ObliCon case digests by Amber Gagajena

OBLICON CASES: Articles 1156-1174 Case 1: Ayala Life Assurance, Inc. vs. Ray Burton Development Corporation CONTRACT TO SELL vs. CONTRACT OF SALE Case about Specific Performance with Damages Facts: Ayala Life and Ray Burton entered into a contract to sell of a parcel of land in Madrigal Business Park, Ayala Alabang, Muntinlupa City worth P93M (1,691 square meters x P55,000 per square). The  contract  to  sell’s  term  includes  30%  down  payment  and  the  remaining  balance  to  be  paid  in  quarterly  installments  for 5 years. The contract contains a stipulation in paragraphs 3 and 3.1 for an "Event of Default." It provides that in case the purchaser (respondent) fails to pay any installment for any reason not attributable to the seller (petitioner), the latter has the right to assess the purchaser a late penalty interest on the unpaid installment at two (2%) percent per month, computed from the date the amount became due until full payment thereof. And if such default continues for a period of six (6) months, the seller has the right to cancel the contract without need of court declaration by giving the purchaser a written notice of cancellation. In case of such cancellation, the seller shall return to the purchaser the amount he received, less penalties, unpaid charges and dues on the property. On   August   12,   1998,   the   purchaser   informed   the   seller   in   writing   that   it   won’t   be   able   to   complete   payments   anymore   because  of  economic  crisis  affecting  its  business,  and  thus  asked  for  refund  through  “Event  of  Default”  stipulations. Instead of refunding, the seller sued for SPECIFIC PERFORMANCE in Makati RTC. Makati RTC ruled in favor of the seller but the CA ruled in favor of purchaser (reversed RTC decision). CA emphasized that there is no breach of contract in contract to sell as opposed to contract of sale. Moreover, 12% interest per annum for unpaid amount was included. Seller escalated the case to the Supreme Court and said that CA erred in its decision. Issues: W/N  respondent’s  non-payment of the balance of the purchase price gave rise to a cause of action on the part of petitioner to demand full payment of the purchase price; and W/N petitioner should refund respondent the amount the latter paid under the contract to sell. Held: No. Evidently, before the remedy of specific performance may be availed of, there must be a breach of the contract. Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes full payment of the agreed purchase price. Such payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. Thus, a cause of action for specific performance does not arise. Yes.  In  the  event  of  respondent’s  default  in  payment,  petitioner,  under  the  above  provisions  of  the  contract,  has  the  right  to retain an amount equivalent to 25% of the total payments. As stated by the Court of Appeals, petitioner having been informed in writing by respondent of its intention not to proceed with the contract on August 12, 1998, or prior to incurring delay in payment of succeeding installments,15 the provisions in the contract relative to penalties and interest find no application. Case 2: Cannu vs. Galang and National Home Mortgage Finance Corporation RESCISSION OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE Case about Resolution with Damages Oblicon Concept: Settled is the rule that rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. Article 1191 reads: Art. 1191. 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. 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. Facts: Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173,800 to purchase a house and lot. 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 respondentsspouses from Fortune Savings & Loan Association for P173,800. Respondent Fernandina Galang authorized4 her attorney-in-fact, Adelina R. Timbang, to sell the subject house and lot. Petitioner Leticia Cannu agreed to buy the property for P120,000 (P75,000 paid, P45,000 remaining balance unpaid) and Amber Gagajena Oblicon Digests – Block 1F

to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty5 (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. In the Deed of Sale, the contract price is P200,000. There was confusion but since the contract does not show the real intent of the parties (as evidenced in their testimonies and pleadings), the P120,000 price was followed. Petitioners made payment to NHMFC amounting to P55,312 only. This payment is insufficient even to cover arrears and penalties. Petitioners paid the "equity" or second mortgage to CERF Realty. Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000 or in the alternative to vacate the property in question, petitioners refused to do so. Petitioners’  formal  assumption  of  mortgage  was  not  approved  by  the  NHMFC  because  the  Cannus  failed  to  fully  comply   with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233,957 as full payment of her remaining mortgage loan with NHMFC. Thereupon, a Complaint for Specific Performance and Damages was filed asking, among other things, that petitioners (plaintiffs therein) be declared the owners of the property involved subject to reimbursements of the amount made by respondents-spouses (defendants therein) in preterminating the mortgage loan with NHMFC. RTC and CA decided in favor of respondents. Issue: W/N  the  petitioners’  breach  of  the  obligation  was substantial. W/N there was no substantial compliance with the obligation to pay the monthly amortization of NHMFC. W/N the CA erred when it failed to consider the other facts and circumstance that militate against rescission. W/N the action for rescission is subsidiary. Held: Yes.   In   the   case   at   bar,   we   find   petitioners’   failure   to   pay   the   remaining   balance   of   P45,000   to   be   substantial.   Even   assuming arguendo that only said amount was left out of the supposed consideration of P250,000, or eighteen (18%) percent thereof, this percentage is still substantial. Yes. The Court finds that petitioners were not religious in paying the amortization with the NHMFC. As admitted by them, in the span of three years from 1990 to 1993, their payments covered only thirty months. This, indeed, constitutes another breach or violation of the Deed of Sale with Assumption of Mortgage. On top of this, there was no formal assumption of the mortgage obligation with NHMFC because of the lack of approval by the NHMFC on account of petitioners’   nonsubmission of requirements in order to be considered as assignees/successors-in-interest over the property covered by the mortgage obligation. No. There is sufficient evidence showing that demands were made from petitioners to comply with their obligation. Adelina R. Timbang, attorney-in-fact of respondents-spouses, per instruction of respondent Fernandina Galang, made constant follow-ups after the last payment made on 28 November 1991, but petitioners did not pay. No. The Court held that petitioners’   reliance   on   Article   1383   is   misplaced.   The   subsidiary   character   of   the   action   for   rescission applies to contracts enumerated in Articles 1381 of the Civil Code. The contract involved in the case before us is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary. Case 3: Lalicon vs. National Housing Authority RIGHT OF RESCISSION Case about Resolution with Damages Facts: This case is about (a) the right of the National Housing Authority to seek annulment of sales made by housing beneficiaries of lands they bought from it within the prohibited period and (b) the distinction between actions for rescission instituted under Article 1191 of the Civil Code and those instituted under Article 1381 of the same code. On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot1 in favor of the spouses Isidro and Flaviana Alfaro. The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its release   from   mortgage   without   NHA’s   prior   written   consent. The mortgage and the restriction on sale were annotated  on  the  Alfaros’  title. The Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons). On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Subsequently, on February 14, 1997 Victor sold the property to Chua. A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment  of  the  NHA’s  1980  sale  of  the  land  to  the  Alfaros,  the  latter’s  1990  sale  of  the  land  to  their  son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and regulations. Amber Gagajena Oblicon Digests – Block 1F

RTC ruled in favor of the Alfaros while the CA reversed the RTC decision and found the NHA entitled to rescission. The CA declared TCT in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons the full amount of their amortization, plus interest, and the value of the improvements they constructed on the property. Issue: W/N the CA erred in holding that the Alfaros violated their contract with the NHA; W/N  the  NHA’s  right  to  rescind  has  prescribed;;  and W/N the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission. Held: No. The contract between the NHA and the Alfaros forbade the latter from selling the land within five years from the date of the release of the mortgage in their favor. But the Alfaros sold the property to Victor on November 30, 1990 even before the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract. No. The CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided  in  Article  1144  which  is  10  years  from  the  time  the  right  of  action  accrues.  The  NHA’s  right  of  action  accrued  on   February  18,  1992  when  it  learned  of  the  Alfaros’  forbidden  sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period. No. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith. Since the five-year prohibition  against  alienation  without  the  NHA’s  written  consent  was  annotated  on  the  property’s  title. Case 4: Cathay Pacific vs. Vazquez BREACH OF CONTRACTUAL OBLIGATION: NOVATION Case about Claim of Damages Only Facts: Spouses Vazquez together with their 2 good friends and 1 maid went to Hong Kong. The spouses are members of Cathay’s  Marco  Polo  Club.  One  of  the  benefits  is  the  involuntary  promotion  to  better  seats  in  flights. Maid will fly in Economy class while Vazquezes and 2 friends will fly in Business Class. Upon check-in, the Vazquezes were informed that they were upgraded to First Class. They refused but the airline insisted. There was a commotion but in the end, the Vazquezes was succumbed because of the risk  that  they  won’t  be  allowed  to   board the aircraft. Upon arriving in the Philippines, they filed a demand for apology and damages from the airline but the demand was not acted upon so they filed the case with the RTC. RTC ruled in favor of Vazquezes by allowing  moral,  exemplary,  nominal  damages  and  attorney’s  fees.  CA  also  ruled  in   their favor but decreased the amount of damages. Issues: W/N by upgrading the seat accommodation of the Vazquezes from Business Class to First Class Cathay breached its contract of carriage with the Vazquezes; W/N the upgrading was tainted with fraud or bad faith; and W/N the Vazquezes are entitled to damages. Held: Yes. However odd it might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class accommodation they had booked for and which was designated in their boarding passes. They clearly waived their priority or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them over their vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes. No. The Court finds no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading through insidious words or deceitful machination or through willful concealment of material facts. It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and therefore does not amount to bad faith. Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not include moral and exemplary damages. And   where   the   awards  for  moral   and   exemplary   damages   are   eliminated,   so  must   the   award   for  attorney’s   fees.   There   should be bad faith for these to apply. The most that can be  adjudged  in  favor  of  the  Vazquezes  for  Cathay’s  breach  of   contract is an award for nominal damages (P5,000) under Article 2221 of the Civil Code. Case 5: Saludaga vs. FEU CONTRACT BETWEEN STUDENT AND SCHOOL Case about Breach of Contract Based on Negligence Facts: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Amber Gagajena Oblicon Digests – Block 1F

Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance. RTC ruled in favor of Saludaga but CA reversed the decision. Issues: W/N the shooting incident is a fortuitous event; W/N the respondents are not liable for damages for the injury resulting from a gunshot wound suffered by the petitioner from the hands of no less than their own security guard in violation of their built in contractual obligation to petitioner, being their law student at that time, to provide him with a safe and secure educational environment; W/N the security guard who shot petitioner while he was walking on his way to the law library of respondent FEU is not their employee by virtue of the contract for security services between Galaxy and FEU notwithstanding the fact that petitioner, not being a party to it, is not bound by the same under the Principle of Relativity of Contracts; and W/N the respondent exercised due diligence in selecting Galaxy as the agency which would provide security services within the premises of respondent FEU. Held: No. Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered, respondents must show that no negligence or misconduct was committed 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. Liable. Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's  acts.  Medical  expenses,  temperate  damages  of  P20,000,  moral  damages  of  P100,000  and  attorney’s  fees  of   P50,000. Exemplary damages deleted. Not employee. We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. They cannot be construed as the element of control as to treat respondents as the employers of Rosete. No. FEU did not examine Rosete’s  medical  records.  They  just  accepted  whoever  the  agency  provided.  For  these  acts  of   negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. Case 6: Meralco vs. Ramoy SERVICE CONTRACT TO SUPPLY ELECTRICITY: CULPA CONTRACTUAL Case about Breach of Contract Oblicon Concept: 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. Expectation Interest - which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed. Reliance Interest - which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made. Restitution Interest - which is his interest in having restored to him any benefit that he has conferred on the other party. Facts: This  is  a  Petition  for  Review  on  Certiorari  on  CA’s  decision  of  ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio Ramoy moral and exemplary damages and attorney's fees. The evidence on record has established that in the year 1987 the National Power Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon City. Among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar. The MTC rendered judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or remove the building and structures they built on the land of the plaintiff and to vacate the premises. On June 20, 1990 NPC wrote Meralco requesting for the immediate disconnection of electric power supply to all residential and commercial establishments beneath the NPC transmission lines. Meralco requested NPC for a joint survey to determine all the establishments which are considered under NPC property in view of the fact that "the houses in the area are very close to each other. Amber Gagajena Oblicon Digests – Block 1F

In due time, the electric service connection of the plaintiffs [herein respondents] was disconnected. After the electric power in Ramoy's apartment was cut off, the plaintiffs-lessees left the premises. During the ocular inspection ordered by the Court and attended by the parties, it was found out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC property. The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages, exemplary damages and attorney's fees. However, the RTC ordered MERALCO to restore the electric power supply of respondents. Issues: W/N Meralco acted negligently when it disconnected the subject electric service of respondents. W/N the CA  gravely  erred  when  it  awarded  moral  and  exemplary  damages  and  attorney’s  fees  against  Meralco  under  the   circumstances that the latter acted in good faith in the disconnection of the electric services of the respondents. Held: Yes. MERALCO admits that respondents are its customers under a Service Contract whereby it is obliged to supply respondents with electricity. Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or breach of contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code. 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. o The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the utmost degree of care and diligence required of it. To repeat, it was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become final and executory. Yes to Moral Damages since Ramoy testified in Court about his mental anguish. In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were entitled under the Service Contract. Electricity is a basic necessity the generation and distribution of which is imbued with public interest, and its provider is a public utility subject to strict regulation by the State in the exercise of police power. Failure to comply with these regulations will give rise to the presumption of bad faith or abuse of right. o No to Exemplary Damages since Article 2232 of the Civil Code provides that in contracts and quasi-contracts, the court may award exemplary damages if the defendant, in this case MERALCO, acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the same Code provides that such damages cannot be recovered as a matter of right and the adjudication of the same is within the discretion of the court o No to Attorney’s  Fees  since  the  Court  does  not  deem  it  proper  to  award  exemplary  damages  in  this  case,  then   the CA's award for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in the absence of stipulation, attorney's fees cannot be recovered except in cases provided for in said Article. Case 7: Pantaleon vs. American Express International, Inc. Case about Delay of Credit Card Company in its Obligation to Cardholders Oblicon Concept: Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Facts: In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son (Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group arrived in Amsterdam. Due to their late arrival, they postponed the tour of the city for the following day. The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster Diamond House (Coster). To have enough time for take a guided city tour of Amsterdam before their departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at the latest. While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of US$13,826. Pantaleon presented his American Express credit card to the sales clerk to pay for this purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and asked Pantaleon to sign the charge slip, which was then electronically referred to AMEX’s Amsterdam office at 9:20 a.m. At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the names of his Philippine depository banks. At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even without  AMEX’s  approval. When the Pantaleons finally returned to the tour bus, they found their travel companions visibly irritated. This irritation intensified when the tour guide announced that they would have to cancel the tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch the ferry to London. In   all,   it   took   AMEX   a   total   of   78  minutes   to   approve   Pantaleon’s   purchase   and   to  transmit   the   approval   to   the   jewelry   store. Amber Gagajena Oblicon Digests – Block 1F

After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in securing approval for purchases using his American Express credit card on two separate occasions. He experienced the first delay when he wanted to purchase golf equipment in the amount of US$1,475 at the Richard Metz Golf Studio in New York   on   October   30,   1991.   Another   delay   occurred   when   he   wanted   to   purchase   children’s shoes worth US$87 at the Quiency Market in Boston on November 3, 1991. RTC ruled in favor of petitioner and held respondent as guilty of delay. CA ruled in favor of respondent. SC ruled in favor of petitioner and SC, upon reconsideration, ruled in favor of the respondent. Issues: W/N  AMEX  has  an  obligation  to  grant  petitioner’s  credit  transaction? W/N AMEX is guilty of culpable delay? W/N AMEX has the obligation to act on the offer within a specific period of time? W/N AMEX acted with good faith? W/N  petitioner’s  actions  was  the  proximate  cause  of  his  injury? Held: No. This view finds support in the reservation found in the card membership agreement itself, particularly paragraph 10, which clearly states that AMEX "reserve[s] the right to deny authorization for any requested Charge." By so providing, AMEX made its position clear that it has no obligation to approve any and all charge requests made by its card holders. No. Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Before the credit card issuer accepts this offer, no obligation relating to the loan agreement exists between them. A demand presupposes the existence of an obligation between the parties. No. Every time Pantaleon charges a purchase on his credit card, the credit card company still has to determine whether it will   allow   this   charge,   based   on   his   past   credit   history.   This   right   to   review   a   card   holder’s   credit   history,   although   not   specifically  set  out  in  the  card  membership  agreement,  is  a  necessary  implication  of  AMEX’s  right  to  deny  authorization for any requested charge. There is no provision in this agreement that obligates AMEX to act on all cardholder purchase requests within a specifically defined period of time. Yes.   Although   it   took   AMEX   some   time   before   it   approved   Pantaleon’s   three   charge   requests, we find no evidence to suggest that it acted with deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was contrary to morals,  good  customs  or  public  policy.  We  give  credence  to  AMEX’s  claim  that  its  review  procedure   was done to ensure Pantaleon’s  own  protection  as  a  cardholder  and  to  prevent  the  possibility  that  the  credit  card  was  being  fraudulently  used   by a third person. Yes. The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury") refers to selfinflicted injury or to the consent to injury which precludes the recovery of damages by one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in doing so. When Pantaleon made up his mind to push through with his purchase, he must have known that the group would become annoyed and irritated with him. This was the natural, foreseeable consequence of his decision to make them all wait. Case 8: Barzaga vs. CA and Alviar Case about Non-importance of Demand in Obligations where Time is of the Essence Oblicon Concept: The law expressly provides that 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. Facts: The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer. Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith gave him and his family their gloomiest Christmas ever. On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following day. With that reply petitioner left. At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase of construction materials. He told the store employees that the materials he was buying would have to be delivered at the Memorial Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the materials. Amber Gagajena Oblicon Digests – Block 1F

After hours of waiting — which seemed interminable to him — Barzaga became extremely upset. He decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. RTC ruled in favor of petitioner saying that respondent incurred legal delay. CA reversed the decision and said that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale. SC ruled in favor of petitioner. Issues: W/N respondent incurred legal delay? W/N the respondent encountered fortuitous event resulting to the delay? W/N petitioner is entitled to be indemnified? Held: Yes. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the materials to the cemetery. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. No. Flattening of the tires can be foreseen and as such should have been reasonably guarded against. The nature of private respondent's business requires that he should be ready at all times to meet contingencies of this kind. Yes. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. Case 9: Lorenzo Shipping Corp vs. BJ Marthel International, Inc. Case about Non-requirement of Demand in Obligations which are time is of the essence but not communicated to the debtor. Oblicon Concept: No Demand or Notice Necessary Facts: From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation. Petitioner thereafter issued to respondent Purchase Order, dated 02 November 1989, for the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner. Subsequently, petitioner issued another purchase order dated 15 January 1990, for yet another unit of cylinder liner. Like the purchase order of 02 November 1989, the second purchase order did not state the date of the cylinder liner's delivery. On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner. Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo. On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared. Respondent thereafter sent a Statement of Account dated 15 November 1990 to petitioner. While the other items listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02 January 1991 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter dated 12 March 1991 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale. The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of the cylinder liners. Issues: Amber Gagajena Oblicon Digests – Block 1F

W/N time is of the essence in the delivery of the cylinder liner? Held: No. It was not included in the contract counter-offered by Lorenzo shipping after BJ sent a quotation. Moreover, even if time is of the essence, BJ was not informed of the urgency of delivery. BJ delivered within reasonable time. Case 10: Almocera vs. Johnny Ong Case about Delay when Demand is Useless Oblicon Concept: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Facts: Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" described as Unit No. 4 of Atrium Townhomes in Cebu City. As reflected in a Contract to Sell, the selling price of the unit was P3,400,000 pesos, for a lot area of eightyeight (88) square meters with a three-storey building. Out of the purchase price, plaintiff was able to pay the amount of P1,060,000. Prior to the full payment of this amount, plaintiff claims that defendants Andre Almocera and First Builders fraudulently concealed the fact that before and at the time of the perfection of the aforesaid contract to sell, the property was already mortgaged to and encumbered with the Land Bank of the Philippines (LBP). In addition, the construction of the house has long been delayed and remains unfinished. On March 13, 1999, Lot 4-a covered by TCT, covering the unit was advertised in a local tabloid for public auction for foreclosure of mortgage. It is the assertion of the plaintiff that had it not for the fraudulent concealment of the mortgage and encumbrance by defendants, he would have not entered into the contract to sell. In trying to recover the amount he paid as down payment for the townhouse unit, respondent Johnny Ong filed a complaint for Damages before the RTC of Cebu City against defendants Andre T. Almocera and FBMC alleging that defendants were guilty of fraudulent concealment and breach of contract when they sold to him a townhouse unit without divulging that the same, at the time of the perfection of their contract, was already mortgaged with the Land Bank of the Philippines (LBP), with the latter causing the foreclosure of the mortgage and the eventual sale of the townhouse unit to a third person. RTC decided in favor of Ong. Ordering the defendants to solidarily pay to the plaintiff the sum of P1,060,000, together with a legal interest thereon at 6% per annum from April 21, 1999 until its full payment before finality of the judgment. Ordering the defendants to solidarily pay to the plaintiff the sum of P100,000 as moral damages, the sum of P50,000 as  attorney’s   fee and the sum of P15,619 as expenses of litigation. Issues: W/N Almocera has incurred in delay? W/N Ong should pay the remaining balance of purchase price? W/N Almocera is solidary liable with the cooperative for the damages to Ong? Held: Yes. The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -- to complete and deliver the townhouse within the six-month period. With petitioner  and  FBMC’s  non-fulfillment of their obligation, respondent refused to pay the balance of the contract price. Respondent does not ask that ownership of the townhouse be transferred to him, but merely asks that the amount or down payment he had made be returned to him. Demand is not necessary in the instant case. Demand by the respondent would be useless because the impossibility of complying with their (petitioner and FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage on the subject townhouse would not have been foreclosed and thereafter sold to a third person. No.   the   obligation   of   respondent   to   pay   the   balance   of   the   contract   price   was   conditioned   on   petitioner   and   FBMC’s   performance of their obligation. Considering that the latter did not comply with their obligation to complete and deliver the townhouse unit within the period agreed upon, respondent could not have incurred delay. For failure of one party to assume and perform the obligation imposed on him, the other party does not incur delay. Yes. This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raised for the first time before the Court of Appeals which ruled that it was too late in the day to raise the same. Case 11: Megaworld Globus Asia, Inc. vs. Tanseco Case about delay without need of demand because  demand  is  Useless  (debtor  can’t  accomplish  obligation  of  condo  unit   with or without demand) Oblicon Concept: Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in default if the contract, as in the  herein  parties’  contract,  states  the  date  when  the  obligation  should  be  performed. Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. Amber Gagajena Oblicon Digests – Block 1F

Facts: On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell a 224 square-meter (more or less) condominium unit at a pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City. The purchase price was P16,802,037, to be paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611, by postdated check payable on July 14, 1995; (2) P9,241,120 through 30 equal monthly installments of P308,037 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305 on October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover. The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays due to fortuitous events. Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305 pending delivery of the unit. Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period. A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery. Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld’s   failure   to   deliver   the   unit   on   time,   she   was   demanding  the   return of P14,281,731 representing the total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the sixmonth grace period. Tanseco pointed out that none of the excepted causes of delay existed. Her  demand  having  been  unheeded,  Tanseco  filed  on  June  5,  2002  with  the  Housing  and  Land  Use  Regulatory  Board’s   (HLURB) Expanded National Capital Region Field Office a complaint against Megaworld for rescission of contract, refund of payment, and damages. In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of turnover. HLURB ruled in favor of Megaworld while CA ruled in favor of Tanseco. Issues: W/N Megaworld has incurred legal delay? W/N Megaworld is entitled to defense of fortuitous event? Held: Yes. That  Megaworld’s  sending  of  a  notice  of  turnover  preceded  Tanseco’s  demand  for  refund  does  not  abate  her  cause.   For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date. The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor. No. The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business risks. Case 12: Solar Harvest, Inc vs. Davao Corrugated Case about Rescission despite LACK of DEMAND Oblicon Concept: Art. 1191. 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. Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Facts: In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao Corrugated Carton   Corporation,   for   the   purchase   of   corrugated   carton   boxes,   specifically   designed   for   petitioner’s   business of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into writing. To get the production underway, petitioner deposited, on March 31, 1998, US$40,150 in  respondent’s  US  Dollar  Savings  Account  with  Westmont  Bank,  as   full payment for the ordered boxes. Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount paid. On February 19, 2001, respondent replied that the boxes had been completed  as  early  as  April  3,  1998  and  that  petitioner  failed  to  pick  them  up  from  the  former’s  warehouse  30  days  from   completion, as agreed upon. Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment from petitioner. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15,400 for the additional boxes and P132,000 as storage fee. In its Answer with Counterclaim, respondent insisted that, as early as April 3, 1998, it had already completed production of the  36,500  boxes,  contrary  to  petitioner’s  allegation.  According  to  respondent,  petitioner,  in  fact,  made  an  additional  order of 24,000 boxes, out of which,  14,000  had  been  completed  without  waiting  for  petitioner’s  payment.  Respondent  stated   Amber Gagajena Oblicon Digests – Block 1F

that petitioner was to pick up the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent averred that,  on  October  8,  1998,  petitioner’s  representative, Bobby Que (Que), went to the factory and saw that the boxes were ready for pick up. On February 20, 1999, Que visited the factory again and supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because  petitioner’s  transaction  to  ship  bananas  to  China   did not materialize. Respondent claimed that the boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60 per square meter for every month from April 1998. As counterclaim, respondent prayed that judgment be rendered ordering petitioner to pay $15,400,   plus   interest,   moral   and   exemplary   damages,   attorney’s   fees, and costs of the suit. Issue: W/N respondent has incurred legal delay in fulfilling its obligation. W/N petitioner has the right of rescission to reimburse the money paid. Held: Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a "follow-up" upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioner’s  witness  also  testified  that  they  made  a  follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation. We   also   believe   that   the   agreement   between   the   parties   was   for   petitioner   to   pick   up   the   boxes   from   respondent’s   warehouse,  contrary  to  petitioner’s  allegation.  Thus,  it  was  due   to  petitioner’s  fault  that  the  boxes  were  not  delivered  to   TADECO. In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the evidence having shown that respondent did not commit any breach of its contractual obligation. As previously stated, the subject boxes are still  within  respondent’s  premises.  To  put  a  rest  to  this  dispute,  we  therefore  relieve  respondent  from  the  burden  of  having   to keep the boxes within its premises and, consequently, give it the right to dispose of them, after petitioner is given a period of time within which to remove them from the premises. Case 13: Cortes vs CA and Villa Esperanza Development Corporation This is a Case about Delay of Both Parties or Compensatio Morae Oblicon Concept: ART. 1169. 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. ART. 1191. 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. Facts: The antecedents show that for the purchase price of P3,700,000, the Corporation as buyer, and Cortes as seller, entered into a contract of sale over the lots covered by Transfer Certificate of Title located at Baclaran, Parañaque, Metro Manila. On various dates in 1983, the Corporation advanced to Cortes the total sum of P1,213,000. Sometime in September 1983, the parties executed a deed of absolute sale. Said Deed was retained by Cortes for notarization. On January 14, 1985, the Corporation filed the instant case for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents. It thus prayed for the award of damages, attorney's fees and litigation expenses arising from Cortes' refusal to deliver the same documents. In his Answer with counterclaim, Cortes claimed that the owner's duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. He added that portion of the subject property is occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee. However, due to the Corporation's failure to pay in full the sum of P2,200,000, he in turn failed to fully pay the disturbance fee of the lessee who now refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the outstanding balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000 partial down payment, with damages in either case. RTC ruled in favor of Cortes by rescinding the contract (right of rescission applicable when one party has already accomplish his obligation and the other did not). CA ruled in favor of the Corporation by specific performance of the contract. The parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes' delivery of the three TCTs to the Corporation. The records show that no such delivery was made, hence, the Corporation was not remiss in the performance of its obligation and therefore justified in not paying the balance. Issues: W/N there is delay in the performance of the parties' obligation that would justify the rescission of the contract of sale? Held: No. Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the TCTs, the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation alone that was remiss in the performance of its obligation. Actually, both parties were in delay. Considering that their Amber Gagajena Oblicon Digests – Block 1F

obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to a compensation morae or default on the part of both parties because neither has completed their part in their reciprocal obligation. Case 14: Tanguilig and JMT Engineering and General Merchandising vs. CA and Vicente Herce, Jr. Case about Interpretation of Contracts and Fortuitious Event Oblicon Concept: Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, four (4) requisites must concur: o (a) the cause of the breach of the obligation must be independent of the will of the debtor; o (b) the event must be either unforeseeable or unavoidable; o (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, o (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. 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. IF PETITIONER  DOESN’T  WANT  TO  REPAIR  IT. Facts: Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and General Merchandising 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 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000 and an installment payment of P15,000, leaving a balance of P15,000. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court 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, 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 also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. Issues: W/N the agreement to construct the windmill system included the installation of a deep well? W/N the petitioner is under obligation to reconstruct the windmill after it collapsed? Held: No. The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. While the words "deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed. Yes. A strong wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn. The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee." 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. Case 15: Juan F. Nakpil & Sons and United Construction Company, Inc. vs. CA Case about Inability of Fortuitous Event Defense When The Defendants Acted with Wanton Negligence. Oblicon Concept: if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. It has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. Amber Gagajena Oblicon Digests – Block 1F

Facts: The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation Law, decided to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the president and general manager of said corporation. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The plans and specifications for the building were prepared by the other third-party defendants Juan F. Nakpil & Sons. The building was completed in June, 1966. In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage. The front columns of the building buckled, causing the building to tilt forward dangerously. The tenants vacated the building in view of its precarious condition. As a temporary remedial measure, the building was shored up by United Construction, Inc. at the cost of P13,661. On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the partial collapse of the building against United Construction, Inc. and its President and General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building was accused by defects in the construction, the failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract. Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications, alleging in essence that the collapse of the building was due to the defects in the said plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included Juan J. Carlos, President of the United Construction Co., Inc. as party defendant. Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among others, the parties agreed to refer the technical issues involved in the case to a Commissioner. Mr. Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as Commissioner, charged with the duty to try the technical issues. After the protracted hearings, the Commissioner eventually submitted his report on September 25, 1970 with the findings that while the damage sustained by the PBA building was caused directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also caused by the defects in the plans and specifications prepared by the third-party defendants' architects, deviations from said plans and specifications by the defendant contractors and failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects and even the owners to exercise the requisite degree of supervision in the construction of subject building. On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. They proposed to present a position paper on the liability of architects when a building collapses and to submit likewise a critical analysis with computations on the divergent views on the design and plans as submitted by the experts procured by the parties. The motion having been granted, the amicus curiae were granted a period of 60 days within which to submit their position. Issues: W/N the petitioners can use the defense of fortuitous event (i.e., Earthquake) for the damage incurred by the building they constructed and sold to Philippine Bar Association? Held: No. It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of the plans and specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2, 1968 and the vice of these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the design of the structure. In other words, these defects and deficiencies not only tend to add but also to multiply the effects of the shortcomings in the design of the building. We may say, therefore, that the defects and deficiencies in the construction contributed greatly to the damage which occurred. Case 16: Ace-agro vs. CA and Cosmos Bottling Company Case about Unilateral Extinguishment of Obligation Due to Fortuitous Event ObliCon Concept: Extinguishment of Obligation Due to Fortuitous Event Resolutory Period Article 1231 of the New Civil Code on extinguishment of obligations does not specifically mention unilateral termination as a mode of extinguishment of obligation but, according to Tolentino, "there are other causes of extinguishment of obligations which are not expressly provided for. Facts: Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation are corporations duly organized and existing under Philippine laws. Private respondent Cosmos Bottling Corp. is engaged in the manufacture of soft drinks. Since 1979 petitioner Ace-Agro Development Corp. (Ace-Agro) 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. Amber Gagajena Oblicon Digests – Block 1F

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 in order to "cushion the sudden impact of the unemployment of many of [its] workers." 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 (petitioner) incur additional costs for transportation which "will eat up the meager profits that [it] realizes from its original contract with Cosmos." On November 7, 1990, private respondent advised petitioner that the latter could then resume its work inside the plant in accordance with its original contract with Cosmos. But the petitioner did not gave its consent because it wanted to secure extension of the contract which is subject to a RESOLUTORY PERIOD. Issues: W/N Cosmos is justified in unilaterally terminating the contract on account of force majeure? W/N the Cosmos is guilty of breach of contract? Held: Yes. The reason given by defendant-appellant for unilaterally terminating the agreement was because the April 25, 1990 fire practically burned all of the softdrink bottles and wooden shells which plaintiff-appellee was working on under the agreement. What defendant-appellant was trying to say was that the prestation or the object of their agreement had been lost and destroyed in the above-described fire. 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. No. Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent. Since the question is whether private respondent is guilty of breach of contract, the fact that private respondent is blameless can only lead to the conclusion that the appealed decision is correct. As a matter of fact, it is the petitioner who is guilty of breach because it wanted an extension of its contract to compensate for the suspension of work. Case 17: Mondragon Leisure vs. CA Case about Foreclosure of Collaterals (Leasehold Rights); Acceleration Clause Oblicon Concept: Forum Shopping, Res Judicata Fortouitous  Event  on  Asian  Economic  Crisis  that’s  why  the  petitioner  failed  to  pay  on  time Facts: On February 28, 1994, Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC) and herein petitioner entered into a lease agreement with the Clark Development Corporation (CDC) for the development of what is now known as the Mimosa Leisure Estate. To help finance the project, petitioner, on June 30, 1997, entered into an Omnibus Loan and Security Agreement (hereafter Omnibus Agreement) with respondent banks for a syndicated term loan in the aggregate principal amount of US$20M. Under the agreement, as amended on January 19, 1999, the proceeds of the loan were to be released through advances evidenced by promissory notes to be executed by petitioner in favor of each lender-bank, and to be paid within a six-year period from the date of initial advance inclusive of a one year and two quarters grace period. To secure the repayment of the loan, petitioner pledged in favor of respondents US$20M worth of MIPI shares of stocks; assigned, transferred and delivered all rights, title to and interest in the pledged shares; and assigned by way of security its leasehold rights over the project and all the rights, title, interests and benefits in, to and under any and all agreements in connection with the project. On July 3, 1997, petitioner fully availed of and received the full amount of the syndicated loan agreement. Petitioner, which had regularly paid the monthly interests due on the promissory notes until October 1998, thereafter failed to make payments. Consequently, on January 6 and February 5, 1999, written notices of default, acceleration of payment and demand letters were sent by the lenders to the petitioner. Then on August 27, 1999, respondents filed a complaint, docketed as Civil Case No. 9527, for the foreclosure of leasehold rights against petitioner. Issues: W/N the default of interest payments is due to fortuitous event? W/N the certificate of forum shopping was defective because there was no proof as to the authority of the signatories (Board of Directors) to file the complaint? W/N the respondent banks engage in forum shopping? W/N respondents have a cause of action against the petitioner? Held: Amber Gagajena Oblicon Digests – Block 1F

No. As pointed out by the respondents, the loan agreement was entered into on June 30, 1997, or when the Asian economic crisis had already started. Petitioner, as a long established corporation, should have been well aware of the economic environment at that time, yet it still took the risk to expand operations. Likewise, the closure of the Mimosa Regency Casino was not an unforeseeable or unavoidable event, in the context of the contract of lease between petitioner and CDC. Every business venture involves risks. Risks are not unforeseeable; they are inherent in business. No.  The  issue  concerning  the  signatories’  authorization  was  never  raised  before  it.  Likewise,  the  appellate  court  did  not  err in refusing to take cognizance of the issue, since the parties did not raise it beforehand. Issues not raised in the trial court cannot be raised for the first time on appeal. No. Civil Case No. 9510 pertains to an Omnibus Credit and Security Agreement executed by and between the petitioner and respondent UCPB on November 23, 1995. This is separate and distinct from the Omnibus Agreement involved in Civil Case No. 9527. Moreover, respondents Asian Bank and Far East Bank are not among the parties to Civil Case No. 9510. Yes. Respondents counter that the Omnibus Agreement defines, as an event of default, the failure of petitioner to pay when due at stated maturity, by acceleration or otherwise, any amount payable under the loan documents. Since petitioner is also required to pay interest, respondents posit that non-payment thereof constituted a clear and unmistakable case of default. Respondents add that they had properly advised the petitioner that it had been declared in default, referring to the January 6 and February 5, 1999 letters as their compliance with the notice requirement. The respondent-banks have four alternative remedies without prejudice to the application of the provisions on collaterals and any other steps or action which may be adopted by the majority lender. ARTICLES 1179 and 1181 Case 18. De Leon vs. Ong Case   about   Perfected   Contract   of   Sale   (Respondent’s   Argument   - W) or Contract To Sell Subject to a Suspensive Condition  of  Full  Payment  (Petitioner’s  Argument)   Specific Performance with Damages for Ong in the RTC. De Leon is questioning decisions of RTC and CA - DENIED Oblicon Concept: In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory condition. On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages. Article 1498 of the Civil Code provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold. Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Article 1544. If the same thing should have been sold to different vendees (DOUBLE SALE), the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. Facts: On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage stating: o That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions: o P415,000 Full Payment to Petitioner o P684,500 Assumption of Real Estate Mortgage Payment to RSLAI. Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from respondent and release the certificates of title. Thereafter, respondent undertook repairs and made improvements on the properties. Respondent likewise informed RSLAI   of   her   agreement   with   petitioner   for   her  to   assume   petitioner’s   outstanding   loan. RSLAI required her to undergo credit investigation. Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due and had taken back the certificates of title. Respondent persistently contacted petitioner but her efforts proved futile. Respondent argued that it is a contract of sale,  thus,  petitioner  doesn’t  have  the  right  to  sell  it  to  someone  else  anymore.   Petitioner already conveyed full ownership of the subject properties upon the execution of the deed Amber Gagajena Oblicon Digests – Block 1F

Petitioner argued that it is a contract to sell subject to suspensive condition of RSLAI approval. Since it was not approved, the contract was not perfected. RTC ruled in favor of the petitioner, while CA ruled in favor of the respondent. SC decision is in favor of the respondent with modification as to the amount to be reimbursed by the respondent to the petitioner. Issues: W/N the contract is a perfected contract of sale or a contract to sell subject to suspensive condition? Held: Contract of sale. The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million. With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance payable directly to RSLAI (on behalf of petitioner) within a reasonable time. Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price. On the contrary, the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership. Case 19. Reyes vs. Tuparan Case  about  Perfected  Contract  of  Sale  (Petitioner’s  Argument)  or  Contract  To  Sell Subject to a Suspensive Condition of Full  Payment  (Respondent’s  Argument  - W) Order for Rescission of Contract DENIED because the agreement is Contract To Sell not subject to Breach Oblicon Concept: Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 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. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. Facts: On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-4130; that on that property, she put up a three-storey commercial building known as RBJ Building and a residential apartment building; that since 1990, she had been operating a drugstore and cosmetics store on the ground floor of RBJ Building where she also had been residing while the other areas of the buildings including the sidewalks were being leased and occupied by tenants and street vendors. In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for   a   monthly   rental   of   ₱4,000. A close friendship developed between the two which led to the respondent investing   thousands   of   pesos   in   petitioner’s   financing/lending   business   from   February   7,   1990   to   May   27,   1990,   with   interest at the rate of 6% a month. On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to   secure   a   loan   of   ₱2,000,000 payable   in   installments.   On   November   15,   1990,   petitioner’s   outstanding   account on the  mortgage  reached  ₱2,278,078. Petitioner then decided to sell her real properties  for  at  least  ₱6,500,000 so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally  buy  petitioner’s  real  properties  for  ₱4,200,000 payable on installment basis without interest and to assume the bank loan. After  petitioner’s  verbal  acceptance  of  all  the  conditions/concessions,  both  parties  worked  together  to  obtain  FSL  Bank’s   approval   for   respondent   to   assume   her   (petitioner’s)   outstanding   bank   account. The assumption would be part of respondent’s  purchase  price  for  petitioner’s  mortgaged  real  properties.  FSL  Bank  approved  their  proposal  on  the  condition   that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent. On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any other side agreement between petitioner and respondent. o a)   ₱278,078 received in cash by the First Party but directly paid to the Third Party as partial payment of the mortgage obligation of the First Party in order to reduce   the   amount   to   ₱2,000,000 only as of November 15, 1990; o b)  ₱721,921 received in cash by the First Party as additional payment of the Second Party; o c)  ₱1,200,000 to be paid in installments as follows: Note: All the installments shall not bear any interest. 1.          ₱200,000 payable on or before January 31, 1991; 2. ₱200,000 payable on or before June 30, 1991; 3.          ₱800,000 payable on or before December 31, 1991; Amber Gagajena Oblicon Digests – Block 1F

d)   ₱2,000,000 outstanding balance of the mortgage obligation as of November 15, 1990 which is hereby assumed by the Second Party. o 3. That the Third Party hereby acknowledges receipts from the Second Party P278,078 as partial payment of the loan obligation of First Party in order to reduce the  account  to  only  ₱2,000,000 as of November 15, 1990 to be assumed by the Second Party effective November 15, 1990. Respondent, however, defaulted in the payment of her obligations on their due dates. o

Issues: W/N the contract is a perfected contract of sale or a contract to sell subject to suspensive condition, thus, there is no legal basis for rescission? W/N there was no slight or casual breach on the part of the respondent because she (respondent) deliberately failed to comply with her contractual obligations with the petitioner by violating the terms or manner of  payment  of  the  ₱1,200,000 balance? W/N the respondent is liable to pay interest at the rate of 6% per month on her unpaid installment of  ₱805,000 from the date of the delinquency? W/N the petitioner has a claim for damages and back rentals amounting to P29,609? Held: Contract To Sell. The full payment of the purchase price is the positive suspensive condition, the failure of which is not a breach of contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Thus, for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. With this circumstance, there can be no rescission or fulfillment of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach   contemplated   in   Article   1191   of   the   New   Civil   Code   is   the   obligor’s   failure   to   comply   with   an   obligation   already   extant, not a failure of a condition to render binding that obligation. o In the contract of sale, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the contract to sell, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract. Here, it is quite evident that the contract involved was one of a contract to sell since the Reyes, as seller, was able to retain title of ownership to the land until respondent Tuparan, the buyer, has paid the agreed price. Indeed, there seems no question that the parties understood this to be the case. There can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place. Slight breach only since the remaining P805,000 is insignificant to the total price paid already by the respondent amounting to P3,400,000. No. Petitioner failed to substantiate her claim that respondent made a personal commitment to pay a 6% monthly interest on  the  ₱805,000.00  from  the  date  of  delinquency,  December  31,  1991. No.  Aside  from  petitioner’s  self-serving statements, there is not enough evidence on record to prove that respondent acted fraudulently and maliciously against the petitioner. Case 20. Great Asian and Tan Chong Lin vs. CA and Bancasia Finance and Investment Corporation Case about Obligations of Assignor and Persons Entering into Surety Agreement in the Case of Non-Payment of the Principal Debtor (a Suspension Condition) in Assigning/Factoring of Accounts Receivables Oblicon Concept: Obligations arising from Suspensive Conditions Under  Article  1215  of  the  Civil  Code,  what  releases  a  solidary  debtor  is  a  “novation,  compensation,  confusion  or  remission   of  the  debt”  made  by the creditor with any of the solidary debtors. Facts: Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager,   Arsenio   Lim   Piat,   Jr.   (“Arsenio”   for   brevity)   to   secure   a   loan   from   Bancasia in an amount not to exceed P1 million. The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February 10, 1982, the board of directors of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2 million. The second board resolution also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line. On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed  two  surety  agreements  (“Surety  Agreements”  for  brevity)  in  favor  of  Bancasia. Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds  of  Assignment  of  Receivables  (“Deeds   of  Assignment”  for  brevity),  assigning  to  Bancasia  15 postdated checks. Nine of the checks were payable to Great Asian, three   were   payable   to   “New   Asian   Emp.”,   and  the   last   three   were   payable   to   cash.     Various   customers   of  Great   Asian   issued these postdated checks in payment for appliances and other merchandise. Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total face value of P244,225, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were dishonored. Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face value of P312,819, with maturity dates not later than April 1, 1982. All these four Amber Gagajena Oblicon Digests – Block 1F

checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value of P344,475, with maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia signed the fourth Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000, with maturity date on March 18, 1982. This last check was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks. Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored checks   bore   the   endorsement   of   Arsenio   below   the   stamped   name   of  “Great   Asian   Sales   Center”,   while   the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited   for   collection   by   Bancasia,   with   any   of   the   following   as   reason   for   the   dishonor:   “account   closed”,   “payment   stopped”,  “account  under  garnishment”,  and  “insufficiency  of  funds”.    The  total  amount  of  the  fifteen  dishonored checks is P1,042,005. After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding payment from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks. On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath  by  its  Corporate  Secretary,  Mario  Tan.    Attached  to  the  verified  petition  was  a  “Schedule  and  Inventory  of  Liabilities   and   Creditors   of  Great   Asian   Sales   Center   Corporation,”   listing   Bancasia   as   one   of   the   creditors   of  Great   Asian in the amount of P1,243,632. On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin. Issues: W/N Arsenio had the authority to execute the Deeds of Assignment and thus bind Great Asian? W/N Great Asian is liable to Bancasia under the Deeds of Assignment for Breach of Contract pursuant to the Civil Code, independent to the Negotiable Instruments Law? W/N Tan Chong Lin is liable to Great Asian under the Surety Agreements? Held: Yes. As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave Arsenio full authority to agree with Bancasia on the terms and conditions of the discounting line. Great Asian adopted the correct and proper board resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of Great Asian. Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will secure the loan accommodation or discounting line. Yes. Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the with recourse stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. Yes. Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if   the   drawers   of   the   checks   fail   to   pay   on   due   date.     The   condition   on   which   Tan   Chong   Lin’s   obligation   hinged   had   happened. As surety, Tan Chong Lin automatically became liable for the entire obligation to the same extent as Great Asian. ARTICLES 1182 Case 21. Catungal vs. Rodriguez Case about the fulfillment of the condition depending upon the sole will of the debtor (Potestative Condition). Complaint for Damages and Injunction with Preliminary Injunction/Restraining Order filed by the respondent GRANTED. Oblicon Concept: Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. Amber Gagajena Oblicon Digests – Block 1F

Facts: In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with an area of 65,246 square meters, covered by Original Certificate of Title in her name situated in the Barrio of Talamban, Cebu City. The said property was allegedly the exclusive paraphernal property of Agapita. On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell with respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a Conditional Deed of Sale dated July 26, 1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title. Payment Scheme: P25M TOTAL - P500,000   down   payment,   P4,500,000   and   P5,000,000x4   upon   respondent’s   negotiation of Road Right of Way [suspensive condition depending partly between respondent and third party (owners of right of way)]. In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and plans and through his efforts, the properly was reclassified from agricultural land into residential land which he claimed substantially increased the property's value. He likewise alleged that he actively negotiated for the road right of way as stipulated in the contract. Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of P5,000,000 on the purchase price for personal reasons. Rodriquez allegedly refused on the ground that the amount was substantial and was not due under the terms of their agreement. Shortly after his refusal to pay the advance, he purportedly learned that the Catungals were offering the property for sale to third parties. In a letter dated November 4, 1990, Rodriguez registered his objections to what he termed the Catungals' unwarranted demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to negotiate a road right of way and granted him, the vendee, the exclusive right to rescind the contract. Still, on November 15, 1990, Rodriguez purportedly received a letter dated November 9, 1990 from Atty. Catungal, stating that the contract had been cancelled and terminated. Contending that the Catungals' unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary and unwarranted, Rodriquez filed a complaint in RTC. Thereafter, the spouses Catungal filed their opposition to the issuance of a writ of preliminary injunction and later filed a motion to dismiss on the ground of improper venue. According to the Catungals, the subject property was located in Cebu City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the ground that his action was a personal action as its subject was breach of a contract, the Conditional Deed of Sale, and not title to, or possession of real property. From the filing of the appellants' brief in 1994 up to the filing of the Reply Brief, the spouses Catungal were represented by appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo), entered his appearance before the Court of Appeals on September 2, 1997. During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her husband, Jose, filed on February 17, 1999 a motion for Agapita's substitution by her surviving children. In a Motion for Reconsideration dated August 21, 2000, counsel for the Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b) and 5 of the Conditional Deed of Sale, whether taken separately or jointly, violated the principle of mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was void ab initio. He adverted to the cases mentioned in his various citations of authorities to support his argument of nullity of the contract and his position that this issue may be raised for the first time on appeal. Issues: W/N petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time on appeal? W/N paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of contracts under Article 1308 of the Civil Code? Held: No. This is a situation where a party completely changes his theory of the case on appeal and abandons his previous assignment of errors in his brief, which plainly should not be allowed as anathema to due process. We have also previously ruled that "courts of justice have no jurisdiction or power to decide a question not in issue. Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the court did not hear the parties, is not only irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of fair play. No. We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned." We must hasten to add, however, that where the socalled "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself. Case 22. Del Castillo vs. Naguiat Case about Potestative Condition Subject to the Will of the Debtor (Payment of the Purchase Price in Contract To Sell) DENIED Oblicon Concept: Art. 1182. The Code prohibits purely potestative, suspensive, conditional obligations that depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled. Art 1191. Rescission of Contracts Amber Gagajena Oblicon Digests – Block 1F

Facts: Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at Malhacan, Meycauayan, Bulacan. 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 Bernardino Naguiat] over a portion of the aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a document entitled  ‘Kasulatan  sa  Pagbibilihan’. Payment Scheme: P20,000 TOTAL PRICE – P2,000 Down Payment, P18,000 Payable in 10 years with 12% interest AFTER 10 years. 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] ; that the reasonable amount of rental for the subject land is P200 a month; that on account of the unjustified actuations of [respondents], [petitioner] has been constrained to litigate where she  incurred  expenses  for  attorney’s  fees  and  litigation  expenses in the sum of P20,000. In their answer and amended answer, [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. [Respondent Bernardino Naguiat] 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 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; that he is presently the owner in fee simple of the subject lot having acquired the same by virtue of a Free Patent Title duly awarded to him by the Bureau of Lands; and that his title and ownership had already become indefeasible and incontrovertible. RTC and CA ruled in favor of the respondent. Therefore, rescission DENIED. Issues: W/N there is a breach of the obligation due to lapse of the stipulated period and the failure of the private respondents to pay? W/N action for rescission should still be feasible despite the certificate of title had already been issued in favor of the private respondents? W/N the 58 sq. m. portion in excess is covered by a certificate of title in the names of private respondents, thus, reconveyance is no longer feasible and proper? Held: No. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. The failure of respondents to pay the balance of the purchase price within ten years from the execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated that payment could be made even after ten years from the execution of the Contract, provided the vendee paid 12 percent interest. The stipulations of the contract constitute the law between the parties; thus, courts have no alternative but to enforce them as agreed upon and written. This is not a potestative condition subject to the will of the debtor since nowhere is it stated in the Deed that payment of the purchase price is dependent upon whether respondents want to pay it or not. Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband never made any demand for the balance of the purchase price. Petitioner even refused the payment tendered by respondents  during  her  husband’s  funeral,  thus  showing  that  she  was   not exactly blameless for the lapse of the ten-year period. Had she accepted the tender, payment would have been made well within the agreed period. No. A certificate of title cannot be subject to collateral attack and can only be altered, modified or canceled in direct proceedings in accordance with law. No. It appears that an action for cancellation/annulment of patent and title and for reversion was already filed by the State in favor of petitioner and the heirs of her husband. Hence, there is no need in this case to pass upon the right of respondents to the registration of the subject land under their names. Case 23. Rustan Pulp vs. IAC Case about Potestative Condition Subject to the Will of the Debtor (Ask for Delivery of Pulp upon Full Operation in a Commercial Scale of Baloi Plant) – DENIED. Condition is VOID. Oblicon Concept: Art. 1182. Purely Potestative Condition Dependent Upon the Will of the Debtor Facts: When petitioners informed herein private respondents to stop the delivery of pulp wood supplied by the latter pursuant to a contract of sale between them, private respondents sued for breach of their covenant. The court of origin dismissed the complaint but at the same time enjoined petitioners to respect the contract of sale if circumstances warrant the full operation in a commercial scale of petitioners' Baloi plant and to continue accepting and paying for deliveries of pulp wood products from Romeo Lluch. Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. On March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. That the contract to supply is not exclusive because Rustan shall have the option to buy from other suppliers who are qualified and holder of appropriate government authority or license to sell and dispose pulp wood. Amber Gagajena Oblicon Digests – Block 1F

These prefatory business proposals culminated in the execution, during the month of April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook to pay the price of P30 per cubic meter of pulp wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte. That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this contract when supply of the same shall become sufficient until such time when need for said raw materials shall have become necessarily provided, however, that the SELLER is given sufficient notice. In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc. recommended the acceptance of deliveries from other suppliers of the pulp wood materials for which the corresponding deliveries were made. But during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to stop deliveries and the letter of similar advice sent by petitioners to private respondents. Despite the notice, petitioner is still accepting deliveries from other suppliers which is ILLOGICAL and INCONSISTENT. Issues: W/N   the   petitioner’s   decision   to   suspend   taking   delivery   of   pulp   from   respondent,   which   was   prompted   by   serious   and   unforeseen defects in the mill, is a lawful exercise of its rights under the contract of sale? W/N petitioners Tantoco and Vergara should be personally liable under the contract of sale? Held: No. We cannot accept the reasons given by appellees as to why they were stopping deliveries of pulp wood materials. First, We find it preposterous for a business company like the appellee to accumulate stockpiles of cut wood even after its letter to appellants dated September 30, 1968 stopping the deliveries because the supply of raw materials has become sufficient. The fact that appellees were buying and accepting pulp wood materials from other sources other than the appellants even after September 30, 1968 belies that they have more than sufficient supply of pulp wood materials, or that they are unable to go into full commercial operation or that their machineries are defective or even that the pulp wood materials coming from appellants are sub-standard. No. Tantoco and Vergara should not have been adjudged to pay moral damages and attorney's fees because Tantoco merely represented the interest of Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract of sale. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting. ARTICLES 1190-1192 Case 24. UP vs. De Los Angeles Case about Automatic Rescission Expressly Stipulated, Thus, No More Need for Judicial Decree Oblicon Concept: Art 1191. The parties may validly enter into an agreement that violation of the terms of the contract would cause cancellation thereof even without judicial intervention or permission. Where a contract itself contains such stipulation, the right  to  rescind  is  not  “implied”  but  expressly  recognized  by  the  parties.  Hence,  Art  1191  is  not  applicable. Facts: Three orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No. 9435, are sought to be annulled in this petition for certiorari and prohibition, filed by herein petitioner University of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first order, dated 25 February 1966, enjoined UP from awarding logging rights over its timber concession (or Land Grant), situated at the Lubayat areas in the provinces of Laguna and Quezon; the second order, dated 14 January 1967, adjudged UP in contempt of court, and directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging rights or conducting logging operations on the concession; and the third order, dated 12 December 1967, denied reconsideration of the order of contempt. That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP, an institution of higher learning, to be operated and developed for the purpose of raising additional income for its support, pursuant to Act 3608; That on or about 2 November 1960, 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, 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, and which stipulated the following: o In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30, 1965; o In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000) by way of and for liquidated damages Amber Gagajena Oblicon Digests – Block 1F

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, 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; and on 7 September 1965, UP filed a complaint against ALUMCO, which was docketed as Civil Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore specified, together with other allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966. That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding; on 27 November 1965, it filed a second petition for preliminary injunction; and, on 25 February 1966, respondent judge issued the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party. That UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara Lumber Company, Inc., and said company had started logging operations. Issues: W/N U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect? W/N UP should be held in contempt of court? Held: Yes. 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. The Court abstained because it is under a different case. Case 25. Tan vs. CA Case about Action for Rescission After Substantial Breach - DENIED Oblicon Concept: Art. 1191. 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. Article 1191 of the Civil Code, the Court is given a discretionary power to allow a period within which a person in default may be permitted to perform his obligation. Facts: The evidence shows that defendants-appellants spouses (private respondents herein) are the owners of a house and lot located at No. 34 Easter Road, Baguio City, and covered by T.C.T., which were then for sale. On June 14, 1984, plaintiffappellee together with her agent went to see said spouses at their residence regarding the property. After appellants had shown appellee around the house and had conversation about the encumbrances and/or liens on the property, the parties finally agreed on the price of P1,800,000, with appellee to advance earnest money of P200,000 to enable appellants to secure the cancellation of the mortgage and lien annotated on the title of the property and the balance of the price to be paid by appellee on June 21, 1984. Forthwith, appellee handed to appellants a check for P200,000.00 and thereupon the parties signed a receipt. In turn, appellants handed to appellee a xerox copy of the title and other papers pertaining to the property as well as an inventory of the furnishings of the house that are included in the sale. There (3) days thereafter, i.e., on June 17, 1984, appellee returned to appellants' house together with her daughter Corazon and one Ines, to ask for a reduction of the price to P1,750,000 and appellants spouses agreed, and so another receipt entitled "Agreement" was signed by the parties. On July 9, 1984, the DBP executed a cancellation of mortgage, which was registered with the Registry of Property of Baguio City in July 12, 1984. Appellants also paid all the taxes due and in appears on the property. On June 25, 1984, appellee accompanied by her daughter Corazon and her lawyer, Atty. Vicente Quitoriano, went to Baguio City to inquire about the status of the property and appellants told her that the Development Bank of the Philippines was taking some time processing their payments and preparing the deed of cancellation of the mortgage. On that occasion, the parties agreed on an extension of two (2) weeks for the execution of the deed of sale. Immediately, upon execution by the DBP of the deed of cancellation of mortgage of July 9, 1984, appellants tried to contact appellee and/or her daughter Corazon to come to Baguio City for the formal execution of the deed of sale, but to no avail. Instead, appellants received a telegram from Atty. Quitoriano cancelling the sale and demanding the return of the P200,000 earnest money. Amber Gagajena Oblicon Digests – Block 1F

Before appellants could make good their threat, appellee "jumped the gun", so to speak, upon them by filing in court on August 27, 1984 the case for recovery of sum of money with damages. RTC ruled in favor of petitioner. CA ruled in favor of respondents. SC ruled in favor of respondents. Issues: W/N the private respondents committed a substantial breach of their obligation so as to warrant petitioner's exercise of her right to rescind the contract of sale? Held: No. The alleged breach of the obligation by the private respondents, which consists in a mere delay for a few days in clearing the title to the property, cannot be considered substantial enough to warrant rescission of the contract. A thorough review of the records clearly indicates that private respondents had substantially complied with their undertaking of clearing the title to the property. A court, in determining whether rescission is warranted, must exercise its discretion judiciously considering that the question of whether a breach of a contract is substantial depends upon the attendant circumstances. However, just a few days after, or on July 12, 1984, the cancellation of the DBP mortgage was entered by the Register of Deeds and duly noted on the title. Time not being of the essence in the agreement, a slight delay on the part of the private respondents in the performance of their obligation, is not sufficient ground for the resolution of the agreement. The fact that said notice had not yet been cancelled by the Register of Deeds as of June 25, 1984 cannot prejudice the sellers who must be deemed to have substantially complied with their obligation. The rule in this jurisdiction is that where the fulfillment of the condition (in a conditional obligation) does not depend on the will of the obligor, but on that of a third person, the obligor's part of the contract is complied with, if he does an that is in his power and it then becomes incumbent upon the other contracting party to comply with the terms of the contract. o Inasmuch as the private respondents are ready, willing and able to comply with their obligation to deliver title to the property subject of the sale and had already demanded that petitioner pay the full amount of the purchase price, the petitioner must be considered as having incurred in delay. This conclusion is warranted by the clear provision of Article 1169 of the Civil Code. Petitioner having failed to comply with her obligation of paying the balance of the purchase price despite demands by private respondents, private respondents were clearly entitled to their counterclaim for specific performance, as correctly adjudged by the respondent court. Considering the huge amount of money involved in this sale, the Court, in the exercise of its sound discretion, hereby fixes a period of ninety (90) days within which petitioner shall pay the balance of the purchase price amounting to one million and five hundred fifty thousand pesos (Pl,550,000) plus interest thereon at the legal rate from finality of this judgment until fully paid. After such payment has been made, the private respondents are ordered to sign and execute the necessary absolute deed of sale in favor of petitioner. Case 26. Spouses Co vs. CA and Adoracion Custodio Case about Rescission (Resolution) by An Injured Party in Reciprocal Obligations from Contract of Sale One Party Ready to Perform while the Other is Not Oblicon Concept: Art 1191. Rescission of reciprocal obligations Art 1479. Option Contract Article 1385. Rescission creates the obligation to return the things which were the object of the contract but such rescission can only be carried out when the one who demands rescission can return whatever he may be obliged to restore. Facts: Sometime  on  October  9,  1984,  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. One week thereafter, and shortly before she left for the United States, plaintiff paid to the defendants the amounts of $1,000 and P40,000 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 is payable in two payments $40,000 on December 4, 1984 and the balance of $60,000 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, 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 and 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. Under date of September 5, 1986, Atty. Estrella O. Laysa, counsel for plaintiff, wrote a letter to Atty. Leopoldo Cotaco informing him that plaintiff ‘is   now   ready   to   pay   the   remaining   balance   to complete the sum of $100,000, the agreed amount  as  selling  price’  and  on  October  24,  1986,  plaintiff  filed  the  instant  complaint. RTC and CA ruled in favor of Custodio (buyer) by granting rescission. The courts ordered Spouses Co to return the $30,000 already paid by Custodio. In return, they can forfeit for themselves the $1,000 and P40,000 option money. Issues: W/N the Court of Appeals erred in ordering the COS to return the $30,000 paid by CUSTODIO pursuant to  the  “option”   granted to her over the Beata property?

Amber Gagajena Oblicon Digests – Block 1F

Held: No. Since it has been shown that the appellee who was not in default, was willing to perform part of the contract while the appellants were not, rescission of the contract is in order. 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, (Article 1191, same Code). 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 x x x x (Article 1385, same Code). 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. o We  cannot  uphold  the  forfeiture  clause  contained  in  the  petitioners’ August 8, 1986 letter. It appears that such condition was unilaterally imposed by the COS and was not agreed to by CUSTODIO. It cannot therefore be considered as part of the contract of sale as it lacks the consent of CUSTODIO. Case 27. Palay, Inc. and Albert Onstott vs. Jacobo Clave, Presidential Executive Assistant, National Housing Authority and Nazario Dumpit Case about Need of Notice in Automatic Rescission Stipulations in Contracts Oblicon Concept: Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. ART. 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 obliged to restore. Facts: On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square meters and owned by said corporation. The sale price was P23,300 with 9% interest per annum, payable with a downpayment of P4,660 and monthly installments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid the downpayment and several installments amounting to P13,722. The last payment was made on December 5, 1967 for installments up to September 1967. On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up with another letter dated June 20, 1973 reiterating the same request. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund (Case No. 2167). In a Resolution, dated July 10, 1979, the NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722 with 12% interest from the filing of the complaint on November 8, 1974. Petitioners' Motion for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23, 1979. On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law (O.P. Case No. 1459), respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit. Issues: W/N notice or demand is not mandatory under the circumstances and, therefore, may be dispensed with by stipulation in a contract to sell? W/N petitioners may be held liable for the refund of the installment payments made by respondent Nazario M. Dumpit? W/N the doctrine of piercing the veil of corporate fiction has application to the case at bar? W/N respondent Presidential Executive Assistant committed grave abuse of discretion in upholding the decision of respondent NHA holding petitioners solidarily liable for the refund of the installment payments made by respondent Nazario M. Dumpit thereby denying substantial justice to the petitioners, particularly petitioner Onstott? Held: Mandatory. Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved in account of infractions by the other contracting party must be made known to the other and is always provisional being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. Yes. As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot. However, considering that the property had already been sold to a third person and there is no evidence on record that other lots are still available, private respondent is entitled to the Amber Gagajena Oblicon Digests – Block 1F

refund of installments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. 10 It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another. No to issues 3 and 4. We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person. Case 28. Margarita Suria and Gracia Joven Vs. IAC, Hon. Jose Mar Garcia and Spouses Crispin Case about Subsidiarity of Remedy of Rescission When There Is Mortgage Oblicon Concept: Art. 1383. The 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 probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as "rescission" without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesion or damage. But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes and results of either action. Facts: That on March 31, 1975, respondents being the owners of a parcel of land situated at Barrio San Antonio, San Pedro, Laguna, entered into a contract denominated as DEED OF SALE WITH MORTGAGE, with herein petitioners. That the petitioners violated the terms and conditions of the contract by failing to pay the stipulated installments and in fact only one installment due in July 1975 (paid very late in the month of September, 1975) was made all the others remaining unsettled to the present time. That repeated verbal and written demands were made by respondents upon the petitioners for the payment of the installments, some of said written demands having been made on September 24, 1981, February 7, 1982, February 24, 1983, March 13, 1983, and April 12, 1983, but petitioners for no justifiable reason failed to comply with the demands of respondents. Respondents won the cases in the RTC and CA but the SC ruled in favor of the petitioners. Issues: W/N the subsidiary and equitable remedy of rescission available in the presence of a remedy of foreclosure in the light of the express provision of Art 1383 of the Civil Code that : 'THE 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?’ W/N the seller can legally demand rescission of the deed of sale with mortgage without offering to restore to the buyer what he has paid, as required by Art 1385, or complying with the requirements of the Maceda Law (RA 6552) granting the buyer a grace period to pay without interest, and, in case of cancellation in case the buyer still could not pay within the grace period requiring the seller to order payment of the cash surrender value before the cancellation may legally take effect? Held: No. There is, therefore, no cause for the resolution of the sale as prayed for by the plaintiff. His action, at all events, should have been one for the foreclosure of the mortgage, which is not the action brought in this case. By the contract of sale, the vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer, who in turn, is obligated to pay a price certain in money or its equivalent (Art. 1458, Civil Code). From the respondents' own arguments, we note that they have fully complied with their part of the reciprocal obligation. As a matter of fact, they have already parted with the title as evidenced by the transfer certificate of title in the petitioners' name as of June 27, 1975. The buyer, in tum, fulfilled his end of the bargain when he executed the deed of mortgage. The payments on an installment basis secured by the execution of a mortgage took the place of a cash payment. In other words, the relationship between the parties is no longer one of buyer and seller because the contract of sale has been perfected and consummated. It is already one of a mortgagor and a mortgagee. In consideration of the petitioners' promise to pay on installment basis the sum they owe the respondents, the latter have accepted the mortgage as security for the obligation. No. Case 29. Leonardo Chua and Heirs of Yong Tian Vs. Mutya Victorio Case about Non-Importance of Judicial Rescission for Lessors to Evict Lessees Oblicon Concept: Article 1659. The aggrieved party may, at his option, ask for (1) the rescission of the contract; (2) rescission and indemnification for damages; or (3) only indemnification for damages. Art. 1673. The lessor may judicially eject the lessee for any of the following causes: o (1) When the period agreed upon, or that which is fixed for the duration of leases under articles 1682 and 1687, has expired; o (2) Lack of payment of the price stipulated; o (3) Violation of any of the conditions agreed upon in the contract; Amber Gagajena Oblicon Digests – Block 1F

(4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of article 1657, as regards the use thereof. Vda.   de   Pamintuan   v.   Tiglao.   “Upon   non-payment of rent by the lessee, the lessor may elect to treat the contract as rescinded and thereby determine the right of the lessee to continue in possession; and this right to recover possession may be enforced in an action of unlawful detainer. It is not necessary, in such situation, that an independent action for the rescission of the lease should first be instituted in the CFI [now RTC], for the purpose of putting an end to the right of the tenant  to  remain  in  possession  under  the  lease.” o

Facts: There were ejectment cases filed by respondent Mutya Victorio, the owner of certain commercial units located on Panganiban Street, Santiago City, Isabela, against petitioners herein. Leonardo Chua is currently the occupant of one unit, while petitioners Heirs of Yong Tian are the occupants of two units. It appears that these were not the first ejectment cases filed by respondent against petitioners. An earlier ejectment case ended in a compromise between the parties, approved by the trial court, whereby they agreed that: (1) Rent be increased by 100% effective August 1990; (2) That rental increases shall be reviewed every after (sic) four (4) years based on the then prevailing rental rates at commercial establishments along Panganiban Street, Santiago, Isabela, but in no case shall be increased by more than twenty-five (25%) percent; etc. Sometime in September of 1994, respondent (through her attorney-in-fact), made a rental survey of other commercial establishments along Panganiban Street. On the basis of this survey, a 25% rental increase was demanded from petitioners. Petitioners refused to pay the increased rentals which compelled respondent to file unlawful detainer cases against both lessees. This shows that the Compromise Agreement was already SEVERED. But the respondent agreed with to accept monthly payment at the new rate. There came a new contract (i.e., monthly period). Subsequently, on October 10, 1998, respondent wrote a letter to petitioners informing them of her intention to increase the monthly rentals effective November 1, 1998, from P6,551 per unit to a sum more than double that, namely, P15,000 per unit. Petitioners refused to pay this amount, contending that it was beyond the allowable rental increase embodied in the compromise agreement. RTC and MTCC ruled in favor of petitioners but CA and SC ruled in favor of the respondent. Issues: W/N the Compromise Agreement between the lessor and lessees is still in effect? Held: No. The SC affirmed the CA ruling that the compromise agreement, which set a definite period of four years for the lease contract, had been abrogated by petitioners refusal to pay the increased rentals in 1994. Accordingly, in 1994, the juridical relation between the parties was severed. When respondent accepted payment of the increased monthly amount, an entirely new contract of lease was entered into between the parties. Since payment of rent was made on a monthly basis, and pursuant to Article 1687 of the Civil Code, the period of this lease contract was monthly. Upon the expiration of every month, the lessor could increase the rents and demand that the lessee vacate the premises upon non-compliance with increased terms. o In exercise of equity, however, the Court of Appeals granted petitioners an extension of one year from finality of the decision within which to vacate the premises. The SC changed this to 1 month considering the length of time of the case (i.e., 3 years pending). It held that there is enough time for the lessees to look for other commercial spaces. Payment of the rent is one of a lessees statutory obligations, and, upon non-payment by petitioners of the increased rental in September 1994, the lessor acquired the right to avail of any of the three remedies outlined above. Ordinarily, an obligee’s remedies upon breach of an obligation are judicial in nature. This is implicit in the third paragraph of Article 1191, and in Article 1659 of the Civil Code. Thus, the mere failure by the lessees to comply with the increased rental did not ipso jure produce the rescission of the contract of lease. However, although the lessor did not resort to judicial action to specifically avail of any of the three remedies in Article 1659, this does not mean that the compromise agreement continues in force. In certain exceptional cases, the law recognizes the availability of extrajudicial remedies, which exist in addition to the judicial remedies given above. Case 30. William Uy and Rodel Roxas Vs. CA, Hon. Robert Balao and National Housing Authority Case  about  Agents’  Interest  in  the  Cancellation  of  Contract  of  Sale  of  Parcel  of Land Between their Principals and NHA. Oblicon Concept: Article 1311. Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. 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. Art. 1318. There is no contract unless the following requisites concur: o (1) Consent of the contracting parties; o (2) Object certain which is the subject matter of the contract; o (3) Cause of the obligation which is established.

Amber Gagajena Oblicon Digests – Block 1F

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, with an area of 31.8231 hectares, 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 daños perjuicios. On 9 March 1992, petitioners filed before the Regional Trial Court (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. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action before the trial court. Issues: W/N the petitioners are entitled to file the case in lieu of their principals without indicating the real party in interest (i.e., principals)? W/N the NHA had any legal basis for rescinding the sale involving the last 3 parcels of land? Held: No. Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the owners of the land subject of the sale. As agents, they only render some service or do something in representation or on behalf of their principals. The rendering of such service did not make them parties to the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties-ininterest, either as plaintiff or defendant, in an action upon that contract must, generally, either be parties to said contract. o The fact that an agent who makes a contract for his principal will gain or suffer loss by the performance or nonperformance of the contract by the principal or by the other party thereto does not entitle him to maintain an action on his own behalf against the other party for its breach. An agent entitled to receive a commission from his  principal  upon  the  performance  of  a  contract  which  he  has  made  on  his  principal’s  account  does  not,  from  this   fact alone, have any claim against the other party for breach of the contract, either in an action on the contract or otherwise. An agent who is not a promisee cannot maintain an action at law against a purchaser merely because he is entitled to have his compensation or advances paid out of the purchase price before payment to the principal. Yes. 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. 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. o 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. Motive preceded the cause. Case 28. Pryce Corporation Vs. PAGCOR Case about Difference of Termination from Rescission; Ability of Courts to Reduce Unconscionable Penalty Oblicon Concept: Article   1159   of   the   Civil   Code   provides   that   “obligations   arising   from   contracts   have   the   force   of   law   between   the   contracting parties and should be complied with in good faith. 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. Facts: Sometime in the first half of 1992, representatives from Pryce Properties Corporation (PPC for brevity) made representations with the Philippine Amusement and Gaