR No. 116332 January 25, 2000 FACTS: In May 1987 Colgate Palmolive Philippine, Inc., imported alkyl benzene from Japan valued at US$255,802.88. The said liquid cargo was insured with herein private respondent Insurance Company of North America against all risk for its full value. Petitioner Bayne Adjusters and Surveyors Inc., was contracted by the consignee to supervise the proper handling and discharge of the cargo from the chemical tanker to a receiving barge until the cargo is pumped into the consignee’s shore tank. When the cargo arrived in Manila petitioner’s surveyor supervised the transfer of the cargo from the chemical tanker to the receiving barge. Pumping operation from the barge to the consignee’s shore tank commenced at 2020 hours of June 27, 1987. Pumping of the liquid cargo from the barge to the consignee’s tank was interrupted several times due to mechanical problems with the pump. When the pump broke down once again at about 1300 hours of June 29, 1987, the petitioner’s surveyor left the premises without leaving any instruction with the barge foreman what to do in the event that the pump becomes operational again. Petitioner sent Amado Fontillas, a cargo surveyor, not a liquid bulk surveyor, to the premises and it was agreed that pumping operation would resume the following day at 1030 hours. Fontillas tried to inform both the barge men and the assigned surveyor of the scheduled resumption of pumping operation but he could not find them so he left the premises. When the barge men arrived in the early evening, they found the valves of the tank open and resumed pumping operation in the absence of any instruction from the surveyor to the contrary. The following morning it was found that an undetermined amount of alkyl benzene was lost due to overflow. The consignee filed a claim with the private respondent insurance corporation for the value of the lost liquid cargo. Both the trial court and the appellate court found the petitioner’s failure to comply with the Standard Operating Procedure for Handling Liquid Bulk Cargo when pumping operation is suspended as the proximate cause of the loss. ISSUE: Whether petitioner is liable for the damages incurred arising from culpa contractual. RULING: The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands. The factual findings and conclusions of the trial and appellate court when supported by substantial evidence are entitled to great respect and will not be disturbed on appeal except on very strong and cogent grounds. Both parties agree that the petitioner is bound to supervise the proper Page | 68

discharge of the liquid cargo from the chemical tanker to the receiving barge and from the latter to the consignee’s shore tank. It is clear that under the standard procedure the surveyor is required to seal all cargo compartment manhole covers and the barge and manifold covers to avoid unsupervised discharge of the liquid cargo and to avert loss or contamination thereof. The petitioner’s failure to closely supervise the discharge of the cargo in accordance with accepted guidelines is the proximate cause of the loss. We find no cogent reason to overturn the legal conclusion reached by the lower courts that the petitioner is negligent in the performance of its duty as a marine superintendent surveyor under the Standard Operating Procedure in handling liquid cargo and held the petitioner liable for damages for the loss of the cargo.

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DELSAN TRANSPORT VS. C & A CONSORTIUM GR No. 156034 October 1, 2003 FACTS: On October 9, 1994, M/V Delsan Express, a ship owned and operated by petitioner Delsan Transport Lines, Inc., anchored at the Navotas Fish Port for the purpose of installing a cargo pump and clearing the cargo oil tank. At around 12:00 midnight of October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan Express received a report from his radio head operator in Japan that a typhoon was going to hit Manila in about eight (8) hours. At approximately 8:35 in the morning of October 21, 1994, Capt. Jusep tried to seek shelter at the North Harbor but could not enter the area because it was already congested. At 10:00 a.m., Capt. Jusep decided to drop anchor at the vicinity of Vitas mouth, 4 miles away from a Napocor power barge. At that time, the waves were already reaching 8 to 10 feet high. Capt. Jusep ordered his crew to go full ahead to counter the wind which was dragging the ship towards the Napocor power barge. To avoid collision, Capt. Jusep ordered a full stop of the vessel.[9] He succeeded in avoiding the power barge, but when the engine was re-started and the ship was maneuvered full astern, it hit the deflector wall constructed by respondent. Respondent demanded payment of the damage from petitioner but the latter refused to pay. The trial court ruled that petitioner was not guilty of negligence because it had taken all the necessary precautions to avoid the accident. Applying the "emergency rule", it absolved petitioner of liability because the latter had no opportunity to adequately weigh the best solution to a threatening situation. It further held that even if the maneuver chosen by petitioner was a wrong move, it cannot be held liable as the cause of the damage sustained by respondent was typhoon "Katring", which is an act of God. On appeal to the Court of Appeals, the decision of the trial court was reversed and set aside. It found Capt. Jusep guilty of negligence in deciding to transfer the vessel to the North Harbor only at 8:35 a.m. of October 21, 1994 and thus held petitioner liable for damages. ISSUES: 1. Whether or not Capt. Jusep was negligent; 2. If yes, whether or not petitioner is solidarily liable under for the quasi-delict committed by Capt. Jusep? RULING: Article 2176 of the Civil Code provides that whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict. The test for determining the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent person would have used in the same situation? If not, then he is guilty of negligence. Page | 70

In the case at bar, the Court of Appeals was correct in holding that Capt. Jusep was negligent in deciding to transfer the vessel only at 8:35 in the morning of October 21, 1994. As early as 12:00 midnight of October 20, 1994, he received a report from his radio head operator in Japan that a typhoon was going to hit Manila after 8 hours. This, notwithstanding, he did nothing, until 8:35 in the morning of October 21, 1994, when he decided to seek shelter at the North Harbor, which unfortunately was already congested. The finding of negligence cannot be rebutted upon proof that the ship could not have sought refuge at the North Harbor even if the transfer was done earlier. It is not the speculative success or failure of a decision that determines the existence of negligence in the present case, but the failure to take immediate and appropriate action under the circumstances. Capt. Jusep, despite knowledge that the typhoon was to hit Manila in 8 hours, complacently waited for the lapse of more than 8 hours thinking that the typhoon might change direction. Furthermore, he did not transfer as soon as the sun rose because, according to him, it was not very cloudy and there was no weather disturbance yet. Anent the second issue, we find petitioner vicariously liable for the negligent act of Capt. Jusep. Under Article 2180 of the Civil Code an employer may be held solidarily liable for the negligent act of his employee. Thus Art. 2180. The obligation imposed in Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. Whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees. To avoid liability for a quasi-delict committed by his employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee. There is no question that petitioner, who is the owner/operator of M/V Delsan Express, is also the employer of Capt. Jusep who at the time of the incident acted within the scope of his duty. The defense raised by petitioner was that it exercised due diligence in the selection of Capt. Jusep because the latter is a licensed and competent Master Mariner. It should be stressed, however, that the required diligence of a good father of a family pertains not only to the selection, but also to the supervision of employees. It is not enough that the employees chosen be competent and qualified, inasmuch as the employer is still required to exercise due diligence in supervising its employees.

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PCIB VS. CA GR No. 121413 January 29, 2001 FACTS: The plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff’s percentage or manufacturer’s sales taxes for the third quarter of 1977. The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank. The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner of Internal Revenue. As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers’ sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal Revenue. The Acting Commissioner of Internal Revenue addressed to the plaintiff that its check in the amount of P4,746,114.41 was not paid to the government or its authorized agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon advice of the plaintiff’s lawyers, plaintiff paid to the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiff’s percentage tax for the third quarter of 1977. Plaintiff demanded defendant to reimburse him of the said amount paid for the second time to BIR but the latter refused. ISSUE: Whether PCIB is liable to Ford Philippines the amount of several checks which were allegedly embezzled by a syndicate group. RULING: Jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive. Since a master may be held for his servant’s wrongful act, the law imputes to the master the act of the servant, and if that act is negligent or wrongful and proximately results in injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of the master, for which he is liable. The general rule is that if the master is injured by the negligence of a third person and by the concurring contributory negligence of his own servant or agent, the latter’s negligence is imputed to his superior and will defeat the superior’s action against the third person, assuming, of course that the contributory negligence was the proximate cause of the injury of which complaint is made. It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their actions were not the proximate Page | 72

cause of encashing the checks payable to the CIR. The degree of Ford’s negligence, if any, could not be characterized as the proximate cause of the injury to the parties. Citibank should have scrutinized Citibank Check before paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, constitutes negligence in carrying out the bank’s duty to its depositors. 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. Citibank must likewise answer for the damages incurred by Ford on Citibank Checks because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter.

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SAN MIGUEL CORPORATION AND HEIRS OF OUANA VS. CA GR No. 141716 July 4, 2002 FACTS: San Miguel Corporation entered into a Time Charter Party Agreement with Julius Ouano, doing business under the name and style J. Ouano Marine Services. Under the terms of the agreement, SMC chartered the M/V Doña Roberta owned by Julius Ouano for a period of two years, from June 1, 1989 to May 31, 1991, for the purpose of transporting SMC’s beverage products from its Mandaue City plant to various points in Visayas and Mindanao. On November 11, 1990, during the term of the charter, SMC issued sailing orders to the Master of the MN Doña Roberta, Captain Sabiniano Inguito, to sail for Opol, Cagayan Nov. 12, 1990. Meanwhile, at 4:00 a.m. of November 12, 1990, typhoon Ruping was spotted 570 kilometers east-southeast of Borongan, Samar, moving westnorthwest at 22 kilometers per hour in the general direction of Eastern Visayas. The typhoon had maximum sustained winds of 240 kilometers per hour near the center with gustiness of up to 280 kilometers per hour. At 7:00 a.m., November 12, 1990, one hour after the M/V Doña Roberta departed from Mandaue City SMC Radio Operator Rogelio P. Moreno contacted Captain Inguito through the radio and advised him to take shelter. Captain Inguito replied that they will proceed since the typhoon was far away from them, and that the winds were in their favor. At 1:15 a.m., November 13, 1990, Captain Inguito called Moreno over the radio and requested him to contact Rico Ouano, son of Julius Ouano, because they needed a helicopter to rescue them. The vessel was about 20 miles west of Sulauan Point. Upon being told by SMC’s radio operator, Rico Ouano turned on his radio and read the distress signal from Captain Ingiuto. When he talked to the captain, the latter requested for a helicopter to rescue them. Rico Ouano talked to the Chief Engineer who informed him that they can no longer stop the water from coming into the vessel because the crew members were feeling dizzy from the petroleum fumes. At 2:30 a.m. of November 13, 1990, the M/V Doña Roberta sank. Out of the 25 officers and crew on board the vessel, only five survived. ISSUE: Whether or nor Ouano is liable for the negligence of his employee. RULING: A charter party is a contract by virtue of which the owner or the agent of a vessel binds himself to transport merchandise or persons for a fixed price. It has also been defined as a contract by virtue of which the owner or the agent of the vessel leases for a certain price the whole or a portion of the vessel for the transportation of goods or persons from one port to another. If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of Page | 74

ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship. SC concur with the findings of the Court of Appeals that the charter party in these cases was a contract of affreightment, contrary to petitioner Ouano’s protestation that it was a demise charter. It appearing that Ouano was the employer of the captain and crew of the M/V Doña Roberta during the term of the charter, he therefore had command and control over the vessel. His son, Rico Ouano, even testified that during the period that the vessel was under charter to SMC, the Captain thereof had control of the navigation of all voyages. Under the foregoing definitions, as well as the clear terms of the Charter Party Agreement between the parties, the charterer, SMC, should be free from liability for any loss or damage sustained during the voyage, unless it be shown that the same was due to its fault or negligence. The evidence does not show that SMC or its employees were amiss in their duties. The facts indubitably establish that SMC’s Radio Operator, Rogelio P. Moreno, who was tasked to monitor every shipment of its cargo, contacted Captain Inguito as early as 7:00 a.m., one hour after the M/V Doña Roberta departed from Mandaue, and advised him to take shelter from typhoon Ruping. This advice was reiterated at 2:00 p.m. At that point, Moreno thought of calling Ouano?s son, Rico, but failed to find him. At 4:00 p.m., Moreno again advised Captain Inguito to take shelter and stressed the danger of venturing into the open sea. The Captain insisted that he can handle the situation. In the assailed decision, the Court of Appeals found that the proximate cause of the sinking of the vessel was the negligence of Captain Sabiniano Inguito SC likewise agrees with the CA that Ouano is vicariously liable for the negligent acts of his employee, Captain Inguito. Under Articles 2176 and 2180 of the Civil Code, owners and managers are responsible for damages caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent either in the selection or in the supervision of that employee. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee. 39 Ouano miserably failed to overcome the presumption of his negligence. He failed to present proof that he exercised the due diligence of a bonus paterfamilias in the selection and supervision of the captain of the M/V Doña Roberta. Hence, he is vicariously liable for the loss of lives and property occasioned by the lack of care and negligence of his employee

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MERCURY DRUG CORPORATION VS. HUANG GR No. 172122 June 22, 2007 FACTS: Petitioner Mercury Drug is the registered owner of a six-wheeler 1990 Mitsubishi Truck. It has in its employ petitioner Rolando Del Rosario as driver. Respondent spouses Richard and Carmen Huang are the parents of respondent Stephen Huang and own the red 1991 Toyota Corolla. These two vehicles figured in a road accident. At the time of the accident, petitioner Del Rosario only had a Traffic Violation Receipt. A driver’s license had been confiscated because he had been previously apprehended for reckless driving. Respondent Stephen Huang sustained massive injuries to his spinal cord, head, face and lung. He is paralyzed for life from his chest down and requires continuous medical and rehabilitation treatment. Respondent’s fault petitioner Del Rosario for committing gross negligence and reckless imprudence while driving, and petitioner Mercury Drug for failing to exercise the diligence of a good father of a family in the selection and supervision of its driver. The trial court found Mercury Drug and Del Rosario jointly and severally liable to pay respondents. The Court of Appeals affirmed the said decision. ISSUE: Whether or not petitioner Mercury Drug is liable for the negligence of its employee. RULING: Article 2176 and 2180 of the Civil Code provide: “Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damages done. Such fault or negligence, if there is no pre-existing contractual relationship between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.” “The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible.” The liability of the employer under Article 2180 is direct and immediate. It is not conditioned on a prior recourse against the negligent employee, or a prior showing of insolvency of such employee. It is also joint and solidary with the employee. To be relieved f the liability, petitioner should show that it exercised the diligence of a good father of a family, both in the selection of the employee and in the supervision of the performance of his duties. In this case, the petitioner Mercury Drug does not provide for back-up driver for long trips. As the time of the accident, Del Rosario has been driving for more than thirteen hours, without any alternate. Moreover, Del Rosario took the driving test and psychological exam for the position of Delivery Man and not as Truck Man. With this, petitioner Mercury Drug is liable jointly and severally liable to pay the respondents. Page | 76

MENDOZA VS. SORIANO GR No. 164012 June 8, 2007 FACTS: Sonny Soriano, while crossing Commonwealth Avenue near Luzon Avenue, was hit by a speeding Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five meters away, while the vehicle stopped some 25 meters from the point of impact. Gerard Villaspin, one of Soriano’s companions, asked Macasasa to bring Soriano to the hospital, but the first flee. Respondent’s wife and daughter filed a complaint for damages against Macasasa and petitioner Flordeliza Mendoza, the registered owner of the vehicle. Petitioner Mendoza contends that she was not liable since as owner of the vehicle, she had exercised the diligence of a good father of a family over her employee. Macasas. The trial court dismissed the complaint against Macasasa and Mendoza. It found Soriano negligent for crossing not in the pedestrian overpass. The Court of Appeals, on the other hand, reversed the assailed decision of the lower court. ISSUE: Whether or not petitioner is liable for damages. RULING: While the appellate court agreed that Soriano was negligent, it also found Macasasa negligent for speeding, such that he was unable to avoid hitting the victim. It observed that Soriano’s own negligence did not preclude recovery for damages from Macasasa’s negligence. It further held that since petitioner failed to present evidenced to the contrary and conformably with Article 2180 of the Civil Code, the presumption of negligence of the employer in the selection and supervision of employees stood. The records show that Macasasa violated two traffic rules under the Land Transportation and Office Code. Under Article 2185 of the Civil Code, a person driving a motor vehicle is presumed negligent if at the time of the mishap, he was violating traffic regulations. Further, under Article 2180, employers are liable for the damages caused by their employees acting within the scope of their assigned tasks. The liability arises due to the presumed negligence of the employers in supervising their employees unless they prove that they observed all the diligence of a good father of a family to prevent the damage. In this case petitioner is held primarily and solidarily liable for the damages caused by Macasasa. However, Article 2179 states that “when the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the court shall mitigate the damages awarded.

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Ruling that Soriano was guilty of contributory negligence for not using the pedestrian overpass, 20% reduction of the amount of the damages awarded was awarded to petitioner.

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CEREZO VS. TUAZON GR No. 141538 March 23, 2004 FACTS: Country Bus Lines passenger bus collided with a tricycle. Tricycle driver Tuazon filed a complaint for damages against Mrs. Cerezo, as owner of the bus line, her husband Attorney Juan Cerezo, and bus driver Danilo A. Foronda. After considering Tuazon’s testimonial and documentary evidence, the trial court ruled in Tuazon’s favor. The trial court made no pronouncement on Foronda’s liability because there was no service of summons on him. The trial court did not hold Atty. Cerezo liable as Tuazon failed to show that Mrs. Cerezo’s business benefited the family, pursuant to Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely liable for the damages sustained by Tuazon arising from the negligence of Mrs. Cerezo’s employee, pursuant to Article 2180 of the Civil Code. ISSUE: Whether petitioner is solidarily liable. RULING: Contrary to Mrs. Cerezo’s assertion, Foronda is not an indispensable party to the case. An indispensable party is one whose interest is affected by the court’s action in the litigation, and without whom no final resolution of the case is possible. However, Mrs. Cerezo’s liability as an employer in an action for a quasi-delict is not only solidary, it is also primary and direct. Foronda is not an indispensable party to the final resolution of Tuazon’s action for damages against Mrs. Cerezo. The responsibility of two or more persons who are liable for a quasi-delict is solidary. Where there is a solidary obligation on the part of debtors, as in this case, each debtor is liable for the entire obligation. Hence, each debtor is liable to pay for the entire obligation in full. There is no merger or renunciation of rights, but only mutual representation. Where the obligation of the parties is solidary, either of the parties is indispensable, and the other is not even a necessary party because complete relief is available from either. Therefore, jurisdiction over Foronda is not even necessary as Tuazon may collect damages from Mrs. Cerezo alone. Moreover, an employer’s liability based on a quasi-delict is primary and direct, while the employer’s liability based on a delict is merely subsidiary. The words “primary and direct,” as contrasted with “subsidiary,” refer to the remedy provided by law for enforcing the obligation rather than to the character and limits of the obligation. Although liability under Article 2180 originates from the negligent act of the employee, the aggrieved party may sue the employer directly. When an employee causes damage, the law presumes that the employer has himself committed an act of negligence in not preventing or avoiding the damage. This is the fault that the law condemns. While the employer is civilly liable in a subsidiary capacity for the employee’s criminal negligence, the employer is also civilly liable directly and separately for his own civil negligence in failing to exercise due diligence in selecting and supervising his employee. The idea that the employer’s liability is solely subsidiary is wrong. Page | 79

To hold the employer liable in a subsidiary capacity under a delict, the aggrieved party must initiate a criminal action where the employee’s delict and corresponding primary liability are established. If the present action proceeds from a delict, then the trial court’s jurisdiction over Foronda is necessary. However, the present action is clearly for the quasi-delict of Mrs. Cerezo and not for the delict of Foronda. Thus, the petition was denied ordering the defendant Hermana Cerezo to pay the plaintiff. VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS GR No. 54080 November 22, 2000 FACTS: Defendant Alberto delos Santos was the driver of defendant Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At about 12:30 in the afternoon, he was driving said truck along the National Highway within the vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to the right shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite direction. With the driver of another truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of the Viron bus proceeded to report the incident to the Police Station. Both the RTC and the CA rendered its decision in favor of the private respondents. ISSUE: Whether the employer is liable to the negligence of his employee. RULING: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primarily liable for the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That presumption, however, is only jusris tantum, not juris et de jure. Their only possible defense is that they exercised all the diligence of a good father of a family to prevent the damage. In fine, when the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in the selection and supervision of employees, thus, petitioner as the employer is responsible for damages, the basis of the liability being the Page | 80

relationship of pater familias or on the employer’s own negligence. Hence, with the allegations and subsequent proof of negligence against the bus driver of petitioner, petitioner (employer) is liable for damages. MERCURY DRUG CORPORATION VS. BAKING GR No. 57435 May 25, 2007 FACTS: Sebastian Baking, respondent, went to the clinic of Dr. Cesar Sy for a medical check-up. Dr. Sy gave respondent two medical prescriptions – Diomicron for his blood sugar and Benalize tablets for his triglyceride. Respondent then proceeded to petitioner Mercury Drug Corporation (Alabang Branch) to buy the prescribed medicines. However, the saleslady misread the prescription Diamicron as a prescription for Dormicum. Unaware that what was given to him was the wrong medicine, respondent took one pill of dormicum on three consecutive days. On the third day he took the medicine, and he figured in a vehicular accident. The car he was driving collided with the car of one Jose Peralta. Respondent fell asleep while driving he could not remember anything about the collision nor felt its impact. Suspecting that the tablet he took may have bearing on his physical and mental state at the time of the collision, respondent returned to Dr. Sy. Upon being shown the medicine, Dr. Sy was shocked to find that what was sold to him was Dormicum, instead of the prescribed Diamicron The RTC and CA rendered their decision in favor of respondent. ISSUE: Whether petitioner was negligent, and if so, whether such negligence was the proximate cause of respondent’s accident. RULING: Article 2176 states that “whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damages done. Such fault or negligence, if there is no pre-existing contractual relationship between the parties, is called a quasi-delict…” Obviously, petitioner’s employee was grossly negligent in selling respondent domicrum, instead of the prescribed diamicron. Considering that a fatal mistake could be a matter of life and death for a buying patient, the employee should have been very cautious in dispensing medicines. Petitioner contends that the proximate cause of the accident was respondent’s negligence in driving. The court disagrees. The accident could have not occurred had petitioner’s employee been careful in reading the prescription.

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Article 2180 in complementing the preceding article states that “the obligation imposed by articles 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible” It is thus clear that the employer of a negligent employee is liable for the damages caused by the latter. When an injury is caused by the negligence of an employee, there instantly arises a presumption of the law that there has been negligence on the part of the employer either in the selection of the employee or the supervision over him, after such selection. The presumption, however, may be rebutted by a clear showing on the part of the employer that he has exercised the care and diligence of a good father of a family in the selection and supervision of his employee. In this case, petitioner failed to prove such exercised of due diligence of a good father of a family in the selection and supervision of employee, thus making the petitioner solidarily liable for the damages.

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SAFEGUARD SECURITY V. TANGCO GR No. 165732 December 14, 2006 FACTS: Evangeline Tangco (Evangeline) went to Ecology Bank, Katipunan Branch, Quezon City, to renew her time deposit per advise of the bank's cashier as she would sign a specimen card. Evangeline, a duly licensed firearm holder with corresponding permit to carry the same outside her residence, approached security guard Pajarillo, who was stationed outside the bank, and pulled out her firearm from her bag to deposit the same for safekeeping. Suddenly, Pajarillo shot Evangeline with his service shotgun hitting her in the abdomen instantly causing her death. Respondent filed a complaint for damages against Pajarillo for negligently shooting Evangeline and against Safeguard for failing to observe the diligence of a good father of a family to prevent the damage committed by its security guard. Petitioners denied the material allegations in the complaint and alleged that Safeguard exercised the diligence of a good father of a family in the selection and supervision of Pajarillo; that Evangeline's death was not due to Pajarillo's negligence as the latter acted only in self-defense. The RTC found respondents to be entitled to damages. It rejected Pajarillo's claim that he merely acted in self-defense. The RTC also found Safeguard as employer of Pajarillo to be jointly and severally liable with Pajarillo. It ruled that while it may be conceded that Safeguard had perhaps exercised care in the selection of its employees, particularly of Pajarillo, there was no sufficient evidence to show that Safeguard exercised the diligence of a good father of a family in the supervision of its employee. ISSUES: 1. Whether Pajarillo is guilty of negligence in shooting Evangeline; and 2. Whether Safeguard should be held solidarily liable for the damages awarded to respondents. RULING: ARTICLE 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties is called a quasi-delict and is governed by the provisions of this Chapter. Safeguard contends that it cannot be jointly held liable since it had adequately shown that it had exercised the diligence required in the selection and supervision of its employees. It claims that it had required the guards to undergo the necessary training and to submit the requisite qualifications and credentials which even the RTC found to have been complied with; that the RTC erroneously found that it did not exercise the diligence required in the supervision of its employee. Safeguard further claims that it conducts monitoring of the activities of its personnel, wherein supervisors are assigned Page | 83

to routinely check the activities of the security guards which include among others, whether or not they are in their proper post and with proper equipment, as well as regular evaluations of the employees' performances; that the fact that Pajarillo loaded his firearm contrary to Safeguard's operating procedure is not sufficient basis to say that Safeguard had failed its duty of proper supervision; that it was likewise error to say that Safeguard was negligent in seeing to it that the procedures and policies were not properly implemented by reason of one unfortunate event. The Supreme Court was not convinced. Article 2180 of the Civil Code provides: The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. As the employer of Pajarillo, Safeguard is primarily and solidarily liable for the quasi-delict committed by the former. Safeguard is presumed to be negligent in the selection and supervision of his employee by operation of law. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, due diligence in the supervision of employees includes the formulation of suitable rules and regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons with whom the employer has relations through his or its employees and the imposition of necessary disciplinary measures upon employees in case of breach or as may be warranted to ensure the performance of acts indispensable to the business of and beneficial to their employer. To this, we add that actual implementation and monitoring of consistent compliance with said rules should be the constant concern of the employer, acting through dependable supervisors who should regularly report on their supervisory functions. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence.

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PLEYTO VS. LOMBOY GR No. 148737 December 16, 2004 FACTS: Respondent Maria D. Lomboy of Calasiao, Pangasinan, is the surviving spouse of the late Ricardo Lomboy, who died in Pasolingan, Gerona, Tarlac, in a vehicular accident. The accident was a head-on collision between the PRBL bus driven by petitioner Pleyto and the car where Ricardo was a passenger. Carmela suffered injuries requiring hospitalization in the same accident which resulted in her father’s death. According to Rolly Orpilla, a witness and one of the bus passengers, Pleyto tried to overtake Esguerra’s tricycle but hit it instead. Pleyto then swerved into the left opposite lane. Coming down the lane, some fifty meters away, was a southbound Mitsubishi Lancer car, driven by Arnulfo Asuncion. The car was headed for Manila with some passengers. Seated beside Arnulfo was his brother-in-law, Ricardo Lomboy, while in the back seat were Ricardo’s 18-year old daughter Carmela and her friend, one Rhino Daba. PRBL Bus No. 1539 smashed head-on the car, killing Arnulfo and Ricardo instantly. Carmela and Rhino suffered injuries, but only Carmela required hospitalization. The Court of Appeals found PRBL liable for Pleyto’s negligence pursuant to Article 2180 in relation to Article 2176 of the Civil Code. Under Article 2180, when an injury is caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent either in the selection or in the supervision of that employee. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee. ISSUE: Page | 85

Did petitioner observed the proper diligence of a good father of a family? RULING: The negligence and fault of appellant driver is manifest. He overtook the tricycle despite the oncoming car only fifty (50) meters away from him. Defendant-appellant’s claim that he was driving at a mere 30 to 35 kilometers per hour does not deserve credence as it would have been easy to stop or properly maneuver the bus at this speed. The speed of the bus, the drizzle that made the road slippery, and the proximity of the car coming from the opposite direction were duly established by the evidence. The speed at which the bus traveled, inappropriate in the light of the aforementioned circumstances, is evident from the fact despite the application of the brakes, the bus still bumped the tricycle, and then proceeded to collide with the incoming car with such force that the car was pushed beyond the edge of the road to the ricefield. In the present case, petitioners presented several documents in evidence to show the various tests and pre-qualification requirements imposed upon petitioner Pleyto before his hiring as a driver by PRBL. However, no documentary evidence was presented to prove that petitioner PRBL exercised due diligence in the supervision of its employees, including Pleyto. Citing precedents, the Court of Appeals opined, In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and plausible, it is not enough for the employer to emptily invoke the existence of company guidelines and policies on hiring and supervision. As the negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter has the burden of proving that it has been diligent not only in the selection of employees but also in the actual supervision of their work. The mere allegation of the existence of hiring procedures and supervisory policies without anything more is decidedly not sufficient to overcome such presumption. VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS GR No. 54080 November 22, 2000 FACTS: Defendant Alberto delos Santos was the driver of defendant Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At about 12:30 in the afternoon, he was driving said truck along the National Highway within the vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to the right shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite direction. With the driver of another truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of the Viron bus proceeded to report the incident to the Police Station. Page | 86

Both the RTC and the CA rendered its decision in favor of the private respondents. ISSUE: Whether the employer is liable to the negligence of his employee. RULING: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primarily liable for the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That presumption, however, is only jusris tantum, not juris et de jure. Their only possible defense is that they exercised all the diligence of a good father of a family to prevent the damage. In fine, when the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in the selection and supervision of employees, thus, petitioner as the employer is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. Hence, with the allegations and subsequent proof of negligence against the bus driver of petitioner, petitioner (employer) is liable for damages. SYKI VS. BEGASA GR No. 149149 October 23, 2003 FACTS: Respondent Salvador Begasa and his three companions flagged down a passenger jeepney driven by Joaquin Espina and owned by Aurora Pisuena. While respondent was boarding the passenger jeepney (his right foot already inside while his left foot still on the boarding step of the passenger jeepney), a truck driven by Elizalde Sablayan and owned by petitioner Ernesto Syki bumped the rear end of the passenger jeepney. Respondent fell and fractured his left thigh bone. Respondent filed a complaint for damages for breach of common carrier’s contractual obligations and quasi-delict against Aurora Pisuena, the owner of the passenger jeepney;, herein petitioner Ernesto Syki, the owner of the truck;, and Elizalde Sablayan, the driver of the truck. After hearing, the trial court dismissed the complaint against Aurora Pisuena, the owner and operator of the passenger jeepney, but ordered petitioner Ernesto Syki and his truck driver, Elizalde Sablayan, to pay respondent Salvador Begasa, jointly and severally ISSUE: Page | 87

1. Whether or not petitioner is liable for the act of his employee. 2. Whether he exercised the diligence of a good father of a family. RULING: 1. Article 2180 of the Civil Code provides: Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. From the above provision, when an injury is caused by the negligence of an employee, a legal presumption instantly arises that the employer was negligent, either or both, in the selection and/or supervision of his said employee duties. The said presumption may be rebutted only by a clear showing on the part of the employer that he had exercised the diligence of a good father of a family in the selection and supervision of his employee. If the employer successfully overcomes the legal presumption of negligence, he is relieved of liability. In other words, the burden of proof is on the employer. 2. The question is: how does an employer prove that he had indeed exercised the diligence of a good father of a family in the selection and supervision of his employee. Making proof in its or his case, it is paramount that the best and most complete evidence is formally entered. In the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses’ testimonies dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was observance of due diligence in the selection and supervision of employees. Petitioner’s attempt to prove its “deligentissimi patris familias” in the selection and supervision of employees through oral evidence must fail as it was unable to buttress the same with any other evidence, object or documentary, which might obviate the apparent biased nature of the testimony. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, with respect to the supervision of employees, employers should formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence. The employer must not merely present testimonial evidence to prove that he had observed the diligence of a good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased nature of the employer’s testimony or that of his witnesses. In this case, petitioner’s evidence consisted entirely of testimonial evidence. He testified that before he hired Elizalde Sablayan, he required him to submit a police clearance in order to determine if he was ever involved in any vehicular accident. He also required Sablayan to undergo a driving test with conducted by his mechanic, Esteban Jaca. Petitioner claimed that he, in fact, accompanied Sablayan during the Page | 88

driving test and that during the test, Sablayan was taught to read and understand traffic signs like “Do Not Enter,” “One Way,” “Left Turn,” and “Right Turn.” Petitioner’s mechanic, Esteban Jaca, on the other hand, testified that Sablayan passed the driving test and had never figured in any vehicular accident except the one in question. He also testified that he maintained in good condition all the trucks of petitioner by checking the brakes, horns and tires thereof before leaving for providing hauling services. Petitioner, however, never presented the alleged police clearance given to him by Sablayan, nor the results of Sablayan’s driving test. Petitioner also did not present records of the regular inspections that his mechanic allegedly conducted. In sum, the sole and proximate cause of the accident was the negligence of petitioner’s driver who, as found by the lower courts, did not slow down even when he was already approaching a busy intersection within the city proper. The passenger jeepney had long stopped to pick up respondent and his three companions and, in fact, respondent was already partly inside the jeepney, when petitioner’s driver bumped the rear end ofrear-ended it. Since the negligence of petitioner’s driver was the sole and proximate cause of the accident, in the present case, petitioner is liable, under Article 2180 of the Civil Code, to pay damages to respondent Begasa for the injuries sustained by latter.

YAMBAO VS. ZUNIGA GR No. 146173 December 11, 2003 FACTS: The bus owned by the petitioner was being driven by her driver, one Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA). With Venturina was the bus conductor, Fernando Dumaliang. Suddenly, the bus bumped Page | 89

Herminigildo Zuñiga, a pedestrian. Such was the force of the impact that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter. Private respondents, as heirs of the victim, filed a Complaint against petitioner and her driver, Venturina, for damages. The complaint essentially alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules and regulations, without due regard to public safety, thus resulting in the victim’s premature death. The petitioner vehemently denied the material allegations of the complaint. She tried to shift the blame for the accident upon the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was chasing him. She further alleged that she was not liable for any damages because as an employer, she exercised the proper diligence of a good father of a family, both in the selection and supervision of her bus driver. ISSUE: Whether or not petitioner observed the diligence of a good father of a family, so as not to be liable for the act committed by her employee? RULING: It held that this was a case of quasi-delict, there being no pre-existing contractual relationship between the parties. The court a quo then found the petitioner directly and primarily liable as Venturina’s employer pursuant to Article 2180 of the Civil Code as she failed to present evidence to prove that she has observed the diligence of a good father of a family in the selection and supervision of her employees. Art. 2180 states that “the obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible” Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. Petitioner contends that as an employer, she observed the proper diligence of a good father of a family, both in the selection and supervision of her driver and therefore, is relieved from any liability for the latter’s misdeed. To support her claim, she points out that when Venturina applied with her as a driver in January 1992, she required him to produce not just his driver’s license, but also clearances from the National Bureau of Investigation (NBI), the Philippine National Police, and the barangay where he resides. She also required him to present his Social Security System (SSS) Number prior to accepting him for employment. She likewise stresses that she inquired from Venturina’s previous employer about his employment record, and only hired him after it was shown to her satisfaction that he had no blot upon his record. In sum, petitioner’s liability to private respondents for the negligent and imprudent acts of her driver, Venturina, under Article 2180 of the Civil Code is both manifest and clear. Petitioner, having failed to rebut the legal presumption of Page | 90

negligence in the selection and supervision of her driver, is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. REGINO VS. PANGASINAN COLLEGES GR No. 156109 November 18, 2004 FACTS: Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of Science and Technology (PCST). In February 2002, PCST held a fund raising campaign dubbed the “Rave Party and Dance Revolution,” the proceeds of which were to go to the construction of the school’s tennis and volleyball courts. Each student was required to pay for two tickets at the price of P100 each. The project was allegedly implemented by recompensing students who purchased tickets with additional points in their test scores; those who refused to pay were denied the opportunity to take the final examinations. Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to pay for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from taking the tests. ISSUE: Whether or not the purchased of the tickets are mandatory and are part of the contract between school and student. RULING: Reciprocity of the School-Student Contract The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and inherent in all contracts of such kind -- it gives rise to bilateral or reciprocal rights and obligations. The school undertakes to provide students with education sufficient to enable them to pursue higher education or a profession. On the other hand, the students agree to abide by the academic requirements of the school and to observe its rules and regulations. The terms of the school-student contract are defined at the moment of its inception -- upon enrolment of the student. Standards of academic performance and the code of behavior and discipline are usually set forth in manuals distributed to new students at the start of every school year. Further, schools inform prospective enrollees the amount of fees and the terms of payment. In practice, students are normally required to make a down payment upon enrollment, with the balance to be paid before every preliminary, midterm and final examination. Their failure to pay their financial obligation is regarded as a valid ground for the school to deny them the opportunity to take these examinations. Page | 91

The foregoing practice does not merely ensure compliance with financial obligations; it also underlines the importance of major examinations. Failure to take a major examination is usually fatal to the students’ promotion to the next grade or to graduation. Examination results form a significant basis for their final grades. These tests are usually a primary and an indispensable requisite to their elevation to the next educational level and, ultimately, to their completion of a course. Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic standards, completion of academic requirements and observance of school rules and regulations, the school would reward them by recognizing their “completion” of the course enrolled in. PCST imposed the assailed revenue-raising measure belatedly, in the middle of the semester. It exacted the dance party fee as a condition for the students’ taking the final examinations, and ultimately for its recognition of their ability to finish a course. The fee, however, was not part of the school-student contract entered into at the start of the school year. Hence, it could not be unilaterally imposed to the prejudice of the enrollees. YHT REALTY VS. CA GR. No. 126780 February 17, 2005 FACTS: McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through the use of two keys, one of which is given to the registered guest, and the other remaining in the possession of the management of the hotel. When a registered guest wished to open his safety deposit box, he alone could personally request the management who then would assign one of its employees to accompany the guest and assist him in opening the safety deposit box with the two keys. However, when he returned coming from a trip, he noticed that his money in the envelope was lacking and that the jewelries were gone. ISSUE: Whether petitioner is liable for the loss of the personal properties of respondent. RULING: Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. Article 2180 provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such Page | 92

employer. Thus, given the fact that the loss of McLoughlin’s money was consummated through the negligence of Tropicana’s employees in allowing Tan to open the safety deposit box without the guest’s consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable. 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. The hotel business like the common carrier’s business is imbued with public interest. 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 socalled “undertakings” that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guest’s relatives and visitors. RAMOS VS. CA GR No. 124354 December 29, 1999 FACTS: Plaintiff Erlinda Ramos was a robust woman Except for occasional complaints of discomfort due to pains allegedly caused by the presence of a stone in her gall bladder. Because the discomforts somehow interfered with her normal ways, she sought professional advice. She was advised to undergo an operation for the removal of a stone in her gall bladder. Through the intercession of a mutual friend, Dr. Buenviaje she and her husband Rogelio met for the first time Dr. Orlino one of the defendants in this case, on June 10, 1985. They agreed that their date at the operating table at the DLSMC (another defendant. Dr. Hosaka decided that she should undergo a "cholecystectomy" operation after examining the documents (findings from the Capitol Medical Center, FEU Hospital and DLSMC) presented to him. Rogelio E. Ramos, however, asked Dr. Hosaka to look for a good anesthesiologist. Dr. Hosaka, in turn, assured Rogelio that he will get a good anesthesiologist. Dr. Hosaka charged a fee of P16,000.00, which was to include the anesthesiologist's fee and which was to be paid after the operation. A day Page | 93

before the scheduled date of operation, she was admitted at one of the rooms of the DLSMC, located along E. Rodriguez Avenue, Quezon City. At around 7:30 A.M. of June 17, 1985 and while still in her room, she was prepared for the operation by the hospital staff. Her sister-in-law, Herminda Cruz, who was the Dean of the College of Nursing at the Capitol Medical Center, was also there for moral support. Herminda was allowed to stay inside the operating room. At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look for Dr. Hosaka who was not yet in Dr. Gutierrez thereafter informed Herminda Cruz about the prospect of a delay in the arrival of Dr. Hosaka. Herminda then went back to the patient who asked, "Mindy, wala pa ba ang Doctor"? The former replied, "Huwag kang magalaala, darating na iyon. Thereafter, Herminda went out of the operating room and informed the patient's husband, Rogelio, that the doctor was not yet around. At about 12:15 P.M., Herminda Cruz, who was inside the operating room with the patient, heard somebody say that "Dr. Hosaka is already here." She then saw people inside the operating room "moving, doing this and that, preparing the patient for the operation" As she held the hand of Erlinda Ramos, she then saw Dr. Gutierrez intubating the hapless patient. She thereafter heard Dr. Gutierrez say, "ang hirap maintubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan", because of the remarks of Dra. Gutierrez, she focused her attention on what Dr. Gutierrez was doing. She thereafter noticed bluish discoloration of the nailbeds of the left hand of the hapless Erlinda even as Dr. Hosaka approached her. She then heard Dr. Hosaka issue an order for someone to call Dr. Calderon, another anesthesiologist. After Dr. Calderon arrived at the operating room, she saw this anesthesiologist trying to intubate the patient. The patient's nailbed became bluish and the patient was placed in a trendelenburg position a position where the head of the patient is placed in a position lower than her feet which is an indication that there is a decrease of blood supply to the patient's brain. Immediately thereafter, she went out of the operating room, and she told Rogelio E. Ramos "that something wrong was happening". Dr. Calderon was then able to intubate the patient. Meanwhile, Rogelio, who was outside the operating room, saw a respiratory machine being rushed towards the door of the operating room. He also saw several doctors rushing towards the operating room. When informed by Herminda Cruz that something wrong was happening, he told her (Herminda) to be back with the patient inside the operating room. Herminda immediately rushed back, and saw that the patient was still in trendelenburg position. At almost 3:00 P.M. of that fateful day, she saw the patient taken to the Intensive Care Unit (ICU). Doctors Gutierrez and Hosaka were also asked by the hospital to explain what happened to the patient. The doctors explained that the patient had bronchospasm. Erlinda Ramos stayed at the ICU for a month. About four months thereafter the patient was released from the hospital. ISSUE: 1. Whether the respondent doctors are negligent. 2. Whether the respondent doctors and the hospital are solidarily liable. RULING: Page | 94

Res ipsa loquitur is a Latin phrase which literally means "the thing or the transaction speaks for itself." The phrase "res ipsa loquitur" is a maxim for the rule that the fact of the occurrence of an injury, taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiff's prima facie case, and present a question of fact for defendant to meet with an explanation At the time of submission, Erlinda was neurologically sound and, except for a few minor discomforts, was likewise physically fit in mind and body. However, during the administration of anesthesia and prior to the performance of cholecystectomy she suffered irreparable damage to her brain. Thus, without undergoing surgery, she went out of the operating room already decerebrate and totally incapacitated. Obviously, brain damage, which Erlinda sustained, is an injury which does not normally occur in the process of a gall bladder operation. In fact, this kind of situation does not happen in the absence of negligence of someone in the administration of anesthesia and in the use of endotracheal tube. Normally, a person being put under anesthesia is not rendered decerebrate as a consequence of administering such anesthesia if the proper procedure was followed. Furthermore, the instruments used in the administration of anesthesia, including the endotracheal tube, were all under the exclusive control of private respondents, who are the physicians-in-charge. Likewise, petitioner Erlinda could not have been guilty of contributory negligence because she was under the influence of anesthetics which rendered her unconscious. With regard to Dra. Gutierrez, we find her negligent in the care of Erlinda during the anesthesia phase. As borne by the records, respondent Dra. Gutierrez failed to properly intubate the patient. The Court finds that she omitted to exercise reasonable care in not only intubating the patient, but also in not repeating the administration of atropine without due regard to the fact that the patient was inside the operating room for almost three (3) hours. For after she committed a mistake in intubating the patient, the patient's nailbed became bluish and the patient, thereafter, was placed in trendelenburg position, because of the decrease of blood supply to the patient's brain. The evidence further shows that the hapless patient suffered brain damage because of the absence of oxygen in her (patient's) brain for approximately four to five minutes which, in turn, caused the patient to become comatose. On the part of Dr. Orlino Hosaka, this Court finds that he is liable for the acts of Dr. Perfecta Gutierrez whom he had chosen to administer anesthesia on the patient as part of his obligation to provide the patient a `good anesthesiologist', and for arriving for the scheduled operation almost three (3) hours late. On the part of DLSMC (the hospital), this Court finds that it is liable for the acts of negligence of the doctors in their `practice of medicine' in the operating room. Moreover, the hospital is liable for failing through its responsible officials, to cancel the scheduled operation after Dr. Hosaka inexcusably failed to arrive on time. In having held thus, this Court rejects the defense raised by defendants that they have acted with due care and prudence in rendering medical services to plaintiff-patient. For if the patient was properly intubated as claimed by them, the patient would not have become comatose. And, the fact that another anesthesiologist was called to try to intubate the patient after her (the patient's) nailbed turned bluish, belie their claim. Furthermore, the defendants should have rescheduled the operation to a later date. Page | 95

This, they should have done, if defendants acted with due care and prudence as the patient's case was an elective, not an emergency case. Wherefore judgment is rendered in favor of the plaintiffs and against the defendants. Accordingly, the latter are ordered to pay, jointly and severally. REYES VS. SISTERS OF MERCY HOSPITAL GR No. 130547 October 3, 2000 FACTS: Jorge Reyes was taken to the Mercy Community Clinic. He was attended to by respondent Dr. Marlyn Rico, a resident physician and admitting physician on duty, who gave Jorge a physical examination and took his medical records. Typhoid fever was then prevalent in the locality. Suspecting that Jorge could be suffering from this disease, Dr. Rico ordered a Widal Test, a standard test for typhoid fever, to be performed on Jorge. The results of the test from which Dr. Rico concluded that Jorge was positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr. Rico indorsed Jorge to respondent Dr. Marivie Blanes. Dr. Blanes also took the physical examination of Jorge. Antibiotics being the accepted treatment for typhoid fever, she ordered that a compatibility test with the antibiotic chloromycetin be done on Jorge. As she did not observe any adverse reaction, she ordered the first 500 mg. of said antibiotic. At around 1:00 in the morning, Dr. Blanes was called as Jorge’s temperature rose to 41 degrees and then valium was administered. However, the patient did not respond to the treatment and slipped into cyanosis, a bluish or purplish discoloration of the skin or mucous membrane due to deficient oxygenation of the blood. At around 2:00 a.m. Jorge died. ISSUES: Whether the death of Jorge Reyes was due to or caused by the negligence, carelessness, imprudence, and lack of skill or foresight on the part of the defendants. RULING: Petitioner’s action is for medical malpractice. It is a form of negligence which consists in the failure of the physician or surgeon to apply to his practice of medicine that degree of care and skill which is ordinarily employed by the profession. Four elements involve in medical negligence cases, namely: duty, breach, injury, and proximate causation. In this case, there is no doubt that physician-patient relationship existed between respondent doctors and Jorge Reyes. It is breach of this duty which constitutes actionable malpractice. As to this aspect of medical malpractice, the determination of reasonable level of care and breach thereof, expert testimony is essential. The petitioner presented Dr. Vacalares, Chief Pathologist of the Northern Mindanao Training Hospital, Cagayan de Oro, who performed the autopsy of Jorge. He testified that Jorge did not die of typhoid fever but of shock undetermined, which could Page | 96

be due to allergic reaction or chloromycetin overdose. The court was not persuaded. Although Dr. Vacalares may have had extensive experience in performing autopsies, he admitted that he had yet to do one on the body of a typhoid victim at the time he conducted the post mortem of Jorge. It is also plain from his testimony that he treated only about three cases of typhoid fever. On the other hand, the two doctors presented by respondents clearly were experts on the subject. They vouched for the correctness of Dr. Rico’s diagnosis. Dr. Gotiong, a diplomate whose specialization is infectious diseases and microbiology and an associate professor at the Southern University College of Medicine and the Gullas College of Medicine, testified that he has already treated over a thousand cases of typhoid fever. According to him a case of typhoid fever is suspected using the widal test, if the 1:320 results of the said test has been presented to him. As to the treatment of the disease, he stated that chloromycetin was the drug of choice. He also explained that despite the measures taken by respondents and the intravenous administration of the two doses of chloromycetin, complications of the disease could not be discounted. Dr. Marilyn did not depart from the reasonable standard recommended by the experts as she in fact observed the due care required under the circumstances. Though the widal test is not conclusive, it remains a standard diagnostic test for typhoid fever and, in the present case, a greater accuracy through repeated testing was rendered unobtainable by the early death of the patient. The results of the widal test and the patient’s history of fever with chills for five days, taken with the fact that typhoid fever was then prevalent, were sufficient to give upon any doctor of reasonable skill the impression that the patient had typhoid fever. NOGALES VS. CAPITOL MEDICAL CENTER GR No. 45641 December 19, 2006 FACTS: Pregnant with her fourth child, Corazon Nogales was under the exclusive prenatal care of Dr. Estrada. While Corazon was on her lat trimester of pregnancy, Dr. Estrada noted an increase in her blood pressure and development of leg edema indicating preeclampsia, which is dangerous complication of pregnancy. When Corazon started to experience mild labor, he and her husband, prompted to see Dr. Estrada at his home. After examining Corazon, he advised her to immediate admission to the Capitol Medical Center. Upon admission at the CMC, Rogelio Nogales executed and signed the Consent on Admission and Agreement and Admission Agreement. Then Corazon was brought to the labor room. Dr. Uy, a resident physician, conducted an internal examination of Corazon and notified Dr. Estrada of her findings. Dr. Estrada ordered for 10 mg. of valium to be administered immediately by intramascular injection. Later he ordered that start of intravenous administration of syntocinon admixed with dextrose, 5% in lactated Ringers’ solution, at the rate of eight to ten micro-drops per minute. Dr. Enriquez, an anesthesiologist, was notified of Corazon’s admission. Subsequently he asked if Dr. Estrada needed his service but the latter refused. Despite refusal he stayed to observe Corazon’s condition. Page | 97

Corazon’s water bag ruptured spontaneously and started to experience convulsions. Dr. Estrada ordered the injectionof ten grams of magnesium sulfate. However, Dr. Villaflor, who is assisting Dr. Estrada, administered only 2.5 grams of magnesium sulfate. Dr. Estrada applied low forceps to extract the baby. The baby came out in a weak and injured condition and consequently had to be intubated and resuscitated. Corazon began to manifest moderate vaginal bleeding which rapidly became profuse. Dr. Estrada ordered blood typing and cross matching with bottled blood. Dr. Espinola, head of the Obstetrics-Gynecology Department of the CMC, was apprised of Corazon’s condition by telephone. Upon being informed of Corazon’s profuse bleeding, Dr. Espinola ordered immediate hysterectomy. Dr. Espinola, due to the inclement weather, arrived about an hour late. he examined the patient but despite his efforts Corazon died. Petitioners filed a case against CMC personnel and physicians on the ground that they were negligent in the treatment and management of Corazon’s condition and charged CMC with negligence in the selection and supervision of defendant physicians and hospital staff. After more than 11 years the Trial Court rendered its judgment finding Dr. Estrada solely liable for damages. ISSUE: Whether CMC is vicariously liable for the negligence of Dr. Estrada. RULING: In general, a hospital is not liable for the negligence of an independent contractor-physician. However, the hospital may be held liable if the physician is the “ostensible” agent of the hospital. This exception is also known as the “doctrine of apparent authority”. Under the doctrine of apparent authority a hospital can be held vicariously liable for the negligent act of a physician providing care at eh hospital, regardless of whether the physician is an independent contractor, unless the patient knows, or should have known, that the physician is an independent contractor. The doctrine of apparent authority involves two factors to determine the liability of an independent contractor-physician. First factor focuses on the hospital’s manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a responsible person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. The second factor focuses on the patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. In this case, CMC impliedly held out Dr. Estrada as a member of its medical staff. First, CMC granted staff privileges to Dr. Estrada when it extended its medical staff and facilities. Upon request to admit Corazon, through its personnel, readily accommodated the patient and updated Dr. Estrada of the patient’s condition. Second, CMC made Rogelio sign a consent forms printed in CMC letterhead. And third, Dr. Estrada’s Page | 98

referral to Dr. Espinola, who then was the Head of the Obstetrics and Gynecology Department of CMC. Wherefore the court finds respondent Capitol Medical Center vicariously liable for the negligence of Dr. Oscar Estrada. PROFESSIONAL SERVICES VS. AGANA GR No. 126467 February 11, 2008 FACTS: On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s husband to permit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was searched by the surgeon but to no avail. After a couple of days, Natividad complained excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the cancerous nodes which were not removed. Natividad and her husband went to the US to seek further treatment. After 4 months she was told that she was free of cancer. They then flew back to the Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina. Another surgical operation was performed upon her. Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with modification that Dr. Fuentes was dismissed. ISSUE: Whether the Court of Appeals erred in absolving Dr. Fuentes of any liability. RULING: It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the assistance of Dr. Fuentes only to perform hysterectomy Page | 99

when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr. Ampil. The latter examined it and finding everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed operating on Natividad. He was about to finish the procedure when the attending nurses informed him that two pieces of gauze were missing. A "diligent search" was conducted, but the misplaced gauzes were not found. Dr. Ampil then directed that the incision be closed. During this entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the hospital. Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of the surgery room and all personnel connected with the operation. Their duty is to obey his orders. As stated before, Dr. Ampil was the lead surgeon. In other words, he was the "Captain of the Ship." That he discharged such role is evident from his following conduct. Clearly, the control and management of the thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes. Here, the negligence was proven to have been committed by Dr. Ampil and not by Dr. Fuentes. PROFESSIONAL SERVICES, INC. VS. COURT OF APPEALS GR No. 126297 February 11, 2008 FACTS: On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s husband topermit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was searched by the surgeon but to no avail. After a couple of days, Natividad complained excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the cancerous nodes which were not removed. Natividad and her husband went to the US to seek further treatment. After 4 months she was told that she was free of cancer. They then flew back to the Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina. Another surgical operation was performed upon her. Page | 100

Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with modification that Dr. Fuentes was dismissed. ISSUE: Whether there is an employee-employer relationship in order to hold PSI solidary liable. RULING: PSI contends that the proximate cause of Natividad’s injury was Dr. Ampil’s negligence and that there is no employee-employer relationship between them because Dr. Ampil is only a consultant of the said hospital. The court held that there is an employee-employer relationship between hospital and their attending and visiting physician. After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinicopathological conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient audits and perform other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or privilege of admitting patients into the hospital. The physician’s performance is generally evaluated and if said physician falls short of the minimum standards he is normally terminated. In the said case, the hospital has a control over its attending or visiting physician. In general, a hospital is not liable for the negligence of an independent contractor-physician. However, the hospital may be held liable if the physician is the “ostensible” agent of the hospital. This exception is also known as the “doctrine of apparent authority”. The doctrine of apparent authority involves two factors to determine the liability of an independent contractor-physician. First factor focuses on the hospital’s manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a responsible person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. The second factor focuses on the patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. In this case, it has been proven that the two factors were present. The hospital indeed made it appear that Dr. Ampil was its employee when they advertise and displayed his name in the directory at the lobby of the said hospital and that Natividad relied on such knowledge that Dr. Ampil was indeed an employee of the hospital. Wherefore PSI and Dr. Ampil are liable jointly and severally. DIAZ VS. DAVAO LIGHT GR No. 160959 April 2, 2007 FACTS:

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Plaintiff asks for damages for defendant’s alleged malicious prosecution of a criminal case of theft of electricity against him, for plaintiff’s filing of a charge of violation of P.D. 401 as amended after dismissal of the theft case, the filing of a damage suit against him before the RTC of Cebu City which was dismissed and the filing of another damage suit before the same Cebu RTC which is still pending. Damages are also being sought for defendant’s removal of Electric Meter, but this is a subject matter of a case pending before Branch 13 of this Court and therefore said court retains jurisdiction over the said cause of action. The RTC held that while the City Prosecutor, and later the Secretary of Justice, concluded that there was no probable cause for the crime of theft, this did not change the fact that plaintiff made an illegal connection for electricity. A person’s right to litigate should not be penalized by holding him liable for damages. On October 1, 2003, the CA affirmed the decision of the RTC. It concluded that the evidence on hand showed good faith on the part of DLPC in filing the subject complaints. It pointed out that Diaz had been using the electrical services of DLPC without its consent. As to the effect of the compromise agreement, the CA ruled that it did not bar the filing of the criminal action. Thus, under the principle of damnum absque injuria, the legitimate exercise of a person’s right, even if it causes loss to another, does not automatically result in an actionable injury. Diaz, now petitioner, comes before this Court in this petition for review on certiorari ISSUES: 1. Whether or not the compromise agreement entered into between DLPC and Diaz barred the former from instituting further actions; and 2. Whether or not DLPC acted in bad faith in instituting the criminal cases against Diaz RULING: The petition is without merit. Petitioner insists that the compromise agreement as well as the decision of the CA already settled the controversies between them; yet, DLPC instituted the theft case against Diaz, and worse, instituted another action for violation of P.D. 401, as amended by B.P. Blg. 876. Thus, the only conclusion that can be inferred from the acts of DLPC is that they were designed to harass, embarrass, prejudice, and ruin him. He further avers that the compromise agreement completely erased litigious matters that could necessarily arise Moreover, Diaz asserts that the evidence he presented is sufficient to prove the damages he suffered by reason of the malicious institution of the criminal cases. The court does not agree. Article 2028 of the Civil Code defines a compromise as a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. The purpose of compromise is to settle the claims of the parties and bar all future disputes and controversies. However, criminal liability is not affected by compromise for it is a public offense which must be prosecuted and punished by the Government on its own motion, though complete reparation should have been made of the damages suffered by the offended party. A criminal case is committed against the People, and the offended party may not waive or extinguish the Page | 102

criminal liability that the law imposes for the commission of the offense. Moreover, a compromise is not one of the grounds prescribed by the Revised Penal Code for the extinction of criminal liability. On the other hand, malicious prosecution has been defined as an action for damages brought by or against whom a criminal prosecution, civil suit or other legal proceeding has been instituted maliciously and without probable cause, after the termination of such prosecution, suit, or other proceeding in favor of the defendant therein. It is an established rule that in order for malicious prosecution to prosper, the following requisites must be proven by petitioner: (1) the fact of prosecution and the further fact that the defendant (respondent) was himself the prosecutor, and that the action finally terminated with an acquittal; (2) that in bringing the action, the prosecutor acted without probable cause; and (3) that the prosecutor was actuated or impelled by legal malice, that is, by improper or sinister motive. The foregoing are necessary to preserve a person’s right to litigate which may be emasculated by the undue filing of malicious prosecution cases. From the foregoing requirements, it can be inferred that malice and want of probable cause must both be clearly established to justify an award of damages based on malicious prosecution. DLPC was not motivated by malicious intent or by a sinister design to unduly harass petitioner, but only by a well-founded anxiety to protect its rights. Respondent DLPC cannot therefore be faulted in availing of the remedies provided for by law. YASOÑA VS. DE RAMOS GR No. 156339 October 6, 2004 FACTS: Aurea Yasoña and her son, Saturnino, went to the house of Jovencio de Ramos to ask for financial assistance in paying their loans to Philippine National Bank (PNB), otherwise their residential house and lot would be foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the request. They agreed that, upon payment by Jovencio of the loan to PNB, half of Yasoñas’ subject property would be sold to him. Jovencio paid Aurea’s bank loan. As agreed upon, Aurea executed a deed of absolute sale in favor of Jovencio over half of the lot consisting of 123 square meters. Thereafter, the lot was surveyed and separate titles were issued by the Register of Deeds of Sta. Cruz, Laguna in the names of Aurea and Jovencio Twenty-two years later, in August 1993, Aurea filed an estafa complaint against brothers Jovencio and Rodencio de Ramos on the ground that she was deceived by them when she asked for their assistance in 1971 concerning her mortgaged property. In her complaint, Aurea alleged that Rodencio asked her to sign a blank paper on the pretext that it would be used in the redemption of the mortgaged property On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis dismissed the criminal complaint for estafa for lack of evidence. On account of this dismissal, Jovencio and Rodencio filed a complaint for damages on the ground of malicious prosecution. They alleged that the filing of the estafa complaint against them was done with malice and it caused irreparable injury to their reputation, as Aurea knew fully well that she had already sold half of the property to Jovencio. Page | 103

ISSUE: Whether or not the filing of the criminal complaint for estafa by petitioners against respondents constituted malicious prosecution? RULING: To constitute “malicious prosecution,” there must be proof that the prosecution was prompted by a sinister design to vex or humiliate a person, and that it was initiated deliberately by the defendant knowing that his charges were false and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution does not make one liable for malicious prosecution. In this case, the records show that the sale of the property was evidenced by a deed of sale duly notarized and registered with the local Register of Deeds. After the execution of the deed of sale, the property was surveyed and divided into two portions. Separate titles were then issued in the names of Yasoña and Jovencio. Since 1973, Jovencio had been paying the realty taxes of the portion registered in his name. In 1974, Aurea even requested Jovencio to use his portion as bond for the temporary release of her son who was charged with malicious mischief. Also, when Aurea borrowed money from the Rural Bank of Lumban in 1973 and the PNB in 1979, only her portion was mortgaged. All these pieces of evidence indicate that Aurea had long acknowledged Jovencio’s ownership of half of the property. Furthermore, it was only in 1993 when petitioners decided to file the estafa complaint against respondents. If petitioners had honestly believed that they still owned the entire property, it would not have taken them 22 years to question Jovencio’s ownership of half of the property. Malicious prosecution, both in criminal and civil cases, requires the elements of (1) malice and (2) absence of probable cause.These two elements are present in the present controversy. The complaint for estafa was dismissed outright as the prosecutor did not find any probable cause against respondents. A suit for malicious prosecution will prosper where legal prosecution is carried out without probable cause. PEOPLE VS. DELOS SANTOS GR No. 131588 March 27, 2001 FACTS: Philippine National Police (PNP), undergoing a Special Training Course (Scout Class 07-95), wearing black T-shirts and black short pants, performing an "Endurance Run" of 35 kilometers coming from their camp in Manolo Fortich, Bukidnon, heading to Regional Training Headquarters in Camp Alagar, Cagayan de Oro City, running in a column of 3, with a distance of two feet, more or less, from one trainee to another, thus forming a three lines, with a length of more or less 50 meters from the 1 st man to the last man, unable to defend themselves, because the accused ran or moved his driven vehicle on the direction of the backs of the PNP joggers in spite of the continuous warning signals made by six of the joggers, namely: PO1 Allan Tabacon Espana, Waldon Page | 104

Sinda Sacro, Lemuel Ybanez Pangca, Artemio Jamil Villaflor, Nardo Omasas Collantes and Joselito Buyser Escartin, who were at the rear echelon of said run, acting as guards, by continuously waving their hands at the accused for him to take the left lane of the highway, going to the City proper, from a distance of 100 meters away from the jogger’s rear portion, but which accused failed and refused to heed; instead, he proceeded to operate his driven vehicle (an Isuzu Elf) on high speed directly towards the joggers, thus forcing the rear hitting, bumping, or ramming the first four (4) victims, causing the bodies to be thrown towards the windshields of said Isuzu Elf, breaking said windshield, and upon being aware that bodies of the victims flew on the windshield of his driven vehicle, instead of applying his brake, continued to travel on a high speed, this time putting off its headlights, thus hitting the succeeding joggers on said 1 st line, as a result thereof killed them. ISSUE: Whether or not accused is guilty beyond reasonable doubt of the complex crime of multiple murder, multiple frustrated murder, and multiple attempted multiple murder. RULING: It is a well-entrenched rule that if the inculpatory facts are capable of two or more explanations one consistent with the innocence or lesser degree of liability of the accused, and the other consistent with his guilt or graver responsibility the Court should adopt the explanation which is more favorable to the accused. The incident, tragic though it was in light of the number of persons killed and seriously injured, was an accident and not an intentional felony. It is significant to note that there is no shred of evidence that accused had an axe to grind against the police trainees that would drive him into deliberately hitting them with intent to kill. The test for determining whether a person is negligent in doing an act whereby injury or damage results to the person or property of another is this: Could a prudent man, in the position of the person to whom negligence is attributed, foresee harm to the person injured as a reasonable consequence of the course actually pursued? If so, the law imposes a duty on the actor to refrain from that course or to take precautions to guard against its mischievous results, and the failure to do so constitutes negligence. Reasonable foresight of harm, followed by the ignoring of the admonition born of this prevision, is always necessary before negligence can be held to exist. Accused showed an inexcusable lack of precaution. Article 365 of the Revised Penal Code states that reckless imprudence consists in voluntarily, but without malice, doing or failing to do an act from which material damage results by reason of inexcusable lack of precaution on the part of the person performing or failing to perform such act, taking into consideration (1) his employment or occupation; (2) his degree of intelligence; (4) his physical condition; and (3) other circumstances regarding persons, time Considering that the incident was not a product of a malicious intent but rather the result of a single act of reckless driving, should be held guilty of the complex crime of Page | 105

reckless imprudence resulting in multiple homicide with serious physical injuries and less serious physical injuries. Article 48 of the Revised Penal Code provides that when the single act constitutes two or more grave or less grave felonies, or when an offense is a necessary means for committing the other, the penalty for the most serious crime shall be imposed, the same to be applied in its maximum period. Since Article 48 speaks of felonies, it is applicable to crimes through negligence in view of the definition of felonies in Article 3 as "acts or omissions punishable by law" committed either by means of deceit {dolo) or fault (culpa). WHEREFORE, accused-appellant GLENN DE LOS SANTOS guilty beyond reasonable doubt of (1) the complex crime of reckless imprudence resulting in multiple homicide with serious physical injuries and less serious physical injuries, and sentencing him to suffer an indeterminate penalty of four (4) years of prision correccional, as minimum, to ten (10) years of prision mayor, as maximum; and (2) ten (10) counts of reckless imprudence resulting in slight physical injuries and sentencing him, for each count, to the penalty of two (2) months of arresto mayor. Furthermore, the awards of death indemnity for each group of heirs of the trainees killed are reduced to P50,000; and the awards in favor of the other victims are deleted. MAGAT VS. MEDIALDEA L-37120 April 20, 1983 FACTS: That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines. ISSUE: Whether or not there is contravention of the terms. RULING: After a thorough examination of the complaint at bar, We find the test of legal sufficiency of the cause of action adequately satisfied. In a methodical and logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his part of the bargain, private respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him and that consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential elements of a cause of action are present, to wit: the existence of a legal right to the plaintiff; a correlative duty of the defendant and an act or omission of the defendant in violation of Page | 106

the plaintiff's right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief. Indisputably, the parties, both businessmen, entered into the aforesaid contract with the evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested" and, therefore, recoverable under the law. Article 1170 of the Civil Code provides: "Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof are liable for damages." The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance. The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee [daño emergente] but also the profits which the latter failed to obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those damages that are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the nonperformance of the obligation VDA. DE MISTICA VS. NAGUIAT GR. No 137909 December 11, 2003 FACTS: Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a parcel of land. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970. On 5 April 1979, Eulalio Mistica entered into a contract to sell with Respondent Naguiat over a portion of the aforementioned lot containing an area of 200 square meters. Pursuant to said agreement, Respondent Bernardino Naguiat gave a downpayment of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986. On 4 December 1991, petitioner filed a complaint for rescission alleging inter alia: that the failure and refusal of respondents to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same; that [respondents] have been in possession of the subject portion and they should be ordered to vacate and surrender possession of the same to petitioner. Respondents contended that the contract cannot be rescinded on the ground that it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be paid. Likewise alleged that sometime in October 1986, during the wake of the late Eulalio Mistica, he offered to pay the remaining balance to petitioner but the latter refused and hence, there Page | 107

is no breach or violation committed by them and no damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said document. ISSUE: Whether petitioner may rescind the contract. RULING: Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It explained that the conclusion of the ten-year period was not a resolutory term, because the Contract had stipulated that payment -- with interest of 12 percent -could still be made if respondents failed to pay within the period. According to the appellate court, petitioner did not disprove the allegation of respondents that they had tendered payment of the balance of the purchase price during her husband’s funeral, which was well within the ten-year period. Moreover, rescission would be unjust to respondents, because they had already transferred the land title to their names. The proper recourse, the CA held, was to order them to pay the balance of the purchase price, with 12 percent interest. Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, because respondents committed a substantial breach when they did not pay the balance of the purchase price within the ten-year period. We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. The CA further ruled that rescission in this case would be unjust to respondents, because a certificate of title had already been issued in their names. CO VS. CA GR No. 112330 August 17, 1999 FACTS: Plaintiff entered into a verbal contract with defendant for her purchase of the latter’s house and lot located at 316 Beata St., New Alabang Village, Muntinlupa, Metro Manila, for and in consideration of the sum of $100,000.00. One week thereafter, and shortly before she left for the United States, plaintiff paid to the defendants the amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same may be reserved for her purchase, said earnest money to be deducted from the total purchase price. The purchase price of $100,000.00 is payable in two payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on January 5, 1985. On January 25, 1985, although the period of payment had already expired, plaintiff paid to the defendant Melody Co in the United States, the sum of $30,000.00, as partial payment of the purchase price. Defendant’s counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15, 1985, demanding that she pay the balance of $70,000.00 and Page | 108

not receiving any response thereto, said lawyer wrote another letter to plaintiff dated August 8, 1986, informing her that she has lost her ‘option to purchase’ the property subject of this case and offered to sell her another property. ISSUE: Whether or not the Court of Appeals erred in ordering the COS to return the $30,000.00 paid by Custodio pursuant to the “option” granted to her over the Beata property? RULING: The COS’ main argument is that Custodio lost her “option” over the Beata property and her failure to exercise said option resulted in the forfeiture of any amounts paid by her pursuant to the August letter. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. Article 1479. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.” However, the March 15, 1985 letter sent by the COS through their lawyer to the Custodio reveals that the parties entered into a perfected contract of sale and not an option contract. In the case at bar, the property involved has not been delivered to the appellee. She has therefore nothing to return to the appellants. The price received by the appellants has to be returned to the appellee as aptly ruled by the lower court, for such is a consequence of rescission, which is to restore the parties in their former situations. UNIVERSAL FOOD CORPORATION VS. CA L-29155 February 22, 1971 FACTS: The petitioner contends that (a) under the terms of the Bill of Assignment, exh. A, the respondent Magdalo V. Francisco ceded and transferred to the petitioner not only the right to the use of the formula for Mafran sauce but also the formula itself, because this, allegedly, was the intention of the parties; (b) that on the basis of the entire evidence on record and as found by the trial court, the petitioner did not dismiss the respondent Francisco because he was, and still is, a member of the board of directors, a stockholder, and an officer of the petitioner corporation, and that as such, had actual knowledge of the resumption of production by the petitioner, but that despite such knowledge, he refused to report back for work notwithstanding the petitioner's call for him to do so; (c) that the private respondents are not entitled to rescind the Bill of Assignment; and (d) that the evidence on record shows that the respondent Francisco was the one not ready, willing and able to comply with his obligations under the Bill of Page | 109

Assignment, in the sense that he not only irregularly reported for work but also failed to assign, transfer and convey to the petitioner of the said deed of conveyance. ISSUE: Whether respondent Francisco ceded to the petitioner merely the use of the formula for Mafran sauce and not the formula itself. RULING: The Court concluded that what was actually ceded and transferred was only the use of the Mafran sauce formula. The fact that the trademark "Mafran" was duly registered in the name of the petitioner pursuant to the Bill of Assignment, standing by itself alone, to borrow the petitioner's language, is not sufficient proof that the respondent Francisco was supposedly obligated to transfer and cede to the petitioner the formula for Mafran sauce and not merely its use. For the said respondent allowed the petitioner to register the trademark for purposes merely of the "marketing of said project." UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELES L-28602 September 29, 1970 FACTS: UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP. ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged. That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960. That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation, and the concession was awarded to Sta. Clara Lumber Company, Inc. ISSUE: Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. Page | 110

RULING: Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25 February 1966. apparently sustained it (although the order expresses no specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect. UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." "There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract." In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. 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.

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FRANCISCO VS. DEAC CONSTRUCTION, INC. GR No. 171312 February 4, 2008 FACTS: Spouses Francisco obtained the services of DEAC Construction, Inc. to construct a 3-storey residential building with mezzanine and roof deck on their lot for a contract price of 3.5M. as agreed upon, a downpayment of 2M should be paid upon signing of the construct of construction, and the remaining balance of 1.5M was to be paid in two equal installments. To undertake the said project, DEAC engaged the services of a subcontractor, Vigor Construction and Development Corporation, but allegedly without the spouses’ knowledge and consent. Even prior to the execution of the contract, spouses Francisco had paid the downpayment. However, the said construction commenced although DEAC had not yet obtained the necessary building permit for the proposed construction and that the contractor deviated from the approved plans. Spouses Francisco demanded DEAC to comply with the approved plan, otherwise, they would be compelled to invoke legal remedies. Work stoppage was issued against Lino Francisco pursuant to the previous Notice of Violations. The plaintiffs then file civil case for Rescission of Contract and Damages against DEAC. ISSUE: Whether or not spouses Francisco may rescind the contract. RULING: Article 1191 of the Civil Code provides that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The rescission referred to in this article, more appropriately referred to a resolution, is not predicated on injury to economic interests on the part of the party plaintiff, but of breach of faith by the defendant which is violative of the reciprocity between the parties. Given the fact that the construction in this case is already 75% complete, that trial court was correct in ordering partial rescission of the portion of the construction. Equitable considerations justify rescission of the portion of the obligation which has not been delivered SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION G.R. No. 139523 2005 May 26 FACTS: Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173,800.00 to purchase a house and lot located at Pulang Lupa, Las Piñas, in the names of respondents-spouses. To secure payment, a real estate mortgage was constituted on the said house and lot in favor of Fortune Savings & Loan Association. In early 1990, NHMFC purchased the mortgage loan of Page | 112

respondents-spouses from Fortune Savings & Loan Association for P173,800.00. Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty (the Developer of the property). A Deed of Sale with Assumption of Mortgage Obligation dated 20 August 1990 was made and entered into by and between spouses Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe Cannu (vendees) over the house and lot and petitioners immediately took possession and occupied the house and lot. However, despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so. Because the Cannus failed to fully comply with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233,957.64 as full payment of her remaining mortgage loan with NHMFC. From 1991 until the present, no other payments were made by plaintiffsappellants to defendants-appellees spouses Galang. Out of the P250,000.00 purchase price which was supposed to be paid on the day of the execution of contract in July, 1990 plaintiffs-appellants have paid, in the span of eight (8) years, from 1990 to present, the amount of only P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the time of the execution of contract in 1990. Eight (8) years have already lapsed and plaintiffs-appellants have not yet complied with their obligation. ISSUE: Whether or not the action for rescission was subsidiary, and that there was a substantial breach of the obligation. RULING: 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. Art. 1191 states that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with 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. 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. Page | 113

Thus, the petitioners’ failure to pay the remaining balance of P45,000.00 is substantial. Even assuming arguendo that only said amount was left out of the supposed consideration of P250,000.00, or eighteen percent thereof, this percentage is still substantial. Their failure to fulfill their obligation gave the respondents-spouses Galang the right to rescission. Also, there was no waiver on the part of petitioners to demand the rescission of the Deed of Sale with Assumption of Mortgage. The fact that respondents-spouses accepted, through their attorney-in-fact, payments in installments does not constitute waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage. Adelina Timbang merely accepted the installment payments as an accommodation to petitioners since they kept on promising they would pay. However, after the lapse of considerable time (18 months from last payment) and the purchase price was not yet fully paid, respondents-spouses exercised their right of rescission when they paid the outstanding balance of the mortgage loan with NHMFC. It was only after petitioners stopped paying that respondents-spouses moved to exercise their right of rescission. The subsidiary character of the action for rescission applies to contracts enumerated in Articles 1381 of the Civil Code. However, the contract involved in the case is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191. Rescission under Article 1191 is a principal action, while rescission under Article 1383 is a subsidiary action. The former is based on breach by the other party that violates the reciprocity between the parties, while the latter is not. In the case at bar, the reciprocity between the parties was violated when petitioners failed to fully pay the balance of P45,000.00 to respondents-spouses and their failure to update their amortizations with the NHMFC. Therefore, the Spouses Gil and Fernandina Galang are ordered to return the partial payments made by petitioners in the amount of P165,312.47. GENEROSO VILLANUEVA and RAUL VILLANUEVA JR.. versus ESTATE OF GERARDO GONZAGA/ MA. VILLA GONZAGA in her capacity as Administratrix G.R. No. 15731 2006 August 09 FACTS: On January 15, 1990, petitioners Generoso Villanueva and Raul Villanueva, Jr., business entrepreneurs engaged in the operation of transloading stations and sugar trading, and respondent Estate of Gerardo L. Gonzaga, represented by its Judicial Administratrix, respondent Ma. Villa J. Gonzaga, executed a MOA. As stipulated in the agreement, petitioners introduced improvements after paying P291,600.00 constituting sixty (60%) percent of the total purchase price of the lots. Petitioners then requested permission from respondent Administratrix to use the premises for the next milling season. Respondent refused on the ground that petitioners cannot use the premises until full payment of the purchase price. Petitioners informed respondent that their immediate use of the premises was absolutely necessary and that Page | 114

any delay will cause them substantial damages. Respondent remained firm in her refusal, and demanded that petitioners stop using the lots as a transloading station to service the Victorias Milling Company unless they pay the full purchase price. In a letter-reply dated April 5, 1991, petitioners assured respondent of their readiness to pay the balance but reminded respondent of her obligation to redeem the lots from mortgage with the Philippine National Bank (PNB). Petitioners gave respondent ten (10) days within which to do so. On April 10, 1991, respondent Administratrix wrote petitioners informing them that the PNB had agreed to release the lots from mortgage. She demanded payment of the balance of the purchase price. Enclosed with the demand letter was the PNB’s letter of approval dated April 8, 1991. Petitioners demanded that respondent show the clean titles to the lots first before they pay the balance of the purchase price. Respondent merely reiterated the demand for payment. Petitioners stood pat on their demand. On May 28, 1991, respondent Administratrix executed a Deed of Rescission rescinding the MOA. In their Letter dated June 13, 1991, petitioners, through counsel, formally demanded the production of the titles to the lots before they pay the balance of the purchase price. The demand was ignored. Consequently, on June 19, 1991, petitioners filed a complaint against respondents for breach of contract, specific performance and damages before the RTC-Bacolod City. The trial court decided the case in favor of respondents. Petitioners filed a petition for review before the Court of Appeals. The Court of Appeals affirmed the trial court’s decision but deleted the award for moral damages on the ground that petitioners were not guilty of bad faith in refusing to pay the balance of the purchase price. ISSUE: Whether there is legal, or even a factual, ground for the rescission of the Memorandum of Agreement. RULING: There is no legal basis for the rescission. The remedy of rescission under Art. 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. The court have held in numerous cases that the remedy does not apply to contracts to sell. In Santos v. Court of Appeals, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied Page | 115

fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. The MOA between petitioners and respondents is a conditional contract to sell. Ownership over the lots is not to pass to the petitioners until full payment of the purchase price. Petitioners’ obligation to pay, in turn, is conditioned upon the release of the lots from mortgage with the PNB to be secured by the respondents. Although there was no express provision regarding reserved ownership until full payment of the purchase price, the intent of the parties in this regard is evident from the provision that a deed of absolute sale shall be executed only when the lots have been released from mortgage and the balance paid by petitioners. Since ownership has not been transferred, no further legal action need have been taken by the respondents, except an action to recover possession in case petitioners refuse to voluntarily surrender the lots. The records show that the lots were finally released from mortgage in July 1991. Petitioners have always expressed readiness to pay the balance of the purchase price once that is achieved. Hence, petitioners should be allowed to pay the balance now, if they so desire, since it is established that respondents’ demand for them to pay in April 1991 was premature. However, petitioners may not demand production by the respondents of the titles to the lots as a condition for their payment. It was not required under the MOA. The MOA merely states that petitioners shall pay the balance “upon approval by the PNB of the release of the lots” from mortgage. Petitioners may not add further conditions now. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Thus, the petiotion is GRANTED, an the assailed decision is REVERSED and SET ASIDE. SPOUSES DOMINGO and LOURDES PAGUYO versus Pierre Astorga and St. Andrew Realty, Inc. G.R. No. 130982 2005 September 16 FACTS: Spouses Domingo Paguyo and Lourdes Paguyo, were the owners of a small fivestorey building known as the Paguyo Building located at Makati Avenue, corner Valdez Street, Makati City. The lot on which the Paguyo Building stands was the subject of Civil Case wherein the RTC of Makati City, Branch 57, rendered a decision on 20 January 1988 approving a Compromise Agreement made between the Armases and the petitioners. The compromise agreement provided that in consideration of the total sum of One Million Seven Hundred Thousand Pesos (P1,700,000.00), the Armases committed to execute in favor of petitioners a deed of sale and/or conveyance assigning and transferring unto said petitioners all their rights and interests over the parcel of land containing an area of 299 square meters. In order for the petitioners to complete their title and ownership over the lot in question, there was an urgent need to make Page | 116

complete payment to the Armases, which at that time stood at P917,470.00 considering that petitioners had previously made partial payments to the Armases. On 29 November 1988, in order to raise the much needed amount, petitioner Lourdes Paguyo entered into an agreement captioned as Receipt of Earnest Money with respondent Pierre Astorga, for the sale of the former’s property consisting of the lot which was to be purchased from the Armases, together with the improvements thereon, particularly, the existing building known as the Paguyo Building. However, contrary to their express representation with respect to the subject lot, petitioners failed to comply with their obligation to acquire the lot from the Armas family despite the full financial support of respondents. Nevertheless, the parties maintained their business relationship under the terms and conditions of the above-mentioned Receipt of Earnest Money. On 12 December 1988, petitioners asked for and were given by respondents an additional P50,000.00 to meet the former’s urgent need for money in connection with their construction business. Thus, on 5 January 1989, the parties executed the four documents in question namely, the Deed of Absolute Sale of the Paguyo Building, the Mutual Undertaking, the Deed of Real Estate Mortgage, and the Deed of Assignment of Rights and Interest. Simultaneously with the signing of the four documents, respondents paid petitioners the additional amount of P500,000.00. Thereafter, the respondents renamed the Paguyo Building into GINZA Bldg. and registered the same in the name of respondent St. Andrew Realty, Inc. at the Makati Assessor’s Office after paying accrued real estate taxes in the total amount of P169,174.95. On 06 October 1989, petitioners filed a Complaint for the rescission of the Receipt of Earnest Money with the undertaking to return the sum of P763,890.50. They also sought the rescission of the Deed of Real Estate Mortgage, the Mutual Undertaking, the Deed of Absolute Sale of Building, and the Deed of Assignment of Rights and Interest. After trial, the RTC ruled in favor of respondents. The petition for preliminary injunction is denied, and the court ordered the plaintiff spouses Domingo and Lourdes Paguyo to pay the defendants Pierre Astorga and St. Andrew Realty, Inc. on their counterclaim. On appeal, the Court of Appeals affirmed the decision of the trial court ISSUE: Did the Court of Appeals err in upholding the trial court’s decision denying petitioners’ complaint for rescission? RULING: No. The right to rescind a contract involving reciprocal obligations is provided for in Article 1191 of the Civil Code. Article 1191 states: 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 Page | 117

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. Moreover, Articles 1355 and 1470 of the Civil Code state: Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code, which would invalidate, or even affect, the Deed of Sale of the Building and the related documents. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale. In sum, petitioners pray for rescission of the Deed of Sale of the building and offer to repay the purchase price after their liquidity position would have improved and after respondents would have refurbished the building, updated the real property taxes, and turned the building into a profitable business venture. The court stated however that, it will not allow itself to be an instrument to the dissolution of contract validly entered into, for a party should not, after its opportunity to enjoy the benefits of an agreement, be allowed to later disown the arrangement when the terms thereof ultimately would prove to operate against its hopeful expectations. WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with MODIFICATION.

BIENVENIDO M. CASIÑO, JR. versus THE COURT OF APPEALS and OCTAGON REALTY DEVELOPMENT CORPORATION G.R. No. 133803 2005 September 16 FACTS: On October 2, 1991, respondent Octagon Realty Development Corporation, filed a complaint for rescission of contract with damages against petitioner Bienvenido M. Casiño, Jr., owner and proprietor of the Casiño Wood Parquet and Sanding Services, relative to the parties’ agreement for the supply and installation by petitioner of narra wood parquet ordered by respondent. In its complaint, respondent alleges that on December 22, 1989, it entered into a contract with petitioner for the supply and installation by the latter of narra wood Page | 118

parquet (kiln dried) to the Manila Luxury Condominium Project, of which respondent is the developer, for a total price of P1,158,487.00; that the contract stipulated that full delivery by petitioner of labor and materials was in May 1990; that in accordance with the terms of payment in the contract, respondent paid to petitioner the amount P463,394.50, representing 40% of the total contract price; that after delivering only 26,727.02 sq. ft. of wood parquet materials, petitioner incurred in delay in the delivery of the remainder of 34,245.98 sq. ft.; that petitioner misrepresented to respondent that he is qualified to do the work contracted when in truth and in fact he was not and, furthermore, he lacked the necessary funds to execute the work as he was totally dependent on the funds advanced to him by respondent; that due to petitioner’s unlawful and malicious refusal to comply with its obligations, respondent incurred actual damages in the amount of P912,452.39 representing estimated loss on the new price, unliquidated damages and cost of money; that in order to minimize losses, the respondent contracted the services of Hilvano Quality Parquet and Sanding Services to complete the petitioner’s unfinished work, respondent thereby agreeing to pay the latter P1,198,609.30. However, petitioner avers that the manner of payment, period of delivery and completion of work and/or full delivery of labor and materials were modified; that the delivery and completion of the work could not be done upon the request and/or representations by the respondent because he failed to make available and/or to prepare the area in a suitable manner for the work contracted, preventing the petitioner from complying with the delivery schedule under the contract; that petitioner delivered the required materials and performed the work despite these constraints; that the respondent failed to pay the petitioner’s second and third billings for deliveries and work performed in the sum of P105,425.68, which amount the petitioner demanded from the respondent with the warning of suspension of deliveries or rescission for contract for non-payment; that it was the respondent who failed to prepare the area suitable for the delivery and installation of the wood parquet, respondent who advised or issued orders to the petitioner to suspend the delivery and installation of the wood parquet, which created a storage problem for the petitioner. ISSUE: Whether or not the rescission of the contract by the private respondent is valid. RULING: Under the contract, petitioner and respondent had respective obligations, i.e., the former to supply and deliver the contracted volume of narra wood parquet materials and install the same at respondent’s condominium project by May, 1990, and the latter, to pay for said materials in accordance with the terms of payment set out under the parties’ agreement. But while respondent was able to fulfill that which is incumbent upon it by making a downpayment representing 40% of the agreed price upon the signing of the contract and even paid the first billing of petitioner, the latter failed to comply with his contractual commitment. For, after delivering only less than one-half of the contracted Page | 119

materials, petitioner failed, by the end of the agreed period, to deliver and install the remainder despite demands for him to do so. Thus, it is petitioner who breached the contract. The petitioner therefore, has failed to comply with his prestations under his contract with respondent, the latter is vested by law with the right to rescind the parties’ agreement, conformably with Article 1191 of the Civil Code. However, 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. Contrary to petitioner’s asseveration, the breach he committed cannot, by any measure, be considered as “slight or casual”. For petitioner’s failure to make complete delivery and installation way beyond the time stipulated despite respondent’s demands, is doubtless a substantial and fundamental breach, more so when viewed in the light of the large amount of money respondent had to pay another contractor to complete petitioner’s unfinished work. Likewise, contrary to petitioner’s claim, it cannot be said that he had no inkling whatsoever of respondent’s recourse to rescission. True, “the act of a party in treating a contract as cancelled or resolved on account of infractions by the other party must be made known to the other”. In the case, however, petitioner cannot feign ignorance of respondent’s intention to rescind, fully aware, as he was, of his non-compliance with what was incumbent upon him, not to mention the several letters respondent sent to him demanding compliance with his obligation. It is thus proper that respondent acted well within its rights in unilaterally terminating its contract with petitioner and in entering into a new one with a third person in order to minimize its losses, without prior need of resorting to judicial action. WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the appellate court AFFIRMED.

FERNANDO CARRASCOSO JR. versus COURT OF APPEALS, LAURO Page | 120

LEVISTE, as Director and Minority Stockholder and On Behaf of Other Stockholders of El Dorado Plantation Inc. and EL DORADO PLANTATION, INC., represented by one of its minority stockholders, Lauro P. Leviste G.R. No. 123672 & G. R. No. 164489 December 14, 2005 FACTS: El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land with an area of approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-93 situated in Sablayan, Occidental Mindoro. On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a Resolution was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts bearing thereon. El Dorado, through Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. Under the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on March 23, 1975. On March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage] over the property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and P210,000.00 was paid to El Dorado pursuant to the terms and conditions of the Deed of Sale. On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of P70,000.00 as requested by the spouses Carrascoso. However, the 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied therewith. In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and Sell whereby the former agreed to sell 1,000 hectares of the property to the latter at a consideration of P3,000.00 per hectare or a total of P3,000,000.00. Lauro Leviste, a stockholder and member of the Board of Directors of El Dorado, called the attention of the Board to Carrascoso’s failure to pay the balance of the purchase price of the property amounting to P1,300,000.00. Lauro’s desire to rescind the sale was reiterated in two other letters addressed to the Board. Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977 to Carrascoso informing him that in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real Property. For the failure of Carrascoso to give his reply, Lauro and El Dorado finally filed a complaint for rescission of the Deed of Sale. They also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. Page | 121

In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. In turn, PLDT, by Deed of Absolute Sale conveyed the aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC. On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention which was granted by the trial court. PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and Crossclaim against Carrascoso. The RTC dismissed the complaint. Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals. The appellate court reversed the decision of the trial court. Thereafter, different motions and actions were done by both parties. ISSUE: Whether or not the rescission is valid. RULING: The right of rescission of a party to an obligation under Article 1191 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 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. In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand, failed to perform his correlative obligation of paying in full the contract price in the manner and within the period agreed upon. The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had long lapsed. The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascoso’s mortgaging of the property to any bank did not have the effect Page | 122

of suspending the period to fully pay the purchase price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso. PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was an Agreement to Buy and Sell with Carrascoso, which in effect is a mere contract to sell that did not pass to it the ownership of the property. Ownership was retained by Carrascoso which El Dorado may very well recover through its action for rescission. The appellate court’s decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original situation prior to the consummation of the contract. Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This is so because it was Carrascoso’s refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof until paid. The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract. Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have respectively received and to place each other as far as practicable in his original situation, the rescission has the effect of abrogating the contract in all parts. The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the Court affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado in favor of Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to El Dorado. As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction should be made between those which it built prior to the annotation of the notice of lis pendens and those which it introduced subsequent thereto. WHEREFORE, the petitions are DENIED.

Page | 123

GOLDENROD, INC. vs. COURT OF APPEALS BARRETTO & SONS, INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE G.R. No. 126812 1998 Nov 24 FACTS: Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three parcels of registered land with a total area of 18,500 square meters located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with the United Coconut Planters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETTO & SONS. When the term of existence of BARRETTO & SONS expired, all its assets and liabilities including the property located in Quiapo were transferred to respondent Pio Barretto Realty Development, Inc. Petitioner's offer to buy the property resulted in its agreement with respondent BARRETTO REALTY that petitioner would pay P24.5 million representing the outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the deadline set by the bank for payment; and P20 million which was the balance of the purchase price of the property to be paid in installments within a 3-year period with interest at 18% per annum. However, petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO REALTY on the deadline set for payment. It asked for an extension of one month or up to 31 July 1988 to settle the obligation, which the bank granted. Moreover, petitioner again requested another extension of sixty days to pay the loan, but the bank demurred. In the meantime BARRETTO REALTY was able to cause the reconsolidation of the forty-three titles covering the property subject of the purchase into two titles covering Lots 1 and 2. The reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00. On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation, which acted as agent and broker of petitioner, wrote private respondent Anthony Que informing him on behalf of petitioner that it could not go through with the purchase of the property due to circumstances beyond its fault ( the denial by UCPB of its request for extension of time to pay the obligation). On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc., Lot 2, one of the two consolidated lots, for the price of P23 million. On 13 October 1988 respondent BARRETTO REALTY executed a deed transferring by way of "dacion" the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to ASIAWORLD for P24 million. Sometime after the said sale, Logarta again wrote respondent Que demanding the return of the earnest money to GOLDENROD, but to no avail. Petitioner then filed a complaint with the RTC of Manila Page | 124

against private respondents for the return of the amount of P1 million and the payment of damages including lost interests or profits. ISSUE: Whether or not the petitioner's extrajudicial rescission of its agreement with private respondents was valid. RULING: Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner clearly stated without any objection from private respondents that the earnest money was intended to form part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the parties could not have intended that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. By reason of its failure to make payment petitioner, through its agent, informed private respondents that it would no longer push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its agreement with private respondents. It was held in the case of University of the Philippines v. de los Angeles that the right to rescind contracts is not absolute and is subject to scrutiny and review by the proper court. It was held further that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. If the party does not oppose the declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an admission of the veracity and validity of the rescinding party's claim. A such, private respondents did not interpose any objection to the rescission by petitioner of the agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day after its President Anthony Que received the broker's letter rescinding the sale. Subsequently, on 13 October 1988 respondent BARRETTO REALTY also conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to ASIAWORLD. Article 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. Therefore, by virtue of the extrajudicial rescission of the contract to sell by petitioner without opposition from private respondents who, in turn, sold the property to other persons, private respondent BARRETTO REALTY, as the vendor, had the obligation to return the earnest money of P1,000,000.00 plus legal interest from the date it received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It would be most inequitable if respondent BARRETTO REALTY would be allowed to retain petitioner's payment of P1,000,000.00 and at the same time appropriate the proceeds of the second sale made to another. Page | 125

LORETA SERRANO vs. COURT OF APPEALS and LONG LIFE PAWNSHOP, INC. G.R. No. 45125 1991 Apr 22 FACTS: Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 from Niceta Ribaya. However, when petitioner was in need of money, she instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina then went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina Rocco stipulated that it was redeemable "on presentation by the bearer." Three months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket issued by private respondent was being offered for sale. They told Niceta the ticket probably covered jewelry once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private respondent pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong not to permit anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong agreed. On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first for qualified theft and later changed to estafa was subsequently filed against Josefina Rocco. Thereafter, a member of the Manila Police went to the pawnshop, showed Yu An Kiong petitioner's report and left the latter a note asking him to hold the jewelry and notify the police in case someone should redeem the same. However, the next day, Yu An Kiong permitted one Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry. On 4 October 1968, petitioner filed a complaint for damages against private respondent Long Life for failure to hold the jewelry and for allowing its redemption without first notifying petitioner or the police. Hon. Luis B. Reyes, rendered a decision in favor of petitioner. The decision was however reversed on appeal and the complaint dismissed by the public respondent Court of Appeals. ISSUE: Whether or not the Court of Appeals committed reversible error in rendering its Decision. RULING: Page | 126

Having been notified by petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold the things pledged and to give notice to petitioner and the police of any effort to redeem them. Such a duty was imposed by Article 21 of the Civil Code. The circumstance that the pawn ticket stated that the pawn was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a negotiable instrument under the Negotiable Instruments Law nor a negotiable document of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasa de Leon, who redeemed the things pledged a day after petitioner and the police had notified Long Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent pawnbroker was, of course, entitled to demand payment of the loan extended on the security of the pledge before surrendering the jewelry, upon the assumption that it had given the loan in good faith and was not a "fence" for stolen articles and had not conspired with the faithless Josefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard of that duty in the instant case and must bear the consequences, without prejudice to its right to recover damages from Josefina Rocco. Hence, the trial court correctly held that private respondent was liable to petitioner for actual damages which corresponded to the difference in the value of the jewelry and the amount of the loan, or the sum of P26,500.00. Petitioner is entitled to collect the balance of the value of the jewelry, corresponding to the amount of the loan, in an appropriate action against Josefina Rocco. Private respondent Long Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the damages it must pay to petitioner. Wherefore, the Petition is GRANTED and the decision of the Court of Appelas was REVERSED and SET ASIDE.

PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL vs. HON. COURT OF APPEALS, HEIRS OF EMILIO MATULAC, CONSTANCIO MAGLANA, AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO CITY G.R. No. 127206 September 12, 2003 FACTS: Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel Villarica, were the co-owners of a parcel of commercial land with an area of 829 square meters, identified as Lot No. 59-C, covered by Transfer Certificate of Title (TCT) No. 432 located in Davao City. The spouses Angel and Nieves Villarica had constructed a two-storey commercial building on the property. On October 13, 1953, Concepcion filed a complaint against her sister Nieves for specific performance, to compel the defendant to cede and deliver to her an undivided portion of the said property with an area of Page | 127

256.2 square meters. After due proceedings, the court rendered judgment on April 7, 1954 in favor of Concepcion, ordering the defendant to deliver to the plaintiff an undivided portion of the said property with an area of 256.2 square meters. Nieves appealed to the Court of Appeals which affirmed the assailed decision. In due course, the decision became final and executory. On motion of the plaintiff (Concepcion), the court issued a writ of execution. Nieves, however, refused to execute the requisite deed in favor of her sister. On April 27, 1956, the court issued an order authorizing ex-officio Sheriff Eriberto Unson to execute the requisite deed of transfer to the plaintiff over an undivided portion of the property with a total area of 256.2 square meters. Instead of doing so, the sheriff had the property subdivided into four lots. The sheriff thereafter executed a Deed of Transfer to Concepcion. On October 24, 1956, Concepcion executed a deed of absolute sale over Lot 59-C-1 in favor of Iluminada Pacetes. In the said deed, the area of Lot 59-C-1 appeared as “256 square meters” although under the subdivision plan, the area of the property was only 218 square meters. On December 21, 1956, Iluminada Pacetes filed a motion to intervene as vendee of the property subject of the case and a motion to dismiss the complaint which was both granted by the court. On the basis of the deed of transfer executed by Sheriff Iriberto A. Unson, the Register of Deeds issued TCT No. 7450 over Lot 59-C-1 and 59-C-2 on July 17, 1957 in the name of Concepcion, with a total area of 256.2 square meters. However, the latter failed to transfer title to the property to and under the name of Iluminada Pacetes. Consequently, the latter did not remit the balance of the purchase price of the property to Concepcion. In the interim, the spouses Angel and Nieves Villarica executed a real estate mortgage over Lot 59-C-4 in favor of Prudential Bank as security for a loan. On August 4, 1959, Concepcion died intestate and was survived by Nieves Villarica and her nephews and nieces. Iluminada filed a motion for her substitution as party-plaintiff in lieu of the deceased Concepcion. On August 2, 1961, the court issued an order granting the motion. The Court rendered judgment setting aside the deed of transfer executed by the sheriff in favor of Concepcion Palma Gil, and remanding the records to the trial court for further proceedings. In compliance with the Decision of the Court in the other case, the trial court conducted further proceedings and discovered that the defendant had mortgaged Lot 59-C-4 to the Prudential Bank. Consequently, the court issued an order on February 17, 1964, declaring that the defendant had waived the benefits of the Decision of the Court, thus, the conveyance of the property made by Concepcion in favor of Iluminada on October 24, 1956 must stand. Nieves filed a motion for the reconsideration of the said order but the court denied the same in an Order dated February 29, 1964. Nieves appealed the order to the CA which dismissed the appeal. for her failure to file a record on appeal. ISSUE: Whether or not the rescission made was valid and binding upon the parties. RULING: Under the last paragraph of Article 1169 of the New Civil Code, in 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 in the other begins. Thus, reciprocal obligations Page | 128

are to be performed simultaneously so 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 that violates the reciprocity between them. The deed of absolute sale executed by Concepcion Gil in favor of Iluminada Pacetes is an executory contract and not an executed contract is a settled matter. In a perfected contract of sale of realty, the right to rescind the said contract depends upon the fulfillment or non-fulfillment of the prescribed condition. The court ruled that the condition pertains in reality to the compliance by one party of an undertaking the fulfillment of which would give rise to the demandability of the reciprocal obligation pertaining to the other party. The reciprocal obligation envisaged would normally be, in the case of the vendee, the payment by the vendee of the agreed purchase price and in the case of the vendor, the fulfillment of certain express warranties. In this case, Concepcion Gil sold Lot 59-C-1 to Iluminada Pacetes for P21,600.00, that P7,500.00, to be paid upon the signing of this instrument; and the balance of P14,100.00, to be paid upon the delivery of the corresponding Certificate of Title. Indeed, Concepcion Gil obliged herself to transfer title over the property to and under the name of the vendee within 120 days from the execution of the deed. The vendee paid the downpayment of P7,500.00. By the terms of the contract, the obligation of the vendee to pay the balance of the purchase price ensued only upon the issuance of the certificate of title by the Register of Deeds over the property sold to and under the name of the vendee, and the delivery thereof by the vendor Concepcion Gil to the latter. Concepcion failed to secure a certificate of title over the property. When she died intestate on August 4, 1959, her obligation to deliver the said title to the vendee devolved upon her heirs, including the petitioners. The said heirs, including the petitioners failed to do so, despite the lapse of eighteen years since Concepcion’s death. The petitioners, as successors-in-interest of the vendor, are not the injured parties entitled to a rescission of the deed of absolute sale. It was Concepcion’s heirs, including the petitioners, who were obliged to deliver to the vendee a certificate of title over the property under the latter’s name, free from all liens and encumbrances within 120 days from the execution of the deed of absolute sale on October 24, 1956, but had failed to comply with the obligation. The consignation by the vendee of the purchase price of the property is sufficient to defeat the right of the petitioners to demand for a rescission of the said deed of absolute sale. Thus, the decision of the CA affirming the decision of the RTC dismissing the complaint of the petitioners is affirmed.

DAVID REYES vs. JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC. 408 SCRA 560 FACTS: On 7 November 1994, Reyes as seller and Lim as buyer entered into a contract to sell a parcel of land located along F.B. Harrison Street, Pasay City. Harrison Lumber Page | 129

occupied the Property as lessee with a monthly rental of P35,000. The total consideration for the purchase of the aforedescribed parcel of land together with the perimeter walls found therein P28,000,000.00 pesos. The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before the end of January 1995. Reyes also informed Keng and Harrison Lumber that if they failed to vacate by 8 March 1995, he would hold them liable for the penalty of P400,000 a month as provided in the Contract to Sell. The complaint further alleged that Lim connived with Harrison Lumber not to vacate the Property until the P400,000 monthly penalty would have accumulated and equaled the unpaid purchase price of P18,000,000. On the other hand, Keng and Harrison Lumber denies that they connived with Lim to defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for an extension of time to vacate the Property due to their difficulty in finding a new location for their business. Harrison Lumber claimed that as of March 1995, it had already started transferring some of its merchandise to its new business location in Malabon. Lim alleged that he was ready and willing to pay the balance of the purchase price on or before 8 March 1995, but Reyes kept postponing their meeting. On 9 March 1995, Reyes offered to return the P10 million down payment to Lim because Reyes was having problems in removing the lessee from the Property. Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the Property. Lim learned that Reyes had already sold the Property to Line One Foods Corporation on 1 March 1995 for P16,782,840. ISSUE: Whether or not Reyes has the right to obje t to the deposit of the 10 million pesos downpayment in court. RULING: There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10 million down payment in court. The Contract to Sell can no longer be enforced because Reyes himself subsequently sold the Property to Line One. Both Reyes and Lim are seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code, rescission creates the obligation to return the things that are the object of the contract. Rescission is possible only when the person demanding rescission can return whatever he may be obliged to restore. A court of equity will not rescind a contract unless there is restitution, that is, the parties are restored to the status quo ante. Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the P10 million down payment in court. Such deposit will ensure restitution of the P10 million to its rightful owner. Lim, on the other hand, has nothing to refund, as he has not received anything under the Contract to Sell. In another case, the Court ruled the refund of amounts received under a contract is a precondition to the rescission of the contract. the party who have asked for rescission, must restore to the defendants whatever it has received under the contract. It will only be just if, as a condition to rescission, the other party be required to refund to the defendants an amount equal to the purchase price, plus the sums expended by them in improving the land. The principle that no person may unjustly enrich himself at the expense of another is embodied in Article 22 of the Civil Code. This principle applies not only to substantive Page | 130

rights but also to procedural remedies. One condition for invoking this principle is that the aggrieved party has no other action based on contract, quasi-contract, crime, quasidelict or any other provision of law. Courts can extend this condition to the hiatus in the Rules of Court where the aggrieved party, during the pendency of the case, has no other recourse based on the provisional remedies of the Rules of Court. Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller himself seeks rescission of the sale because he has subsequently sold the same property to another buyer. By seeking rescission, a seller necessarily offers to return what he has received from the buyer. Such a seller may not take back his offer if the court deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial deposit. Thus, it was just, equitable and proper for the trial court to order the deposit of the P10 million down payment to prevent unjust enrichment by Reyes at the expense of Lim. WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

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ONG YONG et al., vs. DAVID S. TIU et al. G.R. No. 144476 2002 Feb 1 FACTS: Masagana Citimall was owned and managed by the First Landlink Asia Development Corporation (FLADC). FLADC was fully owned by the Tiu Group. In order to recover from floundering finances, the Tiu group entered into a Pre-Subscription Agreement with the Ong group wherein both parties agreed to maintain equal shareholdings in FLADC the Ongs investing cash, while the Tius contributing property. The Ongs gave P100M as payment of their 1 Million subscription shares at a par value of 1 peso per share. Intraland Resources and Development Corporation executed a requisite Deed of Assignment over a building it owned in favor of FLADC and was duly credited with 200,000 shares in FLADC. Masagana Telamart transferred titles of 2 properties in favor of FLADC. The Ongs had to pay P70M more, aside from their P100M subscription payment in order to settle the P190M loan of FLADC from PNB. The Tius also had to advance P20M, which amount was loaned to them by the Ongs. The Tius rescinded the Pre-Subscription Agreement when the Ongs refused to credit the FLADC shares in the name of Masagana Telamart commensurate to its 1, 902.30 square meter contribution and to credit the number of FLADC shares in favor of the Tius commensurate to its 151 square meter property contribution; and when David Tius and Cely Tiu were proscribed from assuming and performing their duties as V-P and Treasurer, respectively. SEC confirmed the unilateral rescission of the agreement. ISSUE: Whether the rescission applies only to reciprocal obligations and the PreSubscription agreement does not provide for reciprocity. RULING: The Ongs illustrate reciprocity in the following manner: In a contract of sale, the correlative duty of the obligation of the seller to deliver the property is the obligation of the buyer to pay the agreed price. In the case, the correlative obligation of the Tius to let the Ongs have and exercise the functions of the positions of President and Secretary is the obligation of the Ongs to let the Tius have and exercise the functions of VicePresident and Treasurer. Petitioners keep on harping for the Pre-Subscription Agreement’s specific performance yet they also actually failed to give a legal basis therefor. They deny that the Tiu Group has a right to ask for rescission of their agreement per Article 1191 of the Civil Code when they themselves invoke the same law as basis for asking the specific performance of the same agreement.

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The Courts of Appeals then correctly confirmed the rescission of the PreSubscription Agreement on the basis of Art. 1191 of the Civil Code. It could have relied on the said provision and nonetheless stood on valid ground. It, however, judiciously took into account the special circumstances of the case and further justified its decision confirming the rescission of the Pre-Subscription Agreement on the basis of its perception that the two groups "can no longer work harmoniously together" and that "to pit them together in the management of FLADC will only result to further squabbles and numerous litigation." As a legal consequence of rescission, the order of the Court of Appeals to return the cash and property contribution of the parties is based on law, hence, cannot be considered an act of misappropriation. In order for the rescission of the PreSubscription Agreement be implemented, the returning to the two groups whatever they delivered to the corporation in accordance with the Agreement is needed. With regard to the order of the Court of Appeals transferring to the Tiu Group whatever remains of the assets of FLADC and the management thereof, the same is but an inevitable consequence of the rescission of the Pre-Subscription Agreement. Restoration of the parties to status quo ante dictates that the building constructed on the two (2) existing lots of FLADC, the remaining asset of FLADC, be transferred to the Tiu Group. The status quo ante immediately prior to the execution of the PreSubscription Agreement was that the Tius, then wholly owning FLADC, had control and custody over this remaining asset. On the other hand, the Court of Appeals however, erred in finding that the Tiu Group violated the Pre-Subscription Agreement since the deed of assignment over the 151 sq. m. lot was not executed by the Tiu Group but by the Lichaucos in favor of FLADC. Hence, the Tiu Group cannot be credited with the number of shares commensurate to the value of said lot and will not, therefore, be able to equal the Ong Group’s one million subscription in FLADC. The Lichaucos are not parties to the PreSubscription Agreement and are not even demanding that they be credited with such shares in exchange for the said property. Just like the 1, 902.30 sq. m. parcel of land in the name of Masagana Telamart, Inc. (also a corporation owned by the Tius), was also acquired by the Tius before the execution of the Pre-Subscription Agreement. The fact that the 1, 902.30 sq. m. property was acquired by the Tius beforehand does not prejudice the Ongs, as shown by the Ongs’ non-objection to crediting the Masagana Telamart, Inc. with the commensurate number of shares, subject only to the Tius’ payment of the expenses for the transfer of the title in the name of FLADC. So, too, in the case of the 151 sq. m. property, the fact that the Deed of Assignment between the Lichaucos and the FLADC was executed prior to the execution of the Pre-Subscription Agreement does not prejudice the Ongs. Therefore, the Tius should be credited with 49, 800 shares in FLADC for this property contribution, pursuant to the Pre-Subscription Agreement.

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EQUATORIAL REALTY DEVELOPMENT, Inc. vs. MAYFAIR THEATER, Inc., G.R. No. 133879 2001 Nov 21 FACTS: Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila. On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. (Mayfair) for a period of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor area, which respondent used as a movie house known as Maxim Theater. Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latter’s property -- namely, a part of the second floor of the two-storey building, and two store spaces on the ground floor and the mezzanine. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years. Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. (“Equatorial”) for the total sum of P11,300,000, without their first being offered to Mayfair. As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of Manila for the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, specific performance, and damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and Equatorial. On appeal CA completely reversed and set aside the judgment of the lower court. The decision of the Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the trial court granted. Page | 135

However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 less P847,000 as withholding tax. The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila cancelled Equatorial’s titles and issued new Certificates of Title in the name of Mayfair. The CA in its Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as withholding tax. Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial. Equatorial questioned the legality of the CA ruling. In its Decision, the Court directed the trial court to follow strictly the Decision in the mother case. Meanwhile, barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Equatorial filed with the Regional Trial Court of Manila, an action for the collection of a sum of money against Mayfair, claiming payment of rentals or reasonable compensation for the defendant’s use of the subject premises after its lease contracts had expired. ISSUES: 1. Whether or not the contract of sale is validly rescinded though there was no actual delivery made. 2. Whether or not the rentals paid concede actual delivery. RULING: A contract of sale is valid until rescinded, and ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. In the case, it shows that delivery was not actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. Furthermore, petitioner’s bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of such benefits. In this case, it is clear that petitioner never took actual control and possession of the property sold, in view of respondent’s timely objection to the sale and the continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. When there is such impediment, “fiction yields to reality - the delivery has not been effected.” Hence, respondent’s opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latter’s hands. Page | 136

The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated. 2. The Decision in the mother case stated that “Equatorial x x x has received rents” from Mayfair “during all the years that this controversy has been litigated.” However, these statements does not concede actual delivery. The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso facto recognition of Equatorial’s title. The records show that Equatorial - as alleged buyer of the disputed properties and as alleged successor-ininterest of Carmelo’s rights as lessor - submitted two ejectment suits against Mayfair. Mayfair eventually won them both. However, to be able to maintain physical possession of the premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals. Therefore, the rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were made merely to avoid imminent eviction. At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as found by the Court in the mother case, Equatorial was never put in actual and effective control or possession of the property because of Mayfair’s timely objection. In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be consummated. Petitioner never acquired ownership, not because the sale was void, as erroneously claimed by the trial court, but because the sale was not consummated by a legally effective delivery of the property sold. Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE vs. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO G.R. No. 108346 2001 Jul 11 FACTS: David Raymundo is the absolute and registered owner of a parcel of land, together with the house and other improvements thereon. Private Respondent George Raymundo is David’s father who negotiated with plaintiffs Avelina and Mariano Velarde, the petitioners, for the sale of said property, which was, however, under lease. On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee. Page | 137

It is further agreed and understood by the parties that the capital gains tax and documentary stamps on the sale shall be for the account of the vendor; whereas, the registration fees and transfer tax thereon shall be for the account of the vendee. On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano, executed an Undertaking. It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that plaintiffs were to secure from a bank with defendant’s help. Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPI’s approval of an application for assumption of mortgage by plaintiffs. Pending BPI’s approval of the application, plaintiffs were to continue paying the monthly interests of the loan secured by a real estate mortgage. Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for three (3) months, however, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved, which prompted plaintiffs not to make any further payment. On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank constituted non-performance of their obligation. Thereafter, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latter’s failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking. ISSUE: Whether or not the Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified. RULING: A substantial breach of a reciprocal obligation entitles the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received. The breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. Private respondents’ right to rescind the contract finds basis in Article 1191 of the Civil Code. The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. Page | 138

The private respondents therefore validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents’ right to rescind the same in accordance with law. The petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest. The breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy. Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former. 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. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made.

ALEXANDER G. ASUNCION vs. EDUARDO B. EVANGELISTA and COURT OF APPEALS G.R. No. 133491 1999 Oct 13 FACTS: On September 9, 1980, private respondent borrowed P500,000 from Paluwagan ng Bayan Savings and Loan Association to use as working capital for Embassy Farms. He executed a real estate mortgage on three of his properties as security for the loan. On November 4, 1981, private respondent mortgaged 10 titles more in favor of PAIC Savings and Mortgage Bank, formerly First Summa Savings and Mortgage Bank, as security for a loan he obtained from it in the amount of P1,712,000. Private respondent obtained another loan in the amount of P844,625.78 from Mercator Finance Page | 139

Corporation. The loan was secured by a real estate mortgage on five 5 other landholdings of private respondent. Private respondents aggregate debt exposure totaled P3,056,625.78. However, he defaulted in his loan payments. By June 1984, his aggregate debt had ballooned to almost six million pesos. On August 2, 1984, petitioner and private respondent executed a Memorandum of Agreement. Upon the execution of the Memorandum, petitioner paid private respondent one million pesos, P500,000.00 within a ninety-day period in four disbursements. The second installment, in the like amount of three hundred thousand pesos, was supposed to be remitted by petitioner to private respondent for the purpose of financing the operations of the piggery pursuant to the Memorandum. Instead, petitioner agreed to pay to PAIC Savings & Mortgage Bank. Aside from paying the aforesaid amount of P300,000.00 to PAIC Savings & Mortgage Bank, petitioner also paid P400,000.00 in favor of Paluwagan ng Bayan Savings and Loan Association. For his part, private respondent was obligated under the Memorandum of Agreement to "execute, sign and deliver any and all documents" necessary for the transfer and conveyance of several parcels of land he owned but mortgaged with the banks and financial institutions and to "cede, transfer and convey in a manner absolute and irrevocable any and all of his shares of stocks in Embassy Farms, Inc." as well as "cause to be so transferred to petitioner or his nominee such shares of stock until they constitute 90% of the paid-in equity of said corporation". However, more than a year after the signing of the Memorandum of Agreement, the landholdings of private respondent which were mortgaged to Paluwagan ng Bayan Savings and Loan Association, PAIC Savings and Mortgage Bank and Mercator Finance Corporation still remained titled in his name. Neither did he inform said mortgagees of the transfer of his lands. As to the shares of stock, it was incumbent upon private respondent to endorse and deliver them to petitioner so he could also have them transferred in his name, but private respondent never did. He refused to honor his obligations under the Memorandum of Agreement and even countered with a demand letter of his own. He accused petitioner of having failed to restructure his loans with Paluwagan ng Bayan Savings and Loan Association, PAIC Savings and Mortgage Bank and Mercator Finance Corporation and blamed him for the foreclosure of his landholdings, including the piggery site of Embassy Farms, Inc. Petitioner then filed in the RTC a complaint for rescission of the Memorandum of Agreement with a prayer for damages. The Court declared the Memorandum of Agreement rescinded and of no further force and effect. Both petitioner and private respondent repaired to the Court of Appeals. The court affirmed the decision of the trial court and ordered its immediate execution. ISSUES:

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1. Whether the non-compliance of one party in a reciprocal obligation amounts to rescission of the obligation. 2. Whether or not the Court shall allow the grant of damages corresponding to the value of the land foreclosed by private respondent's creditors upon the latter's failure to make his loan payments. RULING: 1. The parties' Memorandum of Agreement is a contract of sale where a price certain is paid in exchange for a determinate thing that is sold and delivered. However, it shows that it constitutes not a mere isolated, simple, short-term business deal calling for the outright sale and purchase of land and shares of stocks belonging to private respondent, but a set of chronological, reciprocal and conditional obligations that both petitioner and private respondent must faithfully comply with to ensure the full enforcement of all its stipulations. Petitioner and private respondent entered into what the law regards as reciprocal obligations. Reciprocity arises from identity of cause, and necessarily the two obligations are created at the same time. Reciprocal obligations, therefore, 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, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Article 1191 of the Civil Code governs the situation where there is non-compliance by one party in case of reciprocal obligations. It provides: "The power to rescind the 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. "This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 2388 and the Mortgage Law." The effect of rescission is also provided in the Civil Code in Article 1385: "Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest, consequently, it can be carried out only when he who demands rescission can return whatever he may be obligated to restore. Page | 141

"Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. "In this case, indemnity for damages may be demanded from the persons causing the loss." Private respondent admitted in open court that petitioner paid him the initial sum of one million pesos upon the signing of the Memorandum of Agreement as well as various sums of money as fees for the restructuring of his loans. Thereupon, private respondent was obligated to execute a deed of sale with assumption of mortgage, both in compliance with the Memorandum of Agreement and to ensure the legal efficacy of petitioner's promise to assume his loan obligations. However, private respondent failed to perform his substantial obligations under the Memorandum of Agreement. Hence, petitioner sought the rescission of the Memorandum of Agreement and ceased infusing capital into the piggery business of private respondent. 2. The Court cannot allow the grant of damages corresponding to the value of the land foreclosed by private respondent's creditors upon the latter's failure to make his loan payments. In case of rescission, while damages may be assessed in favor of the prejudiced party, only those kinds of damages consistent with the remedy of rescission may be granted, keeping in mind that had the parties opted for specific performance, other kinds of damages would have been called for which are absolutely distinct from those kinds of damages accruing in the case of rescission. An obligation may be resolved if one of the obligors fails to comply with that which is incumbent upon him; and it is declared that the person prejudiced may elect between exacting the fulfillment of the obligation (specific performance) and its resolution, with compensation for damage and payment of interest in either case. One is not entitled to pursue both of the inconsistent remedies. In estimating the damages to be awarded in case of rescission, those elements of damages only can be admitted that are compatible with the idea of rescission and in estimating the damages to be awarded in case the lessor elects for specific performance only those elements of damages can be admitted which are compatible with the conception of specific performance. Thus, damages which would only be consistent with the conception of specific performance cannot be awarded in an action where rescission is sought. In cases of resolution or rescission, the parties are bound to restore to each the thing which has been the subject matter of the contract, precisely as in the situation where a decree of nullity is granted. In the common case of the resolution of a contract of sale for failure of the purchaser to pay the stipulated price, the seller is entitled to be restored to the possession of the thing sold, if it has already been delivered. But he cannot have both the thing sold and the price which was agreed to be paid, for the resolution of the contract has the effect of destroying the obligation to pay the price. Similarly, in the case of the resolution, or rescission of a contract of lease, the lessor is entitled to be restored to the possession of the leased premises, but he cannot have both the possession of the leased premises for the remainder of the term and the rent which Page | 142

the other party had contracted to pay. The termination of the lease has the effect of destroying the obligation to pay rent for the future. WILLIAM UY and RODEL ROXAS vs. COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING AUTHORITY G.R. No. 120465 1999 Sep 9 FACTS: Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to be utilized and developed as a housing project. On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said lands at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight parcels of land, however, only five were paid for by the NHA because of the report it received from the Land Geosciences Bureau of the Department of Environment and Natural Resources (DENR) that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project. On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three parcels of land. The NHA, through Resolution No. 2394, subsequently offered the amount of P1.225 million to the landowners as danos perjuicios. On 9 March 1992, petitioners filed before the RTC of Quezon City a Complaint for Damages against NHA and its General Manager Robert Balao. After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA to petitioners as damages. Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing the complaint. It held that since there was "sufficient justifiable basis" in cancelling the sale, "it saw no reason" for the award of damages. ISSUE: Whether or not the CA erred in declaring that respondent NHA had any legal basis for rescinding the sale involving the last three parcels covered by NHA Resolution No. 1632. RULING: Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Article 1191 of the Civil Code. The right of rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is predicated on a Page | 143

breach of faith by the other party that violates the reciprocity between them. The power to rescind, therefore, is given to the injured party. Article 1191 states: 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. In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other parties to the contract, the vendors, did not commit any breach, much less a substantial breach of their obligation. Their obligation was merely to deliver the parcels of land to the NHA, an obligation that they fulfilled. The NHA did not suffer any injury by the performance thereof. The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was based on the negation of the cause arising from the realization that the lands, which were the object of the sale, were not suitable for housing. Cause is the essential reason which moves the contracting parties to enter into it. In other words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties. Cause, which is the essential reason for the contract, should be distinguished from motive, which is the particular reason of a contracting party which does not affect the other party. In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract were the lands not suitable for housing. In other words, the quality of the land was an implied condition for the NHA to enter into the contract. On the part of the NHA, therefore, the motive was the cause for its being a party to the sale. Accordingly, we hold that the NHA was justified in cancelling the contract. The realization of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent.28 [Note that said contract is also avoidable under Article 1331 of the Civil Code which states: Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. x x x] Article 1318 of the Civil Code states that: Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Page | 144

Wherefore, the petition was DENIED.

VICTORY LINER, INC. vs. HEIRS OF ANDRES MALECDAN G.R. No. 154278 2002 Dec 27 FACTS: Andres Malecdan was a 75 year-old farmer residing in Barangay Nungnungan 2, Municipality of Cauayan, Province of Isabela. On July 15, 1994, at around 7:00 p.m., while Andres was crossing the National Highway on his way home from the farm, a Dalin Liner bus on the southbound lane stopped to allow him and his carabao to pass. However, as Andres was crossing the highway, a bus of petitioner Victory Liner, driven by Ricardo C. Joson, Jr., bypassed the Dalin bus. In so doing, respondent hit the old man and the carabao on which he was riding. As a result, Andres Malecdan was thrown off the carabao, while the beast toppled over. The Victory Liner bus sped past the old man, while the Dalin bus proceeded to its destination without helping him. Malecdan sustained a wound on his left shoulder, from which bone fragments protruded. He was taken by Lorena, the witness, and another person to the Cagayan District Hospital where he died a few hours after arrival The carabao also died soon afterwards. Subsequently, a criminal complaint for reckless imprudence resulting in homicide and damage to property was filed against the Victory Liner bus driver Ricardo Joson, Jr. On October 5, 1994, private respondents brought suit for damages in the Regional Trial Court, Branch 5, Baguio City, which, in a decision rendered on July 17, 2000, found the driver guilty of gross negligence in the operation of his vehicle and Victory Liner, Inc. also guilty of gross negligence in the selection and supervision of Joson, Jr. Petitioner and its driver were held liable for damages. On appeal, the decision was affirmed by the Court of Appeals, with the modification that the award of attorney’s fees was fixed at P50,000.00. ISSUE: 1. Whether or not the employer can be held solidarily liable or vicariously liable. 2. Whether or not the award of damages is valid. RULING: 1. Article 2176 provides: Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Page | 145

Article 2180 provides for the solidary liability of an employer for the quasi-delict committed by an employee. The responsibility of employers for the negligence of their employees in the performance of their duties is primary and, therefore, the injured party may recover from the employers directly, regardless of the solvency of their employees. The rationale for the rule on vicarious liability has been explained thus: What has emerged as the modern justification for vicarious liability is a rule of policy, a deliberate allocation of a risk. The losses caused by the torts of employees, which as a practical matter are sure to occur in the conduct of the employer’s enterprise, are placed upon that enterprise itself, as a required cost of doing business. They are placed upon the employer because, having engaged in an enterprise, which will on the basis of all past experience involve harm to others through the tort of employees, and sought to profit by it, it is just that he, rather than the innocent injured plaintiff, should bear them; and because he is better able to absorb them and to distribute them, through prices, rates or liability insurance, to the public, and so to shift them to society, to the community at large. Added to this is the makeweight argument that an employer who is held strictly liable is under the greatest incentive to be careful in the selection, instruction and supervision of his servants, and to take every precaution to see that the enterprise is conducted safely. Employers may be relieved of responsibility for the negligent acts of their employees acting within the scope of their assigned task only if they can show that "they observed all the diligence of a good father of a family to prevent damage." For this purpose, they have the burden of proving that they have indeed exercised such diligence, both in the selection of the employee and in the supervision of the performance of his duties. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience and service records. With respect to the supervision of employees, employers must formulate standard operating procedures, monitor their implementation and impose disciplinary measures for breaches thereof. These facts must be shown by concrete proof, including documentary evidence. 2. To justify an award of actual damages, there should be proof of the actual amount of loss incurred in connection with the death, wake or burial of the victim. The court cannot take into account receipts showing expenses incurred some time after the burial of the victim, such as expenses relating to the 9th day, 40th day and 1st year death anniversaries. In this case, the trial court awarded P88,339.00 as actual damages. While these were duly supported by receipts, these included the amount of P5,900.00, the cost of one pig which had been butchered for the 9th day death anniversary of the deceased. This item cannot be allowed. The court therefore, reduce the amount of actual damages to P82,439.00.00. The award of P200,000.00 for moral damages should likewise be reduced. The trial court found that the wife and children of the deceased underwent "intense moral suffering" as a result of the latter’s death. Under Art. 2206 of the Civil Page | 146

Code, the spouse, legitimate children and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. Under the circumstances of this case an award of P100,000.00 would be in keeping with the purpose of the law in allowing moral damages. On the other hand, the award of P50,000.00 for indemnity is in accordance with current rulings of the Court. Art. 2231 provides that exemplary damages may be recovered in cases involving quasi-delicts if the defendant acted with gross negligence. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. In this case, petitioner’s driver Joson, Jr. was grossly negligent in driving at such a high speed along the national highway and overtaking another vehicle which had stopped to allow a pedestrian to cross. Worse, after the accident, Joson, Jr. did not stop the bus to help the victim. Under the circumstances, the court believe that the trial court’s award of P50,000.00 as exemplary damages is proper. Finally, private respondents are entitled to attorney’s fees. Under Art. 2008 of the Civil Code, attorney’s fees may be recovered when, as in the instant case, exemplary damages are awarded. In the recent case of Metro Manila Transit Corporation v. Court of Appeals, the court held an award of P50,000.00 as attorney’s fees to be reasonable. Hence, private respondents are entitled to attorney’s fees in that amount. WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with the MODIFICATION. GOVERNMENT SERVICE INSURANCE SYSTEM vs. SPOUSES GONZALO and MATILDE LABUNG-DEANG G.R. No. 135644 2001 Sep 17 FACTS: Sometime in December 1969, the spouses Deang obtained a housing loan from the GSIS in the amount of eight thousand five hundred pesos. Under the agreement, the loan was to mature on December 23, 1979. The loan was secured by a real estate mortgage constituted over the spouses’ property covered by Transfer Certificate of Title No. 14926-R issued by the Register of Deeds of Pampanga. As required by the mortgage deed, the spouses Daeng deposited the owner’s duplicate copy of the title with the GSIS. On January 19, 1979, eleven (11) months before the maturity of the loan, the spouses Deang settled their debt with the GSIS and requested for the release of the owner’s duplicate copy of the title since they intended to secure a loan from a private lender and use the land covered by it as collateral security for the loan of fifty thousand pesos which they applied for with one Milagros Runes. However, personnel of the GSIS were not able to release the owner’s duplicate of the title as it could not be found despite diligent search. As stated earlier, the spouses as mortgagors deposited the owner’s duplicate copy of the title with the GSIS located at its office in San Fernando, Pampanga. Page | 147

Satisfied that the owner’s duplicate copy of the title was really lost, in 1979, GSIS commenced the reconstitution proceedings with the Court of First Instance of Pampanga for the issuance of a new owner’s copy of the same. On June 22, 1979, GSIS issued a certificate of release of mortgage. After the completion of judicial proceedings, GSIS finally secured and released the reconstituted copy of the owner’s duplicate of Transfer Certificate of Title No. 14926-R to the spouses Deang. On July 6, 1979, the spouses Deang filed with the Court of First Instance, Angeles City a complaint against GSIS for damages, claiming that as result of the delay in releasing the duplicate copy of the owner’s title, they were unable to secure a loan from Milagros Runes, the proceeds of which could have been used in defraying the estimated cost of the renovation of their residential house and which could have been invested in some profitable business undertaking. The trial court rendered a decision ruling for the spouses Deang. The trial court reasoned that the loss of the owner’s duplicate copy of the title “in the possession of GSIS as security for the mortgage... without justifiable cause constitutes negligence on the part of the employee of GSIS who lost it,” making GSIS liable for damages. On August 30, 1995, GSIS appealed the decision to the Court of Appeals. On September 21, 1998, the Court of Appeals promulgated a decision affirming the appealed judgment, ruling: First, since government owned and controlled corporations whose charters provide that they can sue and be sued have a legal personality separate and distinct from the government, GSIS is not covered by Article 2180 of the Civil Code, and it is liable for damages caused by their employees acting within the scope of their assigned tasks. Second, the GSIS is liable to pay a reasonable amount of damages and attorney’s fees, which the appellate court will not disturb. ISSUE: 1. Whether GSIS, as a GOCC primarily performing governmental functions, is liable for a negligent act of its employee acting within the scope of his assigned tasks. 2. Whether or no the award of damages is valid. RULING: 1. GSIS is liable for damages. Article 2180 and Article 2176 is not applicable to the case. However, the trial court and the Court of Appeals erred in citing it as the applicable law. The trial court and the Court of Appeals should not have treated the obligation of GSIS as one springing from quasi-delict. Under the facts, there was a preexisting contract between the parties. GSIS and the spouses Deang had a loan agreement secured by a real estate mortgage. The duty to return the owner’s duplicate copy of title arose as soon as the mortgage was released. Thus, negligence is obvious as the owners’ duplicate copy could not be returned to the owners. Therefore, the more applicable provisions of the Civil Code are: Page | 148

“Article 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.” “Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted xxx.” Since good faith is presumed and bad faith is a matter of fact which should be proved, GSIS shall be treated as a party who defaulted in its obligation to return the owners’ duplicate copy of the title. As an obligor in good faith, GSIS is liable for all the “natural and probable consequences of the breach of the obligation.” The inability of the spouses Deang to secure another loan and the damages they suffered thereby has its roots in the failure of the GSIS to return the owners’ duplicate copy of the title. 2. In a breach of contract, moral damages are not awarded if the defendant is not shown to have acted fraudulently or with malice or bad faith. The fact that the complainant suffered economic hardship or worries and mental anxiety is not enough. There is likewise no factual basis for an award of actual damages. Actual damages to be compensable must be proven by clear evidence. A court can not rely on “speculation, conjecture or guess work” as to the fact and amount of damages, but must depend on actual proof. However, it is also apparent that the spouses Deang suffered financial damage because of the loss of the owners’ duplicate copy of the title. Thus, temperate damages may be granted. “Article 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.” The rationale behind temperate damages is precisely that from the nature of the case, definite proof of pecuniary loss cannot be offered. When the court is convinced that there has been such loss, the judge is empowered to calculate moderate damages, rather than let the complainant suffer without redress from the defendant’s wrongful act. The award of twenty thousand pesos (P20,000.00) in temperate damages is reasonable considering that GSIS spent for the reconstitution of the owners’ duplicate copy of the title. WHEREFORE, the petition was DENIED, and the decision of the Court of Appeals is AFFIRMED with the MODIFICATION that award of attorney’s fees is DELETED.

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BPI INVESTMENT CORPORATION vs. D. G. CARREON COMMERCIAL CORPORATION, DANIEL G. CARREON, AURORA J. CARREON, AND JOSEFA M. JECIEL G.R. No. 126524 2001 Nov 29 FACTS: On November 15, 1979, D. G. Carreon Commercial Corporation placed with BPI Investments P318,981.59 in money market placement with a maturity term of thirty two days, or up to December 17, 1979, at a maturity value of P323,518.22. On December 12, 1979, there appeared in BPI Investments ledger due D. G. Carreon an amount of P323,518.22, which is the exact amount to mature on December 17, 1979. D. G. Carreon did not make any money placement maturing on December 12, 1979. On December 17, 1979, BPI Investments credited D. G. Carreon with another P323,518.22 via roll over of P300,000.00, for a term of one hundred twenty days at 19% interest maturing on April 15, 1980, and P23,518.22, paid out in cash. BPI Investments paid the money placement on April 16, 1980. The money placement in the amount of P319,000.00 that matured on April 16, 1980 was again rolled over for a term of sixty one days at 19% interest maturing on June 16, 1980, with a maturity value of P329,443.81. The amount was again rolled over for a term of thirty days at 18% interest maturing on July 16, 1980, and again rolled over for another thirty days at 18% interest. BPI Investments paid D. G. Carreon twice in interest of the amount of P323,518.22, representing a single money market placement, the first on December 12, 1979, and the second on December 17, 1979. According to petitioner, their bookkeeper made an error in posting “12-17” on the sales order slip for “12-12.” BPI Investments claimed that the same placement was also booked as maturing on December 12, 1979. Aurora Carreon instructed BPI Investments to roll over the whole amount of P323,518.22 for another thirty days, or up to January 11, 1980, at 19% interest. BPI Investments claimed that roll overs were subsequently made from maturing payments on which BPI Investments had made over payments at a total amount of P410,937.09. On April 21, 1982, BPI Investments wrote respondents Daniel Carreon and Aurora Carreon, demanding the return of the overpayment of P410,937.09. D.G. Carreon asked for compensatory damages in an amount to be proven during the trial; spouses Daniel and Aurora Carreon asked for moral damages of P1,000,000.00 because of the humiliation, great mental anguish, sleepless nights and deterioration of health due to the filing of the complaint and indiscriminate and wrongful attachment of their property, especially their residential house and payment of their money market placement of P109,283.75. Josefa Jeceil asked for moral damages of P500,000.00, because of sleepless nights and mental anguish, and payment of her money market placement of P73,857.57; all defendants claimed for exemplary damages and attorney’s fees of P100,000.00. However, the petition was dismissed.

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Both parties appealed the above decision to the Court of Appeals. The Court of Appeals affirmed the decision of the trial court, while the dismissal of the counterclaim of defendants was REVERSED and SET ASIDE. The judgment is rendered as follows: “1. Ordering plaintiff BPI to pay the following amounts of damages: “Moral Damages – “a)P1,000,000.00 to the late Daniel G. Carreon or his estate represented by Aurora J. Carreon; “b)P1,000,000.00 to Aurora J. Carreon; P500,000.00 to the late Josefa M. Jeceil or her estate represented by Aurora J. Carreon; “Compensatory Damages – “P1,500,000.00 to D. G. Carreon Commercial Corporation; “Exemplary Damages – P1,000,000.00 to all defendants; “Attorney’s Fees – P500,000.00 to all defendants “2. Ordering plaintiff BPI to pay to the estate of Daniel G. Carreon, represented by Aurora J. Carreon, the money market placement of P109,238.75 with 12% interest per annum from June 3, 1982 until fully paid; “3. Ordering plaintiff BPI to pay to the estate of Josefa M. Jeceil, represented by Aurora J. Carreon, the money market placement in the amount of P73,857.57 at 12% interest per annum from maturity on July 12, 1982 until fully paid; “4. Ordering plaintiff BPI to pay for the costs of the suit." ISSUE: Whether the Court of Appeals awarded excessive moral and exemplary damages as well as attorney’s fees to respondents. RULING: The law on exemplary damages is found in Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was committed Page | 151

with one or more aggravating circumstances; in quasi-delicts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. BPI Investments did not act in a wanton, fraudulent, reckless, oppressive, or malevolent manner, when it asked for preliminary attachment. It was just exercising a legal option. The sheriff of the issuing court did the execution and the attachment. Hence, BPI Investments is not to be blamed for the excessive and wrongful attachment. The award of moral damages and attorney’s fees is also not in keeping with existing jurisprudence. Moral damages may be awarded in a breach of contract when the defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. Finally, with the elimination of award of moral damages, so must the award of attorney’s fees be deleted. There is no doubt, however, that the damages sustained by respondents were due to petitioner’s fault or negligence, short of gross negligence. Temperate or moderate damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The Court deems it prudent to award reasonable temperate damages to respondents under the circumstances. As to the claim for payment of the money market placement of Josefa Jeceil, the trial court may release the deposited amount of P73,857.57 to petitioner as the consignation was not proper or warranted. This, the decision of the Court of Appeals was AFFIRMED with MODIFICATION. The award of moral, compensatory and exemplary damages and attorney’s fees are deleted. BPI Investments is ordered to pay to the estate of Daniel G. Carreon and Aurora J. Carreon the money market placement of P109,238.75, with legal interest of twelve (12%) percent per annum from June 3, 1982, until fully paid; to pay the estate of Josefa M. Jeceil, the money market placement in the amount of P73,857.57, with legal interest at twelve (12%) percent per annum from maturity on July 12, 1982, until fully paid. The petitioner may withdraw its deposit from the lower court at its peril. BPI Investments is likewise ordered to pay temperate damages to the estate of the late Daniel G. Carreon in the amount of P300,000.00, and to the estate of Aurora J. Carreon in the amount of P300,000.00, and to the estate of Josefa M. Jeceil in the amount of P150,000.00.

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KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE vs. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO., INC. G.R. No. 144169 2001 Mar 28 FACTS: Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. On October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was covered by a marine insurance policy issued by American Home Insurance Company (respondent Philam's assured). M/V PRINCE ERIC, however, sank somewhere between Negros Island and Northeastern Mindanao, resulting in the total loss of the shipment. Because of the loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the consignee. Having been subrogated into the rights of the consignee, American Home instituted a civil case in the RTC of Makati to recover the money paid to the consignee, based on breach of contract of carriage. While the case was still pending, petitioner Khe Hong Cheng executed deeds of donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with an area of 1,000 square meters was donated to Ray Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two parcels of land located in Butuan City. The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No. 13357 on December 29, 1993, four years after the donations were made and the TCTs were registered in the donees’ names. After the said decision became final and executory, a writ of execution was forthwith issued, however, it was not served. An alias writ of execution was, thereafter, Page | 153

applied for and granted in October 1996. Despite earnest efforts, the sheriff found no property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish for the satisfaction of the trial court's decision. When the sheriff, accompanied by counsel of respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of execution, they discovered that petitioner Khe Hong Cheng no longer had any property and that he had conveyed the subject properties to his children. Respondent Philam filed a complaint with the RTC of Makati City for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng in favor of his children and for the nullification of their titles. Respondent Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of his creditors, including respondent Philam. Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal on the ground that the action had already prescribed. The trial court denied the motion to dismiss. It held that respondent Philam's complaint had not yet prescribed. On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent Philam. The CA declared that the action to rescind the donations had not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA basically ruled that the four year period to institute the action for rescission began to run only in January 1997, and not when the decision in the civil case became final and executory on December 29, 1993. The CA reckoned the accrual of respondent Philam's cause of action on January 1997, the time when it first learned that the judgment award could not be satisfied because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his name. Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of the decision in its favor, as prescribed under Article 1383 of the The Court of Appeals thus denied the petition for certiorari filed before it, and held that the trial court did not commit any error in denying petitioners' motion to dismiss. Their motion for reconsideration was likewise dismissed in the appellate court's resolution dated July 11, 2000. ISSUE: Whether or not the remedy of accion pauliana by the respondent is valid. RULING: Article 1389 of the Civil Code simply provides that, “The action to claim rescission must be commenced within four years.” Since this provision of law is silent as to when the prescriptive period would commence, the general rule, i.e, from the moment the cause of action accrues, therefore, applies. Article 1150 of the Civil Code is particularly instructive: Art. 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. Page | 154

Indeed, the Court enunciated the principle that it is the legal possibility of bringing the action which determines the starting point for the computation of the prescriptive period for the action. Article 1383 of the Civil Code provides as follows: Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed of only after all other legal remedies have been exhausted and have been proven futile. For an accion pauliana to accrue, the following requisites must concur: 1) That the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; 2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; 3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third person; 4) That the act being impugned is fraudulent; 5) That the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud. An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against the debtor other than an accion pauliana. The accion pauliana is an action of a last resort. For as long as the creditor still has a remedy at law for the enforcement of his claim against the debtor, the creditor will not have any cause of action against the creditor for rescission of the contracts entered into by and between the debtor and another person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the judgment of the court. It presupposes that the creditor has exhausted the property of the debtor. The date of the decision of the trial court against the debtor is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor. An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. It requires that the creditor has exhausted the property of the debtor. The date of the decision of the trial court is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After Page | 155

all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor. While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory with retroactive effect to the date when the credit was constituted. The following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had executed the deeds of donation in favor of his children, the complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial court. Respondent Philam had no inkling, at the time, that the trial court's judgment would be in its favor and further, that such judgment would not be satisfied due to the deeds of donation executed by petitioner Khe Hong Cheng during the pendency of the case. Had respondent Philam filed his complaint on December 27, 1989, such complaint would have been dismissed for being premature. Not only were all other legal remedies for the enforcement of respondent Philam’s claims not yet exhausted at the time the deeds of donation were executed and registered. Respondent Philam would also not have been able to prove then that petitioner Khe Hong Chneg had no more property other than those covered by the subject deeds to satisfy a favorable judgment by the trial court. WHEREFORE, the petition is DENIED for lack of merit.

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ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. versus LULU V. JORGE and CESAR JORGE G.R. NO. 159617 August 8, 2007 FACTS: On different dates from September to October 1987, Lulu V. Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry. On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. However, petitioner Sicam contends that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous. After trial ,the RTC rendered its Decision dismissing respondents’ complaint as well as petitioners’ counterclaim. The RTC held that robbery is a fortuitous event which exempts the victim from liability for the loss and under Art. 1174 of the Civil Code. It further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee. ISSUE: Whether petitioners are liable for the loss of possession.

the pawned articles in their

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RULING: Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery and that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. The testimony, in effect, contradicts petitioners’ defense of fortuitous event. Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. The presentation of the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners' employees is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault. Also, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already Page | 158

foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Thus, petitioners are negligent in securing their pawnshop.

FLORENCIA T. HUIBONHOA vs. COURT OF APPEALS, Spouses Rufina G. Lim and ANTHONY LIM, LORETA GOJOCCO CHUA and Spouses SEVERINO and PRISCILLA GOJOCCO G.R. No. 95897 1999 Dec 14 FACTS: On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that Florencia T. Huibonhoa would lease from them 3 adjacent commercial lots at Ilaya Street, Binondo, Manila, all in their (Gojoccos') names. On June 30, 1983, pursuant to the said memorandum of agreement, the parties inked a contract of lease of the same three lots for a period of fifteen years commencing on July 1, 1983 and renewable upon agreement of the parties. Subject contract was to enable the lessee, Florencia T. Huibonhoa, to construct a "four-storey reinforced concrete building with concrete roof deck, according to plans and specifications approved by the City Engineer's Office." The parties agreed that the lessee could let/sublease the building and/or its spaces to interested parties under such terms and conditions as the lessee would determine and that all amounts collected as rents or income from the property would belong exclusively to the lessee. The lessee undertook to complete construction of the building "within eight (8) months from the date of the execution of the contract of lease." Page | 159

The parties also agreed that upon the termination of the lease, the ownership and title to the building thus constructed on the said lots would automatically transfer to the lessor, even without any implementing document therefor. Real estate taxes on the land would be borne by the lessor while that on the building, by the lessee, but the latter was authorized to advance the money needed to meet the lessors' obligations such as the payment of real estate taxes on their lots. The lessors would deduct from the monthly rental due all such advances made by the lessee. After the execution of the contract, the Gojoccos executed a power of attorney granting Huibonhoa the authority to obtain "credit facilities" in order that the three lots could be mortgaged for a limited one-year period from July 1983. Hence, on September 12, 1983, Huibonhoa obtained from China Banking Corporation "credit facilities" not exceeding One Million Pesos. Simultaneously, she mortgaged the three lots to the creditor bank. Fifteen days later, Huibonhoa signed a contract amending the real estate mortgage in favor of China Banking Corporation whereby the "credit facilities" were increased to the principal sum of Three Million Pesos. During the construction of the building which later became known as Poulex Merchandise Center, former Senator Benigno Aquino, Jr. was assassinated. The incident must have affected the country's political and economic stability. The consequent hoarding of construction materials and increase in interest rates allegedly affected adversely the construction of the building such that Huibonhoa failed to complete the same within the stipulated eight-month period. Projected to be finished on February 29, 1984, the construction was completed only in September 1984 or seven months later. Under the contract, Huibonhoa was supposed to start paying rental in March 1984 but she failed to do so. Consequently, the Gojoccos made several verbal demands upon Huibonhoa for the payment of rental arrearages and, for her to vacate the leased premises. On December 19, 1984, lessors sent lessee a final letter of demand to pay the rental arrearages and to vacate the leased premises. The former also notified the latter of their intention to terminate the contract of lease. However, on January 3, 1985, Huibonhoa brought an action for reformation of contract., the Complaint alleged that although there was a meeting of the minds between the parties on the lease contract, their true intention as to when the monthly rental would accrue was not therein expressed due to mistake or accident. Thus, according to Huibonhoa, the first rent would have been due only in October 1984. Moreover, the assassination of former Senator Benigno Aquino, Jr., an unforeseen event, caused the country's economy to turn from bad to worse and as a result, the prices of commodities like construction materials so increased that the building worth Six Million pesos escalated to "something like 11 to 12 million pesos." However, she averred that by reason of mistake or accident, the lease contract failed to provide that should an unforeseen event dramatically increase the cost of construction, the monthly rental would be reduced and the term of the lease would be extended for such duration as may be fair and equitable to both the lessors and the lessee. Page | 160

ISSUE: Whether or not the Court failed to consider the tragic assassination of former Senator Benigno Aquino as a fortuitous event or force majeure which justifies the adjustment of the terms of the contract of lease. RULING: The Court does not find merit in her submission that the assassination of the late Senator Benigno Aquino, Jr. was a fortuitous event that justified a modification of the terms of the lease contract. In the case, the assassination of Senator Aquino may indeed be considered a fortuitous event. However, the said incident per se could not have caused the delay in the construction of the building. What might have caused the delay was the resulting escalation of prices of commodities including construction materials. Be that as it may, there is no merit in Huibonhoa's argument that the inflation borne by the Filipinos in 1983 justified the delayed accrual of monthly rental, the reduction of its amount and the extension of the lease by three years. Inflation is the sharp increase of money or credit or both without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level. While it is of judicial notice that there has been a decline in the purchasing power of the Philippine peso, this downward fall of the currency cannot be considered unforeseeable considering that since the 1970's we have been experiencing inflation. It is simply a universal trend that has not spared our country. Conformably, the Court upheld the petitioner's view in Occena v. Jabson that even a worldwide increase in prices does not constitute a sufficient cause of action for modification of an instrument. It is only when an extraordinary inflation supervenes that the law affords the parties a relief in contractual obligations. Art. 1250 of the Civil Code provides that "(i)n case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of the payment, unless there is an agreement to the contrary." Extraordinary inflation exists when 'there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. No decrease in the peso value of such magnitude having occurred, Huibonhoa has no valid ground to ask this Court to intervene and modify the lease agreement to suit her purpose. As it is, Huibonhoa even failed to prove by evidence, documentary or testimonial, that there was an extraordinary inflation from July 1983 to February 1984. Page | 161

Although she repeatedly alleged that the cost of constructing the building doubled from P6 million to P12 million, she failed to show by how much, for instance, the price index of goods and services had risen during that intervening period. An extraordinary inflation cannot be assumed. Hence, for Huibonhoa to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation was the sole and proximate cause of the loss or destruction of the contract or, in this case, of the delay in the construction of the building. Having failed to do so, Huibonhoa's contention is untenable. Pathetically, if indeed a fortuitous event deterred the timely fulfillment of Huibonhoa's obligation under the lease contract, she chose the wrong remedy in filing the case for reformation of the contract. Instead, she should have availed of the remedy of recission of contract in order that the court could release her from performing her obligation under Arts. 1266, the debtor in obligations to do shall also be released when the presentation becomes legally or physically impossible without the fault of the obligor and 1267, when the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part, so that the parties could be restored to their status prior to the execution of the lease contract.

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ACE-AGRO DEVELOPMENT CORPORATION vs. COURT OF APPEALS and COSMOS BOTTLING CORPORATION G.R. No. 119729 1997 Jan 21 FACTS: Private respondent Cosmos Bottling Corp. is engaged in the manufacture of soft drinks. Since 1979 petitioner Ace-Agro Development Corp. had been cleaning soft drink bottles and repairing wooden shells for Cosmos, rendering its services within the company premises in San Fernando, Pampanga. The parties entered into service contracts which they renewed every year. On January 18, 1990, they signed a contract covering the period January 1, 1990 to December 31, 1990. Private respondent had earlier contracted the services of Aren Enterprises in view of the fact that petitioner could handle only from 2,000 to 2,500 cases a day and could not cope with private respondent's daily production of 8,000 cases. Unlike petitioner, Aren Enterprises rendered service outside private respondent's plant. On April 25, 1990, fire broke out in private respondent's plant, destroying, among other places, the area where petitioner did its work. As a result, petitioner's work was stopped. On May 15, 1990, petitioner asked private respondent to allow it to resume its service, but petitioner was advised that on account of the fire, which had practically burned all old soft drink bottles and wooden shells, private respondent was terminating their contract. Petitioner expressed surprise at the termination of the contract and requested private respondent, on June 13, 1990, to reconsider its decision and allow petitioner to resume its work. As it received no reply from private respondent, petitioner, on June 20, 1990, informed its employees of the termination of their employment. In response, private respondent advised petitioner on August 28, 1990 that the latter could resume the repair of wooden shells under terms similar to those contained in its contract but work had to be done outside the company premises. Petitioner refused the offer, claiming that to do its work outside the company's premises would make it incur additional costs for transportation. On January 3, 1991, petitioner brought the case against private respondent for breach of contract and damages in the Regional Trial Court of Malabon. In its decision, the RTC found private respondent guilty of breach of contract and ordered it to pay damages to petitioner. Private respondent appealed to the Court of Appeals, which on December 29, 1994, reversed the trial court's decision and dismissed petitioner's Page | 163

complaint. The appellate court found that it was petitioner which had refused to resume work, after failing to secure an extension of its contract. ISSUE: Whether or not the appellate court erred in ruling that respondent was justified in unilaterally terminating the contract on account of a force majeure. RULING: Obligations may be extinguished by the happening of unforeseen events, under whose influence the obligation would never have been contracted, because in such cases, the very basis upon which the existence of the obligation is founded would be wanting. Both parties admitted that the April 25, 1990 fire was a force majeure or unforeseen event and that the same even burned practically all the softdrink bottles and wooden shells which are the objects of the agreement. However, the court says that there was no cause for terminating the contract but at most a temporary suspension of work. Thus, as a result of the fire, the obligation of contract have not been extinguished. The agreement between the appellee and the appellant is with a resolutory period, beginning from January 1, 1990 and ending on December 31, 1990. When the fire broke out on April 25, 1990, there resulted a suspension of the appellee's work as per agreement. But this suspension of work due to force majeure did not merit an automatic extension of the period of the agreement between them. According to Tolentino, the stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended during the said period does not mean that the happening of any of those events stops the running of the period the contract has been agreed upon to run. It only relieves the parties from the fulfillment of their respective obligations during that time. If during six of the thirty years fixed as the duration of a contract, one of the parties is prevented by force majeure to perform his obligation during those years, he cannot after the expiration of the thirty-year period, be compelled to perform his obligation for six more years to make up for what he failed to perform during the said six years, because it would in effect be an extension of the term of the contract. The contract is stipulated to run for thirty years, and the period expires on the thirtieth year; the period of six years during which performance by one of the parties is prevented by force majeure cannot be deducted from the period stipulated. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is AFFIRMED.

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PEDRO D. DIOQUINO vs. FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO LAUREANO G.R. No. L-25906 May 28, 1970 FACTS: Attorney Pedro Dioquino, a practicing lawyer of Masbate, is the owner of a car. On March 31, 1964, he went to the office of the MVO, Masbate, to register the same. He met the defendant Federico Laureano, a patrol officer of said MVO office, who was waiting for a jeepney to take him to the office of the Provincial Commander, PC, Masbate. Attorney Dioquino requested the defendant Federico Laureano to introduce him to one of the clerks in the MVO Office, who could facilitate the registration of his car and the request was graciously attended to. Defendant Laureano rode on the car of Atty. Dioquino on his way to the P.C. Barracks at Masbate. While about to reach their destination, the car was stoned by some 'mischievous boys,' and its windshield was broken. Defendant Federico Laureano chased the boys and he was able to catch one of them. The boy was taken to Atty. Dioquino and admitted having thrown the stone that broke the car's windshield. The plaintiff and the defendant Federico Laureano with the boy returned to the P.C. barracks and the father of the boy was called, but no satisfactory arrangements were made. Federico Laureano refused to file any charges against the boy and his parents because he thought that the stone-throwing was merely accidental and that it was due to Page | 165

force majeure. So he did not want to take any action and after delaying the settlement, the defendant Federico Laureano refused to pay the windshield himself and challenged that the case be brought to court for judicial adjudication. ISSUE: Whether or not the stone-throwing incident can be considered as a force majeure, thus respondent can be held liable. RULING: Under the Civil Code, the rule was well-settled that in the absence of a legal provision or an express covenant, "no one should be held to account for fortuitous cases." The error committed by the lower court in holding defendant Federico Laureano liable appears to be thus obvious. Its own findings of fact repel the motion that he should be made to respond in damages to the plaintiff for the broken windshield. What happened was clearly unforeseen. It was a fortuitous event resulting in a loss which must be borne by the owner of the car. The trial court was misled, apparently, by the inclusion of the exemption from the operation of such a provision of a party assuming the risk, considering the nature of the obligation undertaken. The very wording of the law dispels any doubt that what is therein contemplated is the resulting liability even if caused by a fortuitous event where the party charged may be considered as having assumed the risk incident in the nature of the obligation to be performed. It would be an affront, not only to the logic but to the realities of the situation, if in the light of what transpired, as found by the lower court, defendant Federico Laureano could be held as bound to assume a risk of this nature. There was no such obligation on his part. WHEREFORE, the decision of the lower court of November 2, 1965 insofar as it orders defendant Federico Laureano to pay plaintiff the amount of P30,000.00 as damages plus the payment of costs, is reversed.

Bachelor Express vs CA GR. NO. 85691, July 31, 1990 FACTS: On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and driven by Cresencio Rivera, came from Davao City on its way to Cagayan de Oro City passing Butuan City. While at Tabon-Tabon, Butuan City, the bus picked up a passenger. About 15 minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which caused commotion and panic among the passengers. When the bus stopped, passengers Ornominio Beter and Narcisa Rautraut were found lying down the road, the former Page | 166

already dead as a result of head injuries and the latter also suffering from severe injuries which caused her death later. The passenger-assailant alighted from the bus and ran toward the bushes but was killed by the police. Thereafter, the heirs of Ornomino Beter and Narcisa Rautraut (Ricardo Beter and Sergia Beter are the parents of Ornominio while Teofilo Rautraut and Zotera Rautraut are the parents of Narcisa) filed a complaint for “sum of money” against Bachelor Express, its alleged owner Samson Yasay, and the driver Rivera. After due trial, the trial court issued an order dated 8 August 1985 dismissing the complaint. The CA however reversed the RTC decision. ISSUES: 1. Whether or not the case at bar is within the context of force majeure. 2. Should the petitioner be absolved from liability for the death of its passengers? RULING: The sudden act o the passenger who stabbed another passenger in the bus is within the context of force majeure. However, in order that a common carrier may be absolved from liability in case of force majeure, it is not enough that the accident was caused by force majeure. The common carrier must still proves that it was not negligent in causing the injuries resulting from such accident. Considering the factual findings in this case, it is clear that petitioner has failed to overcome the presumption of fault and negligence found in the law governing common carriers. The argument that the petitioners are not insurers of their passengers deserves no merit in view of the failure of the petitioners to observe extraordinary diligence in transporting safely the passengers to their destination as warranted by law.

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PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO VASQUEZ and MAXIMINA CAINAY vs. THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC. G.R. No. L-42926 1985 Sep 13 FACTS: MV 'Pioneer Cebu' was owned and operated by the defendant and used in the transportation of goods and passengers in the interisland shipping. It had a passenger capacity of three hundred twenty-two including the crew. It undertook the said voyage on a special permit issued by the Collector of Customs inasmuch as, upon inspection, it was found to be without an emergency electrical power system. The special permit authorized the vessel to carry only two hundred sixty passengers due to the said deficiency and for lack of safety devices for 322 passengers. A headcount was made of the passengers on board, resulting on the tallying of 168 adults and 20 minors, although the passengers manifest only listed 106 passengers. It has been admitted, however, that the headcount is not reliable. When the vessel left Manila, its officers were already aware of the typhoon Klaring building up somewhere in Mindanao. There being no typhoon signals on the route from Manila to Cebu, and the vessel having been cleared by the Customs authorities, the MV 'Pioneer Cebu' left on its voyage to Cebu despite the typhoon.When it left the Port of Manila in the early morning of May 15, 1966, t had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez, among her passengers. The MV 'Pioneer Cebu' encountered typhoon 'Klaring' and struck a reef on the southern part of Malapascua Island, located somewhere north of the island of Cebu and subsequently sunk. Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez; plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and Maximina Cainay are the parents of the child, Mario Marlon Vasquez. They seek the recovery of damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage. The defendant admitted its contract of carriage with Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV 'Pioneer Cebu'. The defendant alleged that the sinking of the vessel was caused by force majeure, and that the defendant's liability had been extinguished by the total loss of the vessel. ISSUE: Whether or not the respondent would be exempt from responsibility due to its defense of fortuitous event. RULING:

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To constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The event must have been impossible to foresee, or if it could be foreseen, must have been impossible to avoid. There must be an entire exclusion of human agency from the cause of injury or loss. Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain and crew were well aware of the risk they were taking as they hopped from island to island from Romblon up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence required of very cautious persons, they decided to take a calculated risk. In so doing, they failed to observe that extraordinary diligence required of them explicitly by law for the safety of the passengers transported by them with due regard for all circumstances and unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault or negligence that arises in cases of death or injuries to passengers. With regard to the contention that the total loss of the vessel extinguished its liability pursuant to Article 587 of the Code of Commerce, it was held that the liability of a shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held liable for by reason of the death of its passengers. WHEREFORE, the appealed judgment is REVERSED and the judgment of the then Court of First Instance of Manila is reinstated.

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ALBERTA YOBIDO and CRESENCIO YOBIDO vs. COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY G.R. No. 113003 1997 Oct 17 FACTS: On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy, and physical injuries to other passengers. On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney's fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. The plaintiffs asserted that violation of the contract of carriage between them and the defendants was brought about by the driver's failure to exercise the diligence required of the carrier in transporting passengers safely to their place of destination. On the other hand, the defendants raised the affirmative defense of caso fortuito. On August 29, 1991, the lower court rendered a decision dismissing the action for lack of merit. It ruled that the tire blowout was "a caso fortuito which is completely an extraordinary circumstance independent of the will" of the defendants who should be relieved of "whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to Article 1174 4 of the Civil Code. Upon appeal of the plaintiffs, the court Page | 170

reversed the decision of the lower court, ruling that the explosion of the tire is not in itself a fortuitous event. ISSUE: Whether or not petitioners should be exempt from liability because the tire blowout was a fortuitous event. RULING: As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely and at all events to carry them safely and without injury. However, when a passenger is injured or dies, while traveling, the law presumes that the common carrier is negligent. Thus, the Civil Code provides under Article 1755 that a common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. This disputable presumption may only be overcome by evidence that the carrier had observed extraordinary diligence as prescribed by Articles 1733, 10 1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to a fortuitous event. Consequently, the court need not make an express finding of fault or negligence on the part of the carrier to hold it responsible for damages sought by the passenger. The petitioners' contention that they should be exempt from liability because the tire blowout was no more than a fortuitous event that could not have been foreseen, must fail. Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous event. There are human factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could not explode within five days' use. It is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages. Moral damages are generally not recoverable in culpa contractual except when bad faith had been proven. However, the same damages may be recovered when breach of contract of carriage results in the death of a passenger, as in this case. Exemplary damages, awarded by way of example or correction for the public good when moral damages are awarded, may likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. Because petitioners failed to exercise the extraordinary diligence required of a common carrier, which resulted in the death of Tito Tumboy, it is deemed to have acted recklessly. As such, private respondents shall be entitled to exemplary damages. Page | 171

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED.

ROBERTO JUNTILLA vs. CLEMENTE FONTANAR, FERNANDO BANZON and BERFOL CAMORO G.R. No. L-45637 1985 May 31 FACTS:

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Plaintiff was a passenger of the public utility jeepney bearing plate No. PUJ-71-7 on the course of the trip from Danao City to Cebu City. The jeepney was driven by defendant Berfol Camoro. It was registered under the franchise of defendant Clemente Fontanar but was actually owned by defendant Fernando Banzon. When the jeepney reached Mandaue City, the right rear tire exploded causing the vehicle to turn turtle. In the process, the plaintiff who was sitting at the front seat was thrown out of the vehicle. Upon landing on the ground, the plaintiff momentarily lost consciousness. When he came to his senses, he found that he had a lacerated wound on his right palm. Aside from this, he suffered injuries on his left arm, right thigh and on his back. Because of his shock and injuries, he went back to Danao City but on the way, he discovered that his `Omega' wrist watch was lost. Upon his arrival in Danao City, he immediately entered the Danao City Hospital to attend to his injuries, and also requested his father-in-law to proceed immediately to the place of the accident and look for the watch. In spite of the efforts of his father-in-law, the wrist watch, which he bought for P852.70 could no longer be found. Petitioner Roberto Juntilla, then filed a civil case for breach of contract with damages before the City Court of Cebu City against Clemente Fontanar, Fernando Banzon and Berfol Camoro. The respondents alleged that the accident that caused losses to the petitioner was beyond the control of the respondents taking into account that the tire that exploded was newly bought and was only slightly used at the time it blew up. The City Court of Cebu rendered judgment in favor of the petitioner and against the respondents. The respondents appealed to the Court of First Instance of Cebu. The court reversed the judgment of the City Court of Cebu upon a finding that the accident in question was due to a fortuitous event. ISSUE: Whether or not the Court of First Instance of Cebu erred when it absolved the carrier from any liability upon a finding that the tire blow out is a fortuitous event. RULING: The Court of First Instance of Cebu erred when it absolved the carrier from any liability upon a finding that the tire blow out is a fortuitous event for there are specific acts of negligence on the part of the respondents. The records show that the passenger jeepney turned turtle and jumped into a ditch immediately after its right rear tire exploded. The evidence shows that the passenger jeepney was running at a very fast speed before the accident. We agree with the observation of the petitioner that a public utility jeep running at a regular and safe speed will not jump into a ditch when its right rear tire blows up. There is also evidence to show that the passenger jeepney was overloaded at the time of the accident. The preponderance of authority is in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an Page | 173

appliance purchased from a manufacturer, whenever it appears that the defect would have been discovered by the carrier if it had exercised the degree of care which under the circumstances was incumbent upon it, with regard to inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the carrier, as far as regards the work of constructing the appliance. According to this theory, the good repute of the manufacturer will not relieve the carrier from liability. The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not an insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. The source of a common carrier's legal liability is the contract of carriage, and by entering into the said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with a due regard for all the circumstances. The records show that this obligation was not met by the respondents. WHEREFORE, the decision of the Court of First Instance of Cebu is REVERSED and SET ASIDE, and the decision of the City Court of Cebu is REINSTATED.

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THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. vs. MGG MARINE SERVICES, INC. and DOROTEO GAERLAN G.R. No. 135645 2002 Mar 8 FACTS: On March 1, 1987, San Miguel Corporation insured several beer bottle cases with petitioner Philippine American General Insurance Company. The cargo were loaded on board the M/V Peatheray Patrick-G to be transported from Mandaue City to Bislig, Surigao del Sur. After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987. The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel Corporation was lost. Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner. The Board of Marine Inquiry conducted its own investigation of the sinking of the M/V Peatheray Patrick-G to determine whether or not the captain and crew of the vessel should be held responsible for the incident. On May 11, 1989, the Board rendered its decision exonerating the captain and crew of the ill-fated vessel for any administrative liability. It found that the cause of the sinking of the vessel was the existence of strong winds and enormous waves in Surigao del Sur, a fortuitous event that could not have been forseen at the time the M/V Peatheray Patrick-G left the port of Mandaue City. It was further held by the Board that said fortuitous event was the proximate and only cause of the vessel’s sinking. The RTC of Makati City promulgated its Decision finding private respondents solidarily liable for the loss of San Miguel Corporation’s cargo. Private respondents appealed the trial court’s decision to the Court of Appeals. The appellate court reversed the ruling of the RTC. It held that private respondents could not be held liable for the loss of San Miguel Corporation’s cargo because said loss occurred as a consequence of a Page | 175

fortuitous event, and that such fortuitous event was the proximate and only cause of the loss. ISSUE: Whether the cargo was lost due to a fortuitous event and whether respondents exercised due diligence to prevent the loss of the cargo. RULING: Common carriers, from the nature of their business and for reasons of public policy, are mandated to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods transported by them are lost, destroyed or if the same deteriorated. However, this presumption of fault or negligence does not arise in the cases enumerated under Article 1734 of the Civil Code: Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority. In order that a common carrier may be absolved from liability where the loss, destruction or deterioration of the goods is due to a natural disaster or calamity, it must further be shown that the such natural disaster or calamity was the proximate and only cause of the loss; there must be "an entire exclusion of human agency from the cause of the injury of the loss." Moreover, even in cases where a natural disaster is the proximate and only cause of the loss, a common carrier is still required to exercise due diligence to prevent or minimize loss before, during and after the occurrence of the natural disaster, for it to be exempt from liability under the law for the loss of the goods. If a common carrier fails to exercise due diligence--or that ordinary care which the circumstances of the particular case demand --to preserve and protect the goods carried by it on the occasion of a natural disaster, it will be deemed to have been negligent, and the loss will not be considered as having been due to a natural disaster under Article 1734 (1).

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The findings of the Board of Marine Inquiry indicate that the attendance of strong winds and huge waves while the M/V Peatheray Patrick-G was sailing through Cortes, Surigao del Norte on March 3, 1987 was indeed fortuitous. Thus, the Caprain could not be expected to have foreseen the unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and enormous waves which caused the vessel to list, keel over, and consequently lose the cargo contained therein. The appellate court likewise found that there was no negligence on the part of the crew of the M/V Peatheray Patrick-G. Hence, private respondents cannot be held liable for the said loss.

MINDEX RESOURCES DEVELOPMENT vs. EPHRAIM MORILLO G.R. No. 138123 2002 Mar 12 FACTS: On February 1991, a verbal agreement was entered into between Ephraim Morillo and Mindex Resources Corporation for the lease of the former’s 6 x 6 ten-wheeler cargo truck for use in MINDEX’s mining operations in Binaybay, Bigaan, San Teodoro, Oriental Mindoro, at the stipulated rental of ‘P300.00 per hour for a minimum of eight hours a day or a total of P2,400.00 daily.’ MINDEX had been paying the rentals until April 10, 1991. Page | 177

Unknown to Morillo, on April 11, 1991, the truck was burned by unidentified persons while it was parked unattended at Sitio Aras, Bigaan, San Teodoro, Oriental Mindoro, due to mechanical trouble. Upon learning of the burning incident, Morillo offered to sell the truck to MINDEX but the latter refused. Instead, it replaced the vehicle’s burned tires and had it towed to a shop for repair and overhauling. On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the Finance Manager of MINDEX, thru Mr. Ramoncito Gozar, Project Manager, proposing that he is entrusting to MINDEX the said vehicle in the amount of P275,000.00 which is its cost price, in four monthly installments. Morillo then promised to relinquish all the necessary documents upon full payment of said account. On the other hand, MINDEX expressed thier reservations and made counter offers that it will pay the truck in the amount of P76,000, that the repair and overhaul will be on their expense, and that they wll return it in a good running condition after repair. Morillo replied 1 that he will relinquish to MINDEX the damaged truck, that he is amenable to receive the rental in the amount of P76,000.00, and that MINDEX will pay fifty thousand pesos monthly until the balance of P275,000.00 is fully paid. On August 1991, Morillo pulled out the truck from the repair shop of MINDEX and had it repaired elsewhere for which he spent the total amount of P132,750.00. The Regional Trial Court found petitioner responsible for the destruction or loss of the leased 6 x 6 truck. The appellate court sustained the RTC’s finding that petitioner was not without fault for the loss and destruction of the truck and, thus, liable therefor. ISSUE: Whether or not the Court of Appeals gravely erred in finding that petitioner failed to overcome the presumption of negligence against it considering that the facts show that the burning of the truck was a fortuitous event. RULING: Both the RTC and the CA found petitioner negligent and thus liable for the loss or destruction of the leased truck. Both parties may have suffered from the burning of the truck; however, as found by both lower courts, the negligence of petitioner makes it responsible for the loss. In order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One’s negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person’s participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. Page | 178

To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury or loss. The records clearly shows that petitioner failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioner fell short of ordinary diligence in safeguarding the leased truck against the accident.n Petitioner failed to employ reasonable foresight, diligence and care that would have exempted it from liability resulting from the burning of the truck. Negligence, as commonly understood, is that conduct that naturally or reasonably creates undue risk or harm to others. It may be a failure to observe that degree of care, precaution or vigilance that the circumstances justly demand; or to do any other act that would be done by a prudent and reasonable person, who is guided by considerations that ordinarily regulate the conduct of human affairs.

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NATIONAL POWER CORPORATION vs. PHILIPP BROTHERS OCEANIC, INC. G.R. No. 126204 2001 Nov 20 FACTS: On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the bidders. After the public bidding was conducted, PHIBRO’s bid was accepted. NAPOCOR’s acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987. On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the shipment’s point of origin, which could seriously hamper PHIBRO’s ability to supply the needed coal. From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in Australia, particularly informing the latter that the ship owners therein are not willing to load cargo unless a “strike-free” clause is incorporated in the charter party or the contract of carriage. In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a “strike-free” clause. NAPOCOR refused. On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987. Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR disapproved PHIBRO’s application for pre-qualification to bid for not meeting the minimum requirements. Upon further inquiry, PHIBRO found that the real reason for the disapproval was its purported failure to satisfy NAPOCOR’s demand for damages due to the delay in the delivery of the first coal shipment. PHIBRO then filed an action for damages with application for injunction against NAPOCOR with the Regional Trial Court of Makati City alleging that NAPOCOR’s act of disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with malice and bad faith. On he other hand, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July 28, 1987 those strikes had already ceased. The Page | 180

trial court rendered a decision in favor of PHIBRO. On appeal, the Court of Appeals rendered a Decision affirming in toto the Decision of the Regional Trial Court stating that strikes are included in the definition of force majeure in Section XVII of the Bidding Terms and Specifications, so Phibro is not liable for any delay caused thereby. Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be effected thirty (30) days from Napocor’s opening of a confirmed and workable letter of credit. Napocor was only able to do so on August 6, 1987. ISSUE: Whether or not the Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO’s delay in the delivery of imported coal was due to NAPOCOR’s alleged delay in opening a letter of credit and to force majeure, and not to PHIBRO’s own deliberate acts and faults RULING: The Court of Appeals is justified in sustaining the Regional Trial Court’s decision exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly established from the evidence, testimonial and documentary, that what prevented PHIBRO from complying with its obligation under the July 1987 contract was the industrial disputes which besieged Australia during that time. Extant in our Civil Code is the rule that no person shall be responsible for those events which could not be foreseeen, or which, though foreseen, were inevitable. This means that when an obligor is unable to fulfill his obligation because of a fortuitous event or force majeure, he cannot be held liable for damages for non-performance. Fortuitous events may be produced by two general causes: (1) by Nature, such as earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc. The term generally applies, broadly speaking, to natural accidents. In order that acts of man such as a strike, may constitute fortuitous event, it is necessary that they have the force of an imposition which the debtor could not have resisted. Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the first week of July to the third week of September, 1987, exempted Phibro from the effects of delay of the delivery of the shipment of coal. In addition, PHIBRO and NAPOCOR explicitly agreed in Section XVII of the “Bidding Terms and Specifications” that “neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance of its obligations, other than the payment of money due, if any such delay or failure is due to Force Majeure.” Specifically, they defined force majeure as “any disabling cause beyond the control of and without fault or negligence of the party, which causes may include but are not restricted to Acts of God or of the public enemy; acts of the Government in either Page | 181

its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons, storms, epidemics and quarantine restrictions.” The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, the court have no reason to rule otherwise. Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in relations to contracts, is that “the concurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner.” Faced with the above circumstance, NAPOCOR is justified in assuming that, may be, there was really no fortuitous event or force majeure which could render it impossible for PHIBRO to effect the delivery of coal.

UNION BANK OF THE PHILIPPINES versus EDMUND SANTIBAÑEZ and FLORENCE SANTIBAÑEZ ARIOLA G.R. No. 149926 2005 Feb 23 FACTS: On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim M. Santibañez entered into a loan agreement in the amount of P128,000.00. The amount was intended for the payment of the purchase price of one unit Ford 6600 Agricultural All-Purpose Diesel Tractor. In view thereof, Efraim and his son, Edmund, executed a promissory note in favor of the FCCC, the principal sum payable in five equal annual amortizations of P43,745.96 due on May 31, 1981 and every May 31st thereafter up to May 31, 1985. On December 13, 1980, the FCCC and Efraim entered into another loan agreement, this time in the amount of P123,156.00. It was intended to pay the balance of the purchase price of another unit of Ford 6600 Agricultural All-Purpose Diesel Tractor, with accessories, and one unit Howard Rotamotor Model AR 60K. Again, Efraim and his son, Edmund, executed a promissory note for the said amount in favor of the FCCC. Page | 182

Aside from such promissory note, they also signed a Continuing Guaranty Agreement for the loan dated December 13, 1980. Sometime in February 1981, Efraim died, leaving a holographic will. Subsequently in March 1981, testate proceedings commenced before the RTC of Iloilo City. On April 9, 1981, Edmund, as one of the heirs, was appointed as the special administrator of the estate of the decedent. During the pendency of the testate proceedings, the surviving heirs, Edmund and his sister Florence Santibañez Ariola, executed a Joint Agreement dated July 22, 1981, wherein they agreed to divide between themselves and take possession of the three tractors; that is, two tractors for Edmund and one tractor for Florence. Each of them was to assume the indebtedness of their late father to FCCC, corresponding to the tractor respectively taken by them. On August 20, 1981, a Deed of Assignment with Assumption of Liabilities was executed by and between FCCC and Union Savings and Mortgage Bank, wherein the FCCC as the assignor, among others, assigned all its assets and liabilities to Union Savings and Mortgage Bank. Demand letters for the settlement of his account were sent by petitioner Union Bank of the Philippines (UBP) to Edmund, but the latter failed to heed the same and refused to pay. Thus, on February 5, 1988, the petitioner filed a Complaint for sum of money against the heirs of Efraim Santibañez, Edmund and Florence, before the RTC of Makati City. ISSUE: 1. Whether in testate succession, there can be no valid partition among the heirs. 2. Whether or not the heirs’ assumption of the indebtedness of the deceased is binding. 3. Whether or not the petitioner can hold the heirs liable on the obligation of the deceased. RULING: 1. In testate succession, there can be no valid partition among the heirs until after the will has been probated. The law enjoins the probate of a will and the public requires it, because unless a will is probated and notice thereof given to the whole world, the right of a person to dispose of his property by will may be rendered nugatory. It presupposes that the properties to be partitioned are the same properties embraced in the will. The court then agrees with the appellate court that the provisions stated in the will is an all-encompassing provision embracing all the properties left by the decedent which might have escaped his mind at that time he was making his will, and other properties he may acquire thereafter. This being so, any partition involving the said tractors among the heirs is not valid. The joint agreement executed by Edmund and Florence, partitioning the tractors among themselves, is invalid, specially so since at the time of its execution, there was already a pending proceeding for the probate of their late father’s holographic will covering the said tractors. Page | 183

2. The heirs’ assumption of the indebtedness is not binding. The assumption of liability was conditioned upon the happening of an event, that is, that each heir shall take possession and use of their respective share under the agreement. It was made dependent on the validity of the partition, and that they were to assume the indebtedness corresponding to the chattel that they were each to receive. The partition being invalid, the heirs in effect did not receive any such tractor. It follows then that the assumption of liability cannot be given any force and effect. 3. Florence S. Ariola could not be held accountable for any liability incurred by her late father. The documentary evidence presented, particularly the promissory notes and the continuing guaranty agreement, were executed and signed only by the late Efraim Santibañez and his son Edmund. As the petitioner failed to file its money claim with the probate court, at most, it may only go after Edmund as co-maker of the decedent under the said promissory notes and continuing guaranty, of course, subject to any defenses Edmund may have as against the petitioner. However, the court had not acquired jurisdiction over the person of Edmund. Also, the petitioner had not sufficiently shown that it is the successor-in-interest of the Union Savings and Mortgage Bank to which the FCCC assigned its assets and liabilities. Wherefore, the petition is DENIED, the Court of Appeals Decision is AFFIRMED.

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JESUS SAN AGUSTIN vs. COURT OF APPEALS and MAXIMO MENEZ JR. G.R. No. 121940 2001 Dec 4 FACTS: On February 11, 1974, the Government Service Insurance System (GSIS) sold to a certain Macaria Vda. de Caiquep, a parcel of residential land of the Government Service and Insurance System Low Cost Housing Project (GSIS-LCHP). The sale is evidenced by a Deed of Absolute Sale. On February 19, 1974, the Register of Deeds of Rizal issued in the name of Macaria Vda. de Caiquep, Transfer Certificate of Title (TCT). A day after the issuance of TCT, Vda. de Caiquep sold the subject lot to private respondent, Maximo Menez, Jr., as evidenced by a Deed of Absolute Sale. However, the deed was notarized but was not registered immediately upon its execution in 1974 because GSIS prohibited him from registering the same in view of the five-year prohibition to sell during the period ending in 1979. Sometime in 1979, for being suspected as a subversive, an Arrest, Search and Seizure Order (ASSO) was issued against private respondent. Military men ransacked his house in Cainta, Rizal. Upon learning that he was wanted by the military, he voluntarily surrendered and was detained for two years. When released, another order for his re-arrest was issued so he hid in Mindanao for another four years or until March 1984. In December of 1990, he discovered that the subject TCT was missing. He consulted a lawyer but the latter did not act immediately on the matter. Upon consulting a new counsel, an Affidavit of Loss was filed with the Register of Deeds of Pasig and a certified copy of the TCT was issued. Private respondent sent notices and searched the registered owner. However, their search proved futile. On July 8, 1992, private respondent filed a petition for the issuance of owner’s duplicate copy of TCT No. 436465 to replace the lost one. The trial court granted his petition. On October 13, 1992, petitioner, Jesus San Agustin, received a copy of the abovecited decision. He claimed this was the first time he became aware of the case of her aunt, Macaria Vda. de Caiquep who, according to him, died sometime in 1974. Claiming that he was the present occupant of the property and the heir of Macaria, he filed his “Motion to Reopen Reconstitution Proceedings”, however, RTC issued an order denying said motion. ISSUE: Whether the petitioner have an interest in the property. RULING: Page | 185

The petitioner does not appear to have an interest in the property based on the memorandum of encumbrances annotated at the back of the title. His claim that he is an heir (nephew) of the original owner of the lot covered by the disputed lot and the present occupant thereof is not annotated in the said memorandum of encumbrances. Neither was his claim entered on the Certificate of Titles in the name of their original/former owners on file with the Register of Deeds. Also, private respondent's compliance of the RTC’s order of publication of the petition in a newspaper of general circulation is sufficient notice of the petition to the public at large. On the other hand, GSIS has not filed any action for the annulment, nor for the forfeiture of the lot in question. Thus, the contract of sale remains valid between the parties, unless and until annulled in the proper suit filed by the rightful party, the GSIS. The said contract of sale is binding upon the heirs of Macaria Vda. de Caiquep, including petitioner who alleges to be one of her heirs, in line with the rule that heirs are bound by contracts entered into by their predecessors-in-interest. Moreover, in the social justice policy of R.A. 8291 otherwise known as “Government Service Insurance Act of 1997” in granting housing assistance to the less-privileged GSIS members and their dependents payable at an affordable payment scheme. This is the same policy which the 5-year restrictive clause in the contract seeks to implement by stating in the encumbrance itself annotated at the back of TCT No. 436465 that, “The purpose of the sale is to aid the vendee in acquiring a lot for himself/themselves and not to provide him/them with a means for speculation or profit by a future assignment of his/their right herein acquired or the resale of the lot through rent, lease or subletting to others of the lot and subject of this deed, xxx within five (5) years from the date final and absolute ownership thereof becomes vested in the vendee, except in cases of hereditary succession or resale in favor of the vendor.” However, absent the proper action taken by the GSIS as the original vendor referred to, the contract between petitioner’s predecessor-in-interest and private respondent deserves to be upheld. For it is protected by the Constitution under Section 10, Article III, of the Bill of Rights stating that, “No law impairing the obligation of contracts shall be passed.” Thus, that provision of the Constitution duly calls for compliance.

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PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO ENRIQUEZ vs. THE COURT OF APPEALS and INDUSTRIAL FINANCE CORPORATION G. R. No. 99433 2001 Jun 19 FACTS: On August 21, 1975, plaintiff and defendant PBI entered into an agreement whereby it was agreed that plaintiff would provide a maximum amount of P2,000,000.00 against which said defendant would discount and assign to plaintiff on a ‘with recourse non-collection basis’ its accounts receivable under the contracts to sell specified in said agreement. And on June 15, 1976, the same parties entered into an agreement whereby it was agreed that PBI’s credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line of P5,000,000.00 granted includes the amount already assigned/discounted. The discounts were on different date accounts receivables with different maturity dates from different condominium-unit buyers. And each time a certain account receivable was discounted, the covering Contract to Sell was assigned by defendant to plaintiff. The total amount of receivables discounted by defendant PBI is P7,986,815.38 and consists of twenty accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to defendant PBI the amount of P4,549,132.72 and the difference of P3,437,682.66 represents the discounting fee or finance fee. To secure compliance, defendants executed a Deed of Real Estate Mortgage in favor of plaintiff. When Page | 187

defendants allegedly defaulted in the payment of the subject account, plaintiff foreclosed the mortgage and plaintiff was the highest bidder in the amount of P3,500,000.00. The foreclosed property was redeemed a year later, but after application of the redemption payment, plaintiff claims that there is still a deficiency in the amount of P1,323,053.08. The trial court dismissed the complaint. The Court of Appeals however overturned the judgment of the trial court. ISSUE: Whether or not the assignment of credit is valid. RULING: An assignment of credit is an act of transferring, either onerously or gratuitously, the right of an assignor to an assignee who would then be capable of proceeding against the debtor for enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor only upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor. Where the assignment is on account of pure liberality on the part of the assignor, the rules on donation would likewise be pertinent; where valuable consideration is involved, the assignment partakes of the nature of a contract of sale or purchase. Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of the assignor and in a position to enforce the contract to sell to the same extent as the assignor could. In an assignment of credit, the consent of the debtor is not essential for its perfection, his knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment he might make. Consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors’ refusal to give consent. What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor’s consent. The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee and not to the original creditor. In the case, the assignment, was "with recourse", and default in the payment of installments had been duly established when petitioner corporation foreclosed on the mortgaged parcels of land. The resort to foreclosure of the mortgaged properties did not preclude private respondent from collecting interest from the assigned Contracts To Sell from the time of foreclosure to the redemption of the foreclosed property. The imposition of interest was a mere enforcement or exercise of the right to the ownership of the credit or receivables which the parties stipulated in the 1976 financing agreement. Page | 188

WHEREFORE, the petition is DENIED, the decision of the Court of Appeals reversing the decision of the trial court is AFFIRMED.

DBP VS CA GR No. 118180 September 20, 1996 FACTS: Private respondents were the original owners of a parcel of agricultural land covered by TCT No. T-1432, situated in Barrio Capucao, Ozamis City, with an area of Page | 189

113,695 square meters, more or less. On May 30, 1977, they mortgaged said land to petitioner DBP. They defaulted on their obligation and petitioner acquired the land by being the sole bidder in the ensuing auction. On April 6, 1984, petitioner entered into a conditional contract with private respondents where private respondents would sell the land for (P73,700.00), with a down payment of P8,900.00 and the balance of P64,800 shall be payable in six (6) years on equal quarterly amortization plan at 18% interest per annum. The first quarterly amortization of P4,470.36 shall be payable three months from the date of the execution of the documents and all subsequent amortization shall be due and payable every quarter thereafter. Upon completion of payment, petitioners refused to turn over the deed of sale citing legal impossibility from the implementation of Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec. 1 of E.O. 407 issued 10 June 1990. Private respondents filed a case in court and were favored by the RTC and the CA. ISSUE: When does the acquisition of these rights take place? RULING: 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. More specifically, petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act 6657 to set aside its obligations already existing prior to its enactment. In the first place, said last paragraph clearly deals with "any sale, lease, management contract or transfer or possession of private lands executed by the original land owner." The original owner in this case is not the petitioner but the private respondents. Petitioner acquired the land through foreclosure proceedings but agreed thereafter to reconvey it to private respondents, albeit conditionally.

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GONZALES VS THE HEIRS OF THOMAS AND PAULA CRUZ GR No. 131784 September 16, 1999 FACTS: On December 1, 1983, Paula Año Cruz together with the plaintiffs heirs of Thomas and Paula Cruz entered into a contract of lease with the defendant, Felix L. Gonzales of a half portion of a land containing an area of 12 hectares, more or less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town, Province of Rizal’ and covered by Transfer Certificate of Title No. 12111. As stipulated therein: Paragraph 9 - The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct T.C.T. over the herein leased portion to the LESSEE within a reasonable period of time which shall not in any case exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned. Under the contract, Gonzales paid the rental fees but did not choose to exercise the option of paying the one million purchase price. A letter was issued by one of the heirs to rescind the said contract following breach and ordered Gonzales to vacate the premises within ten days. Gonzales did no vacate. A few days later Paula Cruz died. A case was launched in Court by the heirs of Paula Cruz. ISSUE: How must paragraph nine of the contract be interpreted in enforcing the contract of lease? RULING: If a stipulation in a contract admits of several meanings, it shall be understood as bearing that import most adequate to render it effectual. An obligation cannot be enforced unless the plaintiff has fulfilled the condition upon which it is premised. The ninth provision was intended to ensure that respondents would have a valid title over the specific portion they were selling to petitioner. Only after the title is assured may the obligation to buy the land and to pay the sums stated in the Contract be enforced within the period stipulated. Verily, the petitioner’s obligation to purchase has not yet ripened and cannot be enforced until and unless respondents can prove their title to the property subject of the Contract. The ninth clause was the condition precedent of the contract. Respondents cannot rescind the contract, because they have not caused the transfer of the TCT to their names, which is a condition precedent to petitioner’s obligation. This Court has held that “there can be no rescission (or more properly, Page | 191

resolution) of an obligation as yet non-existent, because the suspensive condition has not happened.”

INSULAR LIFE VS YOUNG GR No. 140964. January 16, 2002 FACTS: Respondent Robert Young obtained a short term loan of P170,000,000.00 from interbank to finance the purchase 45% equity in Insular Savings Bank. He did this under the assumption that Araneta would purchase 99.82% of the banks outsanding capital stock and consolidate all shares in Young’s name. However, Araneta backed and Young was left with a massive debt. Young entered into a Memorandum of Agreement where Insular Life and its Pension Fund whereby Insular Life would purchase shares of stock if Young would abide by certain conditions: one of them being to infuse additional capital of P50,000,000.00 into the Bank. It was discovered that Young was pilfering funds from the bank through check kiting operations and he tendered his resignation. He also defaulted on his obligations. His shares of stock were purchased by Insular Life in a public auction. The shares were then consolidated in its name. On January 7, 1992, Young filed a case for annulment of notarial sale, specific performance and damages. ISSUE: Is Insular Life entitled to ownership of majority of the Bank’s shares of stock? RULING: The provisions of the MOA negate the existence of a perfected contract of sale. The MOA is merely a contract to sell since the parties therein specifically undertook to enter into a contract of sale if the stipulated conditions are met and the representation and warranties given by Young prove to be true. Here, the MOA provides that Young shall infuse additional capital of P50,000,000.00 into the Bank. Young failed to infuse the required additional capital. Moreover, the due diligence audit shows that Young was involved in fraudulent schemes like check kiting. Since no sale transpired between the Page | 192

parties, the CA erred in concluding that Insular Life purchased 55% of the total shares of the Bank under the MOA. It would be unfair on the part of Young to demand compliance by Insular Life of its obligations when he himself was remiss in his own.

DIRECT FUNDERS HOLDERS ASSOCIATION VS LAVIŇA GR No. 141851. January 16, 2002 FACTS: The petitioners assail the decision of the CA affirming the decision of the RTC in issuing a writ of mandatory preliminary injunction despite the orders of a co-equal court in deciding that the property in question was in the lawful possession of the petitioner. ISSUE: Is petitioner’s contention tenable? RULING: The conditional sale agreement was the only document that the respondent presented during the summary hearing of the application for a temporary restraining order before the Regional Trial Court, Branch 71, Pasig City. The conditional sale agreement is officious and ineffectual. First, it was not consummated. Second, it was not registered and duly annotated on the Transfer Certificate of Title (No. 12357) Page | 193

covering the subject property. Third, it was executed about eight (8) years after the execution of the real estate mortgage over the subject property. To emphasize, the mortgagee (United Savings Bank) did not give its consent to the change of debtor. It is a fundamental axiom in the law on contracts that a person not a party to an agreement cannot be affected thereby. Worse, not only was the conditional sale agreement executed without the consent of the mortgagee-creditor, United Savings Bank, the same was also a material breach of the stipulations of the real estate mortgage over the subject property. The petitioner as opposed to Kambiyak Chan bears a TCT, deeds of assignment, certificates of sale in its favor showing that it has a better right to possession of the disputed land.

VDA. DE MISTICA VS NAGUIAT 418 SCRA 73 December 11, 2003 FACTS: On April 5, 1979, Eulalio Mistica, predecessor-in-interest of herein [petitioner], entered into a contract to sell with [respondent] Bernardino Naguiat over a lot. Pursuant to said agreement, respondent gave a downpayment of P2,000.00. He made another Page | 194

partial payment of P1,000.00 on February 7, 1980. He failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986. On December 4, 1991, petitioner filed a complaint for rescission alleging that the failure and refusal of respondents to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same. ISSUE: Is petitioner entitled to rescission of contract? RULING: The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. Rescission, however, is allowed only where the breach is substantial and fundamental to the fulfillment of the obligation. In the present case, the failure of respondents to pay the balance of the purchase price within ten years from the execution of the Deed did not amount to a substantial breach. Moreover, it is undisputed that during the ten year period, petitioner never made any demand for the balance of the purchase price. Petitioner even refused the payment tendered by respondents during her husband’s funeral, thus showing she was not exactly blameless for the lapse of the ten year period.

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HERMOSA VS LONGARA GR No. L-5267, October 27, 1953 FACTS: This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth division, approving certain claims presented by Epifanio M. Longara against the testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41 representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in December, 1944. The claimant presented evidence and the Court of Appeals found, in accordance therewith, that the intestate had asked for the said credit advances for himself and for the members of his family "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain." Claimant had testified without opposition that the credit advances were to be "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from the sale." The Court of Appeals held that payment of the advances did not become due until the administratrix received the sum of P20,000 from the buyer of the property. Upon authorization of the probate court in October, 1947, and the same was paid for subsequently. The Claim was filed on October 2, 1948. ISSUE: Does said condition a potestative condition and thusly void and unenforceable? RULING: A careful consideration of the condition upon which payment of the sums advanced was made to depend, "as soon as he (intestate) receive funds derived from the sale of his property in Spain," discloses the fact that the condition in question does not depend exclusively upon the will of the debtor, but also upon other circumstances beyond his power or control. Cirumstances show that the intestate had already decided to sell his house lest he meant to fool his creditors. But in addition of the sale to him (the intestate-vendor), there were still other conditions that had no concur to effect the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the property under the conditions demanded by the intestate. It is evident, therefore, that the condition of the obligation was not a purely protestative one, depending exclusively upon the will of the intestate, but a mixed one, depending partly upon the will of intestate and partly upon chance. The Supreme Court upheld the ruling of the lower courts.

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TRILLANA VS QUEZON COLLEGES GR No. L-5003, June 27, 1953 FACTS: On June 1, 1948, Damasa Crisostomo applied for 200 shares of stock worth PhP100.00 each at Quezon Colleges, Inc. Within her letter of application, she stipulated, “You will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College.” Damasa died on October 26, 1948. Since no payment was rendered on the subscription made in the foregoing letter, Quezon College presented a claim of PhP20,000.00 on her intestate proceedings. The petitioner – administrator of the estate then contests the validity of said proceedings? ISSUE: Is the condition laid down by Damasa Crisostomo valid? RULING: There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. Thus, it cannot be said that the letter ripened into a contract. Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void. Under the Civil Code it is provided that if the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void.

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VISAYAN SAWMILL VS CA 219 SCRA 378 March 3, 1993 FACTS: The antecedent facts, summarized by the public respondent are as follows: On May 1, 1983, herein plaintiff-appellee and defendants appellants entered into a sale involving scrap iron, subject to the condition that plaintiff appellee will open a letter of credit in the amount of P250,00.00 in favor of defendant-appellant corporation on or before May 15, 1983. On May 24, 1983, plaintiff-appellee informed defendansappellants by telegram that the letter of credit was opened May 12, 1983 at the BPI main office in Ayala, but that transmittal was delayed. On May 26, 1983, defendantsappellants received a letter advice from the Dumaguete City Branch of BPI dated May 26, 1983, that a domestic letter of credit had been opened in favor of Visayan Sawmill Company. On July 19, 1983 plaintiffs then demanded that defendants comply with the deed of sale. On July 20, 1983 defendant corporation informed plaintiff’s lawyer that it is unwilling to continue with the sale due to plaintiff’s failure to comply with the essential preconditions of the contract. Private respondent prayed for judgment ordering the petitioner corporation to comply with the contract by delivering to him the scrap iron subject thereof. ISSUE: Did petitioner corporation violate the terms and conditions of the contract? RULING: Page | 198

The petitioner corporation’s obligation to sell is unequivocally subject to a positive suspensive condition. The failure of the private respondent to comply with the positive suspensive condition cannot even be considered a breach – casual or serious – but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force. The letter of credit in favor of petitioner was indisputably not in accordance with the stipulation in the contract signed by the parties on at three counts: (1) it was not opened, made or indorsed by the private respondent, but by a corporation which is not a party to the contract; (2) it was not opened with the bank agreed upon and; (3) it is not irrevocable and unconditional, for it is without recourse, it is set to expire on a specific date and it stipulates certain conditions with respect to shipment. Consequently, the obligation of petitioner to sell did not arise; it therefore cannot be compelled by specific performance to comply with its prestation.

LEAÑO VS COURT OF APPEALS GR No. 129018. November 15, 2001 FACTS: On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell involving a piece of land. In the contract, Carmelita Leaño bound herself to pay Hermogenes Fernando the sum of PhP107,750.00 as the total purchase price of the lot. The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments. Should a period of ninety days elapse from the expiration of the grace period without the overdue and unpaid installment paid with proper interests, Fernando, as vendor, was authorized to Page | 199

declare the contract cancelled. The defendant later filed an ejectment case for failure of petitioner to pay within the terms of contract. ISSUE: Is petitioner entitled to rights over the lot? RULING: The transaction between the parties was a conditional sale not an absolute sale. The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price. The ownership of the lot was not transferred to Carmelita Leaño. In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force. In the case at bar, petitioner’s non-payment of the installments after April 1, 1989, prevented the obligation of respondent to convey the property from arising. In fact, it brought into effect the provision on cancellation. However, in view of RA No. 6552, that the default committed by petitioner in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question.

HERIS OF SANDEJAS VS LINA GR No. 141634. February 5, 2001 Page | 200

FACTS: Eliodoro Sendejas, Sr., served as administrator of the estate of Remedios R. Sandejas. Eliodoro, in his capacity as seller, bound and obligated himself, administrators, and assigns, to sell forever and absolutely and in their entirety parcels of lands which formed part of the estate of the late Remedios to one Mr. Alex A. Lina for the consideration of P1 Million. Eliodoro died and Mr. Alex Lina served as temporary administrator of the estate until he was replaced by the heir of Eliodoro, Sixto Sandejas. Mr. Lina filed an Omnibus motion to approve the deed of conditional sale executed between Plaintiff-in-Intervention Alex A. Lina and Eliodoro Sandejas, Sr. on June 7, 1982. The administrator Sixto filed a motion to dismiss. ISSUE: Is Mr. Lina entitled to purchase parcels of lands forming the estate of Remedios? RULING: In a contract to sell, the payment of the purchase price is a positive suspensive condition. The vendor’s obligation to convey the title does not become effective in case of failure to pay. On the other hand, the agreement between Eliodoro, Sr. and respondent is subject to a suspensive condition – the procurement of a court approval, not full payment. There was no reservation of ownership in the agreement. In accordance with paragraph 1 of the Receipt, petitioners were supposed to deed the disputed lots over to respondent. This they could do upon the court’s approval, even before full payment. Hence, their contract was a conditional sale, rather than a contract to sell as determined by the CA. Because petitioners did not consent to he sale of their ideal shares in the disputed lots, the CA correctly limited the scope of the Receipt to the pro-indiviso share of Eliodoro, Sr. Thus, it correctly modified the intestate court’s ruling by excluding their shares from the ambit of the transaction. The petition was partially granted. The appealed decision and resolution are affirmed with he modification that respondent is entitled to only a pro-indiviso share equivalent to 11/20 of the disputed lots.

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CIR VS PRIMETOWN GR No. 162155. August 28, 2007 FACTS: On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied for the refund or credit of income tax respondent paid in 1997. According to Yap, because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent paid its quarterly corporate income tax and remitted creditable withholding tax from real estate sales to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax refund or tax credit. On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional documents to support its claim. Respondent complied but its claim was not acted upon. Thus, on April 14, 2000, it filed a petition for review in the Court of Tax Appeals (CTA). On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax refund or tax credit. Respondents now assail that decision for dismissal of the CTA. ISSUE: What is the expiration period for the filing of the action? RULING: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. Following this formula, respondent’s petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.

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NAMARCO vs Tecson GR No. L-29131. August 27, 1969 FACTS: On a previous court case, the CFI rendered judgment: (a) Ordering the defendants Miguel D. Tecson and Alto Surety Insurance Co., Inc. to pay jointly and severally plaintiff PRATRA the sum of P7,200.00 plus 7% interest from May 25, 1960 until the amount is fully paid, plus P500.00 for attorney's fees, and plus costs; (b) ordering defendant Miguel D. Tecson to indemnify his co-defendant Alto Surety & Insurance Co., Inc. on the cross-claim for all the amounts it would be made to pay in this decision, in case defendant Alto Surety & Insurance Co., Inc. pay the amount adjudged to plaintiff in this decision. From the date of such payment defendant Miguel D. Tecson would pay the Alto Surety & Insurance Co., Inc., interest at 12% per annum until Miguel D. Tecson has fully reimbursed plaintiff of the said amount. Defendant Miguel Tecson seeks the dismissal of the complaint on the ground of lack of jurisdiction and prescription. This case was filed exactly on December 21, 1965 but more than ten years have passed a year is a period of 365 days (Art. 13, CCP). Plaintiff forgot that 1960, 1964 were both leap years so that when this present case was filed it was filed two days too late. ISSUE: Should the complaint be dismissed on the grounds of prescription? RULING: In the language of this Court, in People vs. Del Rosario, with the approval of the Civil Code of the Philippines (Republic Act 386) ... we have reverted to the provisions of the Spanish Civil Code in accordance with which a month is to be considered as the regular 30-day month ... and not the solar or civil month," with the particularity that, whereas the Spanish Code merely mentioned "months, days or nights," ours has added Page | 203

thereto the term "years" and explicitly ordains that "it shall be understood that years are of three hundred sixty-five days." The decision was affirmed.

BERG VS MAGDALENA ESTATES GR No. L-3784, October 17, 1952 FACTS: The plaintiff Ernest Berg owned 1/3 of the property known as Crystal Arcade situated in Manila. The defendant Hermady owned the remaining 2/3 of said property. Defendant alleges that plaintiff offered to sell his property for the sum of PHP200,000.00 which the defendant accepted. However, a year later, plaintiff then unjustly refused to accept payment despite their agreement. Plaintiff then claims that there is no written evidence suggesting the supposed agreement constituting the statute of fraud. ISSUE: 1. Was there sufficient evidence of the supposed agreement? 2. Does the agreement refer to a stipulated condition or period? RULING: 1. Exhibit 3 and 4 as offered by the defendant constitute sufficient evidence as required by the statute of fraud. In the application exhibit "3", Ernest Berg appears as the seller and the Magdalena Estate Inc. as the purchaser, the former's Page | 204

interest in the Crystal Arcade as the subject-matter, and the sum of P200,000 as the consideration. The application Exhibit "4" states specifically that a portion of the sum of P400,000 which is desired to be raised as a loan will be used for the purchase of the one-third interest of Ernest Berg, which portion undoubtedly refers to the sum of P200,000 mentioned in the application Exhibit "3". 2. It would seem that the agreement is not a term but a condition. Considering the first alternative, that is, until defendant shall have obtained a loan from the National City Bank of New York, it is clear that the granting of such loans is not definite and cannot be held to come within the terms "day certain" provided for in the Civil code, for it may or it may not happen. As a matter of fact, the loan did not materialize. And considering that the period given was until such time as defendant could raise money from other sources, it is to be indefinite and contingent and so it is also a condition and not a term within the meaning of the law. In any event it is apparent that the fulfillment of the condition contained in this second alternative is made to depend upon the defendant's exclusive will, and viewed in this light, the Court was of the opinion that plaintiff's obligation to sell did not arise, for, under Article 1115 of the old Civil Code, "when the fulfillment of the condition depends upon the exclusive will of the debtor the conditional obligation shall be void."

LIRAG TEXTILE MILLS, INC. VS CA 63 SCRA 375 April 14, 1975 FACTS: On May 9, 1960, defendant Lirag Textile Mills, Inc. wrote a letter to plaintiff (Alcantara) advising that, effective May 11, 1960, his temporary designation as Technical Assistant to the Administrative Officer was made permanent. The plaintiff’s tenure of employment was to be ‘for an indefinite period, unless sooner terminated by reason of voluntary resignation or by virtue of a valid cause or causes. On July 22, 1961, the Page | 205

defendant sent plaintiff a letter advising him of the termination of his employment because the company had suffered some serious reverses both in terms of pecuniary loss and in market opportunities. The CA sentenced petitioners to pay respondent Alcantara back salaries. The petitioners now assail the decision of the CA. ISSUE: Is the termination of Alcantara’s employment valid? RULING: The contract of employment was for an indefinite period. It necessarily follows that if the petitioner-employer Lirag Textile Mills terminates the employment without a valid cause or causes, as it admittedly did, it committed a breach of the contract of employment executed by and between the parties. The indefinite period of employment expressly agreed upon by and between the parties in this case is really a resolutory period because the employment is bound to terminate on a future ‘day certain’ such as the employee’s resignation or employer’s termination of employment upon a valid cause or causes, like death of the employee or termination of employer’s corporate existence, although it may not be known when. In this case there was no valid cause for termination of Alcantara’s employment. The corporation did not realize as big a profit as in the previous year, nevertheless, it realized profits in the amount of P1,173,098.00 rather then sustain losses.

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DAGUHOY ENTERPRISES, INC., VS PONCE GR No. L-6515. October 18, 1954 FACTS: On June 24, 1950, Rita L. Ponce, executed in favor of plaintiff Daguhoy Enterprises a deed of mortgage over a parcel of land including the improvements thereon, situated in Manila, to secure the payment of a loan of PhP5,000.00 granted to her by said corporation, payable within six years with interest at 12 per cent per annum. Rita and her husband Domnigo attempted to register the deeds in the office of the register of deeds, but the register noted defects and deficiencies and advised the couple to cure such and furnish the necessary data. Instead of compliance, the couple withdrew the deeds and mortgaged the same in favor of the Rehabilitation Finance Corporation (RFC) to secure a loan. Potenciano Gapol, a majority stockholder in the corporation, discovered the withdrawal of the deeds from the office of the register of deeds, and filed a case in court to collect the amount of the loan. ISSUE: Are said loans immediately demandable despite the six year installment for payments? RULING: Although the original loan of PhP5,000.00 including the increase of PhP1,190.00 was payable within six years from June 1950, and so did not become due and payable until 1956, it was held that under Article 1198 of the new Civil Code, the debtor lost the benefit of the period by reason of her failure to give the security in the form of the two deeds of mortgage and register them including defendants’ act in withdrawing said two deeds from the office of the register of deeds and then mortgaging the same property in favor of the RFC; and so the obligation became pure and without any condition and consequently, the loan became due and immediately demandable.

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VICTORIAS PLANTER ASSN., INC., ET AL. VS VICTORIAS MILLING CO., INC GR No. L-6648. July 25, 1955 FACTS: At various dates, from the year 1917 to 1934, the petitioners - sugar cane planters executed identical milling contracts, setting forth the terms and conditions under which the sugar central “North Negros Sugar Co. Inc. would mill the sugar produced by said planters. The Victorias Milling Co. Inc., was also constructed to accommodate other planters within its vicinity. Both centrals had their first millings on 1918-1919 and 19211922, respectively. Subsequent moliendas or millings took place every successive crop year thereafter, except the 6 year period, comprising 4 years of the last World War II and 2 years of post-war reconstruction of respondent’s central at Victorias, Negros Occidental. After the liberation, only the central at Victorias was reconstructed and existent contracts with Negros were now to be processed at the Victorias central. Beginning with the year 1948, the planters contracted with North Negros considered the stipulated 30 year-period of the contract they entered into in 1918 to have been terminated. Defendant however contends that the contracts call for 30 years of milling and not 30 years in time. Thereby, the contracts actually terminated on 1952 to account for its inability to operate during the war and reconstruction. ISSUE: What is the respective period of the contracts in question? RULING: The fact that the contracts make reference to “first milling” does not make the period of thirty years one of thirty milling years. Even if the thirty year period provided for in the contracts be construed as milling years, the deduction or extension of six years would not be justified. While the contract was deemed suspended during force majeure, war, etc., it did not mean that the happening of any of those events stopped the running of the period agreed upon. The performance of what the law has written off cannot be demanded and required. The prayer that the plaintiffs be compelled to deliver sugar cane to the appellant for six more years to make up for what they failed to deliver during those Page | 208

trying years, the fulfillment of which was impossible, if granted, would in effect be an extension of the term of the contracts entered into by and between the parties.

JESPAJO VS CA GR No. 113626 September 27, 2002 FACTS: On February 1, 1985, said corporation, represented by its President, Jesus L. Uy, entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. Pursuant to the contract, Tan Te occupied room No. 217 of the subject building at a monthly rent of P847.00 while Co Teng occupied the Penthouse at a monthly rent of P910.00. The terms of the contract among others are the following: “PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals. The LESSEE may, at his option, terminate this contract any time by giving sixty (60) days prior written notice of termination to the LESSOR. However, violation of any of the terms and conditions of this contract shall be a sufficient ground for termination thereof by the LESSOR.” The private respondents religiously paid the monthly rental fees. On January 2, 1990, the lessor corporation sent a written notice to the lessees informing them of the formers’ intention to increase the monthly rentals on the occupied premises to P3,500.00 monthly effective February 1, 1990. The private respondents refused payment. An ejectment case was filed against them in court. ISSUE: Is the stipulation a potestative period and hence void? RULING: Page | 209

The lease contract between petitioner and respondents is with a period subject to a resolutory condition. The wording of the agreement is unequivocal. The condition imposed in order that the contract shall remain effective is that the lessee is up-to-date in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong religiously paid their rent at the increasing rate of 20% annually. The agreement between the lessor and the lessees are therefore still subsisting, with the original terms and conditions agreed upon, when the petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month. The petitioner is estopped from backing out of their representations in the contract with respondent, that is, they may not renege on their own acts and representations, to the prejudice of the respondents who relied on them.

BORROMEO VS CA GR No. L-22962. September 28, 1972 FACTS: Respondent Jose A Villamor was a distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in Ceb City. Defendant usually borrowed from his friend and former classmate-petitioner Canuto O. Borromeo several amounts of money. On one occasion, with some pressing obligation to Mr. Miller, defendant borrowed a large sum of money from Borromeo for which he mortgaged his land and house in Cebu City. Mr. Miller filed a civil action against the defendant and attached his properties including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered as it was not properly drawn up. Plaintiff then pressed for settlement of his obligation, but defendant instead offered to execute a document of future payment. Liquidation was made and defendant was found to have owed plaintiff the sum of PhP7220.00, for which defendant signed a promissory Page | 210

therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay ‘as soon as I have money.’ The note further stipulates that the defendant would waive the right of prescription as prescribed in the Civil Code of Procedure. Plaintiff did not collect within the 1st ten years since defendant did not have any property attached to his name. However after the second World War, plaintiff then pressed on his demands. The RTC granted his motion but the CA reversed the ruling claiming that said period was contrary to law? ISSUE: Is said period stipulated in the contract valid? RULING: The CA erred in its decision. It should be noted that the wordings in said contracts should not instantly nullify the intent of the parties. The intent of the parties is clear – that an extension of time be granted to respondent for payment of his debts. In effect, the first 10 years should not be considered in the prescription of the contract and that the next ten years is granted from which the counting of the period should begin.

GONZALES VS JOSE GR No. 43429. October 24, 1938 FACTS: Page | 211

The plaintiff Benito Gonzales filed an action to recover from the defendant the total amount of Php547.95 from two promissory notes dated June 22, 1922 and September 13, 1922. The CFI granted his petition. The defendant now assails that decision claiming that the complaint was uncertain inasmuch as the notes did not specify when the indebtedness was incurred or when it was demandable, and that, granting that plaintiff has any cause of action, the same has prescribed in accordance with law. ISSUE: Does plaintiff have a cause of action? RULING: Article 1128 of the Civil Code stipulates that if the obligation does not specify a term, but it is inferred from its nature and circumstances that it was intended to grant the debtor time for its performance, the period of the term shall be fixed by the Court. The two promissory notes are governed by Article 1128 because under the terms thereof, the plaintiff intended to grant the defendant a period within which to pay his debts. However, the action to ask the court to fix a period has already prescribed. The period of prescription is ten years, which has already elapsed from the execution of the promissory notes until the filing of the action on June 1, 1934.

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BALUYUT VS POBLETE GR No. 144435. February 6, 2007 FACTS: On July 20, 1981, Guillermina Baluyut, mortgaged her house to secure a loan in the amount of PhP850,000.00 from the spouses Eulogio and Salud Poblete. The load was set to mature in one month. After a month had passed, she was unable to pay her indebtedness which led the spouses to extrajudicially foreclose the mortgage. The property was then sold on Auction to the Poblete spouses who asked Baluyut to vacate the premises. Baluyut instead filed an action for annulment of mortgage. His claim was rejected by the RTC and the CA. Petitioner claims that based on the testimony of Atty. Edwina Mendoza that the maturity of the loan which she incurred is only for one year. ISSUE: Is petitioner’s contention tenable? RULING: Evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or defeat the operation of a valid contract. In the instant case, aside from the testimony of Atty. Mendoza, no other evidence was presented to prove that the real date of maturity is one year. The terms that were thusly reduced to writing is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents of the agreement itself. The promissory note is the law between petitioner and private respondents and it clearly states that the loan shall mature in one month from date of the said Promissory Note.

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MALAYAN REALTY VS UY GR No. 163763. November 10, 2006 FACTS: Malayan Realty, Inc. (Malayan), is the owner of an apartment unit known as 3013 Interior No. 90 (the property), located at Nagtahan Street, Sampaloc, Manila. In 1958, Malayan entered into a verbal lease contract with Uy Han Yong (Uy) over the property at a monthly rental of P262.00. The monthly rental was increased yearly starting 1989, and by 2001, the monthly rental was P4,671.65. On July 17, 2001, Malayan sent Uy a written notice informing him that the lease contract would no longer be renewed or extended upon its expiration on August 31, 2001, and asking him to vacate and turn over the possession of the property within five days from August 31, 2001, or on September 5, 2001. Despite Uy’s receipt of the notice on June 18, 2001, he refused to vacate the property, prompting Malayan to file before the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment, docketed as Civil Case No. 171256, and was raffled to Branch 3 thereof. The Court ruled in favor of Uy and granted an extension period of five years. ISSUE: Is respondent Uy entitled to a grant of extension by the Court? RULING: The 2nd paragraph of Article 1687 provides that in the event that the lessee has occupied the leased premises for over a year, the courts may fix a longer term for the lease. The power of the courts to establish a grace period is potestative or discretionary, depending on the particular circumstances of the case. Thus, a longer term may be granted where equities come into play, and may be denied where none appears, always with due deference to the parties’ freedom to contract. Page | 214

In the present case, respondent has remained in possession of the property from the time the complaint for ejectment was filed on September 18, 2001 up to the present time. Effectively, respondent’s lease has been extended for more than five years, which time is, under the circumstances, deemed sufficient as an extension and for him to find another place to stay.

KASAPIAN NG MANGGAGAWA NG COCA-COLA VS CA GR No. 159828. April 19, 2006 FACTS: On June 1998, a Collective Bargaining Agreement which was in effect between petitioner union and private respondent company expired. With the intervention of the NCMB Administrator, on December 26, 1998, both parties executed and signed a MOA providing for salary increases and other economic and non-economic benefits. As part of the MOA, 61 employees were regularized. Consequently, petitioner demanded the payment and benefits of the newly regularized employees retroactive to December 1, 1998. Petitioner then demanded renegotiation of the CBA which private respondent refused. On December 9, 1999, despite the pendency of petitioner’s complaint before the NLRC, private respondent closed its Manila and Antipolo plants resulting in the termination of employment of 646 employees. The affected employees were considered on paid leave from December 9, 1999 to February 29, 2009 and were paid their corresponding salaries. The Petitioners amended their complaint to include union busting, illegal dismissal, etc. ISSUE: Page | 215

Is the closure of the Manila and Antipolo plants valid? RULING: Under Article 280 of the Labor Code, all those who have been with the company for one year by said date must automatically be considered regular employees by operation of law. The 61 employees all qualify as regular employees by this provision. The characterization of the employee’s services as no longer necessary or sustainable, and therefore properly terminable, is an exercise of business judgment on the part of the employer. The wisdom or soundness of such characterizing or decision is not subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely arbitrary and malicious action is not shown. As found by the NLRC, the private respondent’s decision to close the plant was a result of a study conducted which established that the most prudent course of action for the private respondent was to stop operations in said plants and transfer production to other more modern and technologically advanced plants of private respondent.

SANTOS VS SANTOS GR No. 153004. November 5, 2004 FACTS: Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and defendant, respectively, in several civil cases. On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending litigations. As stipulated, defendant foundation shall pay Plaintiff Santos P14.5 Million Page | 216

in the following manner: a) P1.5 Million immediately upon the execution of the agreement; b) The balance of P13 Million shall be paid at the discretion of the Foundation, within a period of not more than two (2) years from the execution of the agreement. Plaintiff Santos shall also cause the dismissal of civil cases pending upon the execution of the agreement. As a result of the Compromise Agreement, the civil cases were dropped. However, petitioner SVHFI sold to Development Exchange Livelihood two real properties, which were previously subjects of lis pendens. Respondent then issued a demand letter for the collection of payment. With no response from petitioner, filed for the issuance of a writ of execution for which the properties of petitioner were then auctioned off for payment of the debt. On June 2, 1995, respondent filed a complaint for declaratory relief and damages alleging that he was also entitled to interest for delayed payment. ISSUE: Are the respondents entitled to legal interest? RULING: The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely started therein, or in which by implication from its terms should be deemed to have been included therein. This holds true even if the agreement has not been judicially approved. In the case at bar, the obligation was already due and demandable after he lapse of the two-year period from the execution of the contract. Verily, the petitioner is liable for damages for the delay in the performance of its obligation (Article 1170 of the New Civil Code). When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. In the absence of agreement, the legal rate of interest shall prevail. The legal interest for a loan as forebearance of money is 12% per annum to be computed from default. Thus respondent was entitled to legal interest.

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METOLINDOS VS TOBIAS GR No. 146658. October 28, 2002 FACTS: Eighty-seven-year old petitioner, Atty. Manuel D. Melotindos, was the lessee of the ground floor of a house at Nakpil Street in Malate, Manila. He had been renting the place since 1953 on a month-to-month basis from its owner, respondent Melecio Tobias, who was then residing in Canada. On June 1, 1998, respondent asked petitioner to restore the premises to him for essential repairs to accommodate housing for his mother during her regular medical check-ups in Manila. Petitioner however refused to vacate the premises and worse, he neglected payment of his monthly dues. Petitioner then filed a complaint for ejectment in Court. The courts ruled in favor of defendant. Petitioner filed a motion for review but was denied on grounds of late filing. Petitioner then filed the instant petition for review asservating that the order to eject him from the leased premises was illegal because he was always up to date in paying the rental fee; that it was the obligation of the Trial Court to extend his lease by five (5) more years citing Article 1687 of the Civil Code. ISSUE: Is the order of ejectment illegal? RULING: The Decision of the Court of Appeals was already final and executor. Petitioner received the CA decision on October 9, 2000 as shown by the registry return receipt and that he filed his motion for reconsideration thereof only on October 30, 2000. The motion was obviously filed beyond the fifteen day reglementary period. The evidence on record confirm petitioner’s default in paying the rental fees for more than three months in 1999 and 1998 prior to the filing of the ejectment complaint. In addition, there is sufficient basis to conclude that respondent desperately needed the property in good faith for his own family and for the repair of the house therein. These facts represent legal grounds for ejectment. Lastly, Article 1687 does not grant a lessee absolute right to an extension of the lease term but merely gives the courts the discretion to allow additional time for the lessee to prepare for his eventual ejection. The petitioner had effectively been granted an extension of five years when respondent did not assiduously pursue the several demands made in 1995 and 1996 for him to return possession of the leased premises until in 1999. He was also only evicted from the premises in accordance with the MeTC decision only in 2002.

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LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL CORPORATION VS HUANG CHAO CHAN GR No. 142378. March 7, 2002 FACTS: Petitioner filed a case for unlawful detainer alleging that respondents Huang Chao Chun and Yang Tung Fa violated their amended lease contract over Lot No. 1-A-1, when they did not pay the monthly rentals thereon in the total amount of P4,322,900.00. Petitioner also alleged that the amended lease contract had already expired on September 16, 1966 but respondents refused to vacate the premises. The MeTC, RTC, and CA dismissed the unlawful detainer case. It was held that in the interest of justice and equity, the contract entered into by the parties may be extended by the lessees. Hence petitioners now raise the issue to the Supreme Court. ISSUE: Is the case of unlawful and detainer and ejectment a valid course of action? RULING: Where no period has been fixed by the parties, the courts, pursuant to Article 1687, have the potestative authority to set a longer period of lease. In the case at bar, the Contract of Lease provided for a fixed period of five years – specifically from September 16, 1991 to September 15, 1996. Thus, it ceased on the day fixed without need of demand. The Court could not supply material stipulations to a contract and extend to date of lease. Furthermore, the extension of a lease contract must be made before the term of the agreement expires, no after. Upon the lapse of the stipulated period, courts cannot belatedly extend or make a new lease for the parties, even on the basis of equity. The period of the lease must be deemed to have been agreed upon for the benefit of both parties. Its renewal may be authorized only upon their mutual agreement or at their joint will. Its continuance, effectivity or fulfillment cannot be made to depend exclusively upon the free and uncontrolled choice of just one party. In the instant case, there was nothing in the stipulations of the contract of the actuations of the parties to indicate automatic renewal of the term of the contract. Lastly, while mere failure to pay does not make possession unlawful, but when a valid demand to vacate the premises is made by the lessor, the lessee’s continued withholding of possession becomes unlawful as what is evident in this case. The Supreme Court granted the petition.

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BRENT SCHOOL VS ZAMORA GR No. L-48494. February 5, 1990 FACTS: Doroteo R. Alegre was engaged as athletic director by Brent School, Inc. The contract fixed a specific term for its existence, five (5) years, i.e., from July 18, 1971, the date of execution of the agreement, to July 17, 1976. On April 20,1976, Alegre was given a copy of the report filed by Brent School with the Department of Labor advising of the termination of his services effective on July 16, 1976. The stated ground for the termination was "completion of contract, expiration of the definite period of employment." And a month or so later, on May 26, 1976, Alegre accepted the amount of P3,177.71, and signed a receipt therefor containing the phrase, "in full payment of services for the period May 16, to July 17, 1976 as full payment of contract." However, Alegre later protested at the termination of his employment upon investigation of the labor conciliator. ISSUE: Is Alegre entitled to regularized employment? RULING: Since the entire purpose behind the development of legislation culminating in the present Article 280 of the Labor Code clearly appears to have been to prevent circumvention of the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined therein should be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment was agreed upon knowingly and Page | 220

voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former over the latter. Unless thus limited in its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences. The Supreme Court thusly decided in favor of petitioner.

LIM VS PEOPLE GR No. L-34338. November 21, 1984 FACTS: The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the document, Exh. A, dated January 10, 1966. Following the transaction respondent or rather Salud tried to follow up on the payment and forwarded a demand letter. Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a complaint against the appellant for estafa. Both the RTC and CA convicted petitioner. Page | 221

ISSUE: Does the obligation solely depend on the will of the debtor, thus leaving only the courts to impose a period? RULING: It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant.

PACIFIC BANKING VS CA GR No. L-45656. May 5, 1989 FACTS: Hart and Clarkins are the major stockholders of Insular Farms. On July 31, 1956 Insular Farms, owned by respondents, Inc. executed a Promissory Note of P 250,000.00 to the bank payable in five equal annual installments, the first installment payable on or Page | 222

before July 1957. Said note provided that upon default in the payment of any installment when due, all other installments shall become due and payable. The loan was intended to support Insular Farms. Unfortunately, business continued to decline. Hart agreed to Clarkin's proposal that all Insular Farms shares of stocks be pledged to petitioner bank in lieu of additional collateral and to insure an extension of the period to pay the July 1957 installment. Said pledge was executed on February 19, 1958. Barely two weeks after the pledge the bank demanded judicial foreclosure of the stock and the lots. The RTC granted the motion but was reversed by the CA. ISSUE: Did petitioner bank infringe on the terms and conditions of the pledge? RULING: In case the period of extension is not precise, the provisions of Article 1197 of the Civil Code should apply. In this case, there was an agreement to extend the payment of the loan, including the first installment thereon which was due on or before July 1957. In addition, there is ample evidence to support bad faith on the part of petitioner. No sufficient investigation was conducted after the execution of the pledge regarding the ability of Insular Farms to pay its loan. Also the dates of demand and filing of the case for foreclosure seem to cast doubt on the intent of petitioner to offer the pledge to help respondents. In the light of the above discussion and the finding that the foreclosure sale was premature and done in bad faith, petitioners are liable for damages arising from a quasidelict. The Supreme Court upheld the decision of the CA.

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AGONCILLO VS JAVIER GR No. 12611. August 7, 1918 FACTS: On February 27, 1904, Anastacio Alano, Jose Alano, and Florencio Alano, executed in favor of the plaintiff, Da. Marcela Mariño a document whereby: (1) The Alanos would render unto her within one year from the date of the document, with interest at 12% per annum, the sum of Php2,730.50; (2) They would mortgage a house and lot inherited by them from the deceased, one Evangelista, to secure payment and; (3) In case of insolvency on their part, they would cede said house and lot to Dr. Marcela Mariño. In case its value is insufficient to cover the total amount of indebtedness, Anastacio Alano would also mortgage to said lady his four parcels of land to secure the balance, if any. In 1912, Anastacio Alano died intestate, and notices were drawn in boards and newspapers for creditors to make their claims. No claims were presented to the committee and the intestate proceeding was terminated by order dated November 8, 1915. On April 27, 1916, petitioner stated that she was a creditor and the intestate proceedings were reopened. The Court appointed one Javier to be administrator of the estate. Claims for the house and lot were made as petitioner avers that defendants paid no part of the indebtedness acknowledged therein, with the exception of the PhP200.00 paid on account by Anastacio in 1908. ISSUE: Does petitioner have a right to the house and lot? RULING: The contract now under consideration is not susceptible of the interpretation that the title to the house and lot in question was to be transferred to the creditor ipso facto upon the mere failure to pay the debt at its maturity. The obligation assumed by the debtors was alternative, and they had the right to elect which obligation they could perform. The conduct of the parties involved shows that it was not their understanding that the right to discharge the obligation by the payment of money was lost to debtors by their failure to pay the debt at its maturity. The alternative indivisible obligation also arises from the fulfillment of the suspensive condition before it can be availed of. It is unfortunate, but the petition was judged to have lacked merit.

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ONG GUAN VS THE CENTURY INSURANCE COMPANY, LTD. GR No. L-20096 February 6, 1924 FACTS: An action was filed by the plaintiff Ong Guan Can to recover from the defendant an amount due on the policy of insurance issued by the defendant corporation. On June 5, 1923, only the motion of the plaintiff, The Court judged in default against the defendant. The notice of appearance was received on June 7, 1923. The defendant then asserts that said judgment should be reversed as the letter was carried on board the steamship Vizcaya and was sent on June 2, 1923. The ship was however delayed due to a storm at sea. ISSUE: Should the letter of notice be given due course? RULING: The Petition bore merit. It has been frequently decided that, if pleadings or other papers essential to a case are entrusted to the mails in due season and 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, 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.

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LEGARDA VS MIAILHE GR No. L-3435, April 28, 1951 FACTS: On June 3, 1944, plaintiffs filed a complaint against the original defendant William J.B. Burke, alleging defendant’s unjustified refusal to accept payment in discharge of a mortgage indebtedness in his favor, and praying that the latter be order (1) to receive the sum of P75,920.83; (2) to execute the corresponding deed of release of mortgage, and; (3) to pay damages in the sum of P1,000. The Court then decided in favor of plaintiff Legarda. After the war and the subsequent defeat of the Japanese occupants, defendant filed a case in court claiming that plaintiff Clara de Legarda violated her agreement with defendant, by forcing to deposit worthless Japanese military notes when they originally agreed that the interest was to be condoned until after the occupation and that payment was rendered either in Philippine or English currency. Defendant was later substituted upon death by his heir Miailhe and the Courts judged in defendant’s favor. Plaintiff now assails said decision. ISSUE: Is the tender of payment by plaintiff valid? RULING: On February 17, 1943, the only currency available was the Philippine currency, or the Japanese Military notes, because all other currencies, including the English, were Page | 226

outlawed by a proclamation issued by the Japanese Imperial Commander on January 3, 1942. The right to election ceased to exist on the date of plaintiff’s payment because it had become legally impossible. And this is so because in alternative obligations there is no right to choose undertakings that are impossible or illegal. In other words, the obligation on the part of the debtor to pay the mortgage indebtedness has since then ceased to be alternative. It appears therefore, that the tender of payment in Japanese Military notes was a valid tender because it was the only currency permissible at the time and its payment was tantamount to payment in Philippine currency. However, payment with the clerk of court did not have any legal effect because it was made in certified check, and a check does not meet the requirements of legal tender. Therefore, her consignation did not have the effect of relieving her from her obligation of the defendant.

ESTANISLAO REYES vs. SEBASTIANA MARTINEZ ET AL., G.R. No. 32226 . DECEMBER 29, 1930. FACTS: Estanislao Reyes filed an action against the Martinez heirs in which the plaintiff seeks, among others, to recover five parcels of land, containing approximately one thousand coconut trees, and to obtain a declaration of ownership in his own favor as against the defendants with respect to said parcels. This cause of action is founded upon the contract, and the claim by the plaintiff is to have the five parcels adjudged to him in lieu of another parcel formerly supposed to contain one thousand trees and described in paragraph 8 of the contract between him and certain of the Martinez heirs. By this contract Reyes was to be given the parcel described in clause 8, but in a proviso to said Page | 227

clause, the parties contracting with Reyes agreed to assure to him certain other land containing an equivalent number of trees in case he should so elect. ISSUE: Whether or not Reyes is entitled to the recovery of ownership of the five parcels of land subject of this case. RULING: The prior history of the litigation shows that Reyes elected to take and hold the parcel described in clause 8, and his right thereto has all along been recognized in the dispositions made by the court with respect to said land. In our decision in Martinez vs. Graño (51 Phil., 287, 301), it was a basal assumption that Reyes would obtain the thousand trees referred to; and we are of the opinion that, from various steps taken in the prior litigation, Reyes must be taken to have elected to take that particular parcel and he is now estopped from asserting a contrary election to take the five parcels of land described in paragraph IX of his complaint. However, the title to the parcel of land elected by Reyes is in the heirs of Inocente Martinez and it does not appear that they have transferred said title to Reyes. It results therefore that Reyes now has a claim for damages against the parties signatory to the contract of March 5, 1921, for the value of the aforesaid property. We therefore reach the conclusion that Reyes should either have the land originally set apart for him under clauses 4 and 8 of the contract, or, in case his right thereto should fail, he should not be required to pay the judgment for P8,000 which was awarded to the Martinez heirs in Martinez vs. Graño (51 Phil., 287, 302).

QUIZANA VS REDUGORIO GR No. L-6620. May 7, 1954 FACTS: Page | 228

This is an appeal to this Court from a decision rendered by the Court of First Instance of Marinduque, wherein the defendants-appellants are ordered to pay the plaintiff-appellee the sum of P550, with interest from the time of the filing of the complaint, and from an order of the same court denying a motion of the defendantsappellants for the reconsideration of the judgment on the ground that they were deprived of their day in court. ISSUE: What is the nature and effect of the actionable document mentioned above? RULING: The decisive question at issue, therefore, is whether the second part of the written obligation, in which the obligors agreed and promised to deliver a mortgage over the parcel of land described therein, upon their failure to pay the debt on a date specified in the proceeding paragraph, is valid and binding and effective upon the plaintiff-appellee, the creditor. This second part of the obligation in question is what is known in law as a facultative obligation, defined in article 1206 of Civil Code of the Philippines, which provides: ART. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. There is nothing in the agreement which would argue against its enforcement. it is not contrary to law or public morals or public policy, and notwithstanding the absence of any legal provision at the time it was entered into government it, as the parties had freely and voluntarily entered into it, there is no ground or reason why it should not be given effect. It is a new right which should be declared effective at once.

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PURITA ALIPIO vs. COURT OF APPEALS G.R. No. 134100. September 29, 2000 FACTS: Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito, Mabuco, Hermosa, Bataan, for a period of five years ending on September 12, 1990. On June 19, 1987, he subleased the fishpond, for the remaining period of his lease, to the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios Manuel. The stipulated amount of rent was P485,600.00, payable in two installments of P300,000.00 and P185,600.00, with the second installment falling due on June 30, 1989. Each of the four sublessees signed the contract. The first installment was duly paid, but of the second installment, the sublessees only satisfied a portion thereof, leaving an unpaid balance of P50,600.00. Despite due demand, the sublessees failed to comply with their obligation, so that, on October 13, 1989, private respondent sued the Alipio and Manuel spouses for the collection of the said amount before the Regional Trial Court. In the alternative, he prayed for the rescission of the sublease contract should the defendants fail to pay the balance. Petitioner Purita Alipio moved to dismiss the case because her husband had passed away. And that any action for recovery of money, debt or interest thereon, shall be dismissed when the defendant dies before final judgment.The trial court denied petitioner's motion and held that the obligation is solidary. On appeal, the Court of Appeals affirmed the decision. ISSUE: Whether a creditor can sue the surviving spouse for the collection of a debt which is owed by the conjugal partnership of gains, or whether such claim must be filed in proceedings for the settlement of the estate of the decedent. RULING: The Court held that the respondent cannot sue the surviving spouse of a decedent in an ordinary proceeding for the collection of a sum of money chargeable against the conjugal partnership. Because when the husband died, their conjugal partnership was automatically dissolved and debts chargeable against it is to be paid in the settlement of estate proceedings. Moreover, respondent does not cite any provision of law which provides that when there are two or more lessees, or in this case, sublessees, the latter's obligation to pay the rent is solidary.Thus, the liability of the sublessees is merely joint. Since the obligation of the Manuel and Alipio spouses is chargeable against their respective conjugal partnerships, the unpaid balance of P50,600.00 should be divided into two so Page | 230

that each couple is liable to pay the amount of P25,300.00. Hence, the petition is granted.

PH CREDIT CORP VS CA GR No. 109648. November 22, 2001

FACTS: PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and Federico C. Lim, for [a] sum of money. The case was docketed as Civil Case No. 83-17751 before the Regional Trial Court, Branch 51, Manila. After service of summons upon the defendants, they failed to file their answer within the reglementary period, hence they were declared in default. PH Credit Corp., was then allowed to present its evidence ex-parte. The RTC judged in favor of PH Credit Corp. On July 27, 1990, a motion for the issuance of a writ of possession was filed and on October 12, 1990, the same was granted. The writ of possession itself was issued on October 26, 1990. Said order and writ of possession are now the subject of this petition. Petitioner claims that Respondent Judge erred in applying the presumption of a joint obligation in the face of the conclusion of fact and law contained in the decision showing that the obligation is solidary. ISSUE: Is the petitioner’s contention tenable? RULING: The Rules of Court requires that all available objections to a judgment or proceeding must be set up in an Omnibus Motion assailing it; otherwise, they are deemed waived. In the case at bar, the objection of private respondent to his solidary liability became available to him, only after his real property was sold at public auction. At the time his personal properties were levied and sold, it was not evident to him that he was being held solely liable for the monetary judgment rendered against him and his co-respondents. That was why his objections then did not include those he asserted when his solidary liability became evident. Page | 231

In the dispositive portion of the January 31, 1984 Decision of the trial court, the word solidary neither appears nor can it be inferred therefrom. The fallo merely stated that the following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is joint, as provided by the Civil Code. We should stress that respondent’s obligation is based on the judgment rendered by the trial court. The dispositive portion or the fallo is its decisive resolution and is thus the subject of execution. The other parts of the decision may be resorted to in order to determine the ratio decidendi for the disposition. Where there is a conflict between the dispositive part and the opinion of the court contained in the text or body of the decision, the former must prevail over the latter on the theory that the dispositive portion is the final order, while the opinion is merely a statement ordering nothing. Hence the execution must conform with that which is ordained or decreed in the dispositive portion of the decision.

CDCP VS ESTRELLA GR No. 147791. September 8, 2006

FACTS: On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City. However, they never reached their destination because their bus was rammed from behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed forward their seats and pinned their knees to the seats in front of them. They regained consciousness only when rescuers created a hole in the bus and extricated their legs from under the seats. They suffered physical injuries as a result. Thereafter, respondents filed a Complaint for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila, Branch 13. ISSUE: Are the accused jointly or solidarily liable? RULING: The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of the Civil Code. The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the defense Page | 232

of due diligence in the selection and supervision of the employee. In the instant case, the trial court found that petitioner failed to prove that it exercised the diligence of a good father of a family in the selection and supervision of Payunan, Jr. It is well-settled in Fabre, Jr. v. Court of Appeals, that the owner of the other vehicle which collided with a common carrier is solidarily liable to the injured passenger of the same. The Peitition was thusly DENIED.

REPUBLIC GLASS CORPORATION v. QUA G.R. No. 14413 July 30, 2004 FACTS: Petitioners and respondent were stockholders of Ladtek, Inc., which obtained loans from Metrobank and PDCP where they stood as sureties. Among themselves they executed Agreements for Contribution, Indemnity and Pledge of shares of Stocks, stating that in case of default in the payment of loans, the parties would reimburse each Page | 233

other the proportionate share of any sum that any might pay to creditors. Ladtek defaulted on its loan obligations, hence Metrobank filed a collection case. During the pendency thereof, RGC and Gervel paid Metrobank where a waiver and quitclaim in favor of the two was executed. Upon Qua’s refusal to reimburse, RGC and Gervel foreclosed the pledged shares of stocks owned by Qua at a public auction. On appeal, the CA issued the assailed decision and held that there was an implied novation of the agreement and that the payment did not extinguish the entire obligation and did not benefit Qua. Hence, the petition, where the petitioners claim the following: (1) Qua is estopped from claiming that the payment made was not for the entire obligation, due to his judicial admissions; (2) payment of the entire obligation is a condition sine qua non for the demand of reimbursement under the indemnity agreements; and (3) there is no novation in the instant case. ISSUES: (1) Whether payment of the entire obligation is an essential condition for reimbursement; and (2) Whether there was no novation. RULING: The petition is denied. Although the Agreement does not state that payment of the entire obligation is an essential condition for reimbursement, RGC and Gervel cannot automatically claim for indemnity from Qua because Qua himself is liable directly to Metrobank and PDCP. The elements of novation are not established in the instant case. Contrary to RGC and Gervel’s claim, payment of any amount will not automatically result in reimbursement. If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment exceeded his share in the obligation. This is precisely because if a solidary debtor pays an amount equal to his proportionate share in the obligation, then he in effects pays only what is due from him. If the debtor pays less than his share in the obligation, he cannot demand reimbursement because his payment is less than his actual debt.

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INDUSTRIAL MANAGEMENT VS NLRC GR No. 101723. May 11, 2000 FACTS: This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the National Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of the Decision dated March 10, 1987, thereby holding that the liability of the six respondents in a case adjudicated by the NLRC is solidary despite the absence of the word "solidary" in the dispositive portion of the Decision, when their liability should merely be joint. ISSUE: Is the petitioner’s liability pursuant to the Decision of the Labor Arbiter dated March 10, 1987, solidary or not? RULING: In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6) respondents in the case below is solidary, thus their liability should merely be joint. Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment. Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of respondents therein is solidary, the correction -which is substantial -- can no longer be allowed in this case because the judgment has already become final and executory.

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METRO MANILA TRANSIT CORPORATION vs. THE COURT OF APPEALS G.R. No. 104408 1993 June 21, 1993 FACTS: On August 28, 1979, plaintiff-appellant Nenita Custodio boarded as a paying passenger a public utility jeepney with plate No. D7 305 PUJ, then driven by defendant Agudo Calebag and owned by his co-defendant Victorino Lamayo, bound for her work at Dynetics Incorporated located in Bicutan, Taguig, Metro Manila, where she then worked as a machine operator earning P16.25 a day. While the passenger jeepney was travelling at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila Transit Corp. bus with plate no. 3Z 307 PUB (Philippines) '79 driven by defendant Godofredo C. Leonardo was negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound for its terminal at Bicutan. As both vehicles approached the intersection of DBP Avenue and Honeydew Road they failed to slow down and slacken their speed; neither did they blow their horns to warn approaching vehicles. As a consequence, a collision between them occurred, the passenger jeepney ramming the left side portion of the MMTC bus. The collision impact caused plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger jeepney and (she) was thrown out therefrom, falling onto the pavement unconscious with serious physical injuries. She was brought to the Medical City Hospital where she regained consciousness only after one (1) week. Thereat, she was confined for twenty-four (24) days, and as a consequence, she was unable to work for three and one half months (3 1/2). A complaint for damages was filed by herein private respondent, who being then a minor was assisted by her parents, against all of therein named defendants following their refusal to pay the expenses incurred by the former as a result of the collision. Said defendants denied all the material allegations in the complaint and pointed an accusing finger at each other as being the party at fault. ISSUE: Whether the evidence presented during the trial with respect to the proof of due diligence of petitioner MMTC in the selection and supervision of its employees, particularly driver Leonardo, is sufficient. RULING: Page | 236

With the allegation and subsequent proof of negligence against the defendant driver and of an employer-employee relation between him and his co-defendant MMTC in this instance, the case is undoubtedly based on a quasi-delict under Article 2180. When the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in the selection and supervision of employees, the employer is likewise responsible for damages, the basis of the liability being the relationship of pater familias or on the employer's own negligence. Hence, the court consistently held that where the injury is due to the concurrent negligence of the drivers of the colliding vehicles, the drivers and owners of the said vehicles shall be primarily, directly and solidarily liable for damages and it is immaterial that one action is based on quasi-delict and the other on culpa contractual, as the solidarity of the obligation is justified by the very nature thereof. Hence, decision of respondent Court of Appeals is affirmed.

INCIONG VS. COURT OF APPEALS G.R. No. 96405, June 26, 1996 FACTS: On February 3, 1983, petitioner Baldomero L. Inciong, Jr. together with Rene C. Naybe and Gregorio D. Pantanosas signed a promissory note in the amount of P50, 000.00 holding themselves jointly and severally liable to private respondent Philippine Bank of Communications. The promissory note was due on May 5, 1983. Said due date expired without the promissors having paid their obligation. On November 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment thereof. On December 11, 1983, private respondent also sent registered mail a final letter of demand to Rene C. Naybe. Since both obligors did not respond to the demand made, private respondent filed on January 24, 1986 a complaint for collection of the sum of P50, 000.00 against the three (3) obligors. On January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayed by herein private respondent. Meanwhile, only the summons addressed to petitioner was served for the reason that defendant Naybe had gone to Saudi Arabia. The lower court rendered its decision holding petitioner solidarily liable and to pay herein respondent bank the amount of P50, 000.00 plus interest thereon. Petitioner appealed the said decision to the Court of Appeals. The respondent court, however, affirmed the decision of the lower court. The petitioner moved for reconsideration, which was later on denied by the respondent Court of Appeals. ISSUE Page | 237

Whether or not the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation. HELD The dismissal of the complaint against Naybe and Pantanosas did not constitute a release of petitioner’s obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. Petitioner signed the promissory note as a solidary co-maker and not as a guarantor. 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. The promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection Under Article 1207 of the Civil Code, when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. 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.

PHILIPPINE BLOOMING MILLS VS CA GR No. 142381. October 15, 2003 FACTS: This is a petition for review on certiorari to annul the Decision dated 16 July 1999 of the Court of Appeals in CA-G.R. CV No. 39690, as well as its Resolution dated 17 February 2000 denying the motion for reconsideration. The Court of Appeals affirmed with modification the Decision dated 31 August 1992 rendered by Branch 113 of the Regional Trial Court of Pasay City ("trial court"). The trial court’s Decision declared petitioner Alfredo Ching ("Ching") liable to respondent Traders Royal Bank ("TRB") for the payment of the credit accommodations extended to Philippine Blooming Mills, Inc. ("PBM"). The petition is a thinly veiled attempt to make the Supreme Court reconsider its decision in the prior case of Traders Royal Bank v. Court of Appeals. Page | 238

ISSUE: Is Ching is liable for obligations PBM contracted after execution of the Deed of Suretyship? RULING: Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM "may now be indebted or may hereafter become indebted" to TRB. The law expressly allows a suretyship for "future debts (Article 2053). Ching would like the Court to rule that his liability is limited, at most, to the amount stated in PBM’s rehabilitation plan. In claiming this reduced liability, Ching invokes Article 1222. In granting the loan to PBM, TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBM’s failure to pay in full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full PBM’s loan in case PBM fails to pay in full for any reason, including its insolvency. TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBM’s loan. This is clear from Article 1216 of the Civil Code whereby the creditor may proceed against any one of the solidary debtors.

EPARWA SECURITY, v. LICEO DE CAGAYAN UNIVERSITY G.R. No. 150402 Nov 8, 2006 Page | 239

FACTS: On 1 December 1997, Eparwa and LDCU, entered into a Contract for Security Services. On 21 December 1998, 11 security guards (“security guards”) whom Eparwa assigned to LDCU from 1 December 1997 to 30 November 1998, filed a complaint before the NLRC Regional Arbitration Branch No. 10 in Cagayan de Oro City. The complaint was filed against both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13th month pay, rest day, service incentive leave, night shift differential, overtime pay, and payment for attorney’s fees. The Labor Arbiter found that the security guards are entitled to wage differentials and premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of the Labor Code. LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiter’s decision on the security guards’ entitlement to salary differential but challenged the propriety of the amount of the award. LDCU alleged that security guards not similarly situated were granted uniform monetary awards and that the decision did not include the basis of the computation of the amount of the award. Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its liability for the security guards’ claims and the awarded cross-claim amounts. The NLRC found that the security guards are entitled to wage differentials and premium for holiday and rest day work. Although the NLRC held Eparwa and LDCU solidarily liable for the wage differentials and premium for holiday and rest day work, the NLRC did not require Eparwa to reimburse LDCU for its payments to the security guards. Eparwa and LDCU again filed separate motions for partial reconsideration. In its Resolution NLRC declared that although Eparwa and LDCU are solidarily liable to the security guards for the monetary award, LDCU alone is ultimately liable. LDCU filed a petition for certiorari before the appellate court assailing the NLRC’s decision. The appellate court granted LDCU’s petition and reinstated the Labor Arbiter’s decision. The appellate court also allowed LDCU to claim reimbursement from Eparwa. The appellate court denied Eparwa’s motion for reconsideration.Hence, this petition. ISSUE: Is LDCU alone ultimately liable to the security guards for the wage differentials and premium for holiday and rest day pay? RULING: Articles 106, 107 and 109 of the Labor Code read: Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract with another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code.Article 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, Page | 240

association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. Article 109. Solidary liability. — The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. This joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance of the provisions therein including the statutory minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractor’s employees for purposes of paying the employees their wages should the contractor be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the workers’ performance of any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution. For the security guards, the actual source of the payment of their wage differentials and premium for holiday and rest day work does not matter as long as they are paid. This is the import of Eparwa and LDCU’s solidary liability. Creditors, such as the security guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as between themselves, two solidary debtors are liable for only half of the payment. LDCU’s ultimate liability comes into play because of the expiration of the Contract for Security Services. There is no privity of contract between the security guards and LDCU, but LDCU’s liability to the security guards remains because of Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking LDCU for an adjustment in the contract price because of the expiration of the contract, but Eparwa’s liability to the security guards remains because of their employeremployee relationship. In lieu of an adjustment in the contract price, Eparwa may claim reimbursement from LDCU for any payment it may make to the security guards. However, LDCU cannot claim any reimbursement from Eparwa for any payment it may make to the security guards. Hence, the petition is granted.

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DIMAYUGA vs. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK Division G.R. No. 42542 Aug 5, 1991 FACTS: On February 6, 1962, petitioner borrowed from the plaintiff-respondent, the sum of ten thousand (P10,000.00) pesos as evidenced by a promissory note executed and signed by Pedro Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on May 7, 1962 with interest at the rate of ten percent (10%) per annum in case of nonpayment at maturity as evidenced by and in accordance with the terms and conditions of the promissory note executed jointly and severally by defendants. In the aforementioned promissory note, Carlos Dimayuga bound himself to pay jointly and severally with Pedro Tanjuatco interest at the rate of 10% per annum on the said amount of P10,000.00 until fully paid. Moreover, both undertook to "jointly and severally authorize the respondent Philippine Commercial and Industrial Bank, at its option to apply to the payment of this note any and all funds, securities or other real or personal property of value which hands (sic) on deposit or otherwise belonging to anyone or all of us. Upon the default of the promissors to pay, a complaint was filed on July 11, 1969 by the PCIB for some of money. Defendant Carlos Dimayuga, however, had remitted to the plaintiff -respondent the amount totalling P4,000.00 by way of partial payments made from August 1, 1969 to May 7, 1970 as evidenced by corresponding receipts thereto. These payments were nevertheless applied to past interests, charges and partly on the principal. On May 28, 1974, the trial court rendered a decision holding defendants jointly and severally liable to pay the plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid plus P913.96 as attorneys' fees. Page | 242

On July 11, 1974, petitioner filed a motion alleging that since Pedro Tanjuatco died on December 23, 1973, the money claim of the respondents should be dismissed and prosecuted against the estate of the late Pedro Tanjuatco. On June 22, 1974, the trial court denied the motion for lack of merit.Not satisfied, the petitioner appealed to the respondent court. The Court of Appeals dismissed the appeal. Hence, this petition. ISSUE: Whether the position of the petitioner that Pedro Tanjuatco having died on December 23, 1973, the money claim of PCIB should be dismissed and prosecuted against the estate of the late Tanjuatco. RULING: From the evidence presented, there can be no dispute that Carlos Dimayuga bound himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the obligation with PCIB in the amount of P10,000.00 plus 10% interest per annum. In addition, as above stated, in case of non-payment, they undertook among others to jointly and severally authorize respondent bank, at its option to apply to the payment of this note, any and all funds, securities, real or personal properties, etc. belonging to anyone or all of them. Otherwise stated, the promissory note in question provides in unmistakable language that the obligation of petitioner Dimayuga is joint and several with Pedro C. Tanjuatco. It is well settled under the law and jurisprudence that when the obligation is solidary, the creditor may bring his action in toto against the debtors obligated in solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. "Hence, there is nothing improper in the creditor's filing of an action against the surviving solidary debtors alone, instead of instituting a proceeding for the settlement of the estate of the deceased debtor wherein his claim could be filed." The notice is undoubtedly left to the solidary creditor to determine against whom he will enforce collection. Thus, the appeal interposed by petitioner-appellant is dismissed for lack of merit and the decision of the Court of First Instance is Affirmed in toto. CERNA VS CA GR No. L-48359. March 30, 1993 FACTS: On or about October 16, 1972, Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note worded as follows: FOR VALUE RECEIVED, I, CELERINO DELGADO, with postal address at 98 K-11 St., Kamias Rd., Quezon City, promise to pay to the order of CONRAD C. LEVISTE, NINETY (90) DAYS after date, at his office at 215 Buendia Ave., Makati, Rizal, the total sum of SEVENTEEN THOUSAND FIVE HUNDRED (P17,500.00) PESOS, Philippine Currency, without necessity of demand, with interest at the rate of TWELVE (12%) PERCENT per annum On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by him. And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna (petitioner), he also mortgaged a "Taunus" car owned by the latter. The period lapsed Page | 243

without Delgado paying the loan. This prompted Leviste to file a collection suit docketed as Civil Case No. 17507 with the Court of First Instance of Rizal, Branch XXII against Delgado and petitioner as solidary debtors. The Court of Appeals held that petitioner and Delgado were solidary debtors. ISSUE: Are petitioner and Delgado solidary debtors? RULING: Only Delgado signed the promissory note and accordingly, he was the only one bound by the contract of loan. Nowhere did it appear in the promissory note that petitioner was a co-debtor. The law is clear that "(c)ontracts take effect only between the parties. But by some stretch of the imagination, petitioner was held solidarily liable for the debt allegedly because he was a co-mortgagor of the principal debtor, Delgado. This ignores the basic precept that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." We have already stated that the contract of loan, as evidenced by the promissory note, was signed by Delgado only. Petitioner had no part in the said contract. Thus, nowhere could it be seen from the agreement that petitioner was solidarily bound with Delgado for the payment of the loan.

NAZARENO VS. COURT OF APPEALS G.R. No. 131641, February 23, 2000 FACTS: Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. After the death of Maximino, Sr., Romeo filed an intestate case in the Court of First Instance of Cavite, Page | 244

Branch XV, where the case was docketed as Sp. Proc. No. NC-28. Upon the reorganization of the courts in 1983, the case was transferred to the Regional Trial Court of Naic, Cavite. Romeo was appointed administrator of his father’s estate. In the course of the intestate proceedings, Romeo discovered that his parents had executed several deeds of sale conveying a number of real properties in favor of his sister, Natividad. One of the deeds involved six lots in Quezon City which were allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for the total amount of P47,800.00. ISSUE: Whether or not the Deed of Absolute of Sale can be equated as a divisible obligation. HELD: The Supreme court held that the Deed of Absolute Sale is an indivisible contract founded on an indivisible obligation. As such, it being indivisible, it can not be annulled by only one of them. And since this suit was filed only by the estate of Maximino A. Nazareno, Sr. without including the estate of Aurea Poblete, the present suit must fail. The estate of Maximino A. Nazareno, Sr. can not cause its annulment while its validity is sustained by the estate of Aurea Poblete. An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the thing which is the object thereof. The indivisibility refers to the prestation and not to the object. The Deed of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible because the performance of the contract cannot be done in parts, otherwise the value of what is transferred is diminished. Petitioners are mistaken in basing the indivisibility of a contract on the number of obligors. In any case, if petitioners’ only point is that the estate of Maximino, Sr. alone cannot contest the validity of the Deed of Sale because the estate of Aurea has not yet been settled, the argument would nonetheless be without merit. The validity of the contract can be questioned by anyone affected by it. A void contract is inexistent from the beginning. Hence, even if the estate of Maximino, Sr. alone contests the validity of the sale, the outcome of the suit will bind the estate of Aurea as if no sale took place at all.

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ALONZO VS SAN JUAN GR No. 137549. February 11, 2005 FACTS: A complaint for recovery of possession was filed by Aurelio P. Alonzo and Teresita A. Sison against Jaime and Perlita San Juan docketed as Civil Case No. Q-9629415 before the Regional Trial Court (RTC) of Quezon City, Branch 77. In their Complaint, plaintiffs alleged that they are the registered owners of a parcel of land. At around June of 1996, plaintiffs discovered that a portion on the left side of the said parcel of land with an area of one hundred twenty-five (125) square meters, more or less, was occupied by the defendants for more than a year, without their prior knowledge or consent. A demand letter was sent to the defendants in August of 1996 requiring them to vacate the property but they refused to comply; hence, the filing of the Complaint. During the pendency of the case, the parties agreed to enter into a Compromise Agreement which the trial court approved in a Judgment. Alleging that they failed to abide by the provisions of the Compromise Agreement by their failure to pay the amounts due thereon, plaintiffs sent a letter demanding that the defendants vacate the premises. Plaintiffs subsequently filed an Amended Motion for Execution. Acting on the motion, the trial court issued its Order dated 11 August 1998 denying the motion. ISSUE: Is the RTC decision correct? RULING: In herein case, the respondents failed to discharge their burden of proving payment. Even assuming that payments were made, it has not been shown to the full satisfaction of this Court whether the payments were made specifically to satisfy respondents’ obligation under the Compromise Agreement, nor were the circumstances under which the payments were made explained, taking into consideration the conditions of the Compromise Agreement. Respondents’ contract with the petitioners have the force of law between them. Respondents are thus bound to fulfill what has been expressly stipulated therein. Items 11 and 12 of the Compromise Agreement provided, in clear terms, that in case of failure to pay on the part of the respondents, they shall vacate and surrender possession of the land that they are occupying and the petitioners shall be entitled to obtain immediately from the trial court the corresponding writ of execution for the ejectment of the respondents. This provision must be upheld, because the Agreement supplanted the Complaint itself. When the parties entered into a Compromise Agreement, the original action for recovery of possession was set aside and the action was changed to a monetary obligation. Once approved judicially, the Compromise Agreement can not and must not be disturbed except for vices of consent or forgery.

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DAVID VS CA GR No. 115821. October 13, 1999 FACTS: The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, then presiding, issued a writ of attachment over real properties covered by TCT Nos. 80718 and 10289 of private respondents. In his Decision dated October 31, 1979, Judge Diaz ordered private respondent Afable to pay petitioner P66,500.00 plus interest from July 24, 1974, until fully paid, plus P5,000.00 as attorney's fees, and to pay the costs of suit. On June 20, 1980, however, Judge Diaz issued an Order amending said Decision, so that the legal rate of interest should be computed from January 4, 1966, instead of from July 24, 1974. The amended Decision in the decretal portion reads: WHEREFORE, judgment is hereby rendered against the defendant, Valentin Afable Jr., ordering him to pay to the plaintiff the sum of P66,500.00 plus the legal rate of interest thereon from January 4, 1966 up to the time the same is fully paid plus the amount of P5,000.00 as and for attorney's fees and to pay the costs of the suit." ordering the private respondent Afable to pay the petitioner the sum of P66,500.00 plus the legal rate of interest thereon from July 24, 1974, plus the amount of P5,000.00 as attorney's fees and to pay the costs of suit. The CA affirmed the judgment. The affirmation now comes to review before the SC. ISSUE: Should the payment of interest be simple or compound? RULING: As therein held, Article 2212 contemplates the presence of stipulated or conventional interest which has accrued when demand was judicially made. In cases where no interest had been stipulated by the parties, as in the case of Philippine American Accident Insurance, no accrued conventional interest could further earn interest upon judicial demand. When the judgment sought to be executed ordered the payment of simple "legal interest" only and said nothing about payment of compound interest, but the Page | 247

respondent judge orders payment of compound interest, then, he goes beyond the confines of a judgment which had become final.

THERESA MACALALAG vs. PEOPLE OF THE PHILIPPINES G.R. No. 164358 December 20, 2006 FACTS: On two separate occasions, particularly on 30 July 1995 and 16 October 1995, petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella), each in the amount of P100,000.00, each bearing an interest of 10% per month. Macalalag consistently paid the interests. Finding the interest rates so burdensome, Macalalag requested Estrella for a reduction of the same to which the latter agreed. On 16 April 1996 and 1 May 1996, Macalalag executed Acknowledgment/Affirmation Receipts promising to pay Estrella the face value of the loans in the total amount of P200,000.00 within two months from the date of its execution plus 6% interest per month for each loan. Under the two Acknowledgment/Affirmation Receipts, she further obligated herself to pay for the two (2) loans the total sum of P100,000.00 as liquidated damages and attorney's fees in the total sum of P40,000.00 as stipulated by the parties the moment she breaches the terms and conditions thereof. As security for the payment of the aforesaid loans, Macalalag issued two Philippine National Bank (PNB) Checks on 30 June 1996, each in the amount of P100,000.00, in favor of Estrella. However, the said checks were dishonored for the reason that the account against which the same was drawn was already closed. Estrella sent a notice of dishonor and demand to make good the said checks to Macalalag, but the latter failed to do so. Hence, Estrella filed two criminal complaints for Violation of Batas Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC) of Bacolod City.The MTCC found the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged and is likewise ordered to pay as civil indemnity the total amount of Page | 248

P200,000.00 with interest at the legal rate from the time of the filing of the informations until the amount is fully paid; less whatever amount was thus far paid and validly deducted from the principal sum originally claimed. On appealed, the Court of Appeals, affirmed the RTC and the MTCC decisions with modification to the effect that accused was convicted only of one (1) count of Violation of Batas Pambansa Blg. 22. ISSUE: Whether petitioner`s payments over and above the value of the said checks would free her from criminal liability. RULING: The Court argued that, “Even if we agree with petitioner Macalalag that the interests on her loans should not be imputed to the face value of the checks she issued, petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that before the institution of the two cases against her, she has made a total payment of P156,000.00. Applying this amount to the first check (No. C-889835), what will be left is P56,000.00, an amount insufficient to cover her obligation with respect to the second check. As stated above, when Estrella presented the checks for payment, the same were dishonored on the ground that they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed to pay the full face value of the second check issued. Only a full payment of the face value of the second check at the time of its presentment or during the five-day grace period15 could have exonerated her from criminal liability. A contrary interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the interest of the banking system and the legitimate public checking account user,16 as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check. Hence, the Petition is denied.

ANTONIO TAN vs. COURT OF APPEALS, ET AL. G.R. No. 116285 October 19, 2001 FACTS: On May 14, 1978 and July 6, 1978, petitioner Tan obtained two (2) loans each in the principal amount of Two Million Pesos (P2,000,000.00), or in the total principal amount of Four Million Pesos (P4,000,000.00) from respondent Cultural Center of the Philippines(CCP) evidenced by two (2) promissory notes with maturity dates on May 14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial payments he had the loans restructured by respondent CCP, and petitioner accordingly executed a promissory note on August 31, 1979 in the amount of Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32) payable in five (5) installments. Petitioner Tan failed to pay any installment on the said restructured loan. The last installment falling due on December Page | 249

31, 1980. In a letter dated January 26, 1982, petitioner requested and proposed to respondent CCP a mode of paying the restructured loan payable in thirty-six (36) equal monthly installments until fully paid. On October 20, 1983, petitioner again sent a letter to respondent CCP requesting for a moratorium on his loan obligation until the following year allegedly due to a substantial deduction in the volume of his business and on account of the peso devaluation. No favorable response was made to said letters. Instead, respondent CCP, through counsel, wrote a letter dated May 30, 1984 to the petitioner demanding full payment, within ten (10) days from receipt of said letter, of the petitioner`s restructured loan which as of April 30, 1984 amounted to Six Million Eighty-Eight Thousand Seven Hundred Thirty-Five Pesos and Three Centavos (P6,088,735.03). On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint for collection of a sum of money, against the petitioner after the latter failed to settle his said restructured loan obligation. The petitioner interposed the defense that he merely accommodated a friend, Wilson Lucmen, who allegedly asked for his help to obtain a loan from respondent CCP. Petitioner claimed that he has not been able to locate Wilson Lucmen. While the case was pending in the trial court, the petitioner filed a Manifestation wherein he proposed to settle his indebtedness to respondent CCP by proposing to make a down payment of One Hundred Forty Thousand Pesos (P140,000.00) and to issue twelve (12) checks every beginning of the year to cover installment payments for one year, and every year thereafter until the balance is fully paid. However, respondent CCP did not agree to the petitioner`s proposals and so the trial of the case ensued. The trial court rendered a decision in favor of Defendant-respondent CCP. The appellate court denied the petitioner`s motion for reconsideration of the said decision. I ISSUE: Whether there are contractual and legal bases for the imposition of the penalty, interest on the penalty and attorney`s fees. HELD: The Court found no merit in the petitioner`s contention. Article 1226 of the New Civil Code provides that: In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. In the case at bar, the promissory note expressly provides for the imposition of both interest and penalties in case of default on the part of the petitioner in the payment of the subject restructured loan. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time of default by the petitioner. There is no doubt that the petitioner is liable for both the stipulated monetary interest and the stipulated penalty charge. Page | 250

Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. Inasmuch as the said stipulation on the compounding of interest has the force of law between the parties and does not appear to be inequitable or unjust, the said written stipulation should be respected. On the issue of attorney`s fees, the appellate court ruled correctly and justly in reducing the trial court?s award of twenty-five percent (25%) attorney?s fees to five percent (5%) of the total amount due. Hence, the assailed Decision of the Court of Appeals is hereby affirmed with modification in that the penalty charge of two percent (2%) per month on the total amount due, compounded monthly, is hereby reduced to a straight twelve percent (12%) per annum starting from August 28, 1986.

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EASTERN SHIPPING INES, INC vs. HON. COURT OF APPEALS G.R. No. 97412 Jul 12, 1994 FACTS: On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel `SS EASTERN COMET' owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Services, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without. On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignees' warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same "As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants. ISSUE: a.)Whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or form the date the decision appealed from is rendered; and b)Whether the applicable rate of interest is twelve percent or six percent. HELD: When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest Page | 252

shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 2. When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. PCI vs Ng Shueng Ngor A.M. No. P-05-1973. March 18, 2005 FACTS: Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng Sheung Ngor, doing business under the name and style ‘Ken Marketing,’ Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or Reformation of Documents and Contracts. Respondents Antonio A. Bellones and Generoso B. Regalado are the sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City. For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other real property by petitioner. ISSUE: Did respondents violate the Rules of Court? RULING: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff Regalado violated EPCIB’s right to choose which property may be levied upon to be sold at auction for the satisfaction of the judgment debt. Thus, it is clear that when EPCIB offered its real properties, it exercised its option because it cannot immediately pay the full amount stated in the writ of execution and all lawful fees in cash, certified bank check or any other mode of payment acceptable to the judgment obligee. In the case at bar, EPCIB cannot immediately pay by way of Manager’s Check so it exercised its option to choose and offered its real properties. With the exercise of the Page | 253

option, Sheriff Regalado should have ceased serving notices of garnishment and discontinued their implementation. This is not true in the instant case. Sheriff Regalado was adamant in his posture even if real properties have been offered which were sufficient to satisfy the judgment debt.

POLOTAN VS CA GR No. 119379. September 25, 1998 FACTS: Private respondent Security Diners International Corporation (Diners Club), a credit card company, extends credit accomodations to its cardholders for the purchase of goods and other services from member establishments. Said goods and services are reimbursed later on by cardholders upon proper billing. Petitioner Rodelo G. Polotan, Sr. applied for membership and credit accmodations with Diners Club in October 1985. The application form contained terms and conditions governing the use and availment of the Diners Club card, among which is for the cardholder to pay all charges made through the use of said card within the period indicated in the statement of account and any remaining unpaid balance to earn 3% interest per annum plus prime rate of Security Bank & Trust Company. Notably, in the application form submitted by petitioner, Ofricano Canlas obligated himself to pay jointly and severally with petitioner the latter’s obligation to private respondent. Upon acceptance of his application, petitioner was issued Diners Club card No. 3651-212766-3005. As of May 8, 1987, petitioner incurred credit charges plus appropriate interest and service charges in the aggregate amount of P33,819.84 which Page | 254

had become due and demandable. Demands for payment made against petitioner proved futile. Hence, private respondent filed a Complaint for Collection of Sum of Money against petitioner before the lower court. ISSUE: Is petitioner liable for payment of credit charges plus interest and service charges? RULING: A contract of adhesion is one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. In this case, petitioner, in effect, claims that the subject contract is one-sided in that the contract allows for the escalation of interests, but does not provide for a downward adjustment of the same in violation of Central Bank Circular 905. Admittedly, the second paragraph of the questioned proviso which provides that “the Cardholder hereby authorizes Security Diners to correspondingly increase the rate of such interest in the event of changes in prevailing market rates x x x” is an escalation clause. However, it cannot be said to be dependent solely on the will of private respondent as it is also dependent on the prevailing market rates. Escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative but based on reasonable and valid grounds. Obviously, the fluctuation in the market rates is beyond the control of private respondent.

NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) V. PHILIPPINE NATIONAL BANK G.R. No. 148753 2004 Jul 30 FACTS: On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by Petitioner NSBCI authorizing the company to x x x apply for or secure a commercial Page | 255

loan with the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank and the NSBCI, using or mortgaging the real estate properties registered in the name of its President and Chairman of the Board Petitioner Eduardo R. Dee as collateral; and authorizing petitioner-spouses to secure the loan and to sign any and all documents which may be required by Respondent PNB, and that petitioner-spouses shall act as sureties or co-obligors who shall be jointly and severally liable with Petitioner NSBCI for the payment of any [and all] obligations. On August 15, 1989, Resolution No. 77 was approved by granting the request of Respondent PNB thru its Board NSBCI for an P8 Million loan broken down into a revolving credit line of P7.7M and an unadvised line of P0.3M for additional operating and working capital to mobilize its various construction projects. The loan of Petitioner NSBCI was secured by a first mortgage on the following: a) three (3) parcels of residential land located at Mangaldan, Pangasinan; b) six (6) parcels of residential land situated at San Fabian, Pangasinan; and c) a residential lot and improvements thereon located at Mangaldan. The loan was further secured by the joint and several signatures of Petitioners Eduardo Dee and Arcelita Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were owned by them and registered in their names. Moreover Petitioner NSBCI executed three promissory notes. In addition, petitioner corporation also signed the Credit Agreement dated August 31, 1989 relating to the ‘revolving credit line’ of P7.7 Million x x x and the Credit Agreement dated September 5, 1989 to support the ‘unadvised line’ of P300,000.00. On August 31, 1989, petitioner-spouses executed a ‘Joint and Solidary Agreement’ (JSA) in favor of Respondent PNB ‘unconditionally and irrevocably binding themselves to be jointly and severally liable with the borrower for the payment of all sums due and payable to the Bank under the Credit Document. Later on, Petitioner NSBCI failed to comply with its obligations under the promissory notes. On June 18, 1991, Petitioner Eduardo R. Dee on behalf of Petitioner NSBCI sent a letter to the Branch Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment of interests and restructuring of its loan for another term. Subsequently, NSBCI tendered payment to Respondent PNB of three (3) checks aggregating P1,000,000.00. In a meeting held on August 12, 1991, Respondent PNB’s representative, Mr. Rolly Cruzabra, was informed by [Petitioner] Eduardo Dee of his intention to remit to Respondent PNB post-dated checks covering interests, penalties and part of the loan principals of his due account. On August 22, 1991, Respondent bank’s Crispin Carcamo wrote Petitioner Eduardo Dee, informing him that Petitioner NSBCI’s proposal was acceptable, provided the total payment should be P4,128,968.29 that would cover the amount of P1,019,231.33 as principal, P3,056,058.03 as interests and penalties, and P53,678.93 for insurance[,] with the issuance of post-dated checks to be dated not later than November 29, 1991. On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch Manager reiterating his proposals for the settlement of Petitioner NSBCI’s past due loan account amounting to P7,019,231.33. Petitioner Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in favor of Respondent PNB

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Upon presentment, however, x x x check nos. 03500087 and 03500088 dated September 29 and October 29, 1991 were dishonored by the drawee bank and returned due to a ‘stop payment’ order from petitioners. On November 12, 1991, PNB’s Mr. Carcamo wrote Petitioner Eduardo Dee informing him that unless the dishonored checks were made good, said PNB branch ‘shall recall its recommendation to the Head Office for the restructuring of the loan account and refer the matter to its legal counsel for legal action. Petitioners did not heed respondent’s warning and as a result, the PNB Dagupan Branch sent demand letters to Petitioner NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr. Avenue, Quezon City, asking it to settle its past due loan account. Petitioners nevertheless failed to pay their loan obligations within the time frame given them and as a result, Respondent PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale The sheriff foreclosed the real estate mortgage and sold at public auction the mortgaged properties of petitioner-spouses, with Respondent PNB being declared the highest bidder for the amount of P10,334,000.00. Copies of the Sheriff’s Certificate of Sale were sent by registered mail to petitioner corporation’s address petitioner-spouses’ address. On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to petitioners at their address informing them that the properties securing their loan account had been sold at public auction, that the Sheriff’s Certificate of Sale had been registered with the Registry of Deeds of Pangasinan and that a period of one (1) year therefrom was granted to them within which to redeem their properties. Petitioners failed to redeem their properties within the one-year redemption period and so Respondent PNB executed a Deed of Absolute Sale consolidating title to the properties in its name. Respondent PNB informed Petitioner NSBCI that the proceeds of the sale conducted on February 26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43 and thus demanded from the latter the deficiency of P2,172,476.43 plus interest and other charges until the amount was fully paid. Petitioners refused to pay the above deficiency claim which compelled Respondent PNB to institute the instant Complaint for the collection of its deficiency claim. ISSUE: Whether or not the escalation clause is valid and whether or not it is violative of the principle of mutuality of contracts. RULING: In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the first, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to increase the rate “within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x,” without even giving prior notice to petitioners. The Court holds that petitioners’ accessory duty to pay interest did not give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, Page | 257

unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement. The “unilateral determination and imposition” of increased rates is “violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.” Onesided impositions do not have the force of law between the parties, because such impositions are not based on the parties’ essential equality. Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long-term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the “right to assent to an important modification in their agreement” and would also negate the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts “dependent exclusively upon the uncontrolled will” of respondent and was therefore void. Besides, the pro forma promissory notes have the character of a contract d’adhésion, “where the parties do not bargain on equal footing, the weaker party’s the debtor’s participation being reduced to the alternative ‘to take it or leave it.’”

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PNB VS ENCINA GR 174055. February 12, 2008 FACTS: The Philippine National Bank (PNB) assails the Decision of the Court of Appeals dated 15 May 2005, rendered in CA-G.R. CV No. 79094 which, among others, declared null and void the interest rate imposed by PNB on the loan obtained from it by respondents and the consequent extrajudicial foreclosure of the properties offered as security for the loan. Respondents Encina spouses acquired several loans from PNB from which it failed to pay within due time. Encina avers that there ought to be longer gestation periods on its part being engaged in a business of agricultural character. ISSUE: Was there a violation of the Usury Law? RULING: As borne by the records, the Encina spouses never challenged the validity of their loan and the accessory contracts with PNB on the ground that they violated the principle of mutuality of contracts in view of the provision therein that the interest rate shall be set by management. Their only contention concerning the interest rate was that the Page | 259

charges imposed by the bank violated the Usury Law. This was the essence of the second cause of action alleged in the complaint. It should be definitively ruled in this regard that the Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983 and removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. After all, the fundamental tenet is that the law is deemed part of the contract. Thus, the trial court was correct in ruling that the second cause of action was without basis.

IMPERIAL VS. JAUCIAN 427 SCRA 517 2004 Apr 14 FACTS: The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate promissory notes and issued several checks as guarantee for payment. When the said loans became overdue and Page | 260

unpaid, especially when the defendant’s checks were dishonored, plaintiff made repeated oral and written demands for payment. The loans were covered by six (6) separate promissory notes executed by defendant. The face value of each promissory notes is bigger [than] the amount released to defendant because said face value already included the interest from date of note to date of maturity. Said promissory notes indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant, penalties and attorney’s fees. The trial court’s clear and detailed computation of petitioner’s outstanding obligation to respondent was affirmed by the CA for being convincing and satisfactory. However, the CA held that without judicial inquiry, it was improper for the RTC to rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. ISSUES: Whether or not the penalties charged per month is in the guise of hidden interest. Whether or not the reduction of attorney’s fees by the RTC is reasonable. RULING: Iniquitous and unconscionable stipulations on interest rates, penalties and attorney’s fees are contrary to morals. Consequently, courts are granted authority to reduce them equitably. If reasonably exercised, such authority shall not be disturbed by appellate courts. Article 1229 of the Civil Code states thus: “The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.” In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case. What may be iniquitous and unconscionable in one may be totally just and equitable in another. In the present case, iniquitous and unconscionable was the parties’ stipulated penalty charge of 5 percent per month or 60 percent per annum, in addition to regular interests and attorney’s fees. Also, there was partial performance by petitioner when she remitted P116,540 as partial payment of her principal obligation of P320,000. Under the circumstances, the trial court was justified in reducing the stipulated penalty charge to the more equitable rate of 14 percent per annum. The Promissory Note carried a stipulation for attorney’s fees of 25 percent of the principal amount and accrued interests. Strictly speaking, this covenant on attorney’s fees is different from that mentioned in and regulated by the Rules of Court. “Rather, the attorney’s fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause.” So long as the stipulation does not contravene Page | 261

the law, morals, public order or public policy, it is binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution. Nevertheless, it appears that petitioner’s failure to comply fully with her obligation was not motivated by ill will or malice. The twenty-nine partial payments she made were a manifestation of her good faith. Again, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise, we hold that the RTC’s reduction of attorney’s fees -- from 25 percent to 10 percent of the total amount due and payable -- is reasonable.

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TEDDY G. PABUGAIS v. DAVE P. SAHIJWANI G.R. No. 156846, February 23, 2004 FACTS: Teddy G. Pabugais, agreed to sell to Dave P. Sahijwani a lot located at North Forbes Park, Makati. Dave paid Teddy the amount of P600,000.00 as option/reservation fee and the balance of P14,887,500.00 to be paid within 60 days from the execution of the contract, simultaneous with delivery of the owner’s duplicate TCT in Dave’s name and other required documents. Teddy failed to deliver the required documents, and returned to Dave the option/reservation fee by way of check, which was, however, dishonored. On August11, 1994, Teddy wrote to Dave saying that he is consigning the mount tendered with the RTC of Makati City. On August 15, 1994, Teddy filed a complaint for consignation, alleging that he twice rendered to Dave, through his counsel, the amount of P672,900.00 in the form of manager’s check, but was refused. Dave’s counsel, on the other hand, admitted that his office received petitioner’s letter, but claimed that no check was appended thereto. He averred that there was no valid tender of payment because no check was tendered and the computation of the amount to be tendered was insufficient. The trial court declared the consignation invalid for failure to prove that there was a prior tender of payment and was refused by Dave. Teddy appealed the decision to the Court of Appeals. Thereafter, he filed an Ex Parte Motion to Withdraw Consigned Money, which was denied by the CA. On a motion for reconsideration, the CA declared the consignation as valid, and thus held that Teddy cannot withdraw his consignation. Unfazed, Teddy filed the present petition upon the contention that he can withdraw the amount deposited with the trial court as a matter of right since at the time he moved for the withdrawal, the CA has yet to rule on its validity and Dave had not yet accepted the same. ISSUES: (1) Whether or not there was a valid consignation; and (2) Whether or not petitioner can withdraw the amount consigned as a matter of right? RULING: The petition for review is denied. Petitioner’s tender of payment is valid. The amount consigned however can no longer be withdrawn because respondent’s prayer in his answer that the amount consigned be awarded to him is equivalent to an acceptance of the consignation, which has the effect of extinguishing petitioner’s obligation. The Page | 263

amount consigned with the trial court can no longer be withdrawn by petitioner because respondent’s prayer in his answer that the amount consigned be awarded to him is equivalent to an acceptance of the consignation, which has the effect of extinguishing petitioner’s obligation. Moreover, petitioner failed to manifest his intention to comply with the “Agreement And Undertaking” by delivering the necessary documents and the lot subject of the sale to respondent in exchange for the amount deposited. Withdrawal of the money consigned would enrich petitioner and unjustly prejudice respondent.

ANTONIO LO V. COURT OF APPEALS FACTS: At the core of the present controversy are two parcels of land measuring a total of 2,147 square meters, with an office building constructed thereon. Petitioner acquired the subject parcels of land in an auction sale on November 9, 1995 for P20,170,000 from the Land Bank of the Philippines (Land Bank). Private respondent National Onion Growers Cooperative Marketing Association, Inc., an agricultural cooperative, was the occupant of the disputed parcels of land under a subsisting contract of lease with Land Bank. The lease was valid until December 31, 1995. Upon the expiration of the lease contract, petitioner demanded that private respondent vacate the leased premises and surrender its possession to him. Private respondent refused on the ground that it was, at the time, contesting petitioner’s acquisition of the parcels of land in question in an action for annulment of sale, redemption and damages. Petitioner filed an action for ejectment before the MTC. He asked, inter alia, for the imposition of the contractually stipulated penalty of P5,000 per day of delay in surrendering the possession of the property to him. On September 3, 1996, the trial court decided the case in favor of petitioner. On appeal to the RTC, the MTC decision was affirmed in toto. The CA rendered its assailed decision affirming the decision of the trial court, with the modification that the penalty imposed upon private respondent for the delay in turning over the leased property to petitioner was reduced from P 5,000 to P 1000 per day. ISSUE: Page | 264

Whether or not the Court of Appeals erred in reducing the penalty awarded by the trial court, the same having been stipulated by the parties. RULING: No. Generally, courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contract if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with. This power of the courts is explicitly sanctioned by Article 1229 of the Civil Code which provides: Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of the court and depends on several factors, including, but not limited to, the following: the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties. In this case, the stipulated penalty was reduced by the appellate court for being unconscionable and iniquitous. Petition denied; CA decision affirmed.

LIGUTAN VS. COURT OF APPEALS 376 SCRA 561 FEBRUARY 12, 2002 FACTS: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on May 11, 1981 a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of attorney’s fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on September 8, 1981; the bank, however, granted an extension but only until December 29, 1981. When petitioners defaulted on their obligation, the bank filed on November 3, 1982 with the RTC a complaint for recovery of the due amount. On September 5, 1988, the trial court ruled in favor of the Page | 265

bank. It ordered the petitioners to pay, jointly and severally, the sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty charge, commencing on May 20, 1982 until fully paid. The CA affirmed it but deleted the 2% service charge pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision, both parties moved for reconsideration. Petitioners prayed for the reduction of the 5% penalty for being unconscionable. The bank asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties. On October 28, 1998, the CA resolved the two (2) motions granting the prayer of the bank that the payment of interest and penalty be commenced on the date when the obligation became due and on the other hand held that a penalty of 3% per month or 36% per annum would suffice. The petitioner, before the Court, contended, among others that the 15.189% interest and the penalty of 3% per month or 36% per annum imposed by private respondent bank on petitioner’s loan obligation are still manifestly exorbitant, iniquitous and unconscionable. Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of the peso. ISSUE: Whether or not the penalty is reasonable and not iniquitous. RULING: NO, the penalty is not unreasonable. The Court held that the question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confide to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. v. Court of Appeals, for example, the Court has tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular payment is made by the payment. The stipulated penalty might even be deleted such as when there has been substantial performance in good faith by the obligor, when the penalty clause itself suffers from fatal infirmity, and when exceptional circumstances so exist as to warrant it. In the case at bar, given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, this Court sees no cogent ground to change the ruling of the appellate court. FIRST METRO INVESTMENT V. ESTE DEL SOL MOUNTAIN RESERVE, INC 369 SCRA 99 FACTS: Page | 266

Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort complex project. Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan was payable in thirtysix (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization. In case of default, an acceleration clause was, among others, provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus attorney’s fees equivalent to twenty-five (25%) percent of the sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired. In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several documents as security for payment, among them, (a) a Real Estate Mortgage and (b) individual Continuing Suretyship agreements by co-respondents Valentin S. Daez, Jr., et al. Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of 120,000 common shares of respondent Este del Sol’s capital stock for a onetime underwriting fee of P200,000.00. The Underwriting Agreement also provided that for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of 200,000.00 per annum for a period of four consecutive years. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a consultancy fee of P332,500.00 per annum for a period of four consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also executed on January 31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general consultancy services. Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization, it appeared to have incurred a total obligation of P12,679,630.98 per the petitioner’s Statement of Account dated June 23, 1980. Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. At the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for P9,000,000.00. Failing to secure from the individual respondents, the payment of the alleged deficiency balance, petitioner instituted the instant collection suit to collect the alleged deficiency balance of P6,863,297.73 plus interest thereon at 21% percent per annum from June 24, 1980 until fully paid, and 25% percent thereof as and for attorney’s fees and costs. The trial court rendered its decision in favor of petitioner FMIC. CA reversed the challenged decision of the trial court. Page | 267

ISSUE: Whether or not the appellate court erred in reversing the decision of the trial court as regards to the payment of penalties. RULING: No. First, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed. Second, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest. The Underwriting and Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lender’s services which are of little value or which are not in fact to be rendered, such as in the instant case. In this connection, Article 1957 of the New Civil Code clearly provides that: “Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury.” In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void, consequently, the debt is to be considered without stipulation as to the interest. Thus, the Court agrees with the factual findings and conclusion of the appellate court, wherein it held that the stipulated penalties, liquidated damages and attorney’s fees, excessive, iniquitous and unconscionable. Accordingly, the 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorney’s fees would suffice to compensate the appellee, especially so because there is no clear showing that the appellee hired the services of counsel to effect the foreclosure; it engaged counsel only when it was seeking the recovery of the alleged deficiency. Attorney’s fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation does not contravene any law, morals, or public order, it is binding upon the parties. Nonetheless, courts are empowered to reduce the amount of attorney’s fees if the same is “iniquitous or unconscionable.”[46] Articles 1229 and 2227 of the New Civil Code provide that: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. Page | 268

In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) for the stipulated attorney’s fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorney’s fees to ten (10%) percent is appropriate and reasonable under the facts and circumstances of this case.

DOMEL TRADING CORPORATION V. COURT OF APPEALS and G.R. No. 84813, September 22, 1999 FACTS: On June 3, 1981, private respondent NDC-NACIDA Raw Materials Corporation (NNRMC) ordered from petitioner Domel Trading Corporation (DOMEL) 22,000 bundles of buri midribs at P16.00 per bundle to be delivered within 30 working days from the date of the opening of a letter of credit. On June 4, 1981, private respondent again ordered 300,000 pieces of rattan poles at P9.65 per piece for a total price of P2,895,000.00, also to be delivered within 60 days from the date of the opening of a letter of credit. The specifications and provisions of both transactions, which served as their agreement, were printed in two separate purchase orders. In accordance with their agreement, NNRMC, on July 9, 1981, opened a letter of credit with Philippine National Bank (PNB) in favor of DOMEL in the amount of P1,997,000.00 to cover its order for 206,943 pieces of rattan poles. On July 13, 1981, NNRMC opened another letter of credit in favor of DOMEL in the amount of P1,236,000.00 to cover the price of 93,057 pieces of rattan poles and 22,000 bundles of buri midribs. In violation of their agreement, DOMEL failed to deliver the buri midribs and rattan poles within the stipulated period. Thus, on September 23, 1981, DOMEL and NNRMC agreed to restructure the latter’s purchase orders in a Memorandum of Agreement. Under the agreement, NNRMC extended the expiry date of its two letters of credit to November 5, 1981. It also reduced the quantity of the rattan poles from 300,000 to only 100,000 pieces while the quantity of buri midribs remained at 22,000 bundles. Further, DOMEL undertook to deliver the goods on or before October 31, 1981. However, no deliveries were again made on the said date. Consequently, demands were made by NNRMC on January 19, 1982 for the payment of damages, which demands were ignored by DOMEL. Hence, NNRMC filed a complaint for damages before the Page | 269

Regional Trial Court of Pasig. After trial, judgment was rendered in favor of plaintiff and against defendant. Both DOMEL and NNRMC assail the above-quoted decision in separate petitions which have been consolidated before this Court. Based on the pleadings submitted by the parties, this Court has resolved to give due course to the petition and decides the same. DOMEL submits it has not breached its contractual obligation to NNRMC inasmuch as it was the fault of the latter for not inspecting and examining the rattan poles as well as the buri midribs already shipped by the suppliers and stored in the former’s warehouse. In short, DOMEL claims that NNRMC must first inspect the ordered items before delivery could be made. ISSUE: Whether or not the decision of the Court of Appeals in CA-G.R. CV No. 08952 which modified the decision of the lower court granting private respondent’s prayer for damages, was correct. RULING: While the Supreme Court did not agree with the Court of Appeals that the failure of NNRMC to conduct the inspection mitigated DOMEL’s liability for liquidated damages, nevertheless, it agreed in the reduction of the amount of liquidated damages to only P150,000.00. The amount of P2,000.00 as penalty for every day of delay is excessive and unconscionable. Article 1229 of the Civil Code states, thus:“The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.” Article 2227 of the Civil Code likewise states, thus: “Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.” In determining whether a penalty clause is “iniquitous and unconscionable,” a court may very well take into account the actual damages sustained by a creditor who was compelled to sue the defaulting debtor, which actual damages would include the interest and penalties the creditor may have had to pay on its own from its funding source. In this case, NNRMC was only able to prove that it incurred the amounts of P5,995.83 as opening charges on the two Letters of Credit and an additional P1,911.85 as amendment charges on the same Letters of Credit. Other than that, NNRMC failed to prove it had suffered actual damages resulting from the nondelivery of the specified buri midribs and rattan poles. In fact, what it allegedly suffered are what it calls “Foregone Interest Income” and “Foregone Profit” from the two Letters of Credit. Such could not be considered as actual damages.

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MEDEL VS CA G.R. No. 131622 November 27, 1998 FACTS: The Medel spouses obtained several loans of which they were unable to pay in full. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a Page | 271

total of P500,000.00, payable on August 23, 1986. They executed a promissory note indicating payment for the balance. On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges. ISSUE: What is the interest that must be collected on the instant case? RULING: Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684? We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent". Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. 20 The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable.

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PACITA REFORMINA v TOMOL, JR. NO. L-59096 October 11, 1985 FACTS: An action for Recovery of Damages for Injury to Person and Loss of Property was filed. RTC rendered judgment in favor of the plaintiffs and against the defendants, ordering the latter to pay jointly and severally the former. On appeal, the decision was modified. In the computation of the legal interest decreed sought to be executed, petitioners claimed that it should be at 12% per annum invoking Central bank Circular. The respondents, however, insist that said legal interest should be at the rate of 6% per annum pursuant to Article 2209 of the New Civil code ISSUE: How much by way of legal interest, should a judgment debtor pay the judgment creditor? RULING: The judgment spoken of and referred to are judgments in litigations involving loans or forbearances of any money, goods or credits. Any other kind of monetary judgment does not fall within the coverage of the said law for it is not within the ambit of authority granted to the Central Bank. The Monetary Board may not tread on forbidden grounds. To make Central Bank Circular No. 416 applicable to any case other than those specifically provided for by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising legislative functions which are beyond the intendment of PD No. 116. The petition is without merit, the same is dismissed with costs against petitioners.

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SONNY LO v. KJS ECO-FORMWORK SYSTEM G.R. No. 149420 October 8, 2003 FACTS: KJS is engaged in the sale of steel scaffoldings while Lo is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. He paid a downpayment in the amount of P150,000. The balance was made payable in 10 monthly installments. Respondent delivered the equipments. Petitioner was able to pay the first two monthly installments. His business suffered financial difficulties and he was unable to settle his obligations despite demands. On October 11, 1990, the parties executed a Deed of Assignment whereby petitioner assigned to respondent his receivables from Jonero Realty. However, Jonero refused to honor the Dees of Assign,nt because it claimed that petitioner was indebted to it. Petitioner refused to pay claiming that that his obligation had been extinguished when they executed the deed of assign,ent. RTC dismissed the complaint on the ground that the assignment of credit extinguished the obligation. Court of appeals reversed the decision and ordered Lo to pay the plaintiff KJS with legal interests of 6% per annum until fully paid. ISSUE: Whether or not the Deed of Assignment extinguished the obligation RULING: An assignment of credit, by virtue of which the owner of the credit, the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation and without the consent of the debtor transfers his credit and accessory rights to another, the assignee, who acquires the power to enforce it against the debtor. Petitioner, as assignor, is bound to warrant the existence and legality of the credit at the tim of the sale or assignment. When Jonero claimed that it was no longer indebted to petitioner since the latter had also as unpaid obligation to it, it essentially meant that its obligation to the petitioner has been extinguished by compensation. Petitioner was found in breach of his obligation under the Deed of assignment. Court of Appeals decision is affirmed. Page | 274

PHILPPINE NATIONAL BANK v.CA and LORETO TAN G.R. No. 108630 April 2, 1996 FACTS: Private respondent Loreto Tan is the owner of a parcel of land abutting the national highway. Expropriaton proceedings were instituted by the government. Tan filed a motion requesting the issuance of an order for the release to him of the expropriation price of P32,480.00. PNB was required by the trial court to release to tan the amount and deposited it by the government. Petitioner, through its Assistant Manager Tagamolila, issued a check and delivered the same to Sonia Gonzaga on the strength of the SPA, without tan’s knowledge, consent and authority. RTC ordered petitioner and Tagamolila to pay private respondent jointly and severally the amount worth legal interests, damages and attorney’s fees. Ca affirmed the decision. ISSUE: Whether the Special Power of Attorney authorized Sonia Gonzaga to receive payment intended for private respondent RULING: There is no question that no payment had ever been made to private respondent as to the check was never delivered to him. Under Article 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the Page | 275

obligation consists has been completely delivered or rendered, as the case may be. The burden of proof of sad payment lies with the debtor. The decision of the court of appeals is affirmed with the modification that the award by the RTC of P5,000 as attorney’s fees is reinstated.

CATHAY PACIFIC AIRWAYS v.Spouses Vazquez G.R. No. 150843 March 14, 2003 FACTS: Cathay is a common carrier engaged in transporting passenger and goods by air. Spouses Vazquez are Gold Card Members of its Marc Polo Club. The Spouses, with two friends and a maid went to HongKong for business. Spouses have the Business class boarding passes and economy class for the maid. When boarding, the ground stewardess declared a seat change from Business class to First Class for the Vazquez. The Spouses refused but after insistence by the stewardess, the spouses gave in. When the arrived in Manila, spouses demanded to be indemnified in the amount of one million “ for the humiliation and embarrassment” caused by the employee. RTC ruled Page | 276

for the Vazquez ordering Cathay Airways to pay the spouses, stating further that there was a breach of contract not because of overbooking but because the latter pushed through with the upgrading despite objections of the spouses. ISSUE: Is an involuntary upgrading of an airline’s accommodation at no extra costs cause a breach of contract of carriage? RULING: The Vazquezes are aware of the privileges, but such privileges may be waived. Spouses should have been consulted first. It should not have been imposed on them over their vehement objection. By insisting of the upgrade, Pacific Airways breached its contract of carriage with the Vazquezes. Nominal damages are adjudicated in order that the right of the plaintiff, which have been violated may be vindicated or recognized and not for indemnifying the plaintiff for any loss suffered by him. Petition is partly granted. Court of Appeals’ decision is modified. Moral damages deleted, nominal damages reduced to P5,000.

CITIBANK v.SABENIANO G.R.No. 156132, October 16, 2006

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FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to do commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners Citibank and FNCB Finance. Respondent filed a complaint against petitioners claiming to have substantial deposits, the proceeds of which were supposedly deposited automatically and directly to respondent’s account with the petitioner Citibank and that allegedly petitioner refused to despite repeated demands. Petitioner alleged that respondent obtained several loans from the former and in default, Citibank exercised its right to set-off respondent’s outstanding loans with her deposits and money. RTC declared the act illegal, null and void and ordered the petitioner to refund the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her indebtedness. CA affirmed the decision entirely in favor of the respondent. ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her deposits and money in Citibank-Geneva RULING: 1. 2.

3. 4.

Petition is partly granted with modification. Citibank is ordered to return to respondent the principal amount of P318,897.34 and P203,150.00 plus 14.5% per annum The remittance of US $149,632.99 from respondent’s Citibank-Geneva account is declared illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its equivalent using exchange rate at the time of payment. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000, attorney’s fees of P200,000. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive off interest.

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TELENGTAN BROTHERS and SONS v.UNITED STATES LINES G.R.No. 132284,February 28,2006 FACTS: Petitioner is a domestic corporation while US Lines is a foreign corporation engaged in overseas shipping. It was made applicable that consignees who fail to take delivery of their containerized cargo within the 10-day free period are liable to pay demurrage charges. On June 22, 1981, US Lines filed a suit against petitioner seeking payment of demurrage charges plus interest and damages. Petitioner incurred P94,000 which the latter refused to pay despite repeated demands. Petitioner disclaims liability alleging that it has never entered into a contract nor signed an agreement to be bound by it. RTC ruled that petitioner is liable to respondent and all be computed as of the date of payment in accordance with Article 1250 of the Civil Code. CA affirmed the decision. ISSUE: Whether the re-computation of the judgment award in accordance with Article 1250 of the Civil Code proper RULING: The Supreme Court found as erroneous the trial court’s decision as affirmed y the Court of Appeals. The Court holds that there has been an extraordinary inflation within the meaning of Article 1250 of the Civil Code. There is no reason for ordering the payment of an obligation in an amount different from what has been agreed upon because of the purported supervention of an extraordinary inflation. The assailed decision is affirmed with modification that the order for recomputation as of the date of payment in accordance with the provisions of Article 1250 of New Civil Code is deleted.

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C. F. SHARP v. NORTHWEST AIRLINES G.R. No. 133498, April 18,2002 FACTS: On May 9, 1974, respondent entered into an International Passengers Sales Agency Agreement with petitioner, authorizing the latter to sell its air transport tickets. Petitioner failed to remit the proceeds of the ticket sales, for which reason, respondent filed a Collection suit against petitioner before the Tokyo District Court, which ordered petitioner to pay respondent 82,158,195 Yen and damages for the delay at the rate of 6% per annum fro August 28,1980 up to and until payment is completed. Unable to execute the decision in Japan, respondent filed a case with the RTC. RTC issued writ of execution ordering defendant to pay plaintiff 83,158,195 Yen at the exchange rate on the date of foreign judgment plus 6% interest. On appeal, petitioner contended that it had already paid partial payments hence, was not liable to pay additional 6% interest imposed in the foreign judgment. ISSUE: Whether or not the petitioner is liable to pay additional 6% per annum for the delay RULING: The petition is denied. CA decision is affirmed with modification. Petitioner is directed to pay respondent 61,734 Yen plus damages for the delay at 6% per annum from August 28,1980 until payment is completed, with interest at the rate of 12% per annum counted from the date of filing until fully satisfied. Page | 280

Petitioner’s liability may be paid in Philippine currency computed at the exchange rate prevailing at the time of payment.

ALBERT PADILLA

v. SPOUSES PAREDES and COURT OF APPEALS G.R. NO. 124874,March 17, 2000

FACTS: On October 20, 1988, petitioner Padilla and private respondent entered into a contract to sell involving a parcel of land. The was untitled but private respondent was paying taxes thereon. Under the contract, petitioner undertook to secure title to the property in private respondent’s names of the P312,840 purchase prize, petitioner was to pay downpayment of P50,000 upon signing and the balance was to be paid within 10 days from the issuance of the court order directing issuance of the decree of registration. For failure to pay some of the amount, respondent offered to sell to petitioner one-half of the property for all the payment, lest respondent rescinds the contract. Petitioner refused and instituted action for specific performance alleging that they have substantially complied with the obligation. RTC ruled for the petitioners stating a casual or slight breach that did not warrant rescission. CA reversed the decision and confirmed the respondent’s rescission. Page | 281

ISSUE: Whether or not the private respondents are entitled to rescind the contract to sell the land to petitioner RULING: The Supreme Court sustained the ruling of CA that private respondent may validly rescind the contract to sell, however, the reason for this is not that respondents have the power to rescind but because their obligation thereunder did not arise. The CA is correct in ordering the return to petitioner of the amounts received from him by private respondents, on the precept that no one shall be unjustly enriched himself at the expense of another.

SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN G. R. No. 100290, June 4, 1993 FACTS: A suit of collection of sum of money was filed by Eden Tan against the spouses. A writ of attachment was issued, the Deputy Sheriff filed a return stating that a deposit made by Tibajia in the amount of P442,750 in another case, had been garnished by him. RTC ruled in favor of Eden Tan and ordered the spouses to pay her an amount in excess of P3,000,000. Court of Appeals modified the decision by reducing the amount for Page | 282

damages. Tibajia Spouses delivered to Sheriff Bolima the total money judgment of P398483.70. Tan refused to accept the payment and insisted that the garnished funds be withdrawn to satisfy the judgment obligation. ISSUE: Whether or not payment by means of check is considered payment in legal tender RULING: The ruling applies the statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s check, cashier’s or personal check. The decision of the court of Appeals is affirmed.

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DEVELOPMENT BANK OF THE PHILIPPINES v. COURT OF APEEALS G.R.No. 138703,June 30, 2006 FACTS: In March 1968, DBP granted to private respondents an industrial loan in the amount of P2,500,000 – P500,000 n cash and P2,000,000 in DBP Progress Bank. It was evidenced by a promissory note and secured by a mortgage executed by respondents over their present and future properties. Another loan was granted by DBP in the for of a 5-year revolving guarantee to P1,700,000. In 1975, the outstanding accounts wth DBP was restructured in view of failure to pay. Amounting to P4,655,992.35 were consolidated into a single account. On the other hand, all accrued interest and charges due amounting to P3,074,672.21 were denominated as “ Notes Taken for Interests” and evidenced by a separate promissory note. For failure to comply with its obligation, DBP initiated foreclosure proceedings upon its computation that respondent’s loans were arrears by P62,954,473.68. Respondents contended that the collection was unconscionable if not unlawful or usurious . RTC, as affirmed by the CA, ruled in favor of the respondents. ISSUE: Whether the prestation to collect by the DBP is unconscionable or usurious RULING: It cannot be determined whether DBP in fact applied an interest rate higher than what is prescribed under the law. Assuming it did exceed 12% in addition to the other penalties stipulated in the note, this should be stricken out for being usurious. The petition is partly granted. Decision of the court of Appeals is reversed and set aside. The case is remanded o the trial court for the determination of the total amount of the respondent’s obligation based on the promissory notes, according to the interest rate agreed upon by the parties on the interest rate of 12% per annum, whichever is lower.

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METROBANK v. CABLZO G.R. No. 154469 December 6, 2006 FACTS: Respondent Cabilzo was one of the Metrobank’s client who maintained a current account. On November 12, 199, Cabilzo issued a Metrobank check payable to cash in the amount of P1,000 and was paid to a certain Mr. Marquez. The check was oresented to Westmont Bank or payment and in turn indorsed to etrobank for appropriate clearing. It was discovered that the amount withdrawn wa P91,000, thus, the check was altered. Cabilzo re-credit the amount of P91,000 to his account but Metrobank refused to comply despite demands. RTC ordered Metrobank to pay the sum of P90,000 to Cabilzo. Court of Appeals affirmed the decision with modification. ISSUE: Whether holding Metrobank, as drawee bank, liable for the alternations on the subject check bearing the authentic signature of the drawer thereof RULING: The degree of diligence in the exercise of his tasks and the performance of his duties have been faithfully complied with by Cabilzo. It is obvious that Metrobank was remiss in the duty and violated that fiduciary relationship with its clients as it appeared that there are material alterations on the check that are visble to the naked eye but the bank failed to detect such. Petition is denied. Court of Appeals decision is affirmed with modification that exemplary damages in the amount of P50,000 be awarded.

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EUFEMIA and ROMEL ALMEDA v. BATHALA MARKETING G.R.No. 150806, January 28, 2008 FACTS: In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano Almeda. Under the contract, Ponciano agreed to lease a porton of Almeda Compound for a monthly rental of P1,107,348.69 for four years. On January 26, 1998, petitioner informed respondent that its monthly rental be increased by 73% pursuant to the condition No. 7 of the contract and Article 1250. Respondent refused the demand and insisted that there was no extraordinary inflation to warrant such application. Respondent refused to pay the VAT and adjusted rentals as demanded by the petitioners but continually paid the stipulated amount. RTC ruled in favor of the respondent and declared that plaintiff is not liable for the payment of VAT and the adjustment rental, there being no extraordinary inflation or devaluation. CA affirmed the decision deleting the amounts representing 10% VAT and rental adjustment. ISSUE: Whether the amount of rentals due the petitioners should be adjusted by reason of extraordinary inflation or devaluation RULING: Page | 286

Petitioners are stopped from shifting to respondent the burden of paying the VAT. 6th Condition states that respondent can only be held liable for new taxes imposed after the effectivity of the contract of lease, after 1977, VAT cannot be considered a “new tax”. Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation or devaluation. Absent an official pronouncement or declaration by competent authorities of its existence, its effects are not to be applied. Petition is denied. CA decision is affirmed.

EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR G.R.NO. 171545, December 19, 2007 FACTS: On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or reformation of documents and contracts against Equitable and its employees. They claimed that they were induced by the bank to avail of its peso and dollar credit facilities by offering low interests so they accepted and signed Equitable’s proposal. They alleged that they were unaware that the documents contained escalation clauses granting Equitable authority to increase interest without their consent. These were rebutted by the bank. RTC ordered the use of the 1996 dollar exchange rate in computing respondent’s dollar-denominated loans. CA granted the Bank’s application for injunction but the properties were sold to public auction. Page | 287

ISSUE: Whether or not there was an extraordinary deflation RULING: Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency and such decrease could not be reasonably foreseen or was beyond the contemplation of the parties at the time of the obligation. Deflation is an inverse situation. Despite the devaluation of the peso, BSP never declared a situation of extraordinary inflation. Respondents should pay their dollar denominated loans at the exchange rate fixed by the BSP on the date of maturity. Decision of lower courts are reversed and set aside.

SIMPLICIO PALANCA v.ULYSIUS GUIDES and LORENZO GUIDES G.R. No. 146365 February 28, 2005 FACTS: Page | 288

In August 1983, petitioner Palanca executed a contract to sell a parcel of land on installment with Jopson for P11,250. Jopson paid petitioner P1,650 as downpayment, leaving a balance of P9600. In December 1983, Jopson assigned ad transferred all her rights and interests over the property to respondent Guides. Believing that she had fully paid the purchase prize, respondent found out when she verified with the Register of Deeds that the property in question was still in the name of de Leon. Petitioner stated that she refused to execute the document of sale in favor of the respondent since the latter failed with the said obligation- that he was not paid the complete amount in the contract. RTC ruled in favor of the plaintiff and against Palanca, ordering him to execute a Deed of Absolute Sale and the issuance of TCT, reimburse plaintiff the amount paid n excess and for damages. ISSUE: Whether the petitioner’s claim of unpaid charges from the respondent proper RULING: Petitioner was deemed to have waived his right to present evidence and thus was unable to adduce evidence of such inflation or fluctuation. Even if there were such, petitioner did not make a demand on respondent for the satisfaction of the claim. When petitioner accepted respondent’s installment payments despite the alleged charges, 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.

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PCIB v. COURT OF APPEALS G.R. NO. 121989 January 31, 2006 FACTS: PCIB and MBC were joint bidders in a foreclosure sale held of assorted mining machinery and equipment previously mortgaged to them by Philippine Iron Mines. Atlas agreed to purchase some of these properties and the sale was evidenced by a Deed of Sale with a downpayment of P12,000,000 and the balance of P18,000,000 payable in 6 monthly installments. In compliance with the contract, Atlas issued HongKong and shanghai Bank check amounting to P12,000,000. Atlas paid to NAMAWU the amount of P4,298,307.77 in compliance with the writ of garnishment issued against Atlas to satisfy the judgment in favor of NAMAWU. Atlas alleged that there was overpayment, hence the suit against PCIB to obtain reimbursement. PCIB contended that Atlas still owed P908,398.75 because NAAWU had been partially paid in the amount of P601,260.00. RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the decision. ISSUE: Whether atlas had complied with its obligation to PCIB RULING: While the original amount sought to be garnished was P4,298,307,77, the partial payment of P601,260 naturally reduced it to P3,697,047.77 Atlas overpaid NAMAWU, thus the remedy if Atlas would be to proceed against NAAWU nut not against PCIB in relation to article 1236 of the Civil Code The petition is partly granted.CA decision is reversed and set aside and in lieu thereof Atlas is ordered to pay PCIB the sum of P146,058.96, with the legal interest commencing from the time of first demand on August 22, 1985.

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JOSE LAGONv. HOOVEN COMALCO INDUSTRIES G.R. No. 135657 January 17, 2001 FACTS: Petitioner is the owner of a commercial building while respondent is a domestic corporation known to be the biggest manufacturer and installer of aluminum materials in the country. Parties entered into 2 contracts whereby for a total consideration of P104,870. Hooven agreed to sell and install various aluminum materials in Lagon’s building. Upon execution of contracts, Lagon paid Hooven P48,000 in advance. On February 24, 1987, Hooven commenced an action for sum of money. It was alleged that materials were delvered and installed but P69,329 remained unpaid even after the completion of the project and despite repeated demands. RTC held partly on the basis of the ocular inspection finding that the total actual deliveries cost P87,140 deducting therefrom P48,000. CA set aside the decision and held in favor of Hooven. ISSUE: Whether all the materials specified in the contracts had been delivered and installed by respondent in petitioner’s commercial building RULING: Essentially, respondent has the burden of establishing its affirmative allegations of complete delivery and installation of the materials and petitioner’s failure to pay therefor. The evidence on its discharge is grossly anemic. The CA decision is modified. Lagon is ordered to pay respondent P6,377.66 representing the value unpaid. On the other hand, respondent is ordered to pay petitioner P50,000 as moral damages, P30,000 attorney’s fees and P46,554.50 as actual damages. Page | 291

BANK OF THE PHILIPPINE ISLANDS v. EASTERN PLYWOOD and BENIGNO LIM G.R. No. 104612, May 10, 1994 FACTS: Private respondent , Eastern and Lim, an officer and stock holder of Eastern held at least one joint bank account with the CBTC, the predecessor-in – interest of the petitioner BPI. In March 1975, checking account with Lim in the amount of P120,000 was opened by Velasco with funds withdrawn fro the account of Eastern and Lim. Velasco died and at the time of his death, the outstanding balance of the account stood at P662,522.87. Thereafter, Easrtern obtained a loan of P73,000 fro CBTC in addition, Eastern and Lim and CBTC signed another document entitled “ Holdout agreement”. In the settlement proceeding of Velasco’s estate, the whole balance of P331,261.44 in the joint account of Velasco and Lim was claimed as part of Velasco’s estate. The interstate court granted the urgent motion of heirs of Velasco to withdraw the deposit and authorize them to divide among themselves the amount. BPI filed a complaint against Lin and Eastern demanding payment Page | 292

of promissory not for P73,000. RTC ruled that the promissory note is subject to the holdout agreement. CA affirmed the division. ISSUE: Whether BPI is still liable to the private respondent on the account subject to the holdout agreement after it is withdrawn by the heirs of Velasco RULING: The account was proved to belong to Eastern even if it was in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or demand payment thereof. BPI can not be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. Payment made by the debtor to the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence.

AUDION ELECTRIC COMPANY v. NLRC G.R. NO. 106648, June 17,1999 FACTS: Complainant Nicolas Madolid was employed by Audion as a fabricator. He continuously rendered service, assigned in different offices or projects for 13 years with a clean record. The complainant was surprised to received an information stating that he will be considered terminated after the turnover of materials. Complainant claims that he was dismissed without justifiable cause. Page | 293

For this reason, he claims that he is entitled to reinstatement with full backwages, payment of overtime pay, project allowances, increase adjustments, 13 th month pay and attorney’s fees. Local Arbiter ruled in favor of Madolid and ordered Audion to pay the former, which was affirmed by the NLRC. ISSUE: Whether the respondent NLRC committed grave abuse of discretion when it ruled that private respondent was a regular employee and not a project employee RULING: Private respondent’s employment status was established by the certification of employment issued by the petitioner. The rule is that findings of facts of the NLRC affirming those of the Labor Arbiter are entitled to a great weight and will not be disturbed if they were supported by substantial evidence. There was no grave abuse of discretion committed by NLRC in finding that respondent was not a project employee. Decision of NLRC is affirmed with modification deleting the awards of damages and attorney’s fees.

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PHILPPINE NATIONAL BANK

v. COURT OF APPEALS and LORETO TAN G.R. No. 108630,April 2, 1996

FACTS: Private respondent Loreto Tan is the owner of a parcel of land abutting the national highway. Expropriaton proceedings were instituted by the government. Tan filed a motion requesting the issuance of an order for the release to him of the expropriation price of P32,480.00. PNB was required by the trial court to release to tan the amount and deposited it by the government. Petitioner, through its Assistant Manager Tagamolila, issued a check and delivered the same to Sonia Gonzaga on the strength of the SPA, without tan’s knowledge, consent and authority. RTC ordered petitioner and Tagamolila to pay private respondent jointly and severally the amount worth legal interests, damages and attorney’s fees. Ca affirmed the decision. ISSUE: Whether the Special Power of Attorney authorized Sonia Gonzaga to receive payment intended for private respondent RULING: There is no question that no payment had ever been made to private respondent as to the check was never delivered to him. Under Article 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. The burden of proof of sad payment lies with the debtor. The decision of the court of appeals is affirmed with the modification that the award by the RTC of P5,000 as attorney’s fees is reinstated.

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LORENZO SHIPPING COMPANY v. BJ MARTHEL INTERNATIONAL G.R. No. 145483, November 19, 2004 FACTS: Petitioner Lorenzo Shipping is engaged in coastwise shipping and owns the cargo M/V Dadiangas Express. BJ Marthel is engaged in trading, marketing an dselling various industrial commodities. Lorenzo Shipping ordered for the second time cylinder lines from the respondent stating the term of payment to be 25% upon delivery, the balance payable in 5 bi-monthly equal installments, no again stating the date of the cylinder’s delivery. It was allegedly paid through post dated checks but the same was dishonored due to insufficiency of funds. Despite due demands by the respondent, petitioner falied contending that time was of the essence in the delivery of the cylinders and that there was a delay since the respondent committed said items “ within two months after receipt of fir order”. RTC held respondents bound to the quotation with respect to the term of payment, which was reversed by the Court of appeals ordering appellee to pay appellant P954,000 plus interest. There was no delay since there was no demand. ISSUE: Whether or not respondent incurred delay in performing its obligation under the contract of sale RULING: By accepting the cylinders when they were delivered to the warehouse, petitioner waived the claimed delay in the delivery of said items. Supreme Court geld that time was not of the essence. There having been no failure on the part of the respondent to perform its obligations, the power to rescind the contract is unavailing to the petitioner. Petition is denied. Court of appeals decision is affirmed.

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SPOUSES RAFAEL ESTANISLAO v. EASTWEST BANKING CORPORATION G.R. No. 178537,February 11, 2008 FACTS: On July 24,1997, petitioner obtained a loan fro the respondent in the amount of P3,925,000 evidenced by a promissory note and secured by two deeds of chattel mortgage covering two dump trucks and a bull dozer . Petitioner defaulted entire obligation became due and demandable. A deed of assignment was drafted by the respondent on October 6, 2000 and March 8, 2001 respectively. Petitioners completed the delivery of heavy equipment mentioned in the deed of assignment to respondent which accepted the same without protest or objection. Respondent manifested to admit an amended complaint for the seizure and delivery of two more heavy equipment which are covered under the second deed of the chattel mortgage. RTC ruled that the deed of assignment and the petitioner’s delivery of the heavy equipment effectively extinguished the petitioner’s obligation and respondent as stopped. CA reversed the decision ordering the petitioner the outstanding debt of P4,275,919.69 plus interests. ISSUE: Did the Deed of Assignment operate to extinguish petitioner’s debt to the respondent such that the replevin suit could no longer prosper? RULING: Page | 297

The deed of assignment was a perfected agreement which extinguished petitioner’s total outstanding obligation to the respondent. The nature of the assignment was a dacion en pago whereby property is alienated to the creditor in the satisfaction of a debt in money. Since the agreement was consummated by the delivery of the last unit of heavy equipment under the deed, petitioner’s are deemed to have been released from all their obligations from the respondents.

AQUINTEY v. SPOUSES TIBONG G.R. No. 166704,December 20, 2006 FACTS: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum of money and damages against respondents. Agrifina alleged that Felicidad secured loans from her on several occasions at monthly interest rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their outstanding loans of P773,000,00 exclusive of interests. However, spouses Tiong alleged that they had executed deeds of assignment in favor of Agrifina amounting to P546,459 and that their debtors had executed promissory notes in favor of Agrifina. Spouses insisted that by virtue of these documents, Agrifina became the new collector of their debts. Agrifina was able to collect the total amount of P301,000 from Felicdad’s debtors. She tried to collect the balance of Felicidad and when the latter reneged on her promise, Agrifina filed a complaint in the office of the barangay for the collection of P773,000.00. There was no settlement. RTC Page | 298

favored Agrifina. Court of Appeals affirmed the decision with modification ordering defendant to pay the balance of total indebtedness in the amount of P51,341,00 plus 6% per month. ISSUE: Whether or not the deeds of assignment in favor of petitioner has the effect of payment of the original obligation that would partially extinguish the same RULING: Substitution of the person of the debtor ay be affected by delegacion. Meaning, the debtor offers, the creditor accepts a third person who consent of the substitution and assumes the obligation. It is necessary that the old debtor be released fro the obligation and the third person or new debtor takes his place in the relation . Without such release, there is no novation. Court of Appeals correctly found that the respondent’s obligation to pay the balance of their account with petitioner was extinguished pro tanto by the deeds of credit. CA decision is affirmed with the modification that the principal amount of the respondents is P33,841.

MAMENTA Vda. De JAYME v. COURT OF APPEALS G.R.N o. 128669,October 4, 002 FACTS:

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On January 8, 1973, spouses Jayme entered into a contract of lease with George Neri, President of Asian Cars covering one-half of Lot 2700 for 20 years. Under the contract, Asian Cars used the leased premises as a collateral to secure payment of loan which Asian Cars may obtain from any bank, provided, the proceeds of the loans shall be used solely for the construction of the building which upon the termination of lease shall automatically become the property of the Jayme spouses. In October1977, Asian Cars obtained a loan of six million from Metrobank. The entire lot 2700 was offered as one of the several properties given as collateral for the loan. Due to financial difficulties, Asian Cars conveyed ownership of the building on the leased premises to MBTC by way of dacion en pago. Eventually, MBTC extrajudicially foreclosed the mortgage and MBTC was the highest bidder in a public auction. Heirs of Graciano Jayme filed an action for annulment of contract with damages and issuance of preliminary injunction against Asian Cars. RTC declared that the REM executed by Jayme in favor of Metrobank as valid and binding. XXX CA affirmed the decision declaring valid also the foreclosure of the mortgage and the foreclosure sale. ISSUE: Whether or not the dacion en pago by Asian Cars in favor of MBTC is valid and binding despite the stipulation in the lease contract RULING: Court of Appeal did not err in considering MBTC as a purchase in good faith, MBTC had no knowledge of the stipulation in the lease contract. There was no annotation on the title of any encumbrance. Thus, the transfer of the building in favor of MBTC was properly held valid and binding by respondent CA. CA decision is affirmed with modification ordering that private respondent MBTC pay petitioner’s rentals amounting to P602,083.33. with 6 % interest per annum until fully paid.

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CALTEX v.INTEREDIATE APPELLATE COURT and ASIA PACIFC G.R. No. 72703, November 13, 1992 FACTS: On January 12, 1975, Asia Pacific entered into an agreement with Caltex whereby petitioner agreed to supply private respondent’s aviation fuel for 2 years. As of June 30, 1980, asia Pacific had an outstanding obligation n the total amount of P 4,072,682.13. Caltex executed a Ded of Assignment wherein it assigned to petitioner its receivables from the National treasury of the Philippines. Pursuant to the Deed of assignment, National Treasury warrant the amount of P5,475,294 representing the refund. Caltex refused to return the excess amount of P510,550.63 because it represented the interest and service charges and the rate of 18% per annum on the unpaid and overdue account of respondent. RTC dismissed the case. IAC reversed the decision and ordered petitioner to return the amount of P510,550.63 to private respondent. ISSUE: Whether or not the Deed of Assignment entered into by the parties constituted dacion en pago, such that the obligation is totally extinguished, hence, no interest and service charges could anymore be imposed RULING: The Deed of Assignment executed by the parties is not a dation in payment in payment and did not totally extinguish respondent’s obligation. It is clear that in this case, dation in payment does not necessarily mean total extinguishment of the obligation. The obligation is totally extinguished only when the parties, by agreement, express or implied, or by their silence, consider the thing a equivalent to the obligation. Decision of Intermediate Appellate Court is set aside.

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SONNY LO v. KJS ECO-FORMWORK SYSTEM G.R. No. 149420,October 8, 2003 FACTS: KJS is engaged in the sale of steel scaffoldings while Lo is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. He paid a downpayment in the amount of P150,000. The balance was made payable in 10 monthly installments. Respondent delivered the equipments. Petitioner was able to pay the first two monthly installments. His business suffered financial difficulties and he was unable to settle his obligations despite demands. On October 11, 1990, the parties executed a Deed of Assignment whereby petitioner assigned to respondent his receivables from Jonero Realty. However, Jonero refused to honor the Dees of Assign,nt because it claimed that petitioner was indebted to it. Petitioner refused to pay claiming that that his obligation had been extinguished when they executed the deed of assign,ent. RTC dismissed the complaint on the ground that the assignment of credit extinguished the obligation. Court of appeals reversed the decision and ordered Lo to pay the plaintiff KJS with legal interests of 6% per annum until fully paid. ISSUE: Whether or not the Deed of Assignment extinguished the obligation RULING: An assignment of credit, by virtue of which the owner of the credit, the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation and without the consent of the debtor transfers his credit and accessory rights to another, the assignee, who acquires the power to enforce it against the debtor. Petitioner, as assignor, is bound to warrant the existence and legality of the credit at the tim of the sale or assignment. When Jonero claimed that it was no longer indebted to petitioner since the latter had also as unpaid obligation to it, it essentially meant that its obligation to Page | 302

the petitioner has been extinguished by compensation. Petitioner was found in breach of his obligation under the Deed of assignment. Court of Appeals decision is affirmed.

ASI CORP and ANTONIO SAN JUAN EVANGELISTA

v. SPOUSES EFREN

FACTS: Respondents are engaged in the large-scale business of buying broiler eggs, hatching and selling them and egg by-products. For incubation and hatchings, respondents availed of the hatching services of ASJ Corp. They agreed o service fees of 80 centavos per egg. Service fees were paid upon release. Fro consecutive times the respondents failed to pay the fee until such time that ASJ retained the chicks demanding full payment from the respondent. ASJ received P15,000 for partial payment but the chicks were still not released. RTC ruling, which was affirmed by the Court of Appeals holding that ASJ Corp and Antonio San Juan be solidarily liable to the respondents. ISSUE:

Was petitioner’s retention of the chicks and by-products, on account of respondent’s failure to pay the corresponding fees unjustified?

RULING: Respondents’ offer to partially satisfy their accounts is not enough to extinguish their obligation. Respondents cannot substitute or apply as their payment the Page | 303

value of the chicks and by-products they expect to derive because it is necessary that all the debts be paid for the same kind. The petition is partly granted. The Court of Appeals decision is modified.

NEREO PACULDO v. BONIFACIO REGALADO G. R. No. 123855,November 20, 2000 FACTS: On December 27, 1990, petitioner Paculdo and respondent Regalado entered into a contract of lease over a parcel of land for 25 years. For the first 5 years, Paculdo would pay monthly rental of P450,000 payable within 5 days of each month, with 2% penalty for very month of delay. Aside from the above lease, petitioner leased 11 other property from respondent. Petitioner failed to pay. Without the knowledge of petitioner, respondent ortgaged the land subject of the Page | 304

lease contract including the improvements to Monte de Piedad. On August 12, 1995, and on subsequent dates thereafter, respondent refused to accepr petitioner’s daily rental payments. Petitioner filed an action for injunction to enjoin respondent from disturbing his possession while respondent filed a complaint for ejectment attaching the demand letters. MTC held in favor of the plaintiff which was affired by the RTC. CA found that the petitioner impliedly consented to respondent’s application of payment to his obligations, thus, dismissed the petition for lack of merit. ISSUE: Whether petitioner was truly in arrears in the payment of rentals on the subject property at the time of the filing of the complaint of ejectment RULING: The lease over the Fairview wet market property is the most onerous among all the obligations of petitioner to respondent. It was established that the wet market is a going concern and that petitioner has invested about P35,000,000 in form of improvements, over the property. Hence, petitioner would stand to lose more if the lease would not proceed. CA decision was based on a misapprehension of the facts and the law on the application of payment. Hence, the ejectment case must be dismissed. CA decision is set aside.

CHINA BANKING CORPORATION v. COURT OF APPEALS G.R. No. 121158, December 5, 1996 Page | 305

FACTS: China Banking Corporation extended several loans to Native West and so Ching, Native West’s President. Native west executed a promissory note in favor of China Bank. So Ching, with the marital consent of his wife additionally executed two real estate mortgages over their properties. The promissory notes matured and despite due demands, neither private respondents paid. China Bank filed petition for the extrajudicial foreclosure of the mortgaged properties. Upon receipt of the foreclosure, private respondents filed a complaint before RTC for accounting with damages and with temporary restraining order. ISSUE: Whether or not the subject additional mortgaged properties of the spouses are not included in the notice of foreclosure RULING: It is well-settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as considerations in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and their indebtedness can be gathered. Supreme Court found that petitioners are entitled to foreclose the mortgages.

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MOBIL OIL PHILIPPINES and CALTEX v. COURT OF APPEALS and CONTINENTAL CEMENT G.R.No. 103052,May 23, 1997 FACTS: In May 1982, petitioner Mobil Oil entered into a supply agreement with private respondent Continental Cement, under which the former would supply the latter’s industrial fuel oil or bunker fuel oil requirements. MOP extended to CCC an unsecured credit line of P2,000,000 against which CCC’s purchases of oil could initially be charged. MOP made a total of 67 deliveries of BFO, each delivery consisting of 20,000 liters to CCC’s factory. CCC discovered that, the supposed BFO was in fact, pure water. A joint undertaking was initiated. On August 23, 1983, Caltex informed CCC that it would be the new owner of Mop effective September 1, 1983 and that Caltex would assume all rights and obligations of MOP under all its existing contracts. CA upheld the findings of the trial court that the water-contaminated BFO delivered by MOP caused damages to CCC’s rotary kin. ISSUE: Whether or not petitioners can be held liable for the contaminated BO delivered on the ground that CFS, as carrier-hauler, was an agent of Mobil RULING: Court of Appeals correctly ruled that MOP could be held liable for the acts of CFS. The hauling contract executed by and between MOP and CFS laid out the responsibilities of CFS. The presumption LAID DOWN IN Article 1523 of the Civil Code is not applicable. The questioned decision of the court of Appeals is affirmed in toto.

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SPOUSES JAIME BENOS v. SPOUSES GREGORIO LAWILAO G.R. No. 172259, December 5, 2006 FACTS: On February 11,1999, petitioner-spouses Benos and respondent Lawilao executed a Pacto de Retro Sale where Benos sold their lot and the building erected thereon for P300,000, one-half of which to be paid in cash to the Benos and the other half to be paid to the bank to pay off the loans of the Benos which was secured by the same lot and building. Under the contract, Benos could redeem the property within 18 months from the date of execution by returning the contract price, otherwise, the sale would become irrevocable. After paying the P150,000, Lawilao took possession of the property, restructured it twicw, eventually the loan become due and demandable. On August 14, 2000, a son of Benos and Lawilao paid the bankl but the bank refused. Lawilao filed for consignation against the bank and deposited the amount of P159,000.00. RTC declared Lawilao of the ownership of the subject property, which was affirmed by the Court of Appeals. ISSUE: Whether or not the contract of Pacto de Retro Sale be rescinded by the petitioner RULING: In the instant case, records show that Lawilao filed the petition for consignation against the bank in Civil Case without notifying the Benos. Hence, Page | 308

Lawilao failed to prove their offer to pay the balance, even before the filing of the consignation case. Lawilao never notified the Benos. Thus, as far as the Benos are concerned, there was no full and complete payment of the contract price which gives them the right to rescind. Petition is granted. Court of Appeals decision is reversed and set aside, that the Pacto de Retro Sale is rescinded and petitioner are ordered to return the amount of P150,000 to respondents.

PEOPLE’S INDUSTRIAL AND COMERCIAL v. COURT OF APPEALS and MAR-ICK INVESTENT G.R. No. 112733, October 24, 1997 FACTS: Private respondent is the registered owner of Mar-ick Subdivision which entered into 6 agreements with petitioner, whereby to sell 6 subdivision lots. Except for lot no. 8. All the lots measure 240 sq each. Lot nos. 3,4,5,6 and 7 similarly stipulate that petitioner agreed to pay for each lot P7,333.20, P480 as down payment. The balance shall be payable n 120 equal monthly installments of P57.11 every 30th of the month, for 10 years. With lot no. 8, they agreed to the purchase price of P7,730 with a down payment of P506 and equal installments of P60.20. Petitioner failed to perform its obligation. After series of negotiations, the parties agreed to enter into a new contract to sell 8 lots. Checks issued in favor of the private respondent were received but not encashed. Private respondent filed a suit against the petitioner. RTC directed petitioner to return the lots, which was affirmed in toto by the CA. ISSUE: Page | 309

Whether or not there was a perfected and enforceable contracts of sale on October 11,1983 which modified the earlier contracts to sell which had not been validly rescinded RULING: It is apropos to stress that the agreements are contracts to sell and not contract of sale, hence, rescission either by judicial action or notarial act is not applicable. Private respondent’s act of cancelling the contract to sell was not done arbitrarily. Because the contracts to sell had long been cancelled when private respondent fled the accion publiciana de possession, there was no more installment buyer and seller relationship to speak of. It had been reduced to a mere case of an owner claiming possession of its property that had long been illegally withheld from it by another.

ETERNAL GARDENS v. COURT OF APPEALS and 7TH DAY ADVENTIST G.R. No. 124554, December 9, 1997 FACTS: Petitioner Eternal Gardens and private NPUM entered into a Land Development Agreement. Under the agreement, EG was to develop a parcel of land owned by NPUM into a memorial park. The P1.5 million initial installment mentioned in the Deed of Absolute Sale, shall be deducted out of the proceeds from the First Party’s 40% at the end of the 5 th year. Subsequent payment should Page | 310

be changed against what is due to the first Party under the Land Development agreement. Later, 2 claimants of the land surfaced but were dismissed. The case was remanded to the CA for proper determination and dispositions. CA required EG to produce documents necessary for accounting but failed to do so, hence, the right is waived. CA directed EG to pay private respondent the amounts of P167,065,195.00 as principal and P167,235,451.00 interest. ISSUE: Whether or not the petitioner is liable for interest despite the land dispute RULING: Even during the pendency of the land dispute cases, EG was required to deposit the accruing interests with a reputable commercial bank “ to avoid possible wastage of funds” when the case was given due course. Yet, EG hedged in depository the amounts due and made obvious attempts to stay payment by filing sundry motions and pleadings. CA correctly held EG liable for interest of 12%. It is tantamount to a forbearance of money.

RAYOS V REYES Page | 311

G.R.No. 150193 February 20, 2003 FACTS: Three parcels were formerly owned by the spouses Francisco and Asuncion Tazal who on 1 September 1957 sold them for P724.00 to respondents’ predecessor-ininterest, one Mamerto Reyes, with right to repurchase within two (2) years from date thereof by paying to the vendee the purchase price and all expenses incident to their reconveyance. After the sale the vendee a retro took physical possession of the properties and paid the taxes thereon. The otherwise inconsequential sale became controversial when two (2) of the three (3) parcels were again sold on 24 December 1958 by Francisco Tazal for P420.00 in favor of petitioners’ predecessor-in-interest Blas Rayos without first availing of his right to repurchase the properties. ISSUE: Was there a valid consignation and tender of payment made in the instant case? RULING: In order that consignation may be effective the debtor must show that (a) there was a debt due; (b) the consignation of the obligation had been made because the creditor to whom a valid tender of payment was made refused to accept it; (c) previous notice of the consignation had been given to the person interested in the performance of the obligation; (d) the amount due was placed at the disposal of the court; and, (e) after the consignation had been made the person interested was notified thereof. In the instant case, petitioners failed, first, to offer a valid and unconditional tender of payment; second, to notify respondents of the intention to deposit the amount with the court; and third, to show the acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the alternative, a declaration by the court of the validity of the consignation. The failure of petitioners to comply with any of these requirements rendered the consignation ineffective. Consignation and tender of payment must not be encumbered by conditions if they are to produce the intended result of fulfilling the obligation. In the instant case, the tender of payment of P724.00 was conditional and void as it was predicated upon the argument of Francisco Tazal that he was paying a debt which he could do at any time allegedly because the 1 September 1957 transaction was a contract of equitable mortgage and not a deed of sale with right to repurchase

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CEBU INTERNATIONAL V CA G.R.No. 123031 October 12, 1999 FACTS: On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, P500,000.00 pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991. The note for P516,238.67 covered private respondent's placement plus interest at twenty and a half percent for thirty-two days. On May 27, 1991, CIFC issued BPI Check No. 513397 P514,390.94 in favor of the private respondent as proceeds of his matured investment plus interest. The CHECK was drawn from petitioner's current account number 0011-0803-59, maintained with BPI, main branch at Makati City. On June 17, 1991, private respondent's wife deposited the CHECK with RCBC, in Puerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the "Check (is) Subject of an Investigation." BPI took custody of the CHECK pending an investigation of several counterfeit checks drawn against CIFC's aforestated checking account. BPI used the check to trace the perpetrators of the forgery. Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in cash. CIFC refused the request, and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI. ISSUE: Whether or not there was valid tender of payment in the instant case? RULING: A check is not a legal tender, and therefore cannot constitute valid tender of payment. "Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. Page | 313

DE MESA V CA G.R.No. 106467-68 October 19,1999 FACTS: Petitioner Dolores Ligaya de Mesa owns several parcels of land in Makati, Pasay City, Cavite, and General Santos City3 I. Two (2) parcels of land situated in Makati, Metro Manila, with TCT no. (232345) S-60337 containing an area of 188 square meters and TCT No. (232344) S-50336 containing an area of 236 square meters. Two parcels of land situated in Makan, General Santos City, with TCT No. T-11067 containing an area of 837 square meters. which were mortgaged to the Development Bank of the Philippines (DBP) as security for a loan she obtained from the bank. Failing to pay her mortgage debt, all her mortgaged properties were foreclosed and sold at public auction held on different days. On April 30, 1977, the Makar property was sold and the corresponding certificate of sale inscribed on March 10, 1978. On August 25, 1977, the Naic, Cavite property was sold and the certificate of sale registered on the same day. On August 30, 1977, the two (2) parcels of land in Makati were sold at public auction and the certificate of sale was inscribed on November 25, 1977. And on January 12, 1978, the three (3) parcels of land in Pasay City were also sold and the certificate of sale was recorded on the same date. In all the said auction sales, DBP was the winning bidder. ISSUE: Whether or not the Court can supplant its own reading of an ambiguous contract for the actual intention of the contracting parties as testified to in open court and under oath. RULING: Page | 314

Art. 1370. 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. When the words of a contract are plain and readily understood, there is no room for construction. As the agreement of the parties are reduced to writing, such agreement is considered as containing all its terms and there can be, between the parties and their successors-in-interest, no evidence of the terms of the written agreement other than the contents of the writing. In the case under consideration, the terms of the "Deed of Sale with Assumption of Mortgage Debt" are clear and leave no doubt as to what were sold thereunder. The contract under scrutiny is so explicit and unambiguous that it does not justify any attempt to read into it any supposed intention of the parties, as the said contract is to be understood literally, just as they appear on its face.

OCCENA V CA G.R.No. 44349 October 29, 1976 FACTS On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of its subdivision contract with petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making the following allegations: "That due to the increase in price of oil and its derivatives and the concomitant worldwide spiralling of prices, which are not within the control of plaintiff, of all commodities including basis raw materials required for such development work, the cost of development has risen to levels which are unanticipated, unimagined and not within the remotest contemplation of the parties at the time said agreement was entered into and to such a degree that the conditions and factors which formed the original basis of said contract, Annex 'A', have been totally changed; Page | 315

"That further performance by the plaintiff under the contract, Annex 'A', will result in situation where defendants would be unjustly enriched at the expense of the plaintiff; will cause an inequitous distribution of proceeds from the sales of subdivided lots in manifest contravention of the original essence of the agreement; and will actually result in the unjust and intolerable exposure of plaintiff to implacable losses. ISSUE Whether or not provisions of art 1267 of the new civil code is applicable in the case at a bar? RULING ART. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part." Respondent's complaint seeks not release from the subdivision contract but that the court "render judgment modifying the terms and conditions of the contract . . . by fixing the proper shares that should pertain to the herein parties out of the gross proceeds from the sales of subdivided lots of subject subdivision". The cited article does not grant the courts this authority to remake, modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law between the parties, so as to substitute its own terms for those covenanted by the parties themselves. Respondent's complaints for modification of contract manifestly has no basis in law and therefore states no cause of action. Under the particular allegations of respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief sought.

ORTIGAS V FEATI BANK G.R.No. 24670 December 14, 1979 FACTS Page | 316

On March 4, 1952, plaintiff, as vendor, and Augusto Padilla y Angeles and Natividad Angeles, as vendees, entered into separate agreements of sale on installments over two parcels of land, known as Lots Nos. 5 and 6, Block 31, of the Highway Hills Subdivision, situated at Mandaluyong, Rizal. On July 19, 1962, the said vendees transferred their rights and interests over the aforesaid lots in favor of one Emma Chavez. Upon completion of payment of the purchase price, the plaintiff executed the corresponding deeds of sale in favor of Emma Chavez. On or about May 5, 1963, defendant-appellee began laying the foundation and commenced the construction of a building on Lots Nos. 5 and 6, to be devoted to banking purposes, but which defendant-appellee claims could also be devoted to, and used exclusively for, residential purposes. The following day, plaintiff-appellant demanded in writing that defendant-appellee stop the construction of the commercial building on the said lots. The latter refused to comply with the demand, contending that the building was being constructed in accordance with the zoning regulations, defendant-appellee having filed building and planning permit applications with the Municipality of Mandaluyong, and it had accordingly obtained building and planning permits to proceed with the construction. ISSUE Whether the Resolution No. 27 s-1960 can nullify or supersede the contractual obligations assumed by defendant-appellee. RULING It should be stressed, that while non-impairment of contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate exercise of police power. Resolution No. 27, s-1960 declaring the western part of Highway 54, EDSA from Shaw Boulevard to the Pasig River as an industrial and commercial zone, was obviously passed by the Municipal Council of Mandaluyong, Rizal in the exercise of police power to safeguard or promote the health, safety, peace, good order and general welfare of the people in the locality. Judicial notice may be taken of the conditions prevailing in the area, especially where Lots Nos. 5 and 6 are located. The lots themselves not only front the highway; industrial and commercial complexes have flourished about the place. EDSA, a main traffic artery which runs through several cities and municipalities in the Metro Manila area, supports an endless stream of traffic and the resulting activity, noise and pollution are hardly conducive to the health, safety or welfare of the residents in its route. Having been expressly granted the power to adopt zoning and subdivision ordinances or regulations, the municipality of Mandaluyong, through its Municipal Council, was reasonably, if not perfectly, justified under the circumstances, in passing the subject resolution.

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MAGAT V CA G.R.No. 124221 August 4, 2000 FACTS Private respondent Santiago A. Guerrero (hereinafter referred to as "Guerrero") was President and Chairman of[4] "Guerrero Transport Services", a single proprietorship. Sometime in 1972, Guerrero Transport Services won a bid for the operation of a fleet of taxicabs within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to "provide radio-controlled taxi service within the U. S. Naval Base, Subic Bay, utilizing as demand requires... 160 operational taxis consisting of four wheel, four-door, four passenger, radio controlled, meter controlled, sedans, not more than one year. On September 22, 1972, with the advent of martial law, President Ferdinand E. Marcos issued Letter of Instruction No. 1. SEIZURE AND CONTROL OF ALL PRIVATELY OWNED NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES AND ALL OTHERMEDIA OF COMMUNICATION. ISSUE Whether the contract between Victorino and Guerrero for the purchase of radio transceivers was void. RULING The contract was not void ab initio. Nowhere in the LOI and Admin. Circular is there an express ban on the importation of transceivers. The LOI and Administrative Circular did not render "radios and transceivers" illegal per se. The Administrative Circular merely ordered the Radio Control Office to suspend the "acceptance and processing .... of applications... for permits to possess, own, transfer, purchase and sell radio transmitters and transceivers..."[41] Therefore, possession and importation of the radio transmitters and transceivers was legal provided one had the necessary license for it.[42] Transceivers were not prohibited but merely regulated goods. The LOI and Administrative Circular did not render the transceivers outside the commerce of man. They were valid objects of the contract.

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PNCC V CA G.R.No. 118696 May 5, 1997 FACTS On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use Permit 2 for the proposed rock crushing project. The permit was to be valid for two years unless sooner revoked by the Ministry. On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual rental in the amount of P240,000 which was due and payable upon the execution of the contract. They also assured the latter that they had already stopped considering the proposals of other aggregates plants to lease the property because of the existing contract with petitioner. In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental would commence on the date of the issuance of an industrial clearance by the Ministry of Human Settlements, and not from the date of signing of the contract. It then expressed its intention to terminate the contract, as it had decided to cancel or discontinue with the rock crushing project "due to financial, as well as technical, difficulties." Private respondents refused to accede to petitioner's request for the pretermination of the lease contract. They insisted on the performance of petitioner's obligation and reiterated their demand for the payment of the first annual rental. ISSUE Whether provisions of Article 1266 and the principle of rebus sic stantibus is applicable in the case at bar? RULING 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 Page | 319

the fault of the obligor." Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to obligations "to do," and not to 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. The obligation to pay rentals or deliver the thing in a contract oflease falls within the prestation "to give"; hence, it is not covered within the scope of Article 1266. At any rate, the unforeseen event and causes mentioned by petitioner are not the legal or physical impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the circumstances brought about by "the abrupt change in the political climate in the country" except the alleged prevailing uncertainties in government policies on infrastructure projects. The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist.

NATELCO V CA G.R.No. 107112 February 24, 1994 FACTS Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an electric power service in the same city. On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private respondent After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 891642 against petitioners for reformation of the contract with damages, on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with the guidelines of the National Electrification Administration (NEA) which direct that the Page | 320

reasonable compensation for the use of the posts is P10.00 per post, per month; that after eleven (11) years of petitioners' use of the posts, the telephone cables strung by them thereon have become much heavier with the increase in the volume of their subscribers, worsened by the fact that their linemen bore holes through the posts at which points those posts were broken during typhoons. ISUUE Whether respondent court erred in making a contract for the parties by invoking Article 1267 of the New Civil Code. RULING Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this provision, 9 the term "service" should be understood as referring to the "performance" of the obligation. In the present case, the obligation of private respondent consists in allowing petitioners to use its posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with future unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267 states in our law the doctrine of unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced.

TRANS PACIFIC V CA G.R.No. 109172 August 19, 1994 FACTS Sometime in 1979, petitioner applied for and was granted several financial accommodations amounting to P1,300,000.00 by respondent Associated Bank. The loans were evidence and secured by four (4) promissory notes, a real estate mortgage Page | 321

covering three parcels of land and a chattel mortgage over petitioner's stock and inventories. Unable to settle its obligation in full, petitioner requested for, and was granted by respondent bank, a restructuring of the remaining indebtedness which then amounted to P1,057,500.00, as all the previous payments made were applied to penalties and interests. The mortgaged parcels of land were substituted by another mortgage covering two other parcels of land and a chattel mortgage on petitioner's stock inventory. The released parcels of land were then sold and the proceeds amounting to P1,386,614.20, according to petitioner, were turned over to the bank and applied to Trans-Pacific's restructured loan. Subsequently, respondent bank returned the duplicate original copies of the three promissory notes to Trans-Pacific with the word "PAID" stamped thereon. Despite the return of the notes, or on December 12, 1985, Associated Bank demanded from Trans-Pacific payment of the amount of P492,100.00 representing accrued interest on PN No. TL-9077-82. According to the bank, the promissory notes were erroneously released. ISSUE Whether or not petitioner has indeed paid in full its obligation to respondent bank. RULING Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter." The surrender and return to plaintiffs of the promissory notes evidencing the consolidated obligation as restructured, produces a legal presumption that Associated had thereby renounced its actionable claim against plaintiffs (Art. 1271, NCC). The presumption is fortified by a showing that said promissory notes all bear the stamp "PAID", and has not been otherwise overcome. Upon a clear perception that Associated's record keeping has been less than exemplary . . . , a proffer of bank copies of the promissory notes without the "PAID" stamps thereon does not impress the Court as sufficient to overcome presumed remission of the obligation vis-a-vis the return of said promissory notes. Indeed, applicable law is supportive of a finding that in interest bearing obligations-as is the case here, payment of principal (sic) shall not be deemed to have been made until the interests have been covered (Art. 1253, NCC). Conversely, competent showing that the principal has been paid, militates against postured entitlement to unpaid interests.

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DALUPAN V HARDEN G.R.No. L-3975 November 27, 1951 FACTS On August 26, 1948, plaintiff filed an action against the defendant for the collection of P113,837.17, with interest thereon from the filing of the complaint, which represents 50 per cent of the reduction plaintiff was able to secure from the Collector of Internal Revenue in the amount of unpaid taxes claimed to be due from the defendant. Defendant acknowledged this claim and prayed that judgment be rendered accordingly. In the meantime, the receiver in the liquidation case No. R-59634 and the wife of the defendant, Esperanza P. de Harden, filed an answer in intervention claiming that the amount sought by the plaintiff was exorbitant and prayed that it be reduced to 10 per cent of the rebate. By reason of the acquiescence of the defendant to the claim on one hand, and the opposition of the receiver and of the wife on the other, an amicable settlement was concluded by the plaintiff and the intervenor whereby it was agreed that the sum of P22,767.43 be paid to the plaintiff from the funds under the control of the receiver "and the balance of P91,069.74 shall be charged exclusively against the defendant Fred M. Harden from whatever share he may still have in the conjugal partnership between him and Esperanza P. de Harden. ISSUE Whether or not the writ of execution asked for by the plaintiff on the two checks is premature. RULING Examining the terms the court finds that the stipulation limits the right of the plaintiff to ask for the execution of the judgment to whatever share Fred M. Harden may still have in the conjugal partnership between him and his wife after the final liquidation and partition thereof. The execution of the judgment is premised upon a condition precedent, which is the final liquidation and partition of the conjugal partnership. Note that the condition does not refer to the liquidation of a particular property of the partnership. It refers to the over-all and final liquidation of the partnership. Such being the stipulation of the parties which was sanctioned and embodied by the Court in its decision, it is clear that the writ of execution asked for by the plaintiff on the two checks is premature.

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LOPEZ V TAMBUNTING G.R.No. 9806 January 19, 1916 FACTS These proceedings were brought to recover from the defendant the sum of P2,000, amount of the fees, which, according to the complaint, are owing for professional medical services rendered by the plaintiff to a daughter of the defendant from March 10 to July 15, 1913, which fees the defendant refused to pay, notwithstanding the demands therefor made upon him by the plaintiff. The defendant denied the allegations of the complaint, and furthermore alleged that the obligation which the plaintiff endeavored to compel him to fulfill was already extinguished. ISSUE Whether or not implied condonation can be legally pressumed in the instant case? RULING It is true that number 8 of section 334 of the Code of Civil Procedure provides as a legal presumption "that an obligation delivered up to the debtor has been paid." Article 1188 of the Civil Code also provides that the voluntary surrender by a creditor to his debtor, of a private instrument proving a credit, implies the renunciation of the right of action against the debtor; and article 1189 prescribes that whenever the private instrument which evidences the debt is in the possession of the debtor, it will be presumed that the creditor delivered it of his own free will, unless the contrary is proven. But the legal presumption established by the foregoing provisions of law cannot stand if sufficient proof is adduced against it. In the case at bar the trial court correctly held that there was sufficient evidence to the contrary, in view of the preponderance Page | 324

thereof in favor of the plaintiff and of the circumstances connected with the defendant's possession of said receipt Exhibit 1. Furthermore, in order that such a presumption may be taken into account, it is necessary, as stated in the laws cited, that the evidence of the obligation be delivered up to the debtor and that the delivery of the instrument proving the credit be made voluntarily by the creditor to the debtor. In the present case, it cannot be said that these circumstances concurred, inasmuch as when the plaintiff sent the receipt to the defendant for the purpose of collecting his fee, it was not his intention that that document should remain in the possession of the defendant if the latter did not forthwith pay the amount specified therein.

ESTATE OF MOTA V SERRA G.R.No. 22825 February 14, 1925 FACTS On February 1, 1919, plaintiffs and defendant entered into a contract of partnership, marked Exhibit A, for the construction and exploitation of a railroad line from the "San Isidro" and "Palma" centrals to the place known as "Nandong". The original capital stipulated was P150,000. It was covenanted that the parties should pay this amount in equal parts and the plaintiffs were entrusted with the administration of the partnership. January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the estate and central known as "Palma" with its running business, as well as all the improvements, machineries and buildings, real and personal properties, rights, choses in action and interests, including the sugar plantation of the harvest year of 1920 to 1921, covering all the property of the vendor. Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. Page | 325

Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one half of the railroad line pertaining to the latter executing therefor the document Exhibit 5. The price of this sale was P237,722.15, excluding any amount which the defendant might be owing to the plaintiffs. ISSUE Whether or not there was confusion of the rights of the creditor and debtor RULING The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they had bought and also upon what they had purchased from Mr. Salvador Serra. In other words, Phil C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they had bought from the plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased something from Mr. Salvador Serra, the herein defendant, regarding the railroad line, it was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows that the rights and titles transferred by the plaintiffs to Phil. C. Whitatker and Venancio Concepcion were only those they had over the other half of the railroad line. Therefore, as already stated, since there was no novation of the contract between the plaintiffs and the defendant, as regards the obligation of the latter to pay the former one-half of the cost of the construction of the said railroad line, and since the plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit that they had against the defendant, the allegation that the obligation of the defendant became extinguished by the merger of the rights of creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly untenable.

YEK TON LIN V YUSINGCO G.R.No. 43608 July 20, 1937 FACTS Defendant Pelagio Yusingco was the owner of the steamship Yusingco and, as such, he executed, on November 19, 1927, a power of attorney in favor of Yu Seguioc to administer, lease, mortgage and sell his properties, including his vessels or steamship. Yu Seguioc mortgaged to the plaintiff Yek Tong Lin Fire & Marine Insurance Co., Ltd., Page | 326

with the approval of the Bureau of Customs, the steamship Yusingco belonging to the defendant. One year and some months later, the steamship Yusingco needed some repairs which were made by the Earnshaw Docks & Honolulu Iron Works. The repairs were made upon the guaranty of the defendant and appellant Vicente Madrigal at a cost of P8,244.66. When neither A. Yusingco Hermanos nor Pelagio Yusingco could pay said sum to the Earnshaw Docks & Honolulu Iron Works, the defendant and appellant Vicente Madrigal had to make payment thereof with the stipulated interest thereon, which was at the rate of 9 per cent per annum, on March 9, 1932, because he was bound thereto by reason of the bond filed by him, the payment then made by him having amounted to P8,777.60. When said defendant discovered that he was not to be reimbursed for the repairs made on the steamship Yusingco, he brought an action against his codefendant Pelagio Yusingco and A. Yusingco Hermanos to compel them to reimburse, thereby giving rise to civil case No. 41654 of the Court of First Instance of Manila, entitled "Vicente Madrigal, plaintiff, vs. Pelagio Yusingco and A. Yusingco Hermanos, defendants" which resulted in a judgment favorable to him and adverse to the Yusingcos. ISSUE Whether or not obligations were extinguished by reason of the merger of the rights of the debt or and creditor? RULING After the steamship Yusingco had been sold by virtue of the judicial writ issued in civil case No. 41654 for the execution of the judgment rendered in favor of Vicente Madrigal, the only right left to the plaintiff was to collect its mortgage credit from the purchaser thereof at public auction, inasmuch as the rule is that a mortgage directly and immediately subjects the property on which it is imposed, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created (article 1876, Civil code); but it so happens that it can not take such steps now because it was the purchaser of the steamship Yusingco at public auction, and it was so with full knowledge that it had a mortgage credit on said vessel. Obligations are extinguished by the merger of the rights of the creditor and debtor (articles 1156 and 1192, Civil Code).

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E.G.V. REALTY V CA G.R.No. 120236 July 20, 1999 FACTS Petitioner E.G.V. Realty Development Corporation is the owner/developer of a seven-storey condominium building known as Cristina Condominium. Cristina Condominium Corporation holds title to all common areas of Cristina Condominium and is in charge of managing, maintaining and administering the condominium’s common areas and providing for the building’s security. Respondent Unisphere International, Inc. (hereinafter referred to as Unisphere) is the owner/occupant of Unit 301 of said condominium. On November 28, 1981, respondent Unisphere’s Unit 301 was allegedly robbed of various items valued at P6,165.00. The incident was reported to petitioner CCC. On July 25, 1982, another robbery allegedly occurred at Unit 301 where the items carted away were valued at P6,130.00, bringing the total value of items lost to P12,295.00. This incident was likewise reported to petitioner CCC. On October 5, 1982, respondent Unisphere demanded compensation and reimbursement from petitioner CCC for the losses incurred as a result of the robbery. On January 28, 1987, petitioners E.G.V. Realty and CCC jointly filed a petition with the Securities and Exchange Commission (SEC) for the collection of the unpaid monthly dues in the amount of P13,142.67 against respondent Unisphere. ISSUE Whether or not set-off or compensation has taken place in the instant case. RULING Compensation or offset under the New Civil Code takes place only when two persons or entities in their own rights, are creditors and debtors of each other. (Art. 1278). 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 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 or in this case by the Commission.

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There can be no doubt that Unisphere is indebted to the Corporation for its unpaid monthly dues in the amount of P13,142.67. This is admitted.

AEROSPACE CHEMICAL V CA g.r.no. 108129 september 23, 1999 FACTS On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.6 [TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases. ISSUE Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code? RULING Petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the preservation of fungible goods must be assumed by the Page | 329

seller. Rental expenses of storing sulfuric acid should be at private respondent's account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault." On this score, we quote with approval the findings of the appellate court, thus: The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable for the damages sought by the defendant.

APODACA V NLRC G.R.No. 80039 April1 8, 1989 FACTS Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to P1,500 shares of respondent corporation it P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent corporation. However, on January 2, 1986, he resigned. On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus compensation for 1986. Petitioner and private respondents submitted their position papers to the labor arbiter. Private respondents admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscript in the amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the payment of unpaid subscription and that, accordingly, the alleged obligation is not enforceable. Page | 330

ISSUE Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock subscriptions to a corporation? Assuming that it has, can an obligation arising therefrom be offset against a money claim of an employee against the employer? RULING Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation as in the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission. Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances of this case, the unpaid subscriptions are not due and payable until a call is made by the corporation for payment. Private respondents have not presented a resolution of the board of directors of respondent corporation calling for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by the respondent corporation.

PNB MANAGEMENT V R&R METAL G.R.No. 132245 January 1, 2002 FACTS It appears that on November 19, 1993, respondent R&R Metal Casting and Fabricating, Inc. (R&R) obtained a judgment in its favor against Pantranco North Express, Inc. (PNEI). PNEI was ordered to pay respondent P213,050 plus interest as actual damages, P50,000 as exemplary damages, 25 percent of the total amount payable as attorney’s fees, and the costs of suit. However, the writ of execution was returned unsatisfied since the sheriff did not find any property of PNEI recorded at the Registries Page | 331

of Deeds of the different cities of Metro Manila. Neither did the sheriff receive a reply to the notice of garnishment he sent to PNB-Escolta.On March 27, 1995, respondent filed with the trial court a motion for the issuance of subpoenae duces tecum and ad testificandum requiring petitioner PNB Management and Development Corp. (PNB MADECOR) to produce and testify on certain documents pertaining to transactions between petitioner and PNEI from 1981 to 1995. ISSUE Whether or not legal compensation have occured in the instant case? RULING Legal compensation could not have occurred because of the absence of one requisite in this case: that both debts must be due and demandable. Petitioner’s obligation to PNEI appears to be payable on demand, following the above observation made by the CA and the assertion made by petitioner. Petitioner is obligated to pay the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per annum. Since petitioner’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject to compensation for lack of a requisite under the law. Without compensation having taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt.

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SILAHIS V IAC G.R.No. 74027 December 7, 1989 FACTS Petitioner Silahis Marketing Corporation seeks in this petition for review on certiorari a reversal of the decision of the then Intermediate Appellate Court (IAC) in AC-G.R. CV No. 67162 entitled "De Leon, etc. v. Silahis Marketing Corporation", disallowing petitioner's counterclaim for commission to partially offset the claim against it of private respondent Gregorio de Leon for the purchase price of certain merchandise. A review of the record shows that on various dates in October, November and December, 1975, Gregorio de Leon doing business under the name and style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation various items of merchandise covered by several invoices in the aggregate amount of P22,213.75 payable within thirty (30) days from date of the covering invoices.Allegedly due to Silahis' failure to pay its account upon maturity despite repeated demands, de Leon filed before the then Court of First Instance of Manila a complaint for the collection of the said accounts including accrued interest thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus costs of litigation. ISSUE Whether or not private respondent is liable to the petitioner for the commission or margin for the direct sale which the former concluded and consummated with Dole Philippines, Incorporated without coursing the same through herein petitioner. RULING It must be remembered that compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor." When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without the consent or knowledge of the creditors and debtors. 5 Article 1279 requires, among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim existing from breach of contract. Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the amount of P22,213.75 as contained in its answer. But whether private respondent is liable to pay the petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This circumstance prevents legal compensation from taking place. Page | 333

FRANCIA V CA G.R.No. 67649 June 28, 1998 FACTS Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. ISSUE Whether or not francia’s tax delinquency of P2,400.00 has been extinguished by legal compensation. RULING There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: "(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax Page | 334

being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. "The general rule based on grounds of public policy is well-settled that no setoff admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required

TRINIDAD V ACAPULCO G.R.No. 147477 June 27, 2006 FACTS On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She alleged: Sometime in February 1991, a certain Primitivo Cañete requested her to sell a Mercedes Benz for P580,000.00. Cañete also said that if respondent herself will buy the car, Cañete was willing to sell it for P500,000.00. Petitioner borrowed the car from respondent for two days but instead of returning the car as promised, petitioner told respondent to buy the car from Cañete for P500,000.00 and that petitioner would pay respondent after petitioner returns from Davao. Following petitioner’s instructions, respondent requested Cañete to execute a deed of sale covering the car in respondent’s favor for P500,000.00 for which respondent issued three checks in favor of Cañete. Respondent thereafter executed a deed of sale in favor of petitioner even though petitioner did not pay her any consideration for the sale. When petitioner returned from Davao, he refused to pay respondent the amount of P500,000.00 saying that said amount would just be deducted from whatever outstanding obligation respondent had with petitioner. Due to petitioner’s failure to pay respondent, the checks that respondent issued in favor of Cañete bounced, thus criminal charges were filed against her.[3] Respondent then prayed that the deed of sale between her and petitioner be declared null and void; that the car be returned to her; and that petitioner be ordered to pay damages. Page | 335

ISSUE Whether or not petitioner’s claim for legal compensation was already too late RULING The court ruled in favor of the petitioner. Compensation takes effect by operation of law even without the consent or knowledge of the parties concerned when all the requisites mentioned in Article 1279 of the Civil Code are present.[26] This is in consonance with Article 1290 of the Civil Code which provides that: Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Since it takes place ipso jure,[27] when used as a defense, it retroacts to the date when all its requisites are fulfilled. Petitioner’s stance is that legal compensation has taken place and operates even against the will of the parties because: (a) respondent and petitioner were personally both creditor and debtor of each other; (b) the monetary obligation of respondent was P566,000.00 and that of the petitioner was P500,000.00 showing that both indebtedness were monetary obligations the amount of which were also both known and liquidated; (c) both monetary obligations had become due and demandable— petitioner’s obligation as shown in the deed of sale and respondent’s indebtedness as shown in the dishonored checks; and (d) neither of the debts or obligations are subject of a controversy commenced by a third person.

AQUINTEY V. TIBONG G.R. No. 166704 December 20, 2006 FACTS On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. In their Answer with Counterclaim, spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds Page | 336

of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina’s favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished. ISSUE Whether or not there is valid novation in the instant case? RULING Novation which consists in substituting a new debtor in the place of the original one may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor, accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary. In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation. Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly. In the case at bar, the court found that respondents’ obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner. As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise,unequivocably declared that Cabang and Cirilo no longer had any obligation to her.

SWAGMAN V CA G.R.No. 161135 April 8, 2005 FACTS Page | 337

Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L. Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is in the amount of US$50,000 payable after three years from its date with an interest of 15% per annum payable every three months. In a letter dated 16 December 1998, Christian informed the petitioner corporation that he was terminating the loans and demanded from the latter payment in the total amount of US$150,000 plus unpaid interests in the total amount of US$13,500. On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante. The petitioner corporation, together with its president and vicepresident, filed an Answer raising as defenses lack of cause of action and novation of the principal obligations. According to them, Christian had no cause of action because the three promissory notes were not yet due and demandable. ISSUE Where there is a valid novation, may the original terms of contract which has been novated still prevail? HELD The receipts, as well as private respondent’s summary of payments, lend credence to petitioner’s claim that the payments were for the principal loans and that the interests on the three consolidated loans were waived by the private respondent during the undisputed renegotiation of the loans on account of the business reverses suffered by the petitioner at the time. There was therefore a novation of the terms of the three promissory notes in that the interest was waived and the principal was payable in monthly installments of US$750. Alterations of the terms and conditions of the obligation would generally result only in modificatory novation unless such terms and conditions are considered to be the essence of the obligation itself.[25] The resulting novation in this case was, therefore, of the modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in force. Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably with their new agreement and even continued paying during the pendency of the case, the private respondent had no cause of action to file the complaint. It is only upon petitioner’s default in the payment of the monthly amortizations that a cause of action would arise and give the private respondent a right to maintain an action against the petitioner.

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AZOLLA FARMS V CA G.R.No. 138085 November 11, 2004 FACTS Petitioner Francis R. Yuseco, Jr., is the Chairman, President and Chief Operating Officer of petitioner Azolla Farms International Philippines. In 1982, Azolla Farms undertook to participate in the National Azolla Production Program wherein it will purchase all the Azolla produced by the Azolla beneficiaries in the amount not exceeding the peso value of all the inputs provided to them. The project also involves the then Ministry of Agriculture, the Kilusang Kabuhayan at Kaunlaran, and the Kiwanis. To finance its participation, petitioners applied for a loan with Credit Manila, Inc., which the latter endorsed to its sister company, respondent Savings Bank of Manila (Savings Bank). The Board of Directors of Azolla Farms, meanwhile, passed a board resolution on August 31, 1982, authorizing Yuseco to borrow from Savings Bank in an amount not exceeding P2,200,000.00. The loan having been approved, Yuseco executed a promissory note on September 13, 1982, promising to pay Savings Bank the sum of P1,400,000.00 on or before September 13, 1983. the Azolla Farms project collapsed. Blaming Savings Bank, petitioners Yuseco and Azolla Farms filed on October 3, 1983 with the Regional Trial Court of Manila (Branch 25), a complaint for damages. In essence, their complaint alleges that Savings Bank unjustifiably refused to promptly release the remaining P300,000.00 which impaired the timetable of the project and inevitably affected the viability of the project resulting in its collapse, and resulted in their failure to pay off the loan. Thus, petitioners pray for P1,000,000.00 as actual damages, among others. ISSUE Whether the trial court erred in admitting petitioners’ amended complaint RULING SEC. 5. Amendment to conform to or authorize presentation of evidence .—When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. Page | 339

As can be gleaned from the records, it was petitioners’ belief that respondent’s evidence justified the amendment of their complaint. The trial court agreed thereto and admitted the amended complaint. On this score, it should be noted that courts are given the discretion to allow amendments of pleadings to conform to the evidence presented during the trial.

CALIFORNIA BUS LINES V STATE INVESMENTS G.R.No. 147950 December 11, 2003 FACTS Sometime in 1979, Delta Motors Corporation—M.A.N. Division (Delta) applied for financial assistance from respondent State Investment House, Inc. SIHI agreed to extend a credit line to Delta for P25,000,000.00 in three separate credit agreements dated May 11, June 19, and August 22, 1979. Delta eventually became indebted to SIHI to the tune of P24,010,269.32 From April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the purchase price of the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor of Delta on January 23 and April 25, 1980.[5] In each promissory note, CBLI promised to pay Delta or order, P2,314,000 payable in 60 monthly installments starting August 31, 1980, with interest at 14% per annum. CBLI further promised to pay the holder of the said notes 25% of the amount due on the same as attorney’s fees and expenses of collection, whether actually incurred or not, in case of judicial proceedings to enforce collection. In addition to the notes, CBLI executed chattel mortgages over the 35 buses in Delta’s favor. When CBLI defaulted on all payments due, it entered into a restructuring agreement with Delta on October 7, 1981, to cover its overdue obligations under the promissory notes.CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI with the enforcement of the management takeover clause. ISSUE Whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI. RULING Page | 340

Novation has been defined as 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.For novation to take place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the preexisting obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication.

OCAMPO-PAULE V CA G.R.No. 145872 February 4, 2002 FACTS During the period August, 1991 to April, 1993, petitioner received from private complainant Felicitas M. Calilung several pieces of jewelry with a total value of One hundred Sixty Three Thousand One hundred Sixty Seven Pesos and Ninety Five Centavos (P163,167.95). The agreement between private complainant and petitioner was that the latter would sell the same and thereafter turn over and account for the proceeds of the sale, or otherwise return to private complainant the unsold pieces of jewelry within two months from receipt thereof. Since private complainant and petitioner are relatives, the former no longer required petitioner to issue a receipt acknowledging her receipt of the jewelry.When petitioner failed to remit the proceeds of the sale of the jewelry or to return the unsold pieces to private complainant, the latter sent petitioner a demand letter. Notwithstanding receipt of the demand letter, petitioner failed to turn over the proceeds of the sale or to return the unsold pieces of jewelry. Private complainant was constrained to refer the matter to the barangay captain of Sta. Monica, Lubao, Pampanga. ISSUE Page | 341

Whether or not there was a novation of petitioner’s criminal liability when she and private complainant executed the Kasunduan sa Bayaran. RULING It is well-settled that the following requisites must be present for novation to take place: (1) a previous valid obligation; (2) agreement of all the parties to the new contract; (3) extinguishment of the old contract; and (4) validity of the new one. 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. The execution of the Kasunduan sa Bayaran does not constitute a novation of the original agreement between petitioner and private complainant. Said Kasunduan did not change the object or principal conditions of the contract between them. The change in manner of payment of petitioner’s obligation did not render the Kasunduan incompatible with the original agreement, and hence, did not extinguish petitioner’s liability to remit the proceeds of the sale of the jewelry or to return the same to private complainant. An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified, by changing only the terms of payment and adding other obligations not incompatible with the old one, or wherein the old contract is merely supplemented by the new one. In any case, novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment of criminal liability.

REYES V CA g.r.no. 147758 june 26, 2002 FACTS This petition arose from a civil case for collection of a sum of money with preliminary attachment filed by respondent Pablo V. Reyes against his first cousin petitioner Arsenio R. Reyes and spouse Nieves S. Reyes. According to private Page | 342

respondent, petitioner-spouses borrowed from him P600,000.00 with interest at five percent (5%) per month, which totalled P1,726,250.00 at the time of filing of the Complaint. The loan was to be used supposedly to buy a lot in Parañaque. It was evidenced by an acknowledgment receipt dated 15 July 1990 signed by the petitionerspouses Arsenio R. Reyes and Nieves S. Reyes and witness Romeo Rueda. In their Answer petitioners admitted their loan from respondent but averred that there was a novation so that the amount loaned was actually converted into respondent's contribution to a partnership formed between them on 23 March 1990. ISSUE Whether or not there was novation in the instant case? RULING For novation to take place, the following requisites must concur: (a) there must be a previous valid obligation; (b) there must be an agreement of the parties concerned to a new contract; (c) there must be the extinguishment of the old contract; and, (d) there must be the validity of the new contract. In the case at bar, the third requisite is not present. The parties did agree that the amount loaned would be converted into respondent's contribution to the partnership, but this conversion did not extinguish the loan obligation. The date when the acknowledgment receipt/promissory note was made negates the claim that the loan agreement was extinguished through novation since the note was made while the partnership was in existence. Significantly, novation is never presumed. It must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken for anything else. An obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the terms of payment and adding other obligations not incompatible with the old one, or wherein the old contract is merely supplemented by the new one.

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BAUTISTA V PILAR DEVELOPMENT g.r.no. 135046 august 17, 1999 FACTS In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained from the Apex Mortgage & Loan Corporation a loan in the amount of P100,180.00. They executed a promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the "principal sum of P100,180.00 with interest rate of 12% and service charge of 3%" for a period of 240 months, or twenty years, from date, in monthly installments of P1,378.83. Late payments were to be charged a penalty of one and one-half per cent (1 1/2%) of the amount due. In the same promissory note, petitioners authorized Apex to "increase the rate of interest and/or service charges" without notice to them in the event that a law, Presidential Decree or any Central Bank regulation should be enacted increasing the lawful rate of interest and service charges on the loan. Payment of the promissory note was secured by a second mortgage on the house and lot purchased by petitioners.Petitioner spouses failed to pay several installments. On September 20, 1982, they executed another promissory note in favor of Apex. This note was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent (21%) per annum with no provision for service charge but with penalty charge of 1 1/2% for late payments. ISSUE Whether or not there was valid novation in the case at bar? RULING Novation has four (4) essential requisites: (1) the existence of a previous valid obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment of the old contract; and (4) the validity of the new one. In the instant case, all four requisites have been complied with. The first promissory note was a valid and subsisting contract when petitioner spouses and Apex executed the second promissory note. The second promissory note absorbed the unpaid principal and interest of P142,326.43 in the first note which amount became the principal debt therein, payable at a higher interest rate of 21% per annum. Thus, the terms of the second promissory note provided for a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter period of 16.33 years. These changes are substantial and constitute the principal conditions of the obligation. Both parties voluntarily accepted the terms of the second note; and also in the same note, they unequivocally stipulated to extinguish the first note. Clearly, there was animus novandi, an express intention to novate. The first promissory note was cancelled and replaced by the second note. This second note became the new contract governing the parties' obligations.

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EVADEL REALTY V SORIANO G.R.No. 144291 April 20, 2001 FACTS On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses), as sellers, entered into a "Contract to Sell " with Evadel Realty and Development Corporation (petitioner), as buyer, over a parcel of land denominated as Lot 5536-C of the Subdivision Plan of Lot 5536 covered by Transfer Certificate of Title No. 125062 which was part of a huge tract of land known as the Imus Estate. Upon payment of the first installment, petitioner introduced improvements thereon and fenced off the property with concrete walls. Later, respondent spouses discovered that the area fenced off by petitioner exceeded the area subject of the contract to sell by 2,450 square meters. Upon verification by representatives of both parties, the area encroached upon was denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D of Psd-04-092419 and was later on segregated from the mother title and issued a new transfer certificate of title, TCT No. 769166, in the name of respondent spouses. Respondent spouses successively sent demand letters to petitioner on February 14, March 7, and April 24, 1997, to vacate the encroached area. Petitioner admitted receiving the demand letters but refused to vacate the said area. ISSUE Whether or not there was novation of contract? RULING Petitioner's claim that there was a novation of contract because there was a "second" agreement between the parties due to the encroachment made by the national road on the property subject of the contract by 1,647 square meters, is unavailing. Novation, one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a valid previous obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is valid new contract. Novation may be express or implied. 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 (express novation) or that the old and the new obligations be on every point incompatible with each other (implied novation). Page | 345

In the instant case, there was no express novation because the "second" agreement was not even put in writing. Neither was there implied novation since it was not shown that the two agreements were materially and substantially incompatible with each other. We quote with approval the following findings of the trial court: Since the alleged agreement between the plaintiffs [herein respondents] and defendant [herein petitioner] is not in writing and the alleged agreement pertains to the novation of the conditions of the contract to sell of the parcel of land subject of the instant litigation, ipso facto, novation is not applicable in this case since, as stated above, novation must be clearly proven by the proponent thereof and the defendant in this case is clearly barred by the Statute of Frauds from proving its claim.

B & I REALTY V. CASPE G.R. No. 146972 January 29, 2008 FACTS Consorcia L. Venegas was the owner of a parcel of land located in Barrio BagongIlog in Pasig, Rizal and covered by TCT No. 247434. She delivered said title to, and executed a simulated deed of sale in favor of, Datuin for purposes of obtaining a loan with the RCBC. Datuin claimed that he had connections with the management of RCBC and offered his assistance to Venegas in obtaining a loan from the bank. He issued a receipt to the Venegases, acknowledging that the lot was to be used as a collateral for bank financing and that the deed of sale was executed only as a device to obtain the loan. However, Datuin prepared a deed of absolute sale and, through forgery, made it appear that the spouses Venegas executed the document in his favor. Venegas learned of Datuin's fraudulent scheme when she sold the lot to herein respondents for P160,000 in a deed of conditional sale. She, along with her husband, instituted a complaint against Datuin in the then Court of First Instance CFI of Rizal, Branch 11, docketed as Civil Case No. 188893, for recovery of property and nullification of TCT No. 377734, with damages. However, when the case was called for pre-trial, the Venegases' counsel failed to appear and the complaint was eventually dismissed without prejudice. ISSUE Whether or not filing of Civil Case No. 36852 by the Venegases had the effect of interrupting the prescriptive period for the filing of the complaint for judicial foreclosure of mortgage? Page | 346

RULING We agree with the CA's ruling that Civil Case No. 36852 did not have the effect of interrupting the prescription of the action for foreclosure of mortgage as it was not an action for foreclosure but one for annulment of title and nullification of the deed of mortgage and the deed of sale. It was not at all the action contemplated in Article 1155 of the Civil Code which explicitly provides that the prescription of an action is interrupted only when the action itself is filed in court. Petitioner could have protected its right over the property by filing a cross-claim for judicial foreclosure of mortgage against respondents in Civil Case No. 36852. The filing of a cross-claim would have been proper there. All the issues pertaining to the mortgage validity of the mortgage and the propriety of foreclosure would have been passed upon concurrently and not on a piecemeal basis. This should be the case as the issue of foreclosure of the subject mortgage was connected with, or dependent on, the subject of annulment of mortgage in Civil Case No. 36852. The actuations clearly manifested that petitioner knew its rights under the law but chose to sleep on the same.

MESINA V. GARCIA G.R. No. 168035 November 30, 2006 FACTS Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, enstered into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT No. T78881 was issued in the name of herein petitioners. The Contract to Sell provides that the cost of the lot is P70.00 per square meter for a total amount of P16,450.00; payable within a period not to exceed 7 years at an interest rate of 12% per annum, in successive monthly installments of P260.85 per month, starting May 1977. Thereafter, the succeeding monthly installments are to be paid within the first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly installments Page | 347

earning an interest of 1% per month. Instituting this case at bar, respondent asserts that despite the full payment made on 7 February 1984 for the consideration of the subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of the property to her. ISSUE Whether or not respondent’s cause of action had already prescribed? RULING Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when an action has been filed in court; when there is a written extrajudicial demand made by the creditors; and when there is any written acknowledgment of the debt by the debtor. The records reveal that starting 19 April 1986 until 2 January 1997 respondent continuously demanded from the petitioners the execution of the said Deed of Absolute Sale but the latter conjured many reasons and excuses not to execute the same. Respondent even filed a Complaint before the Housing and Land Use Regulatory Board way back in June, 1986, to enforce her rights and to compel the mother of herein petitioners, who was still alive at that time, to execute the necessary Deed of Absolute Sale for the transfer of title in her name. On 2 January 1997, respondent, through her counsel, sent a final demand letter to the petitioners for the execution of the Deed of Absolute Sale, but still to no avail. Consequently, because of utter frustration of the respondent, she finally lodged a formal Complaint for Specific Performance with Damages before the trial court on 20 January 1997. Hence, from the series of written extrajudicial demands made by respondent to have the execution of the Deed of Absolute Sale in her favor, the prescriptive period of 10 years has been interrupted. Therefore, it cannot be said that the cause of action of the respondent has already been prescribed.

HEIRS OF GAUDIANE V CA G.R.No. 119879 March 11, 2004 FACTS Page | 348

The lot in controversy is Lot 4389 located at Dumaguete City and covered by Original Certificate of Title No. 2986-A (OCT 2986-A) in the names of co-owners Felix and Juana Gaudiane. Felix died in 1943 while his sister Juana died in 1939. Herein respondents are the descendants of Felix while petitioners are the descendants of Juana. On November 4, 1927, Felix executed a document entitled Escritura de Compra-Venta (Escritura, for brevity) whereby he sold to his sister Juana his one-half share in Lot No. 4156 covered by Transfer Certificate of Title No. 3317-A. Petitioners’ predecessors-in-interest, Geronimo and Ines Iso (the Isos), believed that the sale by Felix to their mother Juana in 1927 included not only Lot 4156 but also Lot 4389. In 1974, they filed a pleading in the trial court seeking to direct the Register of Deeds of Dumaguete City to cancel OCT 2986-A covering Lot 4389 and to issue a new title in favor of the Isos. This was later withdrawn after respondents’ predecessors-ininterest, Procopio Gaudiane and Segundo Gaudiane, opposed it on the ground that the Isos falsified their copy of the Escritura by erasing “Lot 4156” and intercalating in its place “Lot 4389.” ISSUE Whether the court gravely erred in not giving due course to the claim of petitioners and legal effect of prescription and laches adverted by defendants-appellants in their answer and affirmative defenses proven during the hearing by documentary and testimonial evidence. RULING As a general rule, ownership over titled property cannot be lost through prescription.[12] Petitioners, however, invoke our ruling in Tambot vs. Court of Appeals[13] which held that titled property may be acquired through prescription by a person who possessed the same for 36 years without any objection from the registered owner who was obviously guilty of laches. Petitioners’ claim is already rendered moot by our ruling barring petitioners from raising the defense of exclusive ownership due to res judicata. Even assuming arguendo that petitioners are not so barred, their contention is erroneous. As correctly observed by the appellate court. As explained earlier, only Lot No. 4156 was sold. It was through this misrepresentation that appellees’ predecessor-in-interest succeeded in withholding possession of appellees’ share in Lot No. 4389. Appellees cannot, by their own fraudulent act, benefit therefrom by alleging prescription and laches.

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LAUREANO V CA G.R.No. 114776 February 2, 2000

FACTS; Petitioner was employed in the singapore airlines limited as the pilot captain of B-707. Sometime in 1982, defendant, hit by a recession, initiated cost-cutting measures. Seventeen expatriate captains in the Airbus fleet were found in excess of the defendant's requirement. Consequently, defendant informed its expatriate pilots including plaintiff of the situation and advised them to take advance leaves. Realizing that the recession would not be for a short time, defendant decided to terminate its excess personnel. It did not, however, immediately terminate it's A-300 pilots. It reviewed their qualifications for possible promotion to the B-747 fleet. Among the 17 excess Airbus pilots reviewed, twelve were found qualified. Unfortunately, plaintiff was not one of the twelve. Aggrieved, plaintiff on June 29, 1983, instituted a case for illegal dismissal before the Labor Arbiter. Defendant moved to dismiss on jurisdictional grounds. Before said motion was resolved, the complaint was withdrawn. ISSUE ; What is the prescriptive period for money claims arising from employeremployee relationship? RULING; Article 291. Money claims. - All money claims arising from employee-employer relations accruing during the effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued; otherwise they shall be forever barred. It should be noted further that Article 291 of the Labor Code is a special law applicable to money claims arising from employer-employee relations; thus, it necessarily prevails over Article 1144 of the Civil Code, a general law. Basic is the rule in statutory construction that 'where two statutes are of equal theoretical application to a particular case, the one designed therefore should prevail.' In the instant case, the action for damages due to illegal termination was filed by plaintiff-appellee only on January 8, 1987 or more than four (4) years after the effectivity date of his dismissal on November 1, 1982. Clearly, plaintiff-appellee's action has already prescribed.

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BANCO FILIPINO vs. COURT OF APPEALS 332 SCRA 241 FACTS: Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00 as evidenced by the “Promissory Note” executed by the spouses in favor of the said bank. To secure payment of said loans, the spouses executed “Real Estate Mortgages” in favor of the appellants (Banco Filipino) over their parcels of land. The appellee spouses failed to pay their monthly amortization to appellant. On September 2, 1985 the appellee’s filed a complaint for “Annulment of the Loan Contracts, Foreclosure Sale with Prohibitory and Injunction” which was granted by the RTC. Petitioners appealed to the Court of Appeals, but the CA affirmed the decision of the RTC. ISSUE: Whether or not the CA erred when it held that the cause of action of the private respondents accrued on October 30, 1978 and the filing of their complaint for annulment of their contracts in 1085 was not yet barred by the prescription/ RULING: The court held that the petition is unmeritorious. Petitioner’s claim that the action of the private respondents have prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of action where there is no special provision which ordains otherwise shall be counted from the day they may be brought. Thus the period of prescription of any cause of action is reckoned only from the date of the cause of action accrued. The period should not be made to retroact to the date of the execution of the contract, but from the date they received the statement of account Page | 351

showing the increased rate of interest, for it was only from the moment that they discovered the petitioner’s unilateral increase thereof.

VDA. DE DEL GADO vs. COURT OF APPEALS 363 SCRA 58 FACTS: Carlos Delgado was the absolute owner of a parcel of land with an area of 692,549 square meter situated in the Municipality of Catarman Samar. Carlos Delgado granted and conveyed by way of donation with quitclaim all rights, title, interest claim and demand over a portion of land with an area of 165,000 square meter in favor of the Commonwealth of the Philippines. The acceptance was then made to President Quezon in his capacity as Commander-in-Chief. The Deed of Donation was executed with a condition that the said land will be used for the formation of the National Defense of the Philippines. The said parcel of land then covered by the Torrens System of the Philippines and was registered in the name of Commonwealth of the Philippines for a period of 40 years. The land was registered under TCT 0-2539-160 in favor of the Commonwealth however without any annotation. Upon declaration of independence, the Commonwealth was replaced by Republic of the Philippines which took over the subject land and turned over to Civil Aeronautics Page | 352

Administration, later named Bureau of Air Transportation Office. The said agency utilizes the said land a domestic airport. Jose Delgado filed a petition for reconveyance for a violation of the condition. The RTC ruled in favor of the plaintiff Delgado. But the CA reversed the said decision because of prescription. The petitioner filed only before 24 years o discovery which the law only requires 10 years of filing. ISSUE: Whether or not the petitioner’s action for reconveyance is already barred by prescription. RULING: The Supreme Court denied the petition and affirmed the decision of the Court of Appeals because the time of filing has been prescribed. Under Article 1144 of the Civil Code on Prescription based on written contracts, the filing of action for reconveyance is within 10 years from the time the condition in the Deed of Donation was violated. The petitioner herein filed only 24 years in the first action and 43 years in the second filing of the 2nd action. The action for reconveyance on the alleged excess of 33, 607 square meter mistakenly included in the title was also prescribed Article 1456 of the Civil Code states, if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefits of the person from whom the property comes, if within 10 years such action for reconveyance has not been executed.

MAESTRADO vs. COURT OF APPEALS 327 SCRA 678 FACTS: These consolidated cases involve Lot No. 5872 and the rights of the contending parties thereto. The lot has an area of 57.601 sq.m. and is registered in the name of the deceased spouses Ramon and Rosario Chaves. The spouses died intestate in 1943 and Page | 353

1944, respectively. They were survived by six heirs. To settle the estate of said spouse, Angel Chaves, one of the heirs, initiated intestate proceedings and was appointed administrator of said estates in the process. An inventory of the estates was made and thereafter, the heirs agreed on a project partition. The court approved the partition but a copy of said decision was missing. Nonetheless, the estate was divided among the heirs. Subsequently, in 1956, the partition case effected and the respective shares of the heirs were delivered to them. Significantly, Lot No.5872 was not included in a number of documents. Parties offered different explanations as to the omission of said lot in the documents. Petitioners maintain the existence of an oral partition agreement entered into by all heirs after the death of their parents. To set things right, petitioners then prepared a quitclaim to confirm the alleged oral agreement. Respondents dispute voluntariness of their consent to the quitclaims. Six years after the execution of the quitclaims, respondents discovered that indeed subject lot was still a common property in the name of the deceased spouses. Eventually, an action for Quieting of Title was filed by petitioners on December 22, 1983. The trial court considered Lot No. 5872 as still a common property and therefore must be divided into six parts, there being six heirs. Petitioners appealed to the Court of Appeals which sustained the decision of the trial court. ISSUE: Whether or not the action for quieting of title had already prescribed. RULING: The Supreme Court ruled that an action for quieting of title is imprescriptible especially if the plaintiff is in possession of the property being litigated. One who is in actual possession of a land, claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before making steps to vindicate his right because his undisturbed possession gives him a continuing right to seek the aid of the courts to ascertain the nature of the adverse claim and its effect on his title. Moreover, the Court held that laches is inapplicable in this case. This is because, as mentioned earlier, petitioners’ possession of the subject lot has rendered their right to bring an action for quieting of title imprescriptible.

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TANAY RECREATION CENTER AND DEVELOPMENT CORP. vs. CATALINA MATIENZO FAUSTO April 12, 2005 FACTS: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The contract also provided that should Fausto decide to sell the property, petitioner shall have the “priority right” to purchase the same. On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease. However, it was Fausto’s daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property. It appears that Fausto had earlier sold the property to Pacunayen and title has already been transferred in her name. Petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises. ISSUE: The contention in this case refers to petitioner’s priority right to purchase, also referred to as the right of first refusal. RULING: When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor. Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto’s relative. When the terms of an agreement have Page | 355

been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties. In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner. ROMEO MENDOZA vs. COURT OF APPEALS February 18, 2005 FACTS: Manotok was the administrator of a parcel of land which it leased to Benjamin Mendoza; that the contract of lease expired on December 31, 1988; that even after the expiration of the lease contract, Benjamin Mendoza, and after his demise, his son, Romeo, continued to occupy the premises and thus incurred a total of P44,011.25 as unpaid rentals from January 1, 1989 to July 31, 1996; that on July 16, 1996, Manotok made a demand on Benjamin Mendoza to pay the rental arrears and to vacate the premises within fifteen (15) days from receipt of the demand letter; that despite receipt of the letter and after the expiration of the 15-day period, the Mendozas refused to vacate the property and to pay the rentals. The complaint prayed that the court order Mendoza and those claiming rights under him to vacate the premises and deliver possession thereof to Manotok, and to pay the unpaid rentals from January 1, 1989 to July 31, 1996 plus P875.75 per month starting August 1, 1996, subject to such increase allowed by law, until he finally vacates the premise. ISSUE: Whether or not the Honorable Court of Appeals committed error in giving efficacy to a lease contract signed in 1988 when the alleged signatory was already dead since 1986. RULING: This is a case for unlawful detainer. It appears that respondent corporation leased the property subject of this case to petitioner’s father. After expiration of the lease, petitioner continued to occupy the property but failed to pay the rentals. On July 16, 1996, respondent corporation made a demand on petitioner to vacate the premises and to pay their arrears. Page | 356

An action for unlawful detainer may be filed when possession by a landlord, vendor, vendee or other person of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession by virtue of a contract, express or implied. The only issue to be resolved in an unlawful detainer case is physical or material possession of the property involved, independent of any claim of ownership by any of the parties involved. In the case at bar, petitioner lost his right to possess the property upon demand by respondent corporation to vacate the rented lot. Petitioner cannot now refute the existence of the lease contract because of his prior admissions in his pleadings regarding his status as tenant on the subject property.

JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC. January 4, 2002 FACTS: Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland, was introduced to petitioner Jefferson Lim by Marissa Bontia, one of his employees. Marissa’s father was a former employee of Lim’s father. Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S. dollar against the Japanese yen, British pound, Deutsche Mark and Swiss Franc. Before investing, Lim requested Shia for proof that the foreign exchange was really lucrative. They conducted mock tradings without money involved. As the mock trading showed profitability, Lim decided to invest with a marginal deposit of US$5,000 in manager’s check. The marginal deposit represented the advance capital for his future tradings. It was made to apply to any authorized future transactions, and answered for any trading account against which the deposit was made, for any loss of whatever nature, and for all obligations, which the investor would incur with the broker. Petitioner Lim was then allowed to trade with respondent company which was coursed through Shia by virtue of blank order forms all signed by Lim. Respondent furnished Lim with the daily market report and statements of transactions as evidenced by the receiving forms, some of which were received by Lim. Page | 357

Meanwhile, on October 22, 1992, respondent learned that it would take seventeen (17) days to clear the manager’s check given by petitioner. Shia returned the check to petitioner who informed Shia that petitioner would rather replace the manager’s check with a traveler’s check. Shia noticed that the traveler’s check was not indorsed but Lim told Shia that Queensland could sign the endorsee portion. Because Shia trusted the latter’s good credit rating, and out of ignorance, he brought the check back to the office unsigned. Inasmuch as that was a busy Friday, the check was kept in the drawer of respondent’s consultant. Later, the traveler’s check was deposited with Citibank. On October 27, 1992, Citibank informed respondent that the traveler’s check could not be cleared unless it was duly signed by Lim, the original purchaser of the traveler’s check. A Miss Arajo, from the accounting staff of Queensland, returned the check to Lim for his signature, but the latter, aware of his P44,465 loss, demanded for a liquidation of his account and said he would get back what was left of his investment. ISSUE: Whether or not the CA erred in reversing the decision of the RTC which dismissed the respondent’s complaint RULING: The essential elements of estoppel are: (1) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts. ere, it is uncontested that petitioner had in fact signed the Customer’s Agreement in the morning of October 22, 1992, knowing fully well the nature of the contract he was entering into. The Customer’s Agreement was duly notarized and as a public document it is evidence of the fact, which gave rise to its execution and of the date of the latter. Next, petitioner paid his investment deposit to respondent in the form of a manager’s check in the amount of US$5,000 as evidenced by PCI Bank Manager’s Check No. 69007, dated October 22, 1992. All these are indicia that petitioner treated the Customer’s Agreement as a valid and binding contract.

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PLACEWELL INTERNATIONAL SERVICES CORP. vs. CAMOTE G.R. No. 169973, June 26, 2006 FACTS: Page | 359

Petitioner Placewell International Services Corporation (PISC) deployed respondent Ireneo B. Camote to work as building carpenter for SAAD Trading and Contracting Co. (SAAD) at the Kingdom of Saudi Arabia (KSA) for a contract duration of two years, with a corresponding salary of US$370.00 per month. At the job site, respondent was allegedly found incompetent by his foreign employer; thus the latter decided to terminate his services. However, respondent pleaded for his retention and consented to accept a lower salary of SR 800.00 per month. Thus, SAAD retained respondent until his return to the Philippines two years after. On November 27, 2001, respondent filed a sworn Complaint for monetary claims against petitioner alleging that when he arrived at the job site, he and his fellow Filipino workers were required to sign another employment contract written in Arabic under the constraints of losing their jobs if they refused; that for the entire duration of the new contract, he received only SR 590.00 per month; that he was not given his overtime pay despite rendering nine hours of work everyday; that he and his co-workers sought assistance from the Philippine Embassy but they did not succeed in pursuing their cause of action because of difficulties in communication. ISSUE: Whether there is estoppel by laches HELD: R.A. No. 8042 explicitly prohibits the substitution or alteration to the prejudice of the worker, of employment contracts already approved and verified by the Department of Labor and Employment (DOLE) from the time of actual signing thereof by the parties up to and including the period of the expiration of the same without the approval of the DOLE. The subsequently executed side agreement of an overseas contract worker with her foreign employer which reduced her salary below the amount approved by the POEA is void because it is against our existing laws, morals and public policy. The said side agreement cannot supersede her standard employment contract approved by the POEA. Petitioner’s contention that respondent is guilty of laches is without basis. Laches has been defined as the failure of or neglect for an unreasonable and unexplained length of time to do that which by exercising due diligence, could or should have been done earlier, or to assert a right within reasonable time, warranting a presumption that the party entitled thereto has either abandoned it or declined to assert it. Thus, the doctrine of laches presumes that the party guilty of negligence had the opportunity to do what should have been done, but failed to do so. Conversely, if the said party did not have the occasion to assert the right, then, he can not be adjudged guilty of laches. Laches is not concerned with the mere lapse of time; rather, the party must have been afforded an opportunity to pursue his claim in order that the delay may sufficiently constitute laches. Page | 360

In the instant case, respondent filed his claim within the three-year prescriptive period for the filing of money claims set forth in Article 291 of the Labor Code from the time the cause of action accrued. Thus, we find that the doctrine of laches finds no application in this case.

HEIRS OF RAGUA vs. COURT OF APPEALS G.R. Nos. 88521-22 FACTS: These consolidated cases involve a prime lot consisting of 4,399,322 square meters, known as the Diliman Estate, situated in Quezon City. On this 439 hectares of prime land now stand the following: the Quezon City Hall, Philippine Science High School, Quezon Memorial Circle, Visayas Avenue, Ninoy Aquino Parks and Wildlife, portions of UP Village and East Triangle, the entire Project 6 and Vasha Village, Veterans Memorial Hospital and golf course, Department of Agriculture, Department of Environment and Natural Resources, Sugar Regulatory Administration, Philippine Tobacco Administration, Land Registration Authority, Philcoa Building, Bureau of Telecommunications, Agricultural Training Institute building, Pagasa Village, San Francisco School, Quezon City Hospital, portions of Project 7, Mindanao Avenue subdivision, part of Bago Bantay resettlement project, SM City North EDSA, part of Phil-Am Life Homes compound and four-fifths of North Triangle. This large estate was the subject of a petition for judicial reconstitution originally filed by Eulalio Ragua in 1964, which gave rise to protracted legal battles between the affected parties, lasting more than thirty-five (35) years. ISSUE: Whether estoppel by laches exists on the part of petitioner HELD: Petitioners filed the petition for reconstitution of OCT 632 nineteen (19) years after the title was allegedly lost or destroyed. We thus consider petitioners guilty of laches. Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it.

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METROPOLITAN BANK & TRUST COMPANY vs. COURT OF APPEALS June 8, 2000 FACTS: Mr. Chia offered the subject property for sale to private respondent G.T.P. Development Corporation (hereafter, GTP), with assumption of the mortgage indebtedness in favor of petitioner METROBANK secured by the subject property. Pending negotiations for the proposed sale, Atty. Bernardo Atienza, acting in behalf of respondent GTP, went to METROBANK to inquire on Mr. Chia's remaining balance on the real estate mortgage. METROBANK obliged with a statement of account of Mr. Chia amounting to about P115,000.00 as of August ,1980. The deed of sale and the memorandum of agreement between Mr. Chia and respondent GTP were eventually executed and signed. Atty. Atienza went to METROBANK Quiapo Branch and paid one hundred sixteen thousand four hundred sixteen pesos and seventy-one centavos (P116,416.71) for which METROBANK issued an official receipt acknowledging payment. This notwithstanding, petitioner METROBANK refused to release the real estate mortgage on the subject property despite repeated requests from Atty. Atienza, thus prompting respondent GTP to file an action for specific performance against petitioner METROBANK and Mr. Chia. ISSUE: Whether or not the CA erred in reversing the decision of the lower court. RULING: The Court found no compelling reasons to disturb the assailed decision. All things studiedly viewed in proper perspective, the Court are of the opinion, and so rule, Page | 362

that whatever debts or loans mortgagor Chia contracted with Metrobank after September 4, 1980, without the conformity of plaintiff-appellee, could not be adjudged as part of the mortgage debt the latter so assumed. We are persuaded that the contrary ruling on this point in Our October 24, 1994 decision would be unfair and unjust to plaintiff-appellee because, before buying subject property and assuming the mortgage debt thereon, the latter inquired from Metrobank about the exact amount of the mortgage debt involved. Petitioner METROBANK is estopped from refusing the discharge of the real estate mortgage on the claim that the subject property still secures "other unliquidated past due loans."

SPOUSES DEL CAMPO vs. COURT OF APPEALS February 1, 2001 FACTS: Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita, all surnamed Bornales, were the original co-owners of the lot in question. On July 14, 1940, Salome sold part of her 4/16 share to Soledad Daynolo. Thereafter, Soledad Daynolo immediately took possession of the land described above and built a house thereon. A few years later, Soledad and her husband, Simplicio Distajo, mortgaged the subject portion of the lot as security for a debt to Jose Regalado, Sr. This transaction was evidenced by a Deed of Mortgage. On April 14, 1948, three of the eight co-owners of Lot 162, specifically, Salome, Consorcia and Alfredo, sold 24,993 square meters of said lot to Jose Regalado, Sr. On May 4, 1951, Simplicio Distajo, heir of Soledad Daynolo who had since died, paid the mortgage debt and redeemed the mortgaged portion of Lot 162 from Jose Regalado, Sr. Page | 363

The latter, in turn, executed a Deed of Discharge of Mortgage in favor of Soledad’s heirs, namely: Simplicio Distajo, Rafael Distajo and Teresita Distajo-Regalado. On same date, the said heirs sold the redeemed portion of Lot 162 for P1,500.00 to herein petitioners, the spouses Manuel Del Campo and Salvacion Quiachon. ISSUE: Whether or not the sale of the subject portion constitutes a sale of a concrete or definite portion of land owned in common does not absolutely deprive herein petitioners of any right or title thereto. RULING: There can be no doubt that the transaction entered into by Salome and Soledad could be legally recognized in its entirety since the object of the sale did not even exceed the ideal shares held by the former in the co-ownership. As a matter of fact, the deed of sale executed between the parties expressly stipulated that the portion of Lot 162 sold to Soledad would be taken from Salome’s 4/16 undivided interest in said lot, which the latter could validly transfer in whole or in part even without the consent of the other coowners. Salome’s right to sell part of her undivided interest in the co-owned property is absolute in accordance with the well-settled doctrine that a co-owner has full ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute another person in its enjoyment.

CUENCO vs. CUENCO G.R. No. 149844, October 13, 2004 FACTS: On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said Page | 364

[petitioner] formed the ‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled ‘Valeriano Solon versus Zoilo Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040) involving a dispute among relatives over ownership of lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that records of said cases indicate the name of the [petitioner] alone as counsel of record, but in truth and in fact, the real lawyer behind the success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903 subdivided said lot into three (3) parts as follows: Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees Lot 903-C: 54,000 [square meters]: Solon’s retention Petitioner later claimed the property after the death of his brother. ISSUES: Whether Petitioner is in is estoppel Whether laches barred the right of action of respondent HELD: From the time Lot 903-A was subdivided and Mariano’s six children -- including Concepcion -- took possession as owners of their respective portions, no whimper of protest from petitioner was heard until 1963. By his acts as well as by his omissions, Miguel led Mariano and the latter’s heirs, including Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano acted and relied on Miguel’s tacit recognition of his ownership thereof is evident from his will, executed in 1963. Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña Extension, Kamputhaw, Cebu City, near the Cebu Provincial Capitol -- had been subdivided and distributed to his six children in his first marriage. Having induced him and his heirs to believe that Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from asserting the contrary and claiming ownership thereof. The principle of estoppel in pais applies when -- by one’s acts, representations, admissions, or silence when there is a need to speak out -- one, intentionally or through culpable negligence, induces another to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts. Petitioner claims that respondent’s action is already barred by laches. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to it has either abandoned or declined to assert it. Page | 365

[40] In the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner. Concepcion was in possession as owner of the property from 1949 to 1969. When Miguel took steps to have it separately titled in his name, despite the fact that she had the owner’s duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on the title in 1967. When petitioner ousted her from her possession of the lot by tearing down her wire fence in 1969, she commenced the present action on September 19, 1970, to protect and assert her rights to the property. We find that she cannot be held guilty of laches, as she did not sleep on her rights.

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LAUREL vs. HON. ANIANO A. DESIERTO July 1, 2002 FACTS: Petitioner Salvador H. Laurel moves for a reconsideration of this Court’s decision declaring him, as Chair of the National Centennial Commission (NCC), a public officer. Petitioner also prays that the case be referred to the Court En Banc. ISSUE: Whether or not Laurel is a public officer as Chair of the NCC RULING: The issue in this case is whether petitioner, as Chair of the NCC, is a public officer under the jurisdiction of the Ombudsman. Assuming, as petitioner proposes, that the designation of other members to the NCC runs counter to the Constitution, it does not make petitioner, as NCC Chair, less a public officer. Such “serious constitutional repercussions” do not reduce the force of the rationale behind this Court’s decision. Second, petitioner invokes estoppel. He claims that the official acts of the President, the Senate President, the Speaker of the House of Representatives, and the Supreme Court, in designating Cabinet members, Senators, Congressmen and Justices to the NCC, led him to believe that the NCC is not a public office. The contention has no merit. In estoppel, the party representing material facts must have the intention that the other party would act upon the representation. It is preposterous to suppose that the President, the Senate President, the Speaker and the Supreme Court, by the designation of such officials to the NCC, intended to mislead petitioner just so he would accept the position of NCC Chair. Estoppel must be unequivocal and intentional. Moreover, petitioner himself admits that the principle of estoppel does not operate against the Government in the exercise of its sovereign powers. Page | 367

Third, as ground for the referral of the case to the Court En Banc, petitioner submits that our decision in this case modified or reversed doctrines rendered by this Court, which can only be done by the Court En Banc.It is argued that by designating three of its then incumbent members to the NCC, the Court took the position that the NCC was not a public office. The argument is a bit of a stretch. Section 4 (3), Article VIII of the Constitution provides that “no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be modified or reversed except by the court sitting en banc.” In designating three of its incumbent members to the NCC, the Court did not render a “decision,” in the context of said constitutional provision, which contemplates an actual case. Much less did the Court, by such designation, articulate any “doctrine or principle of law.” Invoking the same provision, petitioner asserts that the decision in this case reversed or modified Macalino vs. Sandiganbayan, holding that the Assistant Manager of the Treasury Division and the Head of the Loans Administration & Insurance Section of the Philippine National Construction Corporation (PNCC) is not a public officer under Republic Act No. 3019. This contention also has no merit. The rationale for the ruling in Macalino is that “the PNCC has no original charter as it was incorporated under the general law on corporations.” However, as we pointed out in our decision, a conclusion that EXPOCORP is a government-owned or controlled corporation would not alter the outcome of this case because petitioner’s position and functions as Chief Executive Officer of EXPOCORP are by virtue of his being Chairman of the NCC. The other issues raised by petitioner are mere reiterations of his earlier arguments. The Court, however, remains unswayed thereby. SPOUSES HANOPOL vs. SHOEMART INCORPORATED October 4, 2002 FACTS: Shoemart, Inc., is a corporation duly organized and existing under the laws of the Philippines engaged in the operation of department stores. On December 4, 1985, Shoemart, through its Executive Vice-President, Senen T. Mendiola, and spouses Manuel R. Hanopol and Beatriz T. Hanopol executed a Contract of Purchase on Credit. Under the terms of the contract, Shoemart extended credit accommodations, in the amount of Three Hundred Thousand Pesos (P300,000.00), for purchases on credit made by holders of SM Credit Card issued by spouses Hanopol for one year, renewable yearly thereafter. Spouses Hanopol were given a five percent (5%) discount on all purchases made by their cardholders, deductible from the semi-monthly payments to be made to Shoemart by spouses Hanopol. For failure of spouses Hanopol to pay the principal amount of One Hundred Twenty-Four Thousand Five Hundred Seventy-One Pesos and Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart instituted extrajudicial foreclosure proceedings against the mortgaged properties. Spouses Hanopol alleged that Shoemart breached the contract when the latter failed to furnish the former with the requisite documents by which the former’s liability Page | 368

shall be determined, namely: charge invoices, purchase booklets and purchase journal, as provided in their contract; that without the requisite documents, spouses Hanopol had no way of knowing that, in fact, they had already paid, even overpaid, whatever they owed to Shoemart; that despite said breach, Shoemart even had the audacity to apply for extrajudicial foreclosure with the Sheriff. ISSUE: Whether or not Shoemart acted with manifest bad faith in pursuing with the foreclosure and auction sale of the property of spouses Hanopol, and, accordingly, should be held liable for damages. RULING: All the three (3) elements for litis pendentia as a ground for dismissal of an action are present, namely: (a) identity of parties, or at least such parties who represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity, with respect to the two (2) preceding particulars in the two (2) cases, in such that any judgment that may be rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other. In the case at bench, the parties are the same; the relief sought in the case before the Court of Appeals and the trial court are the same, that is, to permanently enjoin the foreclosure of the real estate mortgage executed by spouses Hanopol in favor of Shoemart; and, both are premised on the same facts. The judgment of the Court of Appeals would constitute a bar to the suit before the trial court.

TERMINAL FACILITIES vs. PPA 378 SCRA 82 FACTS: Before us are two (2) consolidated petitions for review, one filed by the Terminal Facilities and Services Corporation (TEFASCO) and the other by the Philippine Ports Authority (PPA). TEFASCO is a domestic corporation organized and existing under the laws of the Philippines with principal place of business at Barrio Ilang, Davao City. It is engaged in the business of providing port and terminal facilities as well as arrastre, stevedoring and other port-related services at its own private port at Barrio Ilang.

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Sometime in 1975 TEFASCO submitted to PPA a proposal for the construction of a specialized terminal complex with port facilities and a provision for port services in Davao City. To ease the acute congestion in the government ports at Sasa and Sta. Ana, Davao City, PPA welcomed the proposal and organized an inter-agency committee to study the plan. The committee recommended approval. On April 21, 1976 the PPA Board of Directors passed Resolution No. 7 accepting and approving TEFASCO's project proposal. Long after TEFASCO broke round with massive infrastructure work, the PPA Board curiously passed on October 1, 1976 Resolution No. 50 under which TEFASCO, without asking for one, was compelled to submit an application for construction permit. Without the consent of TEFASCO, the application imposed additional significant conditions. The series of PPA impositions did not stop there. Two (2) years after the completion of the port facilities and the commencement of TEFASCO's port operations, or on June 10, 1978, PPA again issued to TEFASCO another permit, under which more onerous conditions were foisted on TEFASCO's port operations. In the purported permit appeared for the first time the contentious provisions for ten percent (10%) government share out of arrastre and stevedoring gross income and one hundred percent (100%) wharfage and berthing charges. On February 10, 1984 TEFASCO and PPA executed a Memorandum of Agreement (MOA) providing among others for (a) acknowledgment of TEFASCO's arrears in government share at Three Million Eight Hundred Seven Thousand Five Hundred Sixty-Three Pesos and Seventy-Five Centavos (P3,807,563.75) payable monthly, with default penalized by automatic withdrawal of its commercial private port permit and permit to operate cargo handling services; (b) reduction of government share from ten percent (10%) to six percent (6%) on all cargo handling and related revenue (or arrastre and stevedoring gross income); (c) opening of its pier facilities to all commercial and third-party cargoes and vessels for a period coterminous with its foreshore lease contract with the National Government; and, (d) tenure of five (5) years extendible by five (5) more years for TEFASCO's permit to operate cargo handling in its private port facilities. In return PPA promised to issue the necessary permits for TEFASCO's port activities. TEFASCO complied with the MOA and paid the accrued and current government share. On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and Port Officer in Davao City for refund of government share it had paid and for damages as a result of alleged illegal exaction from its clients of one hundred percent (100%) berthing and wharfage fees. The complaint also sought to nullify the February 10, 1984 MOA and all other PPA issuances modifying the terms and conditions of the April 21, 1976 Resolution No. 7 above-mentioned. PPA appealed the decision of the trial court to the Court of Appeals. The appellate court in its original decision recognized the validity of the impositions and reversed in Page | 370

toto the decision of the trial court. TEFASCO moved for reconsideration which the Court of Appeals found partly meritorious. Thus the Court of Appeals in its Amended Decision partially affirmed the RTC decision only in the sense that PPA was directed to pay TEFASCO (1) the amounts of Fifteen Million Eight Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos (P15,810,032.07) representing fifty percent (50%) wharfage fees and Three Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (P3,961,964.06) representing thirty percent (30%) berthing fees which TEFASCO could have earned as private port usage fee from 1977 to 1991. The Court of Appeals held that the one hundred percent (100%) berthing and wharfage fees were unenforceable because they had not been approved by the President under P.D. No. 857, and discriminatory since much lower rates were charged in other private ports as shown by PPA issuances effective 1995 to 1997. Both PPA and TEFASCO were unsatisfied with this disposition hence these petitions. ISSUE: Whether or not the collection by PPA of one hundred percent (100%) wharfage fees and berthing charges; (c) the propriety of the award of fifty percent (50%) wharfage fees and thirty percent (30%) berthing charges as actual damages in favor of TEFASCO for the period from 1977 to 1991 is valid. RULING: The imposition by PPA of ten percent (10%), later reduced to six percent (6%), government share out of arrastre and stevedoring gross income of TEFASCO is void. This exaction was never mentioned in the contract, much less is it a binding prestation, between TEFASCO and PPA. What was clearly stated in the terms and conditions appended to PPA Resolution No. 7 was for TEFASCO to pay and/or secure from the proper authorities "all fees and/or permits pertinent to the construction and operation of the proposed project." The government share demanded and collected from the gross income of TEFASCO from its arrastre and stevedoring activities in TEFASCO's wholly owned port is certainly not a fee or in any event a proper condition in a regulatory permit. Rather it is an onerous "contractual stipulation" which finds no root or basis or reference even in the contract aforementioned.

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MENDOZA vs. COURT OF APPEALS June 25, 2001 FACTS: Petitioner Danilo D. Mendoza is engaged in the domestic and international trading of raw materials and chemicals. He operates under the business name Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with the Department of Trade and Industry (DTI). Sometime in 1978 he was granted by respondent Philippine National Bank (PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One Million Pesos (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations and for those which may thereinafter be granted, petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of land with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3) several pieces of machinery and equipment in his Pasig cocochemical plant. Petitioner executed in favor of respondent PNB three (3) promissory notes covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00); another dated March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the last dated September 27, 1979 for One Hundred Fifty Thousand Pesos (P150,000.00). Petitioner made use of his LC/TR line to purchase raw materials from foreign importers. He signed a total of eleven (11) documents denominated as "Application and Agreement for Commercial Letter of Credit," on various dates In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr., respondent PNB advised petitioner Mendoza that effective December 1, 1979, the bank raised its interest rates to 14% per annum, in line with Central Bank's Monetary Board Resolution No. 2126 dated November 29, 1979. On March 9, 1981, he wrote a letter to respondent PNB requesting for the restructuring of his past due accounts into a five-year term loan and for an additional LC/TR line of Two Million Pesos (P2,000,000.00). According to the letter, because of the shut-down of his end-user companies and the huge amount spent for the expansion Page | 372

of his business, petitioner failed to pay to respondent bank his LC/TR accounts as they became due and demandable. Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the respondent bank and required petitioner to submit the following documents before the bank would act on his request: 1) Audited Financial Statements for 1979 and 1980; 2) Projected cash flow (cash in - cash out) for five (5) years detailed yearly; and 3) List of additional machinery and equipment and proof of ownership thereof. Cura also suggested that petitioner reduce his total loan obligations to Three Million Pesos (P3,000,000.00). On September 25, 1981, petitioner sent another letter addressed to PNB VicePresident Jose Salvador, regarding his request for restructuring of his loans. He offered respondent PNB the following proposals: 1) the disposal of some of the mortgaged properties, more particularly, his house and lot and a vacant lot in order to pay the overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term loan payable semi-annually or on annual installments; 3) a new Two Million Pesos (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment of all his receivables to PNB from all domestic and export sales generated by the LC/TR line; and 5) maintenance of the existing Five Hundred Thousand Pesos (P500,000.00) credit line. The petitioner testified that respondent PNB Mandaluyong Branch found his proposal favorable and recommended the implementation of the agreement. However, Fernando Maramag, PNB Executive Vice-President, disapproved the proposed release of the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos (P1,000,000.00). Petitioner claimed he was forced to agree to these changes and that he was required to submit a new formal proposal and to sign two (2) blank promissory notes. In a letter dated July 2, 1982, petitioner offered the following revised proposals to respondent bank: 1) the restructuring of past due accounts including interests and penalties into a 5-year term loan, payable semi-annually with one year grace period on the principal; 2) payment of Four Hundred Thousand Pesos (P400,000.00) upon the approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the interest component with interest rate at 16% per annum; 5) establishment of a One Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties; 6) assignment of all his export proceeds to respondent bank to guarantee payment of his Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and 128/82 as they fell due. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public auction to respondent PNB, as highest bidder, for a total of Three Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50). The petitioner filed a complaint for specific performance, nullification of the extra-judicial foreclosure and damages against respondents PNB. He alleged that the Page | 373

Extrajudicial Foreclosure Sale of the mortgaged properties was null and void since his loans were restructured to a five-year term loan; hence, it was not yet due and demandable. On March 16, 1992, the trial court rendered judgment in favor of the petitioner and ordered the nullification of the extrajudicial foreclosure of the real estate mortgage, the Sheriff’s sale of the mortgaged real properties by virtue of consolidation thereof and the cancellation of the new titles issued to PNB; that PNB vacate the subject premises in Pasig and turn the same over to the petitioner; and also the nullification of the extrajudicial foreclosure and sheriff's sale of the mortgaged chattels, and that the chattels be returned to petitioner Mendoza if they were removed from his Pasig premises or be paid for if they were lost or rendered unserviceable. The trial court decided for the petitioner. Upon appeal, the Court of Appeals reversed the decision of the trial court and dismissed the complaint. ISSUE: Whether or not respondent promised to be bound by the proposal of the petitioner for a five-year restructuring of his overdue loan. RULING: No. Respondent Court of Appeals held that there is no evidence of a promise from respondent PNB, admittedly a banking corporation, that it had accepted the proposals of the petitioner to have a five-year restructuring of his overdue loan obligations. It found and held, on the basis of the evidence adduced, that "appellee's (Mendoza) communications were mere proposals while the bank's responses were not categorical that the appellee's request had been favorably accepted by the bank." Nowhere in those letters presented by the petitioner is there a categorical statement that respondent PNB had approved the petitioner’s proposed five-year restructuring plan. It is stretching the imagination to construe them as evidence that his proposed five-year restructuring plan has been approved by the respondent PNB which is admittedly a banking corporation. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract. If anything, those correspondences only prove that the parties had not gone beyond the preparation stage, which is the period from the start of the negotiations until the moment just before the agreement of the parties. The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise reasonably expected to induce action or forebearance; (2) such promise did in fact induce such action or forebearance, and (3) the party suffered detriment as a result. It is clear from the forgoing that the doctrine of promissory estoppel presupposes the existence of a promise on the part of one against whom estoppel is claimed. The Page | 374

promise must be plain and unambiguous and sufficiently specific so that the Judiciary can understand the obligation assumed and enforce the promise according to its terms. For petitioner to claim that respondent PNB is estopped to deny the five-year restructuring plan, he must first prove that respondent PNB had promised to approve the plan in exchange for the submission of the proposal. As discussed earlier, no such promise was proven, therefore, the doctrine does not apply to the case at bar. A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable. It does not operate to create liability where it does not otherwise exist.

ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION vs. COURT OF APPEALS 266 SCRA 71 FACTS:

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On 23 September 1986 respondent Contractors Equipment Corporation (CEC) instituted an action for a sum of money against petitioner Roblett Industrial Construction Corporation (RICC) before the Regional Trial Court of Makati alleging that in 1985 it leased to the latter various construction equipment which it used in its projects. As a result RICC incurred unpaid accounts amounting to P342,909.38. On 19 December 1985 RICC through its Assistant Vice President for Finance Candelario S. Aller Jr. entered into an Agreement with CEC where it confirmed petitioner's account. As an off-setting arrangement respondent received from petitioner construction materials worth P115,000.00 thus reducing petitioner's balance to P227,909.38. A day before the execution of their Agreement, or on 18 December 1985, RICC paid CEC P10,000.00 in postdated checks which when deposited were dishonored. As a consequence the latter debited the amount to petitioner's account of P227,909.38 thus increasing its balance to P237,909.38. On 24 July 1986 Mariano R. Manaligod, Jr., General Manager of CEC, sent a letter of demand to petitioner through its Vice President for Finance regarding the latter's overdue account of P237,909.38 and sought settlement thereof on or before 31 July 1986. In reply, petitioner requested for thirty (30) days to have enough time to look for funds to substantially settle its account. Traversing the allegations of respondent, Candelario S. Aller Jr. declared that he signed the Agreement with the real intention of having proof of payment. In fact Baltazar Banlot, Vice President for Finance of petitioner, claimed that after deliberation and audit it appeared that petitioner overpaid respondent by P12,000.00 on the basis of the latter's Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected a total obligation of only P103,000.00. He claimed however that the Agreement was not approved by the Board and that he did not authorize Aller Jr. to sign thereon. On rebuttal, Manaligod Jr. declared that petitioner had received a statement of account covering the period from 28 March to 12 July 1985 in the amount of P376,350.18 which it never questioned. From this amount P3,440.80, based on respondent's account with petitioner and P30,000.00, representing payments made by the latter, were deducted thus leaving a balance of P342,909.38 as mentioned in the Agreement. On 19 December 1990 the trial court rendered judgment ordering petitioner to pay respondent

ISSUE: Whether or not the agreement between the parties is binding upon them.

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RULING: Yes. It must be emphasized that the same agreement was used by plaintiff as the basis for claiming defendant's obligation of P237,909.38 and also used by defendant as the same basis for its alleged payment in full of its obligation to plaintiff. But while plaintiff treats the entire agreement as valid, defendant wants the court to treat that portion which treats of the offsetting of P115,000.00 as valid, whereas it considers the other terms and conditions as "onerous, illegal and want of prior consent and Board approval." This Court cannot agree to defendant's contention. It must be stressed that defendant's answer was not made under oath, and therefore, the genuineness and due execution of the agreement which was the basis for plaintiff's claim is deemed admitted (Section 8, Rule 8, Rules of Court). Such admission, under the principle of estoppel, is rendered conclusive upon defendant and cannot be denied or disproved as against plaintiff (Art. 1431, Civil Code). Either the agreement is valid or void. It must be treated as a whole and not to be divided into parts and consider only those provisions which favor one party (in this case the defendant). Contracts must bind both contracting parties, its validity or compliance cannot be left to the will of one of them (Art. 1308, New Civil Code).

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METROBANK vs. CABILZO 510 SCRA 259 FACTS: On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to “CASH” and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1, 000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules. On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make some transaction when he was asked by bank personnel if Cabilzo had issued a check in the amount of P91, 000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91, 000.00 and requested that the questioned check be returned to him for verification, to which Metrobank complied. Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount of P1, 000.00 was altered to P91, 000.00 and the date 24 November 1994 was changed to 14 November 1994.Hence, Cabilzo demanded that Metrobank re-credit the amount of P91, 000.00 to his account. Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still failed to re-credit the amount of P91, 000.00 to Cabilzo’s account On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand to Metrobank for the payment of P90, 000.00, after deducting the original value of the check in the amount of P1, 000.00. Such written demand notwithstanding, Metrobank still failed or Page | 378

refused to comply with its obligation. Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor. ISSUE: Whether equitable estoppel can be appreciated in favor of petitioner

HELD: The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces between and after the amounts, not only those stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and prejudice of Cabilzo. Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights under the doctrine of equitable estoppel when the facts on record are bare of evidence to support such conclusion. The doctrine of equitable estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. Metrobank’s reliance on this dictum is misplaced. For one, Metrobank’s representation that it is an innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause of the loss in the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it, which petitioner failed to.

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MESINA vs. GARCIA 509 SCRA 431 FACTS: Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, or on 26 April 1977, to be exact entered into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT No. T-78881 was issued in the name of herein petitioners. Atty. Honorio Valisno Garcia is the deceased husband of [herein respondent Gloria C. Garcia] while the late Felicisima Mesina is the mother of Danilo, Simeon, and Melanie, all surnamed Mesina. Page | 380

The Contract to sell provides that the cost of the lot is P70.00 per square meter for a total amount of P16, 450.00; payable within a period not to exceed seven (7) years at an interest rate of 12% per annum, in successive monthly installments of P260.85 per month, starting May 1977. Thereafter, the succeeding monthly installments are to be paid within the first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly installments earning an interest of one percent (1%) per month. The Contract also stipulated, among others, that: Should the spouses Garcia fail to pay five (5) successive monthly installments, Felicisima Mesina shall have a right to rescind the Contract to Sell. All paid installments to be recomputed as rental for usage of lot shall be at the rate of P100.00 a month and that Felicisima Mesina shall have the further option to return the downpayment plus whatever balance spouses Garcia paid, thereby rescinding the Contract to Sell. Upon rescission of the Contract to sell, spouses Garcia agree to remove all the improvements built on the lot within three (3) months from rescission of this contract, spouses Garcia shouldering all expenses of said removal. Instituting this case at bar, respondent asserts that despite the full payment made on February 7, 1984 for the consideration of the subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of the property to her ISSUES: Whether respondent’s cause of action had already prescribed Whether petitioners are in estoppel HELD: In the case at bar, as pointed out by the Court of Appeals, the right of action of the respondent accrued on the date that the full and final payment of the contract price was made. Accordingly, as the full payment of the purchase price on the subject Contract to Sell had been effected on 7 February 1984 thus, respondent had from said date until February 7, 1994 within which to bring an action to enforce the written contract, the Contract to Sell. It was then the contention of the petitioners that when the respondent instituted her Complaint for Specific Performance with Damages on 20 January 1997, the same had already been barred by prescription. The contention of the petitioners is untenable. Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when an action has been filed in court; when there is a written extrajudicial demand made by the creditors; and when there is any written acknowledgment of the debt by the debtor. Hence the action has not yet prescribed. With respect to the issue on estoppel, this Court, upon reviewing the records of the case at bar, finds no reason to overturn the findings of the appellate court that, indeed, petitioners are estopped from avowing that they never had knowledge as to the acceptance of the delayed payments made by the respondent, and that they never Page | 381

induced respondent to believe that she had validly effected full payment. Evidence on record show that petitioners can no longer deny having accepted the late payments made by the respondent because in a letter dated April 10, 1986 sent to petitioner Simeon Mesina by Engineer Danilo Angeles, who is the husband of petitioners’ authorized collection agent Angelina Angeles, he told petitioner Simeon Mesina that the title and the Deed of Sale were both ready for their signature, and respondent was willing and ready to pay for the excess area. Hence, if petitioners did not accept the late payments of the respondent, and if they did not consider such as full payment of the purchase price on the subject property as they claimed it to be, the title as well as the Deed of Sale could not have been prepared for their signature. In the same way, respondent could not have sent a demand letter to ask for the execution of those documents had they not been induced to believe that the late payments were validly accepted and that the purchase price had already been paid in full. There were statements, which were made under oath, which made it crystal clear that the late payments were accepted by the petitioners, and that the payments corresponded to the purchase value of the subject property; therefore, petitioners cannot deny the fact that the full payment of the purchase value of the lot in question had in fact been made by the respondent.

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PAHAMOTANG VS. PNB G.R. No. 156403, March 21, 2005 FACTS: On July 1, 1972, Melitona Pahamotang died. She was survived by her husband Agustin Pahamotang, and their eight (8) children, namely: Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor, all surnamed Pahamotang. On September 15, 1972, Agustin filed with the then Court of First Instance of Davao City a petition for issuance of letters administration over the estate of his deceased wife. The petition, docketed as Special Case No. 1792, was raffled to Branch VI of said court, hereinafter referred to as the intestate court. In his petition, Agustin identified petitioners Josephine and Eleonor as among the heirs of his deceased spouse. It appears that Agustin was appointed petitioners' judicial guardian in an earlier case - Special Civil Case No. 1785 – also of the CFI of Davao City, Branch VI. On December 7, 1972, the intestate court issued an order granting Agustin’s petition. The late Agustin then executed several mortgages and later sale of the properties with the PNB and Arguna respectively. The heirs later questioned the validity of the transactions prejudicial to them. The trial court declared the real estate mortgage and the sale void but both were valid with respect to the other parties. The decision was reversed by the Court of Appeals; to the appellate court, petitioners committed a fatal error of mounting a collateral attack on the foregoing orders instead of initiating a direct action to annul them. ISSUE: Whether the Court of Appeals erred in reversing the decision of the trial court RULING: In the present case, the appellate court erred in appreciating laches against petitioners. The element of delay in questioning the subject orders of the intestate court is sorely lacking. Petitioners were totally unaware of the plan of Agustin to mortgage and sell the estate properties. There is no indication that mortgagor PNB and vendee Arguna had notified petitioners of the contracts they had executed with Agustin. Although petitioners finally obtained knowledge of the subject petitions filed by their father, and eventually challenged the July 18, 1973, October 19, 1974, February 25, Page | 383

1980 and January 7, 1981 orders of the intestate court, it is not clear from the challenged decision of the appellate court when they (petitioners) actually learned of the existence of said orders of the intestate court. Absent any indication of the point in time when petitioners acquired knowledge of those orders, their alleged delay in impugning the validity thereof certainly cannot be established. And the Court of Appeals cannot simply impute laches against them.

SHOPPER'S PARADISE REALTY & DEVELOPMENT CORPORATION vs. EFREN ROQUE January 13, 2004 FACTS: On 23 December 1993, petitioner Shopper's Paradise Realty & Development Corporation, represented its president, Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque, now deceased, over a parcel of land, Petitioner issued to Dr. Roque a check for P250,000.00 by way of "reservation payment." Simultaneously, petitioner and Dr. Roque likewise entered into a memorandum of agreement for the construction, development and operation of a commercial building complex on the property. Conformably with the agreement, petitioner issued a check for another P250,000.00 "downpayment" to Dr. Roque. The annotations, however, were never made because of the untimely demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994 constrained petitioner to deal with respondent Efren P. Roque, one of the surviving children of the late Dr. Roque, but the negotiations broke down due to some disagreements. In a letter, dated 3 November 1994, respondent advised petitioner "to desist from any attempt to enforce the aforementioned contract of lease and memorandum of agreement". On 15 February 1995, respondent filed a case for annulment of the contract of lease and the memorandum of agreement, with a prayer for the issuance of a preliminary injunction. Efren P. Roque alleged that he had long been the absolute owner of the subject property by virtue of a deed of donation inter vivos executed in his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and that the late Dr. Felipe Roque had no authority to enter into the assailed agreements with petitioner. The donation was made in a public instrument duly acknowledged by the donor-spouses before a notary public and duly accepted on the same day by respondent before the notary public in the same instrument of donation. The title to the property, however, remained in the name Page | 384

of Dr. Felipe C. Roque, and it was only transferred to and in the name of respondent sixteen years later, or on 11 May 1994, while he resided in the United States of America, delegated to his father the mere administration of the property. Respondent came to know of the assailed contracts with petitioner only after retiring to the Philippines upon the death of his father. On 9 August 1996, the trial court dismissed the complaint of respondent; it explained: Ordinarily, a deed of donation need not be registered in order to be valid between the parties. Registration, however, is important in binding third persons. Thus, when Felipe Roque entered into a lease contract with defendant corporation, plaintiff Efren Roque (could) no longer assert the unregistered deed of donation and say that his father, Felipe, was no longer the owner of the subject property at the time the lease on the subject property was agreed upon. "The registration of the Deed of Donation after the execution of the lease contract did not affect the latter unless he had knowledge thereof at the time of the registration which plaintiff had not been able to establish. Plaintiff knew very well of the existence of the lease. He, in fact, met with the officers of the defendant corporation at least once before he caused the registration of the deed of donation in his favor and although the lease itself was not registered, it remains valid considering that no third person is involved. Plaintiff cannot be the third person because he is the successor-in-interest of his father, Felipe Roque, the lessor, and it is a rule that contracts take effect not only between the parties themselves but also between their assigns and heirs (Article 1311, Civil Code) and therefore, the lease contract together with the memorandum of agreement would be conclusive on plaintiff Efren Roque. He is bound by the contract even if he did not participate therein. Moreover, the agreements have been perfected and partially executed by the receipt of his father of the downpayment and deposit totaling to P500,000.00." The trial court ordered respondent to surrender TCT No. 109754 to the Register of Deeds of Quezon City for the annotation of the questioned Contract of Lease and Memorandum of Agreement. On appeal, the Court of Appeals reversed the decision of the trial court and held to be invalid the Contract of Lease and Memorandum of Agreement. While it shared the view expressed by the trial court that a deed of donation would have to be registered in order to bind third persons, the appellate court, however, concluded that petitioner was not a lessee in good faith having had prior knowledge of the donation in favor of respondent, and that such actual knowledge had the effect of registration insofar as petitioner was concerned. The appellate court based its findings largely on the testimony of Veredigno Atienza during cross-examination. ISSUE: Whether or not the respondent is barred by laches and estoppel from denying the contracts. RULING: The Court cannot accept petitioner's argument that respondent is guilty of laches. Laches, in its real sense, is the failure or neglect, for an unreasonable and unexplained Page | 385

length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. Respondent learned of the contracts only in February 1994 after the death of his father, and in the same year, during November, he assailed the validity of the agreements. Hardly, could respondent then be said to have neglected to assert his case for an unreasonable length of time. Neither is respondent estopped from repudiating the contracts. The essential elements of estoppel in pais, in relation to the party sought to be estopped, are: 1) a clear conduct amounting to false representation or concealment of material facts or, at least, calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; 2) an intent or, at least, an expectation, that this conduct shall influence, or be acted upon by, the other party; and 3) the knowledge, actual or constructive, by him of the real facts. With respect to the party claiming the estoppel, the conditions he must satisfy are: 1) lack of knowledge or of the means of knowledge of the truth as to the facts in question; 2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and 3) action or inaction based thereon of such character as to change his position or status calculated to cause him injury or prejudice. 12 It has not been shown that respondent intended to conceal the actual facts concerning the property; more importantly, petitioner has been shown not to be totally unaware of the real ownership of the subject property. Altogether, there is no cogent reason to reverse the Court of Appeals in its assailed decision.

MEATMASTER vs. LELIS INTEGRATED 452 SCRA 626 FACTS: On November 11, 1993, petitioner Meatmasters International Corporation engaged the services of respondent Lelis Integrated Development Corporation to Page | 386

undertake the construction of a slaughterhouse and meat cutting and packing plant. The Construction Agreement provided that the construction of petitioner’s slaughterhouse should be completed by March 10, 1994. Respondent failed to finish the construction of the said facility within the stipulated period, hence, petitioner filed a complaint for rescission of contract and damages on August 9, 1996 before the Regional Trial Court. On November 23, 1998, the trial court rendered decision RESCINDING the Construction Agreement between plaintiff Meatmaster Int’l. Corp. and defendant Lelis Integrated Dev’t. Corp. with both parties shouldering their own respective damage. A copy of the decision was received by the respondent on December 9, 1998. A motion for reconsideration was filed by respondent on December 22, 1998, but the same was denied. A copy of the resolution denying the motion for reconsideration was received on March 25, 1999. Respondent filed its notice of appeal on March 29, 1999. Initially, the trial court dismissed the appeal for failure of the respondent to pay the requisite docket fees within the reglementary period. Upon motion by the respondent however, the trial court reconsidered and gave due course to the notice of appeal because respondent paid the docket fees. In a motion to dismiss filed before the appellate court, the petitioner alleged that respondent’s appeal suffers from jurisdictional infirmity because of late payment of docket fees. CA set aside the decision of the trial court and directed petitioner to pay respondent the amount of P1,863,081.53. Petitioner’s motion for reconsideration was denied Hence, the instant petition. ISSUE: Whether or not the Court of Appeals erred in entertaining the appeal of respondent despite the finality of the trial court’s decision. RULING: Yes. It is well-established that the payment of docket fees within the prescribed period is mandatory for the perfection of an appeal. This is so because a court acquires jurisdiction over the subject matter of the action only upon the payment of the correct amount of docket fees regardless of the actual date of filing of the case in court. The payment of the full amount of the docket fee is a sine qua non requirement for the perfection of an appeal. The court acquires jurisdiction over the case only upon the payment of the prescribed docket fees. In the case at bar, the respondent seasonably filed the notice of appeal but it paid the docket fees one (1) month after the lapse of the appeal period. As admitted by the respondent, the last day for filing the notice of appeal was on March 29, 1999, but it paid Page | 387

the docket fees only on April 30, 1999 because of oversight. Obviously, at the time the said docket fees were paid, the decision appealed from has long attained finality and no longer appealable. Respondent’s contention that the petitioner is now estopped from raising the issue of late payment of the docket fee because of his failure to assail promptly the trial court’s order approving the notice of appeal and accepting the appeal fee, is untenable. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. In the case at bar, petitioner raised at the first instance the non-payment of the docket fee in its motion for reconsideration before the trial court. Petitioner reiterated its objection in the motion to dismiss before the appellate court and finally, in the instant petition. Plainly, petitioner cannot be faulted for being remiss in asserting its rights considering that it vigorously registered a persistent and consistent objection to the Court of Appeals’ assumption of jurisdiction at all stages of the proceedings.

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MANIPOR vs. RICAFORT 407 SCRA 298 FACTS: Respondent spouses Pablo and Antonia Ricafort instituted an action for annulment of Transfer of Certificate of Title in the name of spouses Renato and Teresita Villareal covering a 299 sq.m. lot. The Ricaforts alleged that they are co-owners of said property together with Abelardo, the father and predecessor of Renato as evidenced by an agreement whereby Abelardo recognized their ownership of ½ portion of the lot. Respondents also claim that, in violation of the agreement, Abelardo obtained during his lifetime Original Certificate of Title over the lot without their knowledge and consent. When Abelardo died in 1993, Renato and Teresita transferred the title over the land in their name and were issued a TCT. In the course of the proceedings, parties entered into a compromise settlement wherein the Villareals admitted the genuineness and due execution of the agreement between respondents and Abelardo. Hence, they agreed to physically divide the lot into half. They also agreed to cause a relocation survey and the expenses will be borne equally by them. The trial court approved the compromise agreement but not long thereafter, respondents filed a motion to cite the Villareals in contempt of court for refusing to comply with the terms of the agreement. Eventually, herein petitioners who are all siblings of Renato filed a motion for intervention and substitution of parties alleging that spouses Renato and Teresita have waived their interest in the disputed lot in their favor. Petitioners availed of various remedies only to pursue the endeavor for the annulment of the compromise judgment. Most of them were denied until they resorted to this review before the Supreme Court. ISSUE: Page | 389

Whether or not the petitioners are estopped from seeking the annulment of the compromise judgment. RULING: Yes, note that in a Sinumpaang Salaysay, petitioners admitted that they acquiesced to have the subject lot donated and registered in Renato’s name. In view of such admission, petitioners are estopped from denying Renato’s absolute title to the lot. Under the principle of estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied against the person relying thereon. Verily, since petitioners admitted that they donated the lot to Renato, they cannot now be allowed to defeat respondent’s claim by conveniently asserting that they are coowners of the lot. Otherwise, respondents, who rightfully relied on the Certificate of Title, would be prejudiced by petitioner’s misleading conduct.

LARENA vs. MAPILI 408 SCRA 484 FACTS: Hipolito Mapili during his lifetime owned a parcel of unregistered land declared for taxation purposes in his name. The property had descended by succession from Hipolito to his only son Magno and on to the latter’s own widow and children. These heirs, the herein respondents, took possession of the property up to the outbreak of World War II when they evacuated to the hinterlands. On the other hand, petitioner Aquilina Larena took possession of the property in the1970’s alleging that she had purchased it from her aunt (Filomena Larena) on February 17, 1968. Filomena Larena in turn claimed to have bought it from Hipolito on October 28, 1949, as evidence by the Affidavit of Transfer of Real Property executed on the same date. The Regional Trial Court, however, declared the said affidavit as spurious because Hipolito was already dead when the alleged transfer was made to Filomena Larena. On appeal, the Court of Appeals declared that respondents had never lost their right to the land in question as they were the heirs to whom the property had descended upon the death of the original claimant and possessor. Page | 390

ISSUE: Whether or not Filomena Larena acquired the subject property by means of sale, prescription, and/or laches. RULING: No, Filomena did not acquire said property by means of sale, prescription and/or laches. First, the tax declarations are not a conclusive evidence of ownership, but a proof that the holder has a claim of title over the property. It is good indicia of possession in the concept of owner. It may strengthen Aquilina’s bona fide claim of acquisition of ownership. However, petitioners failed to present the evidence needed to tack the date of possession on the property in question. Second, acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. Since the claims of purchase were unsubstantiated, petitioners’ acts of possessory character have been merely tolerated by the owner. Hence, it did not constitute possession. Moreover, there is lack of just title on the part of Aquilina and therefore, ordinary acquisitive prescription of ten (10) years as provided under Article 1134 of the Civil Code cannot be applied. Under Article 1137 of the Civil Code, the lapse of time required for extra-ordinary acquisitive prescription is thirty (30) years, and records show that the lapse of time was only twenty-seven (27) years—a period that was short of three (3) years, when the complaint was filed. Finally, laches is a failure or neglect for an unreasonable and unexplained length of time to do that which could or should have been done earlier through the exercise of due diligence. The filing by respondents of the complaint in 1977 completely negates the decision that the latter were negligent in asserting their claim.

SANTOS vs. SANTOS 366 SCRA 395 FACTS: Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa SantosCarreon. The spouses Jesus and Rosalia were the parents of the respondents and the husband of the petitioner. The spouses owned a parcel of registered land with a fourdoor apartment administered by Rosalia who rented them out. On January 19, 1959, the Page | 391

spouses executed a deed of sale of the properties in favor of their children Salvador and Rosa. Rosa in turn sold her share to Salvador on November 20, 1973, which resulted in the issuance of new TCT. Despite the transfer of the property to Salvador, Rosalia continued to lease and receive rentals from the apartment units. On January 9, 1985, Salvador died, followed by Rosalia who died the following month. Shortly after, petitioner Zenaida, claiming to be Salvador’s heir, demanded the rent from Antonio Hombrebueno, a tenant of Rosalia. When the latter refused to pay, Zenaida filed an ejectment suit against him with the Metropolitan Trial Court of Manila, which eventually decided in Zenaida’s favor. On January 5, 1989, private respondent instituted an action for reconveyance of property with preliminary injunction against petitioner in the Regional Trial Court of Manila, where they alleged that the two deeds of sale were simulated for lack of consideration. The petitioner on the other hand denied the material allegations in the complaint and that she further alleged that the respondents’ right to reconveyance was already barred by prescription and laches considering the fact that from the date of sale from Rosa to Salvador up to his death, more or less twelve (12) years had lapsed, and from his death up to the filing of the case for reconveyance, four (4) years has elapsed. In other words, it took respondents about sixteen (16) years to file the case. Moreover, petitioner argues that an action to annul a contract for lack of consideration prescribes in ten (10) years and even assuming that the cause of action has not prescribed, respondents are guilty of laches for their inaction for a long period of time. The trial court decided in favor of private respondents in as much as the deeds of sale were fictitious, the action to assail the same does not prescribe. Upon appeal, the Court of Appeals affirmed the trial court’s decision. It held that the subject deeds of sale did not confer upon Salvador the ownership over the subject property, because even after the sale, the original vendors remained in dominion, control, and possession thereof. ISSUE: Whether or not the cause of action of the respondents had prescribed and/or barred by laches. RULING: No, the cause of action by the respondents had not prescribed nor is it barred by laches. First, the right to file an action for the reconveyance of the subject property to the estate of Rosalia has not prescribed since deeds of sale were simulated and fictitious. The complaint amounts to a declaration of nullity of a void contract, which is imprescriptible. Hence, respondents’ cause of action has not prescribed. Page | 392

Second, neither is their action barred by laches. The elements of laches are: 1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which the complainant seeks a remedy; 2) delay in asserting the complainant’s rights, the complainant having knowledge or notice of the defendant’s conduct as having been afforded an opportunity to institute a suit; 3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right in which he bases his suit; and 4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred. These elements must all be proved positively. The lapse of four (4) years is not an unreasonable delay sufficient to bar respondent’s action. Moreover, the fourth (4th) element is lacking in this case. The concept of laches is not concerned with the lapse of time but only with the effect of unreasonable lapse. The alleged sixteen (16) years of respondents’ inaction has no adverse effect on the petitioner to make respondents guilty of laches.

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VILLANUEVA- MIJARES ET. AL. vs. COURT OF APPEALS April 12, 2000 FACTS: Felipe Villanueva left a 15,336-square-meter parcel of land in Kalibo, Capiz to his eight children: Simplicio, Benito, Leon, Eustaquio, Camila, Fausta and Pedro. In 1952, Pedro declared under his name 1/6 portion of the property (1,905 sq. m.). He held the remaining properties in trust for his co-heirs who demanded the subdivision of the property but to no avail. After Leon’s death in 1972, private respondents discovered that the shares of Simplicio, Nicolasa, Fausta and Maria Baltazar had been purchased by Leon through a deed of sale dated August 25, 1946 but registered only in 1971. In July 1970, Leon also sold and partitioned the property in favor of petitioners, his children, who thereafter secured separate and independent titles over their respective proindiviso shares. Private respondents, who are also descendants of Felipe, filed an action for partition with annulment of documents and/or reconveyance and damages against petitioners. They contended that Leon fraudulently obtained the sale in his favor through machinations and false pretenses. The RTC declared that private respondents’ action had been barred by res judicata and that petitioners are the “legal owners of the property in question in accordance with the individual titles issued to them. ISSUE: Whether or not laches apply against the minor’s property that was held in trust. RULING: No. At the time of the signing of the Deed of Sale of August 26,1948, private respondents Procerfina, Prosperedad, Ramon and Rosa were minors. They could not be faulted for their failure to file a case to recover their inheritance from their uncle Leon, since up to the age of majority, they believed and considered Leon their co-heir administrator. It was only in 1975, not in 1948, that they became aware of the actionable betrayal by their uncle. Upon learning of their uncle’s actions, they filed for recovery. Hence, the doctrine of stale demands formulated in Tijam cannot be applied here. They did not sleep on their rights, contrary to petitioner’s assertion.

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Furthermore, when Felipe Villanueva died, an implied trust was created by operation of law between Felipe’s children and Leon, their uncle, as far as the 1/6 share of Felipe. Leon’s fraudulent titling of Felipe’s 1/6 share was a betrayal of that implied trust.

TOLENTINO vs. SECRETARY 235 SCRA 630 FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. The petitioners challenge the constitutionality of Republic Act No. 7716 on various grounds. ISSUE: Whether or not the imposition of Vat violates the non-impairment clause. RULING: Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision that "No law impairing the obligation of contracts shall be passed." It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment Page | 395

presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society.

DUNCAN ASSOCIATION OF DETAILMAN PTGW vs. GLAXOWELLCOM PHILIPPINES G.R. No. 162994, September 17, 2004 FACTS: Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome Philippines, Inc. (Glaxo) as medical representative on October 24, 1995, after Tecson had undergone training and orientation. Thereafter, Tecson signed a contract of employment which stipulates, among others, that he agrees to study and abide by existing company rules; to disclose to management any existing or future relationship by consanguinity or affinity with co-employees or employees of competing drug companies and should management find that such relationship poses a possible conflict of interest, to resign from the company. The Employee Code of Conduct of Glaxo similarly provides that an employee is expected to inform management of any existing or future relationship by consanguinity Page | 396

or affinity with co-employees or employees of competing drug companies. If management perceives a conflict of interest or a potential conflict between such relationship and the employee’s employment with the company, the management and the employee will explore the possibility of a “transfer to another department in a noncounterchecking position” or preparation for employment outside the company after six months. Tecson was initially assigned to market Glaxo’s products in the Camarines SurCamarines Norte sales area. Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee of Astra Pharmaceuticals (Astra), a competitor of Glaxo. Bettsy was Astra’s Branch Coordinator in Albay. She supervised the district managers and medical representatives of her company and prepared marketing strategies for Astra in that area. Even before they got married, Tecson received several reminders from his District Manager regarding the conflict of interest which his relationship with Bettsy might engender. Still, Tec son married Bettsy in September 1998. Tecson was later reassigned at Butuan-Surigao-Agusan area to prevent conflict of interest but he refused and argued that he was constructively dismissed. ISSUE: Whether the Court of Appeals erred in ruling that Glaxo’s policy against its employees marrying employees from competitor companies is valid HELD: Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing strategies and other confidential programs and information from competitors, especially so that it and Astra are rival companies in the highly competitive pharmaceutical industry. The prohibition against personal or marital relationships with employees of competitor companies upon Glaxo’s employees is reasonable under the circumstances because relationships of that nature might compromise the interests of the company. In laying down the assailed company policy, Glaxo only aims to protect its interests against the possibility that a competitor company will gain access to its secrets and procedures. That Glaxo possesses the right to protect its economic interests cannot be denied. No less than the Constitution recognizes the right of enterprises to adopt and enforce such a policy to protect its right to reasonable returns on investments and to expansion and growth. Indeed, while our laws endeavor to give life to the constitutional policy on social justice and the protection of labor, it does not mean that every labor dispute will be decided in favor of the workers. The law also recognizes that management has rights which are also entitled to respect and enforcement in the interest of fair play. In this case, there were notices and advises given to the petitioner regarding his romantic relationship to his marriage regarding the conflict of interest. Hence the petition was denied.

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STAR PAPER vs. SIMBOL 487 SCRA 228 FACTS: Petitioner was the employer of the respondents. Under the policy of Star Paper the employees are: 1. New applicants will not be allowed to be hired if in case he/she has a relative, up to the 3rd degree of relationship, already employed by the company. 2. In case of two of our employees (singles, one male and another female) developed a friendly relationship during the course of their employment and then decided to get married, one of them should resign to preserve the policy stated above. Respondents Comia and Simbol both got married to their fellow employees. Estrella on the other hand had a relationship with a co-employee resulting to her pregnancy on the belief that such was separated. The respondents allege that they were forced to resign as a result of the implementation of the said assailed company policy. The Labor Arbiter and the NLRC ruled in favor of petitioner. The decision was appealed to the Court of Appeals which reversed the decision. ISSUE: Whether the prohibition to marry in the contract of employment is valid HELD: It is significant to note that in the case at bar, respondents were hired after they were found fit for the job, but were asked to resign when they married a co-employee. Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine Operator, to Alma Dayrit, then an employee of the Repacking Section, could be detrimental to its business operations. Neither did petitioners explain how this detriment will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting Department, who married Howard Comia, then a helper in the cuttermachine. The policy is premised on the mere fear that employees married to each other will be less efficient. If we uphold the questioned rule without valid justification, the employer can create policies based on an unproven presumption of a perceived danger at the expense of an employee’s right to security of tenure. Petitioners contend that their policy will apply only when one employee marries a co-employee, but they are free to marry persons other than co-employees. The questioned policy may not facially violate Article 136 of the Labor Code but it creates a Page | 399

disproportionate effect and under the disparate impact theory, the only way it could pass judicial scrutiny is a showing that it is reasonable despite the discriminatory, albeit disproportionate, effect. The failure of petitioners to prove a legitimate business concern in imposing the questioned policy cannot prejudice the employee’s right to be free from arbitrary discrimination based upon stereotypes of married persons working together in one company. Lastly, the absence of a statute expressly prohibiting marital discrimination in our jurisdiction cannot benefit the petitioners. The protection given to labor in our jurisdiction is vast and extensive that we cannot prudently draw inferences from the legislature’s silence that married persons are not protected under our Constitution and declare valid a policy based on a prejudice or stereotype. Thus, for failure of petitioners to present undisputed proof of a reasonable business necessity, we rule that the questioned policy is an invalid exercise of management prerogative. Corollary, the issue as to whether respondents Simbol and Comia resigned voluntarily has become moot and academic. In the case of Estrella, the petitioner failed to adduce proof to justify her dismissal. Hence, the Court ruled that it was illegal. Petition was denied.

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TIU vs. PLATINUM PLANS PHILIPPINES G.R. No. 163512, February 28, 2007 FACTS: Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing Director. On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and Territorial Operations Head in charge of its Hong Kong and Asean operations. The parties executed a contract of employment valid for five years. On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-President for Sales of Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry. Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch 261. Respondent alleged, among others, that petitioner’s employment with Professional Pension Plans, Inc. violated the non-involvement clause in her contract of employment. In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of trade is valid provided that there is a limitation upon either time or place. In the case of the pre-need industry, the trial court found the twoyear restriction to be valid and reasonable. On appeal, the Court of Appeals affirmed the trial court’s ruling. It reasoned that petitioner entered into the contract on her own will and volition. Thus, she bound herself to fulfill not only what was expressly stipulated in Page | 401

the contract, but also all its consequences that were not against good faith, usage, and law. The appellate court also ruled that the stipulation prohibiting non-employment for two years was valid and enforceable considering the nature of respondent’s business. ISSUE: Whether the Court of Appeals erred in sustaining the validity of the noninvolvement clause HELD: In this case, the non-involvement clause has a time limit: two years from the time petitioner’s employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business akin to respondent’s. More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of respondent’s Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing strategies of respondent’s business. To allow her to engage in a rival business soon after she leaves would make respondent’s trade secrets vulnerable especially in a highly competitive marketing environment. In sum, The Court finds the non-involvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to respondent. Hence the restraint is valid and such stipulation prevails.

AVON COSMETICS vs. LUNA 511 SCRA 376 FACTS: The present petition stemmed from a complaint[3] dated 1 December 1988, filed by herein respondent Luna alleging, inter alia¸ that she began working for Beautifont, Inc. in 1972, first as a franchise dealer and then a year later, as a Supervisor. Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said successor company. Aside from her work as a supervisor, Page | 402

respondent Luna also acted as a make-up artist of petitioner Avon’s Theatrical Promotion’s Group, for which she received a per diem for each theatrical performance. The contract was that: The Company agrees: 1)

To allow the Supervisor to purchase at wholesale the products of the Company.

The Supervisor agrees: 1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all permits and licenses required to sell the products on retail. The Company and the Supervisor mutually agree: 1) That this agreement in no way makes the Supervisor an employee or agent of the Company, therefore, the Supervisor has no authority to bind the Company in any contracts with other parties. 2) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall have the sole discretion to determine where and how products purchased from the Company will be sold. However, the Supervisor shall not sell such products to stores, supermarkets or to any entity or person who sells things at a fixed place of business. 3) That this agreement supersedes any agreement/s between the Company and the Supervisor. 4) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. 5) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. Later, respondent Luna entered into the sales force of Sandre Philippines which caused her termination for the alleged violation of the terms of the contract. The trial court ruled in favor of Luna that the contract was contrary to public policy thus the dismissal was not proper. The Court of Appeals affirmed the decision, hence this petition. ISSUE: Whether the Court of Appeals erred in ruling that the Supervisor’s Agreement was invalid for being contrary to public policy Whether there was subversion of the autonomy of contracts by the lower courts Page | 403

HELD: Agreements in violation of orden público must be considered as those which conflict with law, whether properly, strictly and wholly a public law (derecho) or whether a law of the person, but law which in certain respects affects the interest of society. Plainly put, public policy is 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. As applied to contracts, in the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property. From another perspective, the main objection to exclusive dealing is its tendency to foreclose existing competitors or new entrants from competition in the covered portion of the relevant market during the term of the agreement. Only those arrangements whose probable effect is to foreclose competition in a substantial share of the line of commerce affected can be considered as void for being against public policy. The foreclosure effect, if any, depends on the market share involved. The relevant market for this purpose includes the full range of selling opportunities reasonably open to rivals, namely, all the product and geographic sales they may readily compete for, using easily convertible plants and marketing organizations. Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products other than those manufactured by petitioner Avon. Having held that the “exclusivity clause” as embodied in paragraph 5 of the Supervisor’s Agreement is valid and not against public policy, we now pass to a consideration of respondent Luna’s objections to the validity of her termination as provided for under paragraph 6 of the Supervisor’s Agreement giving petitioner Avon the right to terminate or cancel such contract. The paragraph 6 or the “termination clause” therein expressly provides that: The Company and the Supervisor mutually agree: 6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. In the case at bar, the termination clause of the Supervisor’s Agreement clearly provides for two ways of terminating and/or canceling the contract. One mode does not exclude the other. The contract provided that it can be terminated or cancelled for cause, it also stated that it can be terminated without cause, both at any time and after written notice. Thus, whether or not the termination or cancellation of the Supervisor’s Page | 404

Agreement was “for cause,” is immaterial. The only requirement is that of notice to the other party. When petitioner Avon chose to terminate the contract, for cause, respondent Luna was duly notified thereof. Worth stressing is that the right to unilaterally terminate or cancel the Supervisor’s Agreement with or without cause is equally available to respondent Luna, subject to the same notice requirement. Obviously, no advantage is taken against each other by the contracting parties. Hence, the petition was granted. DEL CASTILLO vs. RICHMOND 45 PHIL. REPORTS 679 FACTS: The plaintiff alleges that the provisions and conditions contained in the third paragraph of their contract constitute an illegal and unreasonable restriction upon his liberty to contract, are contrary to public policy, and are unnecessary in order to constitute a just and reasonable protection to the defendant; and asked that the same be declared null and void and of no effect. The defendant interposed a general and special defense. In his special defense he alleges that during the time the plaintiff was in the defendant's employ he obtained knowledge of his trade and professional secrets and came to know and became acquainted and established friendly relations with his customers so that to now annul the contract and permit plaintiff to establish a competing drugstore in the town of Legaspi, as plaintiff has announced his intention to do, would be extremely prejudicial to defendant's interest." The defendant further, in an amended answer, alleges that this action not having been brought within four years from the time the contract referred to in the complaint was executed, the same has prescribed. ISSUE: Whether the contract is valid and the autonomy of contracts be upheld HELD: Considering the nature of the business in which the defendant is engaged, in relation with the limitation placed upon the plaintiff both as to time and place, The Court is of the opinion, and so decide, that such limitation is legal and reasonable and not contrary to public policy, otherwise, the autonomy of the contract will be subverted.

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ARWOOD INDUSTRIES, INC. vs. DM CONSUNJI, INC. 394 SCRA 11 FACTS: Petitioner and respondent, as owner and contractor, respectively, entered into a civil, structural and architectural works Agreement dated February 6, 1989 for the construction of petitioners Westwood condominium at No. 23 Eisenhower St., Greenhills, San Juan, Metro Manila. The contract price for the condominium project aggregated P20, 800,000.00. Despite the completion of the condominium project, the amount of P962, 434.78 remain unpaid by petitioner. Repeated demands by respondent for petitioner to pay went unheeded. Thus on August 13, 1993, respondent as plaintiff in a civil case filed its complaint for the recovery of the balance of the contract price and for damages against petitioner. Respondent specifically prayed for the payment of the: (a) amount of P962, 434.78 with interest of 2% per month or a fraction thereof, from November 1990 up to the time of payment; (b) the amount of P250,000 as Attorneys fees and litigation expenses; (c) amount of P150,000.00 as exemplary damages; and (d)cost of suit. On appeal, the Court of Appeals affirmed the lower court’s decision with modification Page | 406

ISSUE: Whether or not the imposition of two percent interest on the amount adjudged is proper. RULING: Yes. It must be noted that the agreement provided the contractor, respondent in this case, two (2) options in case of delay in monthly payments, to wit: a) suspend works on the project until payment is remitted by the owner or continue the work but the owner shall be required to pay interest at a rate of two (2) percent per month or a fraction thereof. Evidently, respondent chose the latter option, as the condominium project was in fact already completed. Since the agreement stands as the law between the parties, the court cannot ignore the existence of such provision providing for a penalty for every months delay.

PASCUAL vs. RAMOS 384 SCRA 105 FACTS: Ramos alleged that on 3 June 1987, for and in consideration of P150,000, the Spouses Pascual executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan. This document was annotated at the back of the title. The Pascuals did not exercise their right to repurchase the property within the stipulated one-year period; hence, Ramos prayed that the title or ownership over the subject parcels of land and improvements thereon be consolidated in his favor. In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150, 000 but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no agreement limiting the period within which to exercise Page | 407

the right to repurchase and that they had even overpaid Ramos. The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the Pascuals had made payments in the total sum of P344,000, and that with interest at 7% per annum, they had overpaid the loan by P141,500. Accordingly, in its Decision of 15 March 1995 the trial court ruled in favor of the defendants. The Pascuals interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition; (b) Ramos had no legal capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action; (e) the claim or demand set forth in Ramos’s pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) Ramos has not complied with the required confrontation and conciliation before the barangay. The Court of Appeals affirmed in toto the trial court’s Orders of 5 June 1995 and 7 September 1995. ISSUE: Whether or not the contract entered into is a contract of loan. RULING: The Pascuals are actually raising as issue the validity of the stipulated interest rate. It must be stressed that they never raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the overpayment was alleged. In their pre-trial brief, the Pascuals made a long list of issues, but not one of them touched on the validity of the stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in fact paid interest at, the rate of 7% per month. After the trial court sustained petitioners’ claim that their agreement with RAMOS was actually a loan with real estate mortgage, the Pascuals should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per month. The Pascuals should accept not only the favorable aspect of the court’s declaration that the document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same document should be paid. Besides, when Ramos moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should be 7% per month, the Pascuals never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995, the Pascuals argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in their Appellants’ Brief, the only argument raised by the Pascuals was that Ramos’s petition did not contain a prayer for general relief and, hence, the trial court had no basis for ordering them to pay Ramos P511,000 representing the principal and unpaid interest. It was only in their motion for the reconsideration of the decision of the Court of Appeals Page | 408

that the Pascuals made an issue of the interest rate and prayed for its reduction to 12% per annum. 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 which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy. The interest rate of 7% per month was voluntarily agreed upon by Ramos and the Pascuals. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with Ramos. Neither is there a showing that in their contractual relations with Ramos, the Pascuals were at a disadvantage on account of their moral dependence, ignorance, 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.

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MAXIMA HEMEDES VS. COURT OF APPEALS G.R. No. 108472 October 8, 1999 FACTS: The instant controversy involves a question of ownership over an unregistered parcel of land. It was originally owned by the late Jose Hemedes, father of Maxima Hemedes and Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document entitled “Donation Inter Vivos With Resolutory Conditions” whereby he conveyed ownership over the subject land, together with all its improvements, in favor of his third wife, Justa Kausapin. Maxima Hemedes, through her counsel, filed an application for registration and confirmation of title over the subject unregistered land. Subsequently, an Original Certificate of Title (OCT) was issued in the name of Maxima Hemedes married to Raul Rodriguez by the Registry of Deeds of Laguna on June 8, 1962, with the annotation that “Justa Kausapin shall have the usufructuary rights over the parcel of land herein described during her lifetime or widowhood.” On February 28, 1979, Enrique D. Hemedes sold the property to Dominium Realty and Construction Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit affirming the conveyance of the subject property in favor of Enrique D. Hemedes as embodied in the “Kasunduan” dated May 27, 1971, and at the same time denying the conveyance made to Maxima Hemedes. On August 27, 1981, Dominium and Enrique D. Hemedes filed a complaint for the annulment of the TCT issued in favor of R & b Insurance and/or the reconveyance to Dominium of the subject property. Specifically, the complaint alleged that Dominium was the absolute owner of the subject property by virtue of the February 28, 1979 deed of sale executed by Enrique D. Hemedes, who in turn obtained ownership of the land from Justa Kausapin, as evidenced by the “Kasunduan” dated May 27, 1971. The Plaintiffs asserted that Justa Kausapin never transferred the land to Maxima Hemedes and that Enrique D. Hemedes had no knowledge of the registration proceedings initiated by Maxima Hemedes. The trial court rendered judgment in favor of plaintiffs Dominium and Enrique D. Hemedes. Both R & B Insurance and Maxima Hemedes appealed from the trial court’s decision. The Court of Appeals affirmed the assailed decision in toto. Hence, this petition. ISSUE:

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Which of the two conveyances by Justa Kausapin, the first in favor of Maxima Hemedes and the second in favor of Enrique D. Hemedes, effectively transferred ownership over the subject land?

RULING: Public respondent’s finding that the “Deed of Conveyance of Unregistered Real Property By Reversion” executed by Justa Kausapin in favor of Maxima Hemedes is spurious and not supported by the factual findings in this case. It is grounded upon the mere denial of the same by Justa Kausapin. A party to a contract cannot just evade compliance with his contractual obligations by the simple expedient of denying the execution of such contract. If, after a perfect and binding contract has been executed between the parties, it occurs to one of them to allege some defect therein as a reason for annulling it, the alleged defect must be conclusively proven, since the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties. In upholding the deed of conveyance in favor of Maxima Hemedes, the Court must concomitantly rule that Enrique D. Hemedes and his transferee, Dominium, did not acquire any rights over the subject property. Justa Kausapin sought to transfer to her stepson exactly what she had earlier transferred to Maxima Hemedes – the ownership of the subject property pursuant to the first condition stipulated in the deed of donation executed by her husband. Thus, the donation in favor of Enrique D. Hemedes is null and void for the purported object thereof did not exist at the time of the transfer, having already been transferred to his sister. Similarly, the sale of the subject property by Enrique D. Hemedes to Dominium is also a nullity for the latter cannot acquire more rights than its predecessor-in-interest and is definitely not an innocent purchaser for value since Enrique D. Hemedes did not present any certificate of title upon which it relied. The Court upheld petitioner R & B Insurance’s assertion of ownership over the property in dispute, as evidenced by TCT No. 41985, subject to the usufructuary rights of Justa Kausapin, which encumbrance has been properly annotated upon the said certificate of title.

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JOSELITO VILLEGAS and DOMINGA VILLEGAS vs. COURT OF APPEALS G.R. No. 129977. February 1, 2001 FACTS: Before September 6, 1973, Lot B-3-A, with an area of 4 hectares was registered under TCT No. 68641 in the names of Ciriaco D. Andres and Henson Caigas. This land was also declared for real estate taxation under Tax Declaration No. C2-4442. On September 6, 1973, Andres and Caigas, with the consent of their respective spouses, Anita Barrientos and Consolacion Tobias, sold the land to Fortune Tobacco Corporation for P60,000.00. Simultaneously, they executed a joint affidavit declaring that they had no tenants on said lot. On the same date, the sale was registered in the Office of the Register of Deeds of Isabela. TCT No. 68641 was cancelled and TCT No. T-68737 was issued in Fortune’s name. On August 6, 1976, Andres and Caigas executed a Deed of Reconveyance of the same lot in favor of Filomena Domingo, the mother of Joselito Villegas, defendant in the case before the trial court. Although no title was mentioned in this deed, Domingo succeeded in registering this document in the Office of the Register of Deeds on August 6, 1976, causing the latter to issue TCT No. T-91864 in her name. It Page | 412

appears in this title that the same was a transfer from TCT No. T-68641. On April 13, 1981, Domingo declared the lot for real estate taxation under Tax Declaration No. 105633. On December 4, 1976, the Office of the Register of Deeds of Isabela was burned together with all titles in the office. On December 17, 1976, the original of TCT No. T91864 was administratively reconstituted by the Register of Deeds. On June 2, 1979, a Deed of Absolute Sale of a portion of 20,000 square meters of Lot B-3-A was executed by Filomena Domingo in favor of Villegas for a consideration of P1,000.00. This document was registered on June 3, 1981 and as a result TCT No. T-131807 was issued by the Register of Deeds to Villegas. On the same date, the technical description of Lot B-3-A-2 was registered and TCT No. T-131808 was issued in the name of Domingo. On January 22, 1991, this document was registered and TCT No. 154962 was issued to the defendant, Joselito Villegas. On April 10, 1991, the trial court upon a petition filed by Fortune ordered the reconstitution of the original of TCT No. T-68737. After trial on the merits, the trial court rendered its assailed decision in favor of Fortune Tobacco, declaring it to be entitled to the property. Petitioners thus appealed this decision to the Court of Appeals, which affirmed the trial court’s decision. ISSUES: Whether or not the Court of Appeals was correct in affirming the trial court’s decision. RULING: Even if Fortune had validly acquired the subject property, it would still be barred from asserting title because of laches. The failure or neglect, for an unreasonable length of time to do that which by exercising due diligence could or should have been done earlier constitutes laches. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it has either abandoned it or declined to assert it. While it is by express provision of law that no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession, it is likewise an enshrined rule that even a registered owner may be barred from recovering possession of property by virtue of laches. Hence, petition was GRANTED and the Decision of the Court of Appeals was REVERSED. EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC vs. MAYFAIR THEATER, INC G.R. No. 106063 1996 Nov 21 264 SCRA 483 FACTS: Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon. On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter’s lease of a portion of Carmelo’s property. Two years later, on March 31, 1969, Page | 413

Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo’s property. Both contracts of lease provide identically worded paragraph 8, which reads: ‘That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos. Under your company’s two lease contracts with our client, it is uniformly provided: ‘8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it here binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions hereof. Carmelo did not reply to this letter. On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only the leased premises but ‘the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the ‘Maxim’ and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial. It dismissed the complaint with costs against the plaintiff. The Court of Appeals reversed the decision of the trial court. RULING: Whether or not the decision of the Court of Appeals’ decision was correct. Page | 414

RULING: The Court agrees with the Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. Further, what Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair’s right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the “30-day exclusive option” time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. Hence, the petition was denied.

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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES vs. COURT OF APPEALS and FIRESTONE CERAMICS, INC. G.R. No. 143513. November 14, 2001 NATIONAL DEVELOPMENT CORPORATION vs. FIRESTONE CERAMICS INC G.R. No. 143590. November 14, 2001 FACTS: In the early sixties, petitioner National Development Corporation (NDC), had in its disposal a ten-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC compound and covered by Transfer Certificates of Title Nos. 92885, 110301 and 145470. Private respondent Firestone Ceramics Inc. manifested its desire to lease a portion of the property for its ceramic manufacturing business. NDC and FIRESTONE entered into a contract of lease denominated as Contract No. C-30-65 covering a portion of the property measured at 2.90118 hectares for use as a manufacturing plant for a term of ten years, renewable for another ten years under the same terms and conditions. In consequence of the agreement, FIRESTONE constructed on the leased premises several warehouses and other improvements needed for the fabrication of ceramic products. Three and a half years later, FIRESTONE entered into a second contract of lease with NDC over the latter's four-unit prefabricated reparation steel warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for eventual assembly within the NDC compound. The second contract, denominated as Contract No. C-26-68, was for similar use as a ceramic manufacturing plant and was agreed expressly to be "co-extensive with the lease of LESSEE with LESSOR on the 2.60 hectare-lot. The parties signed a similar contract concerning a six-unit pre-fabricated steel warehouse which, as agreed upon by the parties, would expire on 2 December 1978. Prior to the expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for an extension of their lease agreement. Consequently, the Board of Directors of NDC adopted the Resolution extending the term of the lease, subject to several conditions among which was that in the event NDC "with the approval of higher authorities, decide to dispose and sell these properties including the lot, priority should be given to the LESSEE". In pursuance of the resolution, the parties entered into a new agreement for a ten-year lease of the property, renewable for another ten years, expressly granting FIRESTONE the first option to purchase the leased premises in the event that it decided "to dispose and sell these properties including the lot”. Page | 416

The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE, cognizant of the impending expiration of their lease agreement with NDC, informed the latter through several letters and telephone calls that it was renewing its lease over the property. While its letter of 17 March 1988 was answered by Antonio A. Henson, General Manager of NDC, who promised immediate action on the matter, the rest of its communications remained unacknowledged. FIRESTONE's predicament worsened when rumors of NDC's supposed plans to dispose of the subject property in favor of petitioner Polytechnic University of the Philippines came to its knowledge. Forthwith, FIRESTONE served notice on NDC conveying its desire to purchase the property in the exercise of its contractual right of first refusal. Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an action for specific performance to compel NDC to sell the leased property in its favor. Following the denial of its petition, FIRESTONE amended its complaint to include PUP and Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and sought the annulment of Memorandum Order No. 214. After trial, judgment was rendered declaring the contracts of lease executed between FIRESTONE and NDC covering the 2.60-hectare property and the warehouses constructed thereon valid and existing until 2 June 1999. The Court of Appeals affirmed the decision of the trial court ordering the sale of the property in favor of FIRESTONE. ISSUE: Whether or not the Court of Appeals decided a question of substance in a way definitely not in accord with law or jurisprudence. RULING: The courts a quo did not hypothesize, much less conjure, the sale of the disputed property by NDC in favor of petitioner PUP. Aside from the fact that the intention of NDC and PUP to enter into a contract of sale was clearly expressed in the Memorandum Order No. 214, a close perusal of the circumstances of this case strengthens the theory that the conveyance of the property from NDC to PUP was one of absolute sale, for a valuable consideration, and not a mere paper transfer as argued by petitioners. A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates himself to transfer the ownership of and to deliver a determinate thing to the other or others who shall pay therefore a sum certain in money or its equivalent. It is therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred. The Civil Code provision is, in effect, a "catch-all" provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration. Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the questioned transaction. Petitioners NDC and PUP have their respective charters and therefore each possesses a separate and distinct individual personality. Hence, the petition was denied. Page | 417

SPS. LITONJUA vs. L & R CORPORATION G.R. No. 130722. December 9, 1999 320 SCRA 405 FACTS: This stems from loans obtained by the spouses Litonjua from L&R Corporation in the aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted by the spouses upon their two parcels of land and the improvements thereon The mortgage was duly registered with the Register of Deeds. Spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels of land they had previously mortgaged to L & R Corporation for the sum of P430,000.00. Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. The mortgaged properties were sold at public auction to L & R Corporation as the only bidder for the amount of P221,624.58. Page | 418

The Deputy Sheriff informed L & R Corporation of the payment by PWHAS of the full redemption price and advised it that it can claim the payment upon surrender of its owner’s duplicate certificates of title. The spouses Litonjua presented for registration the Certificate of Redemption issued in their favor to the Register of Deeds of Quezon City. The Certificate also informed L & R Corporation of the fact of redemption and directed the latter to surrender the owner’s duplicate certificates of title within five days. On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal personality or capacity to redeem the same. On the other hand, the spouses Litonjua asked the Register of Deeds to annotate their Certificate of Redemption as an adverse claim on the titles of the subject properties on account of the refusal of L & R Corporation to surrender the owner’s duplicate copies of the titles to the subject properties. With the refusal of the Register of Deeds to annotate their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R Corporation for the surrender of the owner’s duplicate of Transfer Certificates of Title No. 197232 and 197233 before the then CFI. While the said case was pending, L & R Corporation executed an Affidavit of Consolidation of Ownership. The Register of Deeds cancelled Transfer Certificates of Title No. 197232 and 197233 and in lieu thereof, issued Transfer Certificates of Title No. 280054 and 28055 in favor of L & R Corporation, free of any lien or encumbrance. A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction was filed by the spouses Litonjua and PWHAS against herein respondents before the then CFI. ISSUE: Whether or not the Court of Appeals erred in its decision. RULING: In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to the whole world. Thus, the Decision appealed from was AFFIRMED with the following MODIFICATIONS. JOSEFA VS. ZHANDONG TRADING CORPORATION 417 SCRA 269 G.R. NO. 150903 DECEMBER 8, 2003 FACTS:

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Respondent Zhandong delivered to petitioner Josefa, who was introduced to it as a client by Mr. Tan, the total volume of 313 crates of boards valued at P4,558,100.00 payable within 60 days from delivery. Instead of paying respondent, petitioner remitted his payments to Tan who in turn delivered various checks to respondent, who accepted them upon Tan’s assurance that said checks came from petitioner. When a number of the checks bounced, Tan issued his own checks and those of his mother, but Tan later stopped payments. Respondent demanded payment from Tan and petitioner but was ignored; hence he filed the instant complaint. In his answer petitioner averred that he had already paid all his obligations to respondent through Tan. Furthermore, he claimed he is not privy to the agreements between Tan and respondent, and hence, in case his payments were not remitted to respondent, then it was not his (petitioner) fault and that respondent should bear the consequences. ISSUE: Whether or not petitioner is liable for payment of the boards to respondent when he did not negotiate the transaction with it, rather through Tan as intermediary. RULING: No. The transaction was negotiated between Tan and petitioner who only received the goods delivered by respondent. Petitioner was not privy to the arrangement between Tan and respondent. Petitioner has fully paid for the goods to Tan with whom he had arranged the transaction. Contracts take effect only between the parties, their successors in interest, heirs, and assigns. When there is no privity of contract, there is likewise no obligation or liability and thus, no cause of action arises. Petitioner, being not privy to the transaction between Tan and respondent, should not be made liable for the failure of Tan to deliver the payment to respondent. Therefore, respondent should recover the payment from Tan.

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PCI VS NG SHUENG NGOR A.M. No. P-05-1973. March 18, 2005

FACTS: Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng Sheung Ngor, doing business under the name and style ‘Ken Marketing,’ Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or Reformation of Documents and Contracts. Respondents Antonio A. Bellones and Generoso B. Regalado are the sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City. For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other real property by petitioner. ISSUE: Did respondents violate the Rules of Court? RULING: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff Regalado violated EPCIB’s right to choose which property may be levied upon to be sold at auction for the satisfaction of the judgment debt. Thus, it is clear that when EPCIB offered its real properties, it exercised its option because it cannot immediately pay the full amount stated in the writ of execution and all lawful fees in cash, certified bank check or any other mode of payment acceptable to the judgment obligee. In the case at bar, EPCIB cannot immediately pay by way of Manager’s Check so it exercised its option to choose and offered its real properties. With the exercise of the option, Sheriff Regalado should have ceased serving notices of garnishment and discontinued their implementation. This is not true in the instant case. Sheriff Regalado was adamant in his posture even if real properties have been offered which were sufficient to satisfy the judgment debt.

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TERESITA DIO vs. ST. FERDINAND MEMORIALPARK, INC. G.R. No. 169578 November 30, 2006 509 SCRA 453 FACTS: On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a memorial lot from the St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The purchase was evidenced by a Pre-Need Purchase Agreement. She obliged herself to abide by all such rules and regulations governing the SFMPI dated May 25, 1972. SFMPI issued a Deed of Sale and Certificate of Perpetual. The ownership of Dio over the property was made subject to the rules and regulations of SFMPI, as well as the government, including all amendments, additions and modifications that may later be adopted. According to the Rules (Rule 69) Mausoleum building and memorials should be constructed by the Park Personnel. Lot Owners cannot contract other contractors for the construction of the said buildings and memorial, however, the lot owner is free to give their own design for the mausoleum to be constructed, as long as it is in accordance with the park standards. The construction shall be under the close supervision of the Park Superintendent. The mortal remains of Dio’s husband, father and daughter were interred in the lot at her own expense, without the knowledge and intervention of SFMPI.. In October 1986, Dio informed SFMPI, through its president and controlling stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum on her lot and sought the approval thereof. Dio showed to Tantoco the plans and project specifications accomplished by her private contractor at an estimated cost of P60,000.00. The plans and specifications were approved, but Tantoco insisted that the mausoleum be built by it or its agents at a minimum cost of P100,000.00 as provided in Rule 69 of the Rules and Regulations the SFMPI issued on May 25, 1972. The total amount excluded certain specific designs in the approved plan which if included would cost Dio much more. Dio, through counsel, demanded that she be allowed to construct the mausoleum within 10 days, otherwise, she would be impelled to file the necessary action/s against SFMPI and Tantoco. Dio filed a Complaint for Injunction with Damages against SFMPI and Tantoco before the RTC. She averred that she was not aware of Rule Page | 422

69 of the SFMPI Rules and Regulations; the amount of P100,000.00 as construction cost of the mausoleum was unconscionable and oppressive. She prayed that, after trial, judgment be rendered in her favor, granting a final injunction perpetually restraining defendants from enforcing the invalid Rule 69 of SFMPI’s “Rules for Memorial Work in the Mausoleum of the Park” or from refusing or preventing the construction of any improvement upon her property in the park. The court issued a cease and desist order against defendants. The trial court rendered judgment in favor of defendants. On appeal, the CA affirmed the decision of the trial court. ISSUE: Whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and Regulations for memorial works in the mausoleum areas of the park when the Pre-Need Purchase Agreement and the Deed of Sale was executed and whether the said rule is valid and binding upon petitioner. RULING: Plaintiff’s allegation that she was not aware of the said Rules and Regulations lacks credence. Admittedly, in her Complaint and during the trial, plaintiff testified that she informed the defendants of her intention to construct a mausoleum. Even counsel for the plaintiff, who is the son of the plaintiff, informed the Court during the trial in this case that her mother, the plaintiff herein, informed the defendants of her plan to construct and erect a mausoleum. This act of the plaintiff clearly shows that she was fully aware of the said rules and regulations otherwise she should not consult, inform and seek permission from the defendants of her intention to build a mausoleum if she is not barred by the rules and regulations to do the same. When she signed the contract with the defendants, she was estopped to question and attack the legality of said contract later on. Further, a contract of adhesion, wherein one party imposes a readymade form of contract on the other, is not strictly against the law. A contract of adhesion is as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. Contrary to petitioner’s contention, not every contract of adhesion is an invalid agreement. Thus, the petition was denied.

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PILIPINO TELEPHONE CORPORATION vs. DELFINO TECSON G.R. No. 156966. May 7, 2004 FACTS: On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone subscriptions with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the telecommunications business, which applications were each approved and covered, respectively, by six mobiline service agreements. On 05 April 2001, respondent filed with the Regional Trial Court a complaint against petitioner for a “Sum of Money and Damages.” Petitioner moved for the dismissal of the complaint on the Page | 424

ground of improper venue, citing a common provision in the mobiline service agreements to the effect that - “Venue of all suits arising from this Agreement or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any other venues.” The Regional Trial Court of Iligan City, Lanao del Norte, denied petitioner’s motion to dismiss and required it to file an answer within 15 days from receipt thereof. Petitioner filed a petition for certiorari before the Court of Appeals. The Court of Appeals saw no merit in the petition and affirmed the assailed orders of the trial court. ISSUE: Whether or not the Court of Appeals erred in affirming the orders of the trial court. RULING: The contract herein involved is a contract of adhesion. But such an agreement is not per se inefficacious. The rule instead is that, should there be ambiguities in a contract of adhesion, such ambiguities are to be construed against the party that prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling. A contract of adhesion is just as binding as ordinary contracts. It is true that this Court has, on occasion, struck down such contracts as being assailable when the weaker party is left with no choice by the dominant bargaining party and is thus completely deprived of an opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited even as the courts remain careful in scrutinizing the factual circumstances underlying each case to determine the respective claims of contending parties on their efficacy. In the case at bar, respondent secured 6 subscription contracts for cellular phones on various dates. It would be difficult to assume that, during each of those times, respondent had no sufficient opportunity to read and go over the terms and conditions embodied in the agreements. Respondent continued, in fact, to acquire in the pursuit of his business subsequent subscriptions and remained a subscriber of petitioner for quite sometime. Hence, the petition was granted by the Court and the decision of the Court of Appeals is reversed and set aside. The Civil Case pending before the Regional Trial Court of Iligan City, Branch 4, was DISMISSED without prejudice to the filing of an appropriate complaint by respondent against petitioner with the court of proper venue.

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PHILIPPINE AIRLINES VS. COURT OF APPEALS 255 SCRA 48 G.R. No. 119706 March 14, 1996 FACTS: On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines, one (1) unit microwave oven under PAL Air Waybill No. 0-79-1013008-3, with a gross weight of 33 kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon arrival, however, of said article in Manila, Philippines, plaintiff discovered that its front glass door was broken and the damage rendered it unserviceable. Demands both oral and written were made by plaintiff against the defendant for the reimbursement of the value of the damaged microwave oven, and transportation charges paid by plaintiff to defendant company. But these demands fell on deaf ears. This is because, according to petitioner, was filed out of time under paragraph 12, a (1) of the Air Waybill which provides: "(a) the person entitled to delivery must make a complaint to the carrier in writing in case: (1) of visible damage to the goods, immediately after discovery of the damage and at the latest within 14 days from the receipt of the goods. On September 25, 1990, Gilda C. Mejia filed an action for damages against the petitioner in the lower court. The latter rendered a decision rendering PAL liable to pay, actual, moral and exemplary damages as well as attorney’s fees. On appeal, the Court of Appeals similarly ruled in favor of private respondent by affirming in full the trial court's judgment, with costs against petitioner. ISSUE: Whether or not the respondent court erred in affirming the conclusions of the trial court that since the air waybill is a contract of adhesion, its provisions should be strictly construed against herein petitioner. RULING: The Supreme Court affirmed the appealed decision. The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc. vs. Vda. De Songco, et al. in finding that the provisions of the air waybill should be strictly construed against petitioner. The Air Waybill is a contract of adhesion considering that all the provisions thereof are prepared and drafted only by the carrier. The only participation left of the other party is to affix his signature thereto. In the earlier case of Angeles v. Calasanz, the Supreme Court ruled that the terms of a contract of adhesion must be interpreted against the party who drafted the same.

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ERMITAÑO VS. COURT OF APPEALS 306 SCRA 218 FACTS: Petitioner Luis Ermitaño applied for a credit card from private respondent BPI Express Card Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension card holder. The spouses were given credit limit of P10, 000.00. They often exceeded this credit limit without protest from BCC. On August 9, 1989, Manuelita’s bag was snatched from her as she was shopping at the greenbelt mall in Makati. Among the items inside the bag was her BECC credit card. That same night she informed, by telephone, BECC of the loss. The call was received by BECC offices through a certain Gina Banzon. This was followed by a letter dated August 30, 1989. She also surrendered Luis’ credit card and requested for replacement cards. In her letter, Manuelita stated that she “shall not be responsible for any and all charges incurred [through the use of the lost card] after August 29, 1989. However, when Luis received his monthly billing statement from BECC dated September 20, 1989, the charges included amounts for purchases were made, one amounting to P2,350.05 and the other, P607.50. Manuelita received a billing statement dated October 20,1989 which required her to immediately pay the total amount of P3,197.70 covering the same (unauthorized) purchases. Manuelita wrote again BECC disclaiming responsibility for those charges, which were made after she had served BECC with notice of loss of her card. However, BECC, in a letter dated July 13, 1990, pointed to Luis the stipulation in their contract. However, Luis stressed that the contract BECC was referring to was a contract of adhesion and warned that if BECC insisted on charging him and his wife for the unauthorized purchases, they will sue BECC continued to bill the spouses for said purchases. ISSUE: Whether or not the Court of Appeals gravely erred in relying on the case of Serra v. Court of appeals, 229 SCRA 60, because unlike that case, petitioners have no chance Page | 427

at all to contest the stipulations appearing in the credit card application that was drafted entirely by private respondent, thus, a clear contract of adhesion. RULING: The contract between the parties in this case is indeed a contract of adhesion, socalled because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. Such contracts are not void in themselves. They are as binding as ordinary contracts. Parties who enter in to such contracts are free to reject the stipulations entirely. In this case, the cardholder, Manuelita, has complied with what was required of her under the contract with BECC, She immediately notified BECC of loss of her card on the same day it was lost and, the following day, she sent a written notice of the loss to BECC. Clearly, what happened in this case was that BECC failed to notify promptly the establishment in which the unauthorized purchases were made with the use of Manuelita’s lost card. UNIWIDE SALES REALTY AND RESOURCES CORPORATION, vs. TITAN-IKEDA CONSTRUCTIONAND DEVELOPMENT CORPORATION G.R. No. 126619 December 20, 2006 511 SCRA 335 FACTS: PROJECT 1. The first agreement was a written “Construction Contract” entered into by Titan and Uniwide sometime in May 1991 whereby Titan undertook to construct Uniwide’s Warehouse Club and Administration Building in Libis, Quezon City for a fee of P120,936,591.50, payable in monthly progress billings to be certified to by Uniwide’s representative. The parties stipulated that the building shall be completed not later than 30 November 1991. As found by the CIAC, the building was eventually finished on 15 February 1992 and turned over to Uniwide. PROJECT 2. Sometime in July 1992, Titan and Uniwide entered into the second agreement whereby the former agreed to construct an additional floor and to renovate the latter’s warehouse located at the EDSA Central Market Area in Mandaluyong City. There was no written contract executed between the parties for this project. Construction was allegedly to be on the basis of drawings and specifications provided by Uniwide’s structural engineers. The parties proceeded on the basis of a cost estimate of P21,301,075.77 inclusive of Titan’s 20% mark-up. Titan conceded in its complaint to having received P15,000,000.00 of this amount. This project was completed in the latter part of October 1992 and turned over to Uniwide.

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PROJECT 3. The parties executed the third agreement in May 1992. In a written “Construction Contract,” Titan undertook to construct the Uniwide Sales Department Store Building in Kalookan City for the price of P118,000,000.00 payable in progress billings to be certified to by Uniwide’s representative. It was stipulated that the project shall be completed not later than 28 February 1993. The project was completed and turned over to Uniwide in June 1993. Uniwide asserted in its petition that: (a) it overpaid Titan for unauthorized additional works in Project 1 and Project 3; (b) it is not liable to pay the Value-Added Tax for Project 1; (c) it is entitled to liquidated damages for the delay incurred in constructing Project 1 and Project 3; and (d) it should not have been found liable for deficiencies in the defectively constructed Project 2. The decision: On Project 1 – Libis: Uniwide is absolved of any liability for the claims made by [Titan] on this Project. Project 2 – Edsa Central: Uniwide is absolved of any liability for VAT payment on this project, the same being for the account of Titan. On the other hand, Titan is absolved of any liability on the counterclaim for defective construction of this project. Uniwide is held liable for the unpaid balance in the amount of P6,301,075.77 which is ordered to be paid to the Titan with 12% interest per annum commencing from 19 December 1992 until the date of payment. On Project 3 – Kalookan: Uniwide is held liable for the unpaid balance in the amount of P5,158,364.63 which is ordered to be paid to Titan with 12% interest per annum commencing from 08 September 1993 until the date of payment. Uniwide is held liable to pay in full the VAT on this project, in such amount as may be computed by the Bureau of Internal Revenue to be paid directly thereto. The BIR is hereby notified that Uniwide Sales Realty and Resources Corporation has assumed responsibility and is held liable for VAT payment on this project. This accordingly exempts Claimant Titan-Ikeda Construction and Development Corporation from this obligation. ISSUE: Whether or not the decision rendered is correct. RULING: The petition is DENIED and the Decision of the Court of Appeals was AFFIRMED.

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HEIRS OF AUGUSTO L. SALAS, JR. vs. LAPERAL REALTY CORPORATION G.R. NO. 135362. December 13, 1999 FACTS: Page | 430

Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354 square meters. On May 15, 1987, he entered into an OwnerContractor Agreement with respondent Laperal Realty Corporation to render and provide complete (horizontal) construction services on his land. On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He never returned.On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court a verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had then been missing for more than seven (7) years. It was granted on December 12, 1996. Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996. On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court a Complaint for declaration of nullity of sale, reconveyance, cancellation of contract, accounting and damages against herein respondents. Laperal Realty filed a Motion to Dismiss on the ground that petitioners failed to submit their grievance to arbitration as required under Article VI of the Agreement. Spouses Abrajano and Lava and respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim praying for dismissal of petitioners’ Complaint for the same reason. The trial court issued an Order dismissing petitioners’ Complaint for noncompliance with the arbitration clause. ISSUE: Whether or not the trial court erred in dismissing the complaint. RULING: A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. But only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the Agreement. If respondent Laperal Realty, had assigned its rights under the Agreement to a third party, making the former, the assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor or in this case, against the heirs of the original party to the Agreement. However, respondents Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the rights of respondent Laperal Realty under the Agreement to develop Salas, Jr.’s land and sell the same. They are, rather, buyers of the land that respondent Laperal Realty was given the authority to develop and sell under the Agreement. As such, they are not “assigns” Page | 431

contemplated in Art. 1311 of the New Civil Code which provides that “contracts take effect only between the parties, their assigns and heirs”. Laperal Realty, as a contracting party to the Agreement, has the right to compel petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot buyers, or to hold trial in abeyance pending arbitration between petitioners and respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein respondents and adjudicates petitioners’ rights as against theirs in a single and complete proceeding. Hence, the trial court’s decision was nullified and set aside. Said court was ordered to proceed with the hearing.

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BIENVENIDO R. MEDRANO and IBAAN RURAL BANK vs. CA, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR G.R. No. 150678. February 18, 2005 FACTS: Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousinin-law, to look for a buyer of a foreclosed asset of the bank, a 17-hectare mango plantation priced at P2,200,000.00. Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs. Pacita G. Borbon, a licensed real estate broker. Borbon relayed to her business associates and friends that she had a ready buyer for a mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation which was up for sale. She told Flor to confer with Medrano and to give them a written authority to negotiate the sale of the property. Thus, Medrano issued the Letter of Authority in favor of Pacita G. Borbon and Josefina E. Antonio. A Deed of Sale was eventually executed between the bank, represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by Dominador Lee (as Vendee), for the purchase price of P1,200,000.00. Since the sale of the property was consummated, the respondents asked from the petitioners their commission, or 5% of the purchase price. The petitioners refused to pay and offered a measly sum of P5,000.00 each. Hence, the respondents were constrained to file an action against herein petitioners. The trial court rendered a Decision in favor of the respondents. It found that the letter of authority was valid and binding as against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in behalf of the bank, and as owner of the property, promising to pay the respondents a 5% commission for their efforts in looking for a purchaser of the property. He is, therefore, estopped from denying liability on the basis of the letter of authority he issued in favor of the respondents. The trial court further stated that the sale of the property could not have been possible without the representation and intervention of the respondents. As such, they are entitled to the Page | 433

broker’s commission of 5% of the selling price of P1,200,000.00 as evidenced by the deed of sale. On appeal, the CA affirmed the trial court’s decision. ISSUE: Whether or not the Court of Appeals erred in affirming the trial court’s decision. RULING: There can be no other conclusion than the respondents are indeed the procuring cause of the sale. If not for the respondents, Lee would not have known about the mango plantation being sold by the petitioners. The sale was consummated. The bank had profited from such transaction. It would certainly be iniquitous if the respondents would not be rewarded their commission pursuant to the letter of authority. Hence, the Court of Appeal’s decision is affirmed.

MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA, vs. EDUARDO R. GULLAS and NORMA S. GULLAS G.R. No. 143978. December 3, 2002 FACTS: Spouses Eduardo R. Gullas and Norma S. Gullas, were the registered owners of a parcel of land measuring 104,114 sq. m., with Transfer Certificate of Title No. 31465. On June 29, 1992, they executed a special power of attorney authorizing petitioners Manuel B. Tan, a licensed real estate broker, and his associates Gregg M. Tecson and Alexander Saldaña, to negotiate for the sale of the land at P550.00 per square meter, at a commission of 3% of the gross price. The power of attorney was non-exclusive and effective for one month from June 29, 1992. On the same date, petitioner Tan contacted Engineer Ledesma, construction manager of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious organization interested in acquiring a property. On 1, 1992, petitioner Tan visited the property with Engineer Ledesma. Thereafter, the two men accompanied Sisters Michaela Kim and Azucena Gaviola, representing the Sisters of Mary, who had seen and inspected the land, found the same suitable for their purpose and expressed their desire to buy it. However, they requested that the selling price be reduced to P530.00 per square meter instead of P550.00 per square meter. Private respondent Eduardo Gullas referred the prospective buyers to his wife. Page | 434

It was the first time that the buyers came to know that private respondent Eduardo Gullas was the owner of the property. Private respondents agreed to sell the property to the Sisters of Mary, and subsequently executed a special power of attorney in favor of Eufemia Cañete, giving her the special authority to sell, transfer and convey the land at a fixed price of P200.00 per square meter. Attorney-in-fact Cañete executed a deed of sale in favor of the Sisters of Mary for the price of P20,822,800.00, or at the rate of P200.00 per square meter. The buyers subsequently paid the corresponding taxes. Thereafter, the Register of Deeds of issued TCT No. 75981 in the name of the Sisters of Mary of Banneaux, Inc. Earlier, on July 3, 1992, petitioners went to see private respondent Eduardo Gullas to claim their commission, but the latter told them that he and his wife have already agreed to sell the property to the Sisters of Mary. Private respondents refused to pay the broker’s fee and alleged that another group of agents was responsible for the sale of land to the Sisters of Mary. petitioners filed a complaint against the defendants for recovery of their broker’s fee in the sum of P1,655,412.60, as well as moral and exemplary damages and attorney’s fees. They alleged that they were the efficient procuring cause in bringing about the sale of the property to the Sisters of Mary, but that their efforts in consummating the sale were frustrated by the private respondents who, in evident bad faith, malice and in order to evade payment of broker’s fee, dealt directly with the buyer whom petitioners introduced to them. They further pointed out that the deed of sale was undervalued obviously to evade payment of the correct amount of capital gains tax, documentary stamps and other internal revenue taxes. In their answer, private respondents countered that, contrary to petitioners’ claim, they were not the efficient procuring cause in bringing about the consummation of the sale because another broker, Roberto Pacana, introduced the property to the Sisters of Mary ahead of the petitioners. Private respondents maintained that when petitioners introduced the buyers to private respondent Eduardo Gullas, the former were already decided in buying the property through Pacana, who had been paid his commission. Private respondent Eduardo Gullas admitted that petitioners were in his office on July 3, 1992, but only to ask for the reimbursement of their cellular phone expenses. After trial, the lower court rendered judgment in favor of petitioners. Eduardo and Norma Gullas were ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg Tecson and Alexander Saldaña the sum of P624,684.00 as broker’s fee with legal interest at the rate of 6% per annum from the date of filing of the complaint; and the sum of P50,000.00 as attorney’s fees and costs of litigation. The Court of Appeals reversed and set aside the lower court’s decision and rendered another judgment dismissing the complaint. ISSUE: Whether or not the Court of Appeals erred in dismissing the complaint. RULING: It is readily apparent that private respondents are trying to evade payment of the commission which rightfully belongs to petitioners as brokers with respect to the sale. There was no dispute as to the role that petitioners played in the transaction. At the very Page | 435

least, petitioners set the sale in motion. They were not able to participate in its consummation only because they were prevented from doing so by the acts of the private respondents. In the case of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft (BMW) the SC ruled that, “An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.” Clearly, therefore, petitioners, as brokers, should be entitled to the commission whether or not the sale of the property subject matter of the contract was concluded through their efforts. Hence, the trial court’s decision is reinstated.

JESUS M. GOZUN vs. JOSE TEOFILO T. MERCADO Page | 436

G.R. No. 167812

December 19, 2006

FACTS: In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondent’s request, petitioner, owner of JMG Publishing House, a printing shop, submitted to respondent draft samples and price quotation of campaign materials. By petitioner’s claim, respondent’s wife had told him that respondent already approved his price quotation and that he could start printing the campaign materials, hence, he did print campaign materials. Given the urgency and limited time to do the job order, petitioner availed of the services and facilities of Metro Angeles Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun and mother Epifania Macalino Gozun, respectively. Petitioner delivered the campaign materials to respondent’s headquarters. On March 31, 1995, respondent’s sister-in-law, Lilian Soriano obtained from petitioner “cash advance” of P253,000 allegedly for the allowances of poll watchers who were attending a seminar and for other related expenses. Lilian acknowledged on petitioner’s 1995 diary receipt of the amount. Petitioner later sent respondent a Statement of Account in the total amount of P2,177,906 itemized as follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000, the “cash advance” obtained by Lilian. Respondent’s wife partially paid P1,000,000 to petitioner who issued a receipt therefor. Despite repeated demands and respondent’s promise to pay, respondent failed to settle the balance of his account to petitioner. Petitioner thus filed with the RTC a complaint against respondent to collect the remaining amount of P1,177,906 plus “inflationary adjustment” and attorney’s fees. The trial court rendered judgment in favor of the petitioner. The CA however, reversed the trial court’s decision and dismissed the complaint for lack of cause of action. ISSUE: Whether or not the Court of Appeals erred in reversing the trial courts’ decision. RULING: Petitioner is the real party in interest in this case. The trial court’s findings on the matter were affirmed by the appellate court. It erred, however, in not declaring petitioner as a real party in interest insofar as recovery of the cost of campaign materials made by petitioner’s mother and sister are concerned, upon the wrong notion that they should have been, but were not, impleaded as plaintiffs. Thus, respondent has the obligation to pay the total cost of printing his campaign materials delivered by petitioner in the total of P1,924,906, less the partial payment of P1,000,000, or P924,906.

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JOSEPH CHAN, WILSON CHAN and LILY CHAN VS. BONIFACIO S. MACEDA, JR 402 SCRA G.R. No. 142591 352 2003 Apr 30 FACTS: On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan from the Development Bank of the Philippines for the construction of his New Gran Hotel Project in Tacloban City. Thereafter, on September 29, 1976, respondent entered into a building construction contract with Moreman Builders Co., Inc. They agreed that the construction would be finished not later than December 22, 1977. Respondent purchased various construction materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of Wilson and Lily Chan, herein petitioners. The deposit was free of charge. Unfortunately, Moreman failed to finish the construction of the hotel at the stipulated time. Hence, on February 1, 1978, respondent filed with the then CFI an action for rescission and damages against Moreman. On November 28, 1978, the CFI rendered its Decision rescinding the contract between Moreman and respondent and awarding to the latter P445,000.00 as actual, moral and liquidated damages; P20,000.00 representing the increase in the construction materials; and P35,000.00 as attorney’s fees. Moreman interposed an appeal to the Court of Appeals but the same was dismissed on March 7, 1989 for being dilatory. He elevated the case to the SC via a petition for review on certiorari. In a Decision dated February 21, 1990, the Court denied the petition. On April 23, 1990 an Entry of Judgment was issued. Meanwhile, during the pendency of the case, respondent ordered petitioners to return to him the construction materials and equipment which Moreman deposited in their warehouse. Petitioners, however, told them that Moreman withdrew those construction materials in 1977. Hence, on December 11, 1985, respondent filed with the RTC an action for damages with an application for a writ of preliminary attachment against petitioners. ISSUE: Whether or not respondent have the right to demand the release of the said materials and equipment or claim for damages. Page | 438

RULING: At the outset, the case should have been dismissed outright by the trial court because of patent procedural infirmities. Even without such serious procedural flaw, the case should also be dismissed for utter lack of merit. Under Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Specifically, in an action against the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may have been designated in the contract. In the present case, the record is bereft of any contract of deposit, oral or written, between petitioners and respondent. If at all, it was only between petitioners and Moreman. And granting arguendo that there was indeed a contract of deposit between petitioners and Moreman, it is still incumbent upon respondent to prove its existence and that it was executed in his favor. However, respondent miserably failed to do so. The only pieces of evidence respondent presented to prove the contract of deposit were the delivery receipts. Significantly, they are unsigned and not duly received or authenticated by either Moreman, petitioners or respondent or any of their authorized representatives. Hence, those delivery receipts have no probative value at all. While our laws grant a person the remedial right to prosecute or institute a civil action against another for the enforcement or protection of a right, or the prevention or redress of a wrong, every cause of action ex-contractu must be founded upon a contract, oral or written, express or implied. Moreover, respondent also failed to prove that there were construction materials and equipment in petitioners’ warehouse at the time he made a demand for their return. Considering that respondent failed to prove (1) the existence of any contract of deposit between him and petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction materials in petitioners’ warehouse at the time of respondent’s demand to return the same, we hold that petitioners have no corresponding obligation or liability to respondent with respect to those construction materials.

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TIMOTEO BALUYOT, et al. VS. COURT OF APPEALS 1999 Jul 22 FACTS: Petitioners are residents of Barangay Cruz-na-Ligas. Diliman, Quezon City. The Cruz-na-Ligas Homesite Association, Inc. is a non-stock corporation of which petitioners and other residents of Barangay Cruz-na-Ligas are members. Petitioners filed a complaint for specific performance and damages against private respondent University of the Philippines before the RTC. The complaint was later on amended to include private respondent Quezon City government as defendant. that plaintiffs and their ascendants are owners since memory can no longer recall of that parcel of riceland known Sitio Libis, Barrio Cruz-na-Ligas, Quezon City (now Diliman, Quezon City), while the members of the plaintiff Association and their Page | 440

ascendants have possessed since time immemorial openly, adversely, continuously and also in the concept of an owner, the rest of the area embraced by and within the Barrio Cruz-na-Ligas, Diliman, Quezon City; that since October 1972, the claims of the plaintiffs and/or members of plaintiff Association have been the subject of quasi-judicial proceedings and administrative investigations in the different branches of the government penultimately resulting in the issuance of that Indorsement dated May 7, 1975 by the Bureau of Lands, and ultimately, in the issuance of the Indorsement of February 12, 1985, by the office of the President of the Rep. of the Philippines confirming the rights of the bonafide residents of Barrio Cruz-na-Ligas to the parcel of land they have been possessing or occupying; that defendant UP, pursuant to the said Indorsement from the Office of the President of the Rep. of the Philippines, issued that Reply Indorsement wherein it approved the donation of about 9.2 hectares of the site, directly to the residents of Brgy. Krus Na Ligas. After several negotiations with the residents, the area was increased to 15.8 hectares (158,379 square meters); that, however, defendant UP backed-out from the arrangement to donate directly to the plaintiff Association for the benefit of the qualified residents and high-handedly resumed to negotiate the donation thru the defendant Quezon City Government under the terms disadvantageous or contrary to the rights of the bonafide residents of the Barrio; that plaintiff Association forthwith amended its petition and prayed for a writ of preliminary injunction to restrain defendant UP from donating the area to the defendant Quezon City Government which was granted; that in the hearing of the Motion for Reconsideration filed by defendant UP, plaintiff Association finally agreed to the lifting of the said Order granting the injunction after defendant UP made an assurance in their said Motion that the donation to the defendant Quezon City Government will be for the benefit of the residents of Cruz-NaLigas; that, however, defendant UP took exception to the aforesaid Order lifting the Order of Injunction and insisted on the dismissal of the case; that plaintiff manifested its willingness to the dismissal of the case, provided, that the area to be donated thru the defendant Quezon City government be subdivided into lots to be given to the qualified residents together with the certificate of titles, without cost; that defendant UP failed to deliver the certificate of title covering the property to be donated thus the defendant Quezon City Government was not able to register the ownership so that the defendant Quezon City Government can legally and fully comply with their obligations under the said deed of donation;that upon expiration of the period of eighteen (18) months, for alleged non-compliance of the defendant Quezon City Government with terms and conditions quoted in par. 16 hereof, defendant UP thru its President, Mr. Jose Abueva, unilaterally, capriciously, whimsically and unlawfully Page | 441

issued that Administrative Order No. 21 declaring the deed of donation revoked and the donated property be reverted to defendant UP. The petitioners, then, prayed that a writ of preliminary injunction or at least a temporary restraining order be issued, ordering defendant UP to observe status quo; thereafter, after due notice and hearing, a writ of preliminary injunction be issued; (a) to restrain defendant UP or to their representative from ejecting the plaintiffs from and demolishing their improvements on the riceland or farmland situated at Sitio Libis; (b) to order defendant UP to refrain from executing another deed of donation in favor another person or entity and in favor of non-bonafide residents of Barrio Cruz-na-Ligas different from the Deed of Donation, and after trial on the merits, judgment be rendered:declaring the Deed of Donation as valid and subsisting and ordering the defendant UP to abide by the terms and conditions thereof. The Court of Appeals reversed the decision of the trial court. ISSUE: Whether or not defendant UP could execute another deed of donation in favor of third person. RULING: The Court found all the elements of a cause of action contained in the amended complaint of petitioners. While, admittedly, petitioners were not parties to the deed of donation, they anchor their right to seek its enforcement upon their allegation that they are intended beneficiaries of the donation to the Quezon City government. Art. 1311, second paragraph, of the Civil Code provides: 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. Under this provision of the Civil Code, the following requisites must be present in order to have a stipulation pour autrui:(1) there must be a stipulation in favor of a third person; (2) the stipulation must be a part, not the whole of the contract;(3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest; (4) the third person must have communicated his acceptance to the obligor before its revocation; and (5) neither of the contracting parties bears the legal representation or authorization of the third party. The allegations in the following paragraphs of the amended complaint are sufficient to bring petitioners’ action within the purview of the second paragraph of Art. 1311 on stipulations pour autrui: 1. Paragraph 17, that the deed of donation contains a stipulation that the Quezon City government, as donee, is required to transfer to qualified residents of Cruz-na-Ligas, by way of donations, the lots occupied by them;

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2. The same paragraph, that this stipulation is part of conditions and obligations imposed by UP, as donor, upon the Quezon City government, as donee; 3. Paragraphs 15 and 16, that the intent of the parties to the deed of donation was to confer a favor upon petitioners by transferring to the latter the lots occupied by them; 4. Paragraph 19, that conferences were held between the parties to convince UP to surrender the certificates of title to the city government, implying that the donation had been accepted by petitioners by demanding fulfillment thereof and that private respondents were aware of such acceptance; and 5. All the allegations considered together from which it can be fairly inferred that neither of private respondents acted in representation of the other; each of the private respondents had its own obligations, in view of conferring a favor upon petitioners. The amended complaint further alleges that respondent UP has an obligation to transfer the subject parcel of land to the city government so that the latter can in turn comply with its obligations to make improvements on the land and thereafter transfer the same to petitioners but that, in breach of this obligation, UP failed to deliver the title to the land to the city government and then revoked the deed of donation after the latter failed to fulfill its obligations within the time allowed in the contract. For the purpose of determining the sufficiency of petitioners’ cause of action, these allegations of the amended complaint must be deemed to be hypothetically true. So assuming the truth of the allegations, we hold that petitioners have a cause of action against UP. The decision of the Court of Appeals is reversed and the case is remanded to the RTC of Quezon City for trial on the merits.

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SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO vs. SPOUSES RENATO CUYCO and FILIPINA CUYCO G.R. No. 168736 April 19, 2006 FACTS: Petitioners obtained a loan in the amount of P1,500,000.00 from respondents payable within one year at 18% interest per annum, and secured by a Real Estate Mortgage over a parcel of land with improvements thereon situated in Cubao, Quezon City covered by a TCT. Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993. Petitioners made payments amounting to P291,700.00, but failed to settle their outstanding loan obligations. Respondents filed a complaint for foreclosure of mortgage with the RTC. They alleged that petitioners’ loans were secured by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly; and that petitioners’ refusal to settle the same entitles the respondents to foreclose the real estate mortgage. Petitioners filed a motion to dismiss on the ground that the complaint states no cause of action which was denied by the RTC for lack of merit. Petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be compounded monthly.

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The RTC rendered judgment in favor of the respondents and ordered the petitioners to pay to the Court or to the respondents the amounts of P6,332,019.84, plus interest until fully paid, P25,000.00 as attorney’s fees, and costs of suit, within a period of 120 days from the entry of judgment, and in case of default of such payment and upon proper motion, the property shall be ordered sold at public auction to satisfy the judgment. The CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estate mortgage. It held that by express intention of the parties, the real estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and September 5, 1992, respectively. As regards the loans obtained on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate tribunal held that the parties never intended the same to be secured by the real estate mortgage. Hence, this petition. ISSUE: Whether or not petitioners must pay respondents legal interest of 12% per annum on the stipulated interest of 18% per annum, computed from the filing of the complaint until fully paid. RULING: Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1997 until finality of the Court’s Decision. Such interest is not due to stipulation but due to the mandate of the law as embodied in Article 2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of 12% per annum until satisfied Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no longer be true upon the finality of this Court’s decision. In accordance with the rules laid down in Eastern Shipping Lines, Inc. v. Court of Appeals, the SC derived the following formula for the RTCs guidance: TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payments made Interest = principal x 18 % per annum x no. of years from due date until finality of judgment Interest on interest = Interest computed as of the filing of the complaint (September 10, 1997) x 12% x no. of years until finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid. Hence, the SC affirmed the CA decision with modifications. It ordered petitioners to pay the respondents (1) the total amount due, as computed by the RTC in accordance Page | 445

with the formula specified above, (2) the legal interest of 12% per annum on the total amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00 as attorney’s fees, and (4) the costs of suit, within a period of not less than 90 days nor more than 120 days from the entry of judgment, and in case of default of such payment the property shall be sold at public auction to satisfy the judgment.

TAYAG VS. COURT OF APPEALS 219 SCRA 481 FACTS: Petitioners are the heirs of Juan Galicia, Sr. who are seeking to rescind the deed of conveyance executed by Galicia, Sr. together with Celerina Labuguin, in favor of Albrigido Leyva, respondent involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija. They contend that respondent is in breach of the conditions of the deed. Contained in the deed were stipulations regarding the Page | 446

payment and settlement of the purchase price of the land. The respondent however did not strictly comply this with. Despite the posterior payments however, petitioners accepted them. Respondent, on the contention that he fulfilled his obligation to pay filed this case for specific performance by the petitioners. The court of origin which tried the suit for specific performance on account of the herein petitioner’s reluctance to abide by the covenant, ruled in favor of the vendee while respondent court practically agreed with the trial court except as to the amount to be paid to petitioners and the refund to private respondent are concerned. ISSUE: The issue is whether or not petitioners’ prayer for the rescission of the deed can prosper. RULING: The Supreme Court affirmed the decision of the lower courts. The suggestion of petitioners that the covenant must be cancelled in the light of private respondent’s so-called breach seems to overlook petitioners’ demeanor who, instead of immediately filing the case precisely to rescind the instrument because of non-compliance, allowed private respondent to effect numerous payments posterior to the grace periods provided in the contract. This apathy of petitioners, who even permitted private respondent to take the initiative in filing the suit for specific performance against them, is akin to waiver of abandonment of the right to rescind.

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SO PING BUN VS. COURT OF APPEALS 314 SCRA 751 FACTS: In 1963, Tek Hua Trading Co., through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee C. Chuan and Sons Inc (DCCSI). Subjects of four (4) lease contracts were premises located at Nos. 930, 930- Int., 924-B and 924C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles. The contracts each had a one year term. They provided that should the lessee continue to occupy the premises after the term, the lease shall be on a month to month basis. When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises in 1976 Tek Hua Trading Corp. was dissolved. Later, the original members of Tek Hua Trading Co., including Manuel C.Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation. So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok’s grandson, petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing. On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua enterprises, informing the latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20% effective January 1, 1990, upon other lessees’ demand. Again on December 1, 1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the lessee’s part, and agreement to the termination of the lese. Private respondents did not answer any of these letters. Still, the lease contracts were not rescinded. On March 1, 1991, private respondent Tiong sent a letter to petitioner asking Mr. So Ping Bun to vacate the premise because he used a warehouse. Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner’s request. The lease contracts in favor of Trendsetter were executed. ISSUE: Whether the appellate court erred in affirming the trial court’s decision finding So Ping Bun guilty of tortuous interference of contact. RULING: In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him. Page | 448

A duty which the law of torts is concerned with is respect for the property of others, and cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property. This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. In the case before us, petitioner’s Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter’s property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above mentioned are present in the instant case. Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exist where the actor’s motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer’s interest outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely I de minimis for he acts in self protection. Moreover, justification for protecting ones financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. As early as Gilchrist vs. Cuddy we held that where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested and such interest motivates his conduct it cannot be said that he is an officious or malicious intermeddler.

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ROCKLAND CONSTRUCTION COMPANY, INC vs. MID-PASIG LAND DEVELOPMENT CORPORATION G.R. No. 164587, February 04, 2008 Rockland Construction Company, Inc. in a letter dated March 1, 2000, offered to lease from Mid-Pasig Land Development Corporation the latter’s 3.1-hectare property in Pasig City. This property is covered by Transfer Certificate of Title Nos. 469702 and 337158 under the control of the Presidential Commission on Good Government. Upon instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG on April 15, 2000. The letter, addressed to PCGG Chairman Magdangal Elma, included Rockland’ proposed terms and conditions for the lease. This letter was also received by Mid-Pasig on April 18, 2000, but Mid-Pasig made no response. Again, in another letter dated June 8, 2000 addressed to the Chairman of MidPasig, Mr. Ronaldo Salonga, Rockland sent a Metropolitan Bank and Trust Company Check No. 2930050168 for P1 million as a sign of its good faith and readiness to enter into the lease agreement under the certain terms and conditions stipulated in the letter. Mid-Pasig received this letter on July 28, 2000. In a subsequent follow-up letter dated February 2, 2001, Rockland then said that it presumed that Mid-Pasig had accepted its offer because the P1 million check it issued had been credited to Mid-Pasig’s account on December 5, 2000. Mid-Pasig, however, denied it accepted Rockland’s offer and claimed that no check was attached to the said letter. It also vehemently denied receiving the P1 million check, much less depositing it in its account. In its letter dated February 6, 2001, Mid-Pasig replied to Rockland that it was only upon receipt of the latter’s February 2 letter that the former came to know where the check came from and what it was for. Nevertheless, it categorically informed Page | 450

Rockland that it could not entertain the latter’s lease application. Mid-Pasig reiterated its refusal of Rockland’s offer in a letter dated February 13, 2001. Rockland then filed an action for specific performance. Rockland sought to compel Mid-Pasig to execute in Rockland’s favor, a contract of lease over a 3.1-hectare portion of Mid-Pasig’s property in Pasig City. The RTC’s decision: 1. the plaintiff and the defendant have duly agreed upon a valid and enforceable lease agreement of subject portions of defendant’s properties comprising an area of 5,000 square meters, 11,000 square meters and 15,000 square meters, or a total of 31,000 square meters; 2. the principal terms and conditions of the aforesaid lease agreement are as stated in plaintiff’s June 8, 2000 letter; 3. defendant to execute a written lease contract in favor of the plaintiff containing the principal terms and conditions mentioned in the next-preceding paragraph, within sixty (60) days from finality of this judgment, and likewise ordering the plaintiff to pay rent to the defendant as specified in said terms and conditions; 4. defendant to keep and maintain the plaintiff in the peaceful possession and enjoyment of the leased premises during the term of said contract; 5. defendant to pay plaintiff attorney’s fees in the sum of One Million Pesos (P1,000,000.00), plus P2,000.00 for every appearance made by counsel in court; 6. The temporary restraining order dated April 2, 2001 is made PERMANENT; 7. Dismissed defendant’s counterclaim. The Court of Appeals reversed the trial court’s decision. ISSUES: 1. Was there a perfected contract of lease? 2. Had estoppel in pais set in? RULING: 1. A close review of the events in this case, in the light of the parties’ evidence, shows that there was no perfected contract of lease between the parties. MidPasig was not aware that Rockland deposited the P1 million check in its account. It only learned of Rockland’s check when it received Rockland’s February 2, 2001 letter. MidPasig, upon investigation, also learned that the check was deposited at the Philippine National Bank San Juan Branch, instead of PNB Ortigas Branch where Mid-Pasig maintains its account. Immediately, Mid-Pasig wrote Rockland on February 6, 2001 rejecting the offer, and proposed that Rockland apply the P1 million to its other existing lease instead. These circumstances clearly show that there was no concurrence of Rockland’s offer and Mid-Pasig’s acceptance. 2. Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. Since estoppel is Page | 451

based on equity and justice, it is essential that before a person can be barred from asserting a fact contrary to his act or conduct, it must be shown that such act or conduct has been intended and would unjustly cause harm to those who are misled if the principle were not applied against him. Hence, the petition was denied.

METROPOLITAN MANILA DEVELOPMENT AUTHORITY, VS. JANCOM ENVIRONMENTAL CORPORATION G.R. No. 147465 January 30, 2002 FACTS:

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The Philippine Government under the Ramos Administration, and through the Metro Manila Development Authority (MMDA) Chairman, and the Cabinet Officer for Regional Development-National Capital Region (CORD-NCR), entered into a contract with respondent JANCOM, on waste-to-energy projects for the waste disposal sites in San Mateo, Rizal and Carmona, Cavite under the build-operate-transfer (BOT) scheme. However, before President Ramos could have signed the said contract, there was a change in the Administration and EXECOM. Said change caused the passage of the law, the Clean Air Act, prohibiting the incineration of garbage and thus, against the contents of said contract. The Philippine Government, through the MMDA Chairman, declared said contract inexistent for several reasons. Herein respondent filed a suit against petitioner. The Regional Trial Court ruled in favor of the respondent. Instead of filing an appeal to the decision, petitioner filed a writ of certiorari on the Court of Appeals, which the latter granted. The Regional Trial Court declared its decision final and executory, for which the petitioner appealed to the CA, which the CA denied such appeal and affirming RTC’s decision. ISSUE: Whether or not a valid contract is existing between herein petitioner and respondent. RULING: Under Article 1305 of the Civil Code, “a contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.” A contract undergoes three distinct stages- preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Article 1315 of the Civil Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. In the case at bar, the signing and execution of the contract by the parties clearly show that, as between the parties, there was a concurrence of offer and acceptance with respect to the material details of the contract, thereby giving rise to the perfection of the contract. The execution and signing of the contract is not disputed by the parties. As the Court of Appeals aptly held: Contrary to petitioners’ insistence that there was no perfected contract, the meeting of the offer and acceptance upon the thing and the cause, which are to constitute the contract (Arts. 1315 and 1319, New Civil Code), is borne out by the records. Admittedly, when petitioners accepted private respondents’ bid proposal (offer), there was, in effect, a meeting of the minds upon the object (waste management project) and the cause (BOT scheme). Hence, the perfection of the contract. In City of Cebu vs. Page | 453

Heirs of Candido Rubi, the Supreme Court held that “the effect of an unqualified acceptance of the offer or proposal of the bidder is to perfect a contract, upon notice of the award to the bidder. In fact, in asserting that there is no valid and binding contract between the parties, MMDA can only allege that there was no valid notice of award; that the contract does not bear the signature of the President of the Philippines; and that the conditions precedent specified in the contract were not complied with. In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA points to the Implementing Rules and Regulations of Republic Act No. 6957, otherwise known as the BOT Law, which require that i) prior to the notice of award, an Investment Coordinating Committee clearance must first be obtained; and ii) the notice of award indicate the time within which the awardee shall submit the prescribed performance security, proof of commitment of equity contributions and indications of financing resources. Admittedly, the notice of award has not complied with these requirements. However, the defect was cured by the subsequent execution of the contract entered into and signed by authorized representatives of the parties; hence, it may not be gainsaid that there is a perfected contract existing between the parties giving to them certain rights and obligations (conditions precedents) in accordance with the terms and conditions thereof. We borrow the words of the Court of Appeals: Petitioners belabor the point that there was no valid notice of award as to constitute acceptance of private respondent’s offer. They maintain that former MMDA Chairman Oreta’s letter to JANCOM EC dated February 27, 1997 cannot be considered as a valid notice of award as it does not comply with the rules implementing Rep. Act No. 6957, as amended. The argument is untenable.

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ROCKLAND CONSTRUCTION COMPANY, INC vs. MID-PASIG LAND DEVELOPMENT CORPORATION G.R. No. 164587, February 04, 2008 FACTS: Rockland Construction Company, Inc. in a letter dated March 1, 2000, offered to lease from Mid-Pasig Land Development Corporation the latter’s 3.1-hectare property in Pasig City. This property is covered by Transfer Certificate of Title Nos. 469702 and 337158 under the control of the Presidential Commission on Good Government. Upon instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG on April 15, 2000. The letter, addressed to PCGG Chairman Magdangal Elma, included Rockland’ proposed terms and conditions for the lease. This letter was also received by Mid-Pasig on April 18, 2000, but Mid-Pasig made no response. Again, in another letter dated June 8, 2000 addressed to the Chairman of MidPasig, Mr. Ronaldo Salonga, Rockland sent a Metropolitan Bank and Trust Company Check No. 2930050168 for P1 million as a sign of its good faith and readiness to enter into the lease agreement under the certain terms and conditions stipulated in the letter. Mid-Pasig received this letter on July 28, 2000. In a subsequent follow-up letter dated February 2, 2001, Rockland then said that it presumed that Mid-Pasig had accepted its offer because the P1 million check it issued had been credited to Mid-Pasig’s account on December 5, 2000. Mid-Pasig, however, denied it accepted Rockland’s offer and claimed that no check was attached to the said letter. It also vehemently denied receiving the P1 million check, much less depositing it in its account. In its letter dated February 6, 2001, Mid-Pasig replied to Rockland that it was only upon receipt of the latter’s February 2 letter that the former came to know where the check came from and what it was for. Nevertheless, it categorically informed Rockland that it could not entertain the latter’s lease application. Mid-Pasig reiterated its refusal of Rockland’s offer in a letter dated February 13, 2001. Rockland then filed an action for specific performance. Rockland sought to compel Mid-Pasig to execute in Rockland’s favor, a contract of lease over a 3.1-hectare portion of Mid-Pasig’s property in Pasig City. The RTC’s decision: Page | 455

8. the plaintiff and the defendant have duly agreed upon a valid and enforceable lease agreement of subject portions of defendant’s properties comprising an area of 5,000 square meters, 11,000 square meters and 15,000 square meters, or a total of 31,000 square meters; 9. the principal terms and conditions of the aforesaid lease agreement are as stated in plaintiff’s June 8, 2000 letter; 10. defendant to execute a written lease contract in favor of the plaintiff containing the principal terms and conditions mentioned in the next-preceding paragraph, within sixty (60) days from finality of this judgment, and likewise ordering the plaintiff to pay rent to the defendant as specified in said terms and conditions; 11. defendant to keep and maintain the plaintiff in the peaceful possession and enjoyment of the leased premises during the term of said contract; 12. defendant to pay plaintiff attorney’s fees in the sum of One Million Pesos (P1,000,000.00), plus P2,000.00 for every appearance made by counsel in court; 13. The temporary restraining order dated April 2, 2001 is made PERMANENT; 14. Dismissed defendant’s counterclaim. The Court of Appeals reversed the trial court’s decision. ISSUES: 3. Was there a perfected contract of lease? 4. Had estoppel in pais set in? RULING: 3. A close review of the events in this case, in the light of the parties’ evidence, shows that there was no perfected contract of lease between the parties. MidPasig was not aware that Rockland deposited the P1 million check in its account. It only learned of Rockland’s check when it received Rockland’s February 2, 2001 letter. MidPasig, upon investigation, also learned that the check was deposited at the Philippine National Bank San Juan Branch, instead of PNB Ortigas Branch where Mid-Pasig maintains its account. Immediately, Mid-Pasig wrote Rockland on February 6, 2001 rejecting the offer, and proposed that Rockland apply the P1 million to its other existing lease instead. These circumstances clearly show that there was no concurrence of Rockland’s offer and Mid-Pasig’s acceptance. 4. Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. Since estoppel is based on equity and justice, it is essential that before a person can be barred from asserting a fact contrary to his act or conduct, it must be shown that such act or conduct has been intended and would unjustly cause harm to those who are misled if the principle were not applied against him. Hence, the petition was denied. Page | 456

MANILA METAL CONTAINER CORPORATION, petitioner REYNALDO C. TOLENTINO, intervenor, vs. PHILIPPINE NATIONAL BANK, respondent, DMCI-PROJECT DEVELOPERS, INC., intervenor G.R. No. 166862 December 20, 2006 FACTS: Petitioner was the owner of a 8,015 square meter parcel of land and to secure a P900,000.00 loan it had obtained from respondent PNB, petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment of Real Estate Mortgage over its property. On March 31, 1981, petitioner Page | 457

secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges. PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to respondent PNB as of June 30, 1982, plus interests and attorney's fees. After due notice and publication, the property was sold at public auction where respondent PNB was declared the winning bidder for P1,000,000.00. The period to redeem the property was to expire on February 17, 1984. Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the property. Respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation Petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment. Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption”. Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 and issued a new title in favor of respondent PNB. Petitioner's offers had not yet been acted upon by respondent PNB. Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost. When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and an Official Receipt was issued. The SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers. Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property. On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property for P1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position. On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it. Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to Page | 458

repurchase. Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property. Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989. Petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages.” Respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired. The trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made. The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The Court of Appeals affirmed the RTC’s decision. ISSUE: Whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent. RULING: The ruling of the appellate court that there was no perfected contract of sale between the parties is correct. It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00 deposit. In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property.

Page | 459

MONTECILLO VS. REYNES 385 SCRA 244 FACTS: Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rico Montecillo. Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City. In 1981 Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought. Reynes alleged further that she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo. Reynes, being illiterate signed by affixing her thumb-mark on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale. And that Montecillo failed to pay the purchase price after the lapse of the one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale, Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo. Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185 square meter portion of the lot. Reynes and the Abucay Spouses alleged that they received information that the Register of Deeds of Cebu City issued a Certificate of Title in the name of Montecillo for the Mabolo Lot. They argued that “for lack for consideration there (was no meeting of the minds) between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Monticello’s Deed of sale, and order the cancellation of certificates of title No. 90805 in the name of Montecillo. In his Answer, Montecillo a bank executive claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated on his Deed of Sale. Montecillo however admitted he still owned Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot. In their reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the chattel mortgage especially after Reynes revoked Page | 460

Montecillo’s Deed of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel mortgage through machination. They further asserted that Montecillo took advantage of the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name. During pre-trial Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Iced and Cold Storage Corporation for the mortgage debt of Bienvenido Jayag. Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. Reynes, however stated that she had nothing to do with Jayag’s mortgage debt except that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage on Jayag’s house is a matter between Montecillo and Jayag. The mortgage on the house being a chattel mortgage could not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment on January 30,1967. ISSUE: Whether or not there was a valid consent in the case at bar to have a valid contract. RULING: One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parities must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for a lack of consent. This lack of consent is separate and distinct for lack of consideration where the contract states that the price has been paid when in fact it has never been paid. Reynes expected Montecillo to pay him directly the P47, 000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47,000.00-purchase price to Cebu Ice Storage to settle Jayag’s mortgage debt. Montecillo also acknowledged a balance of P10, 000.00 in favor of Reynes although this amount is not stated in Montecillo’s Deed of Sale. Thus, there was no consent or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent. In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo. Page | 461

JASMIN SOLER VS. COURT OF APPEALS G.R. No. 123892 May 2, 2001 FACTS: Petitioner is a professional interior designer. In November 1986, her friend Rosario Pardo asked her to talk to Nida Lopez, who was manager of the COMBANK Ermita Branch for they were planning to renovate the branch offices. Even prior to November 1986, petitioner and Nida Lopez knew each other because of Rosario Pardo, the latter’s sister. During their meeting, petitioner was hesitant to accept the job because of her many out of town commitments, and also considering that Ms. Lopez was asking that the designs be submitted by December 1986, which was such a short notice. Ms. Lopez insisted, however, because she really wanted petitioner to do the design for renovation. Petitioner acceded to the request. Ms. Lopez assured her that she would be compensated for her services. Petitioner even told Ms. Lopez that her professional fee was P10,000.00, to which Ms. Lopez acceded. During the November 1986 meeting between petitioner and Ms. Lopez, there were discussions as to what was to be renovated. Ms. Lopez again assured petitioner Page | 462

that the bank would pay her fees. After a few days, petitioner requested for the blueprint of the building so that the proper design, plans and specifications could be given to Ms. Lopez in time for the board meeting in December 1986. Petitioner then asked her draftsman Jackie Barcelon to go to the jobsite to make the proper measurements using the blue print. Petitioner also did her research on the designs and individual drawings of what the bank wanted. Petitioner hired Engineer Ortanez to make the electrical layout, architects Frison Cruz and De Mesa to do the drafting. For the services rendered by these individuals, petitioner paid their professional fees. Petitioner also contacted the suppliers of the wallpaper and the sash makers for their quotation. So come December 1986, the lay out and the design were submitted to Ms. Lopez. She even told petitioner that she liked the designs. Subsequently, petitioner repeatedly demanded payment for her services but Ms. Lopez just ignored the demands. In February 1987, by chance petitioner and Ms. Lopez saw each other in a concert at the Cultural Center of the Philippines. Petitioner inquired about the payment for her services, Ms. Lopez curtly replied that she was not entitled to it because her designs did not conform to the bank’s policy of having a standard design, and that there was no agreement between her and the bank. Petitioner, through her lawyers, who wrote Ms. Lopez, demanding payment for her professional fees in the amount of P10,000.00 which Ms. Lopez ignored. The lawyers wrote Ms. Lopez once again demanding the return of the blueprint copies petitioner submitted which Ms. Lopez refused to return. The petitioner then filed at the trial court a complaint against COMBANK and Ms. Lopez for collection of professional fees and damages. In its answer, COMBANK stated that there was no contract between COMBANK and petitioner; that Ms. Lopez merely invited petitioner to participate in a bid for the renovation of the COMBANK Ermita Branch; that any proposal was still subject to the approval of the COMBANK’s head office. The trial court rendered judgment in favor of plaintiff. On appeal, the Court of Appeals reversed the decision. Hence, this petition. ISSUE: Whether or not the Court of Appeals erred in ruling that there was no contract between petitioner and respondents, in the absence of the element of consent. RULING: A contract is a meeting of the minds between two persons whereby one binds himself to give something or to render some service to bind himself to give something to render some service to another for consideration. There is no contract 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 which is established. Page | 463

In the case at bar, there was a perfected oral contract. When Ms. Lopez and petitioner met in November 1986, and discussed the details of the work, the first stage of the contract commenced. When they agreed to the payment of the P10,000.00 as professional fees of petitioner and that she should give the designs before the December 1986 board meeting of the bank, the second stage of the contract proceeded, and when finally petitioner gave the designs to Ms. Lopez, the contract was consummated. Petitioner believed that once she submitted the designs she would be paid her professional fees. Ms. Lopez assured petitioner that she would be paid. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority. Also, petitioner may be paid on the basis of quantum meruit. "It is essential for the proper operation of the principle that there is an acceptance of the benefits by one sought to be charged for the services rendered under circumstances as reasonably to notify him that the lawyer performing the task was expecting to be paid compensation therefor. The doctrine of quantum meruit is a device to prevent undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it." The designs petitioner submitted to Ms. Lopez were not returned. Ms. Lopez, an officer of the bank as branch manager used such designs for presentation to the board of the bank. Thus, the designs were in fact useful to Ms. Lopez for she did not appear to the board without any designs at the time of the deadline set by the board. Decision reversed and set aside. Decision of the trial court affirmed.

Page | 464

PALATTAO VS. COURT OF APPEALS 381 SCRA 681 MAY 7, 2002 FACTS: Petitioner Yolanda Palattao entered into a lease contract whereby she leased to private respondent a house and a 490-square-meter lot located in 101 Caimito Road, Caloocan City, covered by a Transfer Certificate of Title and registered in the name of petitioner. The duration of the lease contract was for three years, commencing from January 1, 1991, to December 31, 1993, renewable at the option of the parties. The agreed monthly rental was P7,500.00 for the first year; P 8,000.00 for the second year: and P8,500.l00 for the third year. The contract gave respondent lessee the first option to purchase the leased property. During the last year of the contract, the parties began negotiations for the sale of the leased premises to private respondent. In a letter, petitioner offered to sell to private respondents 413.28 square meters of the leased lot at P 7,800.00 per square meter, or for the total amount of P3,223,548.00. Private respondents replied on April 15, 1993 wherein he informed petitioner that he “shall definitely exercise his option to buy” the leased property. Private respondent, however, manifested his desire to buy the whole 490-square meters inquired from petitioner the reason why only 413.28 square meters of the leased lot were being offered for sale. In a letter dated November 6, 1993, petitioner made a final offer to sell the lot at P7,500.00 per square meter with a down payment of 50% upon the signing of the contract of conditional sale, the balance payable in one year with a monthly lease/interest payment P 14,000.00 which must be paid on or before the fifth day every month that the balance is still outstanding. Private respondents accepted petitioners offer and reiterated his request for respondent accepted petitioner’s offers and reiterated his request for clarification as to the size of the lot for sale. Petitioner acknowledged private respondent’s acceptance of the offer in his letter dated November 10, 1993. Petitioner gave private respondent on or before November 24, 1993, within which to pay the 50% downpayment in cash or manager’s check. Petitioner stressed that failure to pay the downpayment on the stipulated period will enable petitioner to freely sell her property to others. Petitioner likewise notified private respondent, that she is no longer renewing the lease agreement upon its expiration on December 31, 1993. Private respondent did not accept the terms proposed by petitioner. Neither were there any documents of sale nor payment by private respondent of the required downpayment. Private respondent wrote a letter to petitioner on November 29, 1993 manifesting his intention to exercise his option to renew their lease contract for another three years, starting January 1, 1994 to December 31, 1996. This was rejected by petitioner, reiterating that she was no longer renewing the lease. Petitioner demanded that private respondent vacate the premises, but the latter refused. Page | 465

Hence, private respondent filed with the Regional Trial Court a case for specified performance seeking to compel petitioner to sell to him the leased property. Private respondent further prayed for the issuance of a writ preliminary injunction to prevent petitioner from filing an ejectment case upon the expiration of the lease contract on December 31, 1993. During the proceedings in the specific performance case, the parties agreed to maintain the status quo. After they failed to reach an amicable settlement, petitioner filed the instant ejectment case before the Metropolitan Trial Court. In his answer, private respondent alleged that he refused to vacate the leased premises because there was a perfected contract of sale of the leased property between him and petitioner. Private respondent argued that he did not abandon his option to buy the leased property and that his proposal to renew the lease was but an alternative proposal to the sale. He further contended that the filing of the ejectment case violated their agreement to maintain the status quo. ISSUE: Whether or not there was a valid consent in the case at bar. RULING: There was no valid consent in the case at bar. 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 terns of payment, a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuals the offer. In the case at bar, while it is true that private respondent informed petitioner that he is accepting the latter’s offer to sell the leased property, it appears that they did not reach an agreement as to the extent of the lot subject of the proposed sale. Letters reveal that private respondent did not give his consent to buy only 413.28 square meters of the leased lot, as he desired to purchase the whole 490 square-meterleased premises which, however, was not what was exactly proposed in petitioner’s offer. Clearly, therefore, private respondent’s acceptance of petitioner’s offer was not absolute, and will consequently not generate consent that would perfect a contract.

Page | 466

ABS-CBN BROADCASTING CORPORATION VS. COURT OF APPEALS 301 SCRA 573 G.R. No. 128690 January 21, 1999 FACTS: In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo SantosConcio, a list of three film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement. ABS-CBN, however through Mrs. Concio, "can tick off only ten titles" (from the list) "we can purchase" and therefore did not accept said list. The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film "Maging Sino Ka Man." On February 27, 1992, defendant Del Rosario approached ABS-CBN’s Ms. Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots. Page | 467

On April 2, 1992, defendant Del Rosario and ABS-CBN’s general manager, Eugenio Lopez III discussed the package proposal of VIVA. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin" and signed it and gave it to Mr. Del Rosario. On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva’s film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva’s offer to sell the 104 films, after the rejection of the same package by ABS-CBN. On the following day, Del Rosario received a draft contract from Ms. Concio which contains a counter-proposal of ABS-CBN on the offer made by VIVA including the right of first refusal to 1992 Viva Films. However, the proposal was rejected by the Board of Directors of VIVA and such was relayed to Ms. Concio. On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva’s President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or acquired films including the fourteen films subject of the present case. On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting System (now GMA Network Inc.) On 28 May 1992, the RTC issued a temporary restraining order. The RTC then rendered decision in favor of RBS and against ABS-CBN. On appeal, the same decision was affirmed. Hence, this decision. ISSUE: Whether or not there exists a perfected contract between ABS-CBN and VIVA. RULING: A contract is a meeting of minds between two persons whereby one binds himself to give something or render some service to another [Art. 1305, Civil Code.] for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is established. [Art. 1318, Civil Code.] A contract undergoes three stages: (a) preparation, conception, or generation, which is the period of negotiation and bargaining rending at the moment of agreement of the parties; Page | 468

(b) (c)

perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.

In the present case, when Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA’s offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA’s offer, for it was met by a counter-offer which substantially varied the terms of the offer. Furthermore, ABS-CBN made no acceptance of VIVA’s offer hence, they underwent period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. The instant petition was GRANTED.

LOURDES ONG LIMSON VS. COURT of APPEALS, et al 357 SCRA 209 G. R. No. 135929 April 20, 2001 Page | 469

FACTS: In July 1978, respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner Lourdes Ong Limson a parcel of land. The respondent spouses were the owners of the subject property. On July 31, 1978, she agreed to but the property at the price of P34. 00 per square meter and gave P20, 000.00 as “earnest money”. The respondent spouses signed a receipt thereafter and gave her a 10-day option period to purchase the property. Respondent spouses informed petitioner that the subject property was mortgaged to Emilio Ramos and Isidro Ramos. Petitioner was asked to pay the balance of the purchase price to enable the respondent spouses to settle their obligation with the Ramoses. Petitioner agreed to meet respondent spouses and the Ramoses on August 5, 1978, to consummate the transaction; however, the respondent spouses and the Ramoses did not appear, same with their second meeting. On August 23, 1978, petitioner allegedly gave respondent spouses three checks for the settlement the back taxes of property. On September 5, 1978, the agent of the respondent spouses informed petitioner that the property was the subject of a negotiation for the sale to respondent Sunvar Realty Development Corporation. Petitioner alleged that it was only on September 15, 1978, that TCT No. S-72946 covering the property was issued to respondent spouses. On the same day, petitioner filed and Affidavit of Adverse Claim with the Office of the Registry of Deeds of Makati, Metro Manila. The Deed of Sale between respondent spouses and respondent Sunvar was executed on September 15, 1978 and TCT No. S-72377 was issued in favor of Sunvar on September 26, 1978 with the Adverse Claim of petitioner annotated thereon. Respondent spouses and Sunvar filed their Answers and Answers to Cross-Claim, respectively. On appeal, the Court of Appeals completely reversed the decision of the trial court and ordered the Register of Deeds of Makati City to lift the Adverse Claim and ordered petitioner to pay respondent Sunvar and respondent spouses exemplary and nominal damages and attorney’s fees. Hence, this petition. ISSUE: Whether or not the agreement between petitioner and respondent spouses was a mere option or a contract to sell. RULING: The Supreme Court held that the agreement between the parties was a contract of option and not a contract to sell. An option is continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a Page | 470

fixed price within a time certain, or under, or in compliance with, certain terms and conditions, or which gives the owner of the property the right to sell or demand a sale. It is also sometimes called an “unaccepted offer”. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. REYNALDO VILLANUEVA vs. PHILIPPINE NATIONAL BANK G.R. NO. 154493 December 6, 2006 FACTS: The Special Assets Management Department (SAMD) of PNB issued an advertisement for the sale thru bidding of certain PNB properties including Lot No. 17, covered by TCT No. T-15042, with an advertised floor price of P1,409,000.00, and Lot No. 19, covered by TCT No. T-15036, with an advertised floor price of P2,268,000.00. Bidding was subject to the following conditions: 1) that cash bids be submitted not later than April 27, 1989; 2) that said bids be accompanied by a 10% deposit in manager’s or cashier’s check; and 3) that all acceptable bids be subject to approval by PNB authorities. In a June 28, 1990 letter to the Manager, Reynaldo Villanueva offered to purchase Lot Nos. 17 and 19 for P3,677,000.00. He also manifested that he was depositing P400,000.00 to show his good faith but with the understanding that said amount may be treated as part of the payment of the purchase price only when his offer is accepted by PNB. At the bottom of said letter there appears an unsigned marginal note stating that P400,000.00 was deposited into Villanueva’s account (Savings Account No. 43612) with PNB-General Santos Branch. Guevara, the vice-president informed Villanueva that only Lot No. 19 is available and that the asking price therefor is P2,883,300.00. PNB also stated that if quoted price is acceptable to Villanueva, then the latter must submit a revised offer to purchase. And Sale shall be subject to its Board of Director’s approval and to other terms and conditions imposed by the Bank on sale of acquired assets. Instead of submitting a revised offer, Villanueva merely inserted at the bottom of Guevara’s letter a July 11, 1990 marginal note, which reads: C O N F O R M E: PRICE OF P2,883,300.00 (downpayment of P600,000.00 and the balance payable in two (2) years at quarterly amortizations.) Villanueva paid P200,000.00 to PNB which issued O.R. No. 16997 to acknowledge receipt of the “partial payment deposit on offer to purchase.” On the dorsal portion of Official Receipt No. 16997, Villanueva signed a typewritten note, stating: Page | 471

This is a deposit made to show the sincerity of my purchase offer with the understanding that it shall be returned without interest if my offer is not favorably considered or be forfeited if my offer is approved but I fail/refuse to push through the purchase. Also, on July 24, 1990, P380,000.00 was debited from Villanueva’s Savings Account No. 43612 and credited to SAMD. On October 11, 1990, however, Guevara wrote Villanueva that upon orders of the PNB Board of Directors to conduct another appraisal and public bidding of Lot No. 19, SAMD is deferring negotiations with him over said property and returning his deposit of P580,000.00. Undaunted, Villanueva attempted to deliver postdated checks covering the balance of the purchase price but PNB refused the same. Hence, Villanueva filed with the RTC a Complaint for specific performance and damages against PNB. The RTC rendered judgment in favor of the plaintiff and against the defendant directing it to execute a deed of sale in favor of the plaintiff over Lot 19 comprising after payment of the balance in cash in the amount of P2,303,300.00 and to pay the plaintiff P1,000,000.00 as moral damages; P500,000.00 as attorney’s fees, plus litigation expenses and costs of the suit. PNB appealed to the CA which reversed and set aside the RTC decision. ISSUE: Whether or not a perfected contract of sale exists between petitioner and respondent PNB. RULING: The Court sustained the CA. The CA held that the case at bench, consent, in respect to the price and manner of its payment, is lacking. The record shows that appellant, thru Guevara’s July 6, 1990 letter, made a qualified acceptance of appellee’s letter-offer dated June 28, 1990 by imposing an asking price of P2,883,300.00 in cash for Lot 19. The letter dated July 6, 1990 constituted a counter-offer (Art. 1319, Civil Code), to which appellee made a new proposal, i.e., to pay the amount of P2,883,300.00 in staggered amounts, that is, P600,000.00 as downpayment and the balance within two years in quarterly amortizations. 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. Appellee’s new proposal, which constitutes a counteroffer, was not accepted by appellant, its board having decided to have Lot 19 reappraised and sold thru public bidding. Page | 472

CATALAN vs. BASA JULY 31, 2007 FACTS: On October 20, 1948, FELICIANO CATALAN Feliciano was discharged from active military service. The Board of Medical Officers of the Department of Veteran Affairs found that he was unfit to render military service due to his “schizophrenic reaction, catatonic type, which incapacitates him because of flattening of mood and affect, preoccupation with worries, withdrawal, and sparse and pointless speech.” On September 28, 1949, Feliciano married Corazon Cerezo. On June 16, 1951, a document was executed, titled “Absolute Deed of Donation,” wherein Feliciano allegedly donated to his sister MERCEDES CATALAN one-half of the real property described, viz: A parcel of land located at Barangay Basing, Binmaley, Pangasinan. Bounded on the North by heirs of Felipe Basa; on the South by Barrio Road; On the East by heirs of Segundo Catalan; and on the West by Roman Basa. Containing an area of Eight Hundred One (801) square meters, more or less. The donation was registered with the Register of Deeds. Page | 473

On December 11, 1953, People’s Bank and Trust Company filed a Special Proceedings before the Court of First Instance to declare Feliciano incompetent. On December 22, 1953, the trial court issued its Order for Adjudication of Incompetency for Appointing Guardian for the Estate and Fixing Allowance of Feliciano. The following day, the trial court appointed People’s Bank and Trust Company as Feliciano’s guardian. People’s Bank and Trust Company has been subsequently renamed, and is presently known as the Bank of the Philippine Islands (BPI). On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3 of their property, registered under Original Certificate of Title (OCT) No. 18920, to their son Eulogio Catalan. Mercedes sold the property in issue in favor of her children Delia and Jesus Basa. The Deed of Absolute Sale was registered with the Register of Deeds and a Tax Declaration was issued in the name of respondents. Feliciano and Corazon Cerezo donated Lot 2 of the aforementioned property registered under OCT No. 18920 to their children Alex Catalan, Librada Catalan and Zenaida Catalan. On February 14, 1983, Feliciano and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same OCT No. 18920 to Eulogio and Florida Catalan. BPI, acting as Feliciano’s guardian, filed a case for Declaration of Nullity of Documents, Recovery of Possession and Ownership, as well as damages against the herein respondents. BPI alleged that the Deed of Absolute Donation to Mercedes was void ab initio, as Feliciano never donated the property to Mercedes. In addition, BPI averred that even if Feliciano had truly intended to give the property to her, the donation would still be void, as he was not of sound mind and was therefore incapable of giving valid consent. Thus, it claimed that if the Deed of Absolute Donation was void ab initio, the subsequent Deed of Absolute Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes Catalan had no right to sell the property to anyone. BPI raised doubts about the authenticity of the deed of sale, saying that its registration long after the death of Mercedes Catalan indicated fraud. Thus, BPI sought remuneration for incurred damages and litigation expenses. On August 14, 1997, Feliciano passed away. The original complaint was amended to substitute his heirs in lieu of BPI as complainants in Civil Case No. 17666. The trial court found that the evidence presented by the complainants was insufficient to overcome the presumption that Feliciano was sane and competent at the time he executed the deed of donation in favor of Mercedes Catalan. Thus, the court declared, the presumption of sanity or competency not having been duly impugned, the presumption of due execution of the donation in question must be upheld. The Court of Appeals upheld the trial court’s decision. ISSUE: Whether said decision of the lower courts is correct. RULING: Petitioners questioned Feliciano’s capacity at the time he donated the property, yet did not see fit to question his mental competence when he entered into a contract of marriage with Corazon Cerezo or when he executed deeds of donation of his other Page | 474

properties in their favor. The presumption that Feliciano remained competent to execute contracts, despite his illness, is bolstered by the existence of these other contracts. Competency and freedom from undue influence, shown to have existed in the other acts done or contracts executed, are presumed to continue until the contrary is shown. Needless to state, since the donation was valid, Mercedes had the right to sell the property to whomever she chose. Not a shred of evidence has been presented to prove the claim that Mercedes’ sale of the property to her children was tainted with fraud or falsehood. It is of little bearing that the Deed of Sale was registered only after the death of Mercedes. What is material is that the sale of the property to Delia and Jesus Basa was legal and binding at the time of its execution. Thus, the property in question belongs to Delia and Jesus Basa. petitioners raised the issue of prescription and laches for the first time on appeal before this Court. It is sufficient for this Court to note that even if the present appeal had prospered, the Deed of Donation was still a voidable, not a void, contract. As such, it remained binding as it was not annulled in a proper action in court within four years. IN VIEW WHEREOF, there being no merit in the arguments of the petitioners, the petition is DENIED. The CA decision was affirmed in toto.

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DOMINGO V. COURT OF APPEALS G.R. No. 127540. October 17, 2001 FACTS: Paulina Rigonan owned three parcels of land including the house and warehouse on one parcel. She allegedly sold them to private respondents, the spouses Felipe and Concepcion Rigonan, who claim to be her relatives. In 1966, petitioners who claim to be her closest surviving relatives, allegedly took possession of the properties by means of stealth, force and intimidation, and refused to vacate the same. According to defendants, the alleged deed of absolute sale was void for being spurious as well as lacking consideration. They said that Paulina Rigonan did not sell her properties to anyone. As her nearest surviving kin within the fifth degree of consanguinity, they inherited the three lots and the permanent improvements thereon when Paulina died. They said they had been in possession of the contested properties for more than 10 years. ISSUE: 1.) Whether or not the consideration in Deed of Sale can be used to impugn the validity of the Contract of Sale. 2.) Whether or not the alleged Deed of Sale executed by Paulina Rigonan in favor of the private respondents is valid. RULING: 1.) Consideration is the why of a contract, the essential reason which moves the contracting parties to enter into the contract. The Court had seen no apparent and compelling reason for her to sell the subject 9 parcels of land with a house and warehouse at a meager price of P850 only. On record, there is unrebutted testimony that Paulina as landowner was financially well off. She loaned money to several people. Undisputably, the P850.00 consideration for the nine (9) parcels of land including the house and bodega is grossly and shockingly inadequate, and the sale is null and void ab initio. 2.) The Curt ruled in the negative. Private respondents presented only a carbon copy of this deed. When the Register of Deeds was subpoenaed to produce the deed, no original typewritten deed but only a carbon copy was presented to the trial court. None of the witnesses directly testified to prove positively and convincingly Paulina’s execution of the original deed of sale. The carbon copy did not bear her signature, but only her alleged thumbprint. Juan Franco testified during the direct examination that he was an instrumental witness to the deed. However, when cross-examined and shown a copy of the subject deed, he retracted and said that said deed of sale was not the document he signed as witness.

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MENDOZANA, ET AL. V. OZAMIZ ET AL. G.R. No. 143370, February 6, 2002 FACTS: Petitioner spouses Mario J. Mendezona and Teresita M. Mendezona, petitioner spouses Luis J. Mendezona and Maricar L. Mendezona, and petitioner Teresita Adad Vda. de Mendezona own a parcel of land each with almost similar areas of 3,462 square meters, 3,466 square meters and 3,468 square meters. The petitioners ultimately traced their titles of ownership over their respective properties from a notarized Deed of Absolute Sale executed in their favor by Carmen Ozamiz. The petitioners initiated the suit to remove a cloud on their said respective titles caused by the inscription thereon. The respondents opposed the petitioners’ claim of ownership of the said parcels of land alleging that the titles issued in the petitioners’ names are defective and illegal, and the ownership of the said property was acquired in bad faith and without value inasmuch as the consideration for the sale is grossly inadequate and unconscionable. Respondents further alleged that at the time of the sale as alleged, Carmen Ozamiz was already ailing and not in full possession of her mental faculties; and that her properties having been placed in administration, she was in effect incapacitated to contract with petitioners. They argue that the Deed of Absolute sale is a simulated contract. ISSUE: Whether or not the Deed of Absolute Sale in the case at bar was simulated. RULING: The Court ruled that the Deed in the case at bar is not a simulated contract. Simulation is defined as “the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different from what that which was really executed.” The requisites of simulation are:

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(a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. None of these were clearly shown to exist in the case at bar. The Deed of Absolute Sale is a notarized document duly acknowledged before a notary public. As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face. The burden fell upon the respondents to prove their allegations attacking the validity and due execution of the said Deed of Absolute Sale. Respondents failed to discharge that burden; hence, the presumption in favor of the said deed stands.

LIM VS. COURT OF APPEALS G.R. No. 55201, February 3, 1994 FACTS: The deceased spouses Tan Quico and Josefa Oraa, who both died intestate left 96 hectares of land. The late spouses were survived by four children; Cresencia, Lorenzo, Hermogenes and Elias. Elias died on May 2, 1935. Cresencia died on December 20, 1967. She was survived by her husband, Lim Chay Sing, and children, Mariano, Jaime, Jose Jovita, Anacoreta, Antonietta, Ruben, Benjamin and Rogelio who are now the petitioners in the case at bench. The Cresencia only reached the second grade of elementary school. She could not read or write in English. On the other hand, Lorenzo is a lawyer and a CPA. Heirs of Cresencia alleged that since the demise of the spouses Tan Quico and Josefa Oraa, the subject properties had been administered by respondent Lorenzo. They claimed that before her death, Cresencia had demanded their partition from Lorenzo. After Cresencia’s death, they likewise clamored for their partition. Their effort proved fruitless. Respondents Lorenzo and Hermogenes’ unyielding stance against partition is based on various contentions. They cited as evidence the “Deed of Confirmation of Extra Judicial Settlement of the Estate of Tan Quico and Josefa Oraa” and a receipt of payment. Principally, they urge that the properties had already been partitioned, albeit, Page | 478

orally; and during her lifetime, the late Cresencia had sold and conveyed all her interests in said properties to respondent Lorenzo. ISSUE: Whether or not there is error or mistake in the signing of the Deed. RULING: There is an error in the signing of the Deed. Article 1332 of the Civil Code provides: “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 alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.” In the case at bar, the questioned Deed is written in English, a language not understood by Cresencia an illiterate in the said language. It was prepared by the respondent Lorenzo, a lawyer and CPA. Lorenzo did not cause the notarization of the Deed. Considering these circumstances, the burden was on private respondents to prove that the content of the Deed was explained to the illiterate Cresencia before she signed it. In this regard, the evidence adduced by the respondents failed to discharge their burden. This substantive law came into being due to the finding of the Code Commission that there is still a fairly large number of illiterates in this country, and documents are usually drawn up in English or Spanish. It is also in accord with our state policy of promoting social justice. It also supplements Article 24 of the Civil Code which calls on court to be vigilant in the protection of the rights of those who are disadvantaged in life.

RUIZ VS. COURT OF APPEALS G.R. NO. 146942 APRIL 22, 2003 FACTS: Petitioner Corazon Ruiz is engaged in the business of buying and selling jewelry. She obtained loans from private respondent Consuelo Torres on different occasions and in different amounts. Prior to their maturity, the loans were consolidated under 1 promissory note worth P750 000 secured by real estate mortgage of a land registered to petitioner. Page | 479

Petitioner obtained 3 more loans from private respondent worth P100 000 each. These combined loans of P300 000 were secured by jewelry pledged by petitioner to private respondent worth P571 000. Petitioner paid the stipulated 3% monthly interest on the P750 000 loan, amounting to P270 000. After March 1996, petitioner was unable to make interest payments as she had difficulties collecting from her clients in her jewelry business. Because of petitioner’s failure to pay the principal loan of P750 000, as well as the interest payment, private respondent demanded payment not only of the P750 000 loan but also of the P300 000 loan. When petitioner failed to pay, private respondent sought the extrajudicial foreclosure of the aforementioned real estate mortgage. ISSUE: Whether or not there is undue influence in the signing of the promissory note. RULING: The fact that petitioner and private respondent had entered into not only one but several loan transactions shows that petitioner was not in any way compelled to accept the terms allegedly imposed by private respondent. The promissory notes in question did not contain any fine print provision which could have escaped the attention of the petitioner. Petitioner had all the time to go over and study the stipulations embodied in the promissory notes. These promissory notes contain similar terms and conditions, with a little variance in the terms of interests and surcharges. Moreover, petitioner, in her complaint never claimed that she was forced to sign the subject note.

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DELA CRUZ V. SISON G.R. No. 163770 February 17, 2005 FACTS: Epifania Dela Cruz alleged that in 1992, she discovered that her rice land in has been transferred and registered in the name of her nephew, Eduardo C. Sison, without her knowledge and consent, purportedly on the strength of a Deed of Sale she executed. Epifania then filed a complaint praying to declare the deed of sale null and void. She alleged that Eduardo tricked her into signing the Deed of Sale, by inserting the deed among the documents she signed pertaining to the transfer of her residential land, house and camarin, in favor of Demetrio, her foster child and the brother of Eduardo. Respondents, spouses Eduardo and Eufemia Sison denied that they employed fraud or trickery in the execution of the Deed of Sale. They claimed that they purchased the property from Epifania for P20 000 and that the deed was duly notarized, complied with all requisites for its registration, as evidenced by the Investigation Report by the Department of Agrarian Reform, Affidavit of Seller/Transferor, Affidavit of Buyer/Transferee, Certification issued by the Provincial Agrarian Reform Officer, Letter for the Secretary of Agrarian Reform, Certificate Authorizing Payment of Capital Gains Tax, and the payment of the registration fees. Some of these documents even bore the signature of Epifania which only proves that she agreed to the transfer of the property. ISSUE: 1.) Whether fraud attended the execution of a contract 2.) Whether the deed of absolute sale is valid. RULING: 1.) A comparison of the deed of sale in favor of Demetrio and the deed of sale in favor Eduardo, draws out the conclusion that there was no trickery employed. One can readily see that the first deed of sale is in all significant respects different from the second deed of sale. A casual perusal, even by someone as old as Epifania, would enable one to easily spot the differences. Epifania could not have failed to miss them. The Court is bound by the appellate court’s findings, unless they are contrary to those of the trial court, in which case we may wade into the factual dispute to settle it with finality. 2.) After a careful perusal of the records, we sustain the Court of Appeals’ ruling that the Deed of Absolute Sale dated November 24, 1989 is valid. 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. Although Epifania was 79 years old at the time of the execution of the assailed contract, her age did not impair her mental faculties as to prevent her from properly and intelligently protecting her rights. Even at 83 years, she exhibited mental astuteness when she testified in court. It is, therefore, inconceivable for her to sign the assailed Page | 481

documents without ascertaining their contents, especially if, as she alleges, she did not direct Eduardo to prepare the same.

RURAL BANK OF ST. MARIA, PANGASINAN V. COURT OF APPEALS G.R. No. 110672. September 14, 1999 FACTS: Real Estate Mortgage as a security for loans obtained amounting to P156 270 was executed by Manuel Behis on a land in favor of Rural Bank of St. Maria, Pangasinan. But Manuel, being a delinquent, sold the land, evidenced by a Deed of Absolute Sale with Assumption of Mortgage to Rayandayan and Arceño for the sum of P250 000. On the same day, Rayandayan and Arceño, together with Manual Behis executed another Agreement embodying the consideration of the sale of the land in the sum of P2.4 million. The land, however, remained in the name of Behis because the former did not present to the Register of Deeds the contracts. Rayandaran and Arceño presented the Deed of Absolute Sale to the bank and negotiated with the principal stockholder of the bank for the assumption of the indebtedness of Manuel Behis and the subsequent release of the mortgage on the property by the bank. Rayandaran and Arceño did not show to the bank the agreement with Manuel Behis providing for the real consideration of P2.4 million. Subsequently, the bank consented to the substitution of plaintiffs as mortgage debtors in place of Manuel Behis in a Memorandum of Agreement between private respondents and the bank with restricted and liberalized terms for the payment of the mortgage debt including the initial payment of P143 782.22. Due to the appearance of Christina Behis, Manuel’s wife and a co-signatory in the mortgaged land alleging that her signature in the deed of sale was forged, the bank discontinued to comply with the Memorandum of Agreement considering it to be void. In a letter, plaintiffs demanded that the bank comply with its obligation under the Memorandum of Agreement to which the latter denied. Petitioner bank argued that the Memorandum of Agreement is voidable on the ground that its consent to enter said agreement was vitiated by fraud because private respondents withheld from petitioner bank the material information that the real consideration for the sale with assumption of mortgage of the property by Manuel Behis to Rayandayan and Arceño is P2,400,000.00, and not P250,000.00 as represented to petitioner bank. According to petitioner bank, had it known for the real consideration for the sale, i.e. P2.4 million, it would not have consented into entering the Memorandum of Agreement with Rayandayan and Arceño as it was put in the dark as to the real capacity and financial standing of private respondents to assume the mortgage from Manuel Behis. Page | 482

ISSUE: Whether or not there existed a fraud in the case at bar. RULING: The Court ruled that there was no fraud in the case at bar. It is believed that the non-disclosure to the bank of the purchase price of the sale of the land between private respondents and Manuel Behis cannot be the “fraud” contemplated by Article 1338 of the Civil Code. The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce to the other to enter into a contract which without them he would not have agreed to. Simply stated, the fraud must be determining cause of the contract, or must have caused the consent to be given. Pursuant to Art. 1339 of the Code, silence or concealment, by itself, does not constitute fraud unless there is a special duty to disclose certain facts. In the case at bar, private respondents had no duty to do such. From the sole reason submitted by the petitioner bank that it was kept in the dark as to the financial capacity of private respondents, the Court cannot see how the omission or concealment of the real purchase price could have induced the bank into giving its consent to the agreement; or that the bank would not have otherwise given its consent had it known of the real purchase price.

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CHAVEZ VS. PUBLIC ESTATES AUTHORITY G.R. No. 133250, 9 July 2002 FACTS: The Senate Blue Ribbon Committee and Committee on Accountability of Public Officers conducted public hearings to determine the actual market value of the public lands along Roxas Boulevard under controversy. The investigation found out that the sale of such was lands grossly undervalued based on official documents submitted by the proper government agencies during the investigations. It was found out that the Public Estates Authority, under the Joint Venture Agreement, sold it to Amari Coastal Bay Development Corporation 157.84 hectares of reclaimed public lands totaling to P 1.89 B or P 1,200 per square meter. However during the investigation process, the BIR pitted the value at P 7,800 per square meter, while the Municipal Assessor of Parañaque at P 6,000 per square meter and by the Commission on Audit (COA) at P21,333 per square Page | 484

meter. Based on the official appraisal of the COA, the actual loss on the part of the government is a gargantuan value of P 31.78 B. However, PEA justified the purchase price based from the various appraisals of private real estate corporations, amounting from P 500 – 1,000 per square meter. Further, it was also found out that there were various offers from different private entities to buy the reclaimed public land at a rate higher than the offer of Amari, but still, PEA finalized the JVA with Amari. During the process of investigation, Amari did not hide the fact that they agreed to pay huge commissions and bonuses to various persons for professional efforts and services in successfully negotiating and securing for Amari the JVA. The amount constituting the commissions and bonuses totaled to a huge P 1.76 B; an indicia of great bribery. ISSUE: Whether or not the sale of public lands between PEA and Amari is constitutional. RULING: The Court found that the sale is unconstitutional, because what was sold or alienated are lands of the public domain. Taking the fact the sold parcel of land is submerged land is inalienable. As unequivocally stated in Article XII, Section 2 of the Constitution, all lands of the public domain, waters, minerals, coals, petroleum, forces which are potential energies, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources, with the exception of agricultural lands, are inalienable. Submerged lands fall within the scope of such provision. Ergo, the submerged lands, being inalienable and outside the commerce of man, could not be the subject of the commercial transactions specified in the Amended JVA. Hence, the contract between Amari and the PEA is void.

MELLIZA VS. CITY OF ILOILO G.R No. L-24732, April 30, 1968 FACTS: Page | 485

Juliana Melliza owned three parcels of residential land. She sold to the Municipality of Iloilo a certain lot to serve as site for the municipal hall. The donation was however revoked by the parties for the reason that area was found inadequate to meet the requirements of the development plan. Subsequently the said lot was divided into several divisions. She then sold her remaining interest on the said lot to Remedios San Villanueva. Remedios in turn transferred the rights to said portion of land to Pio Sian Melliza. The transfer Certificate of title in Melliza’s name bears on annotation stating that a portion of said lot belongs to the Municipality of Iloilo. Later the City of Iloilo donated the city hall site to the University of the Philippines, Iloilo which fenced the same with iron wires. Pio Sian Melliza then filed action against Iloilo City and the University of the Philippines for recovery of the parcel of land or of its va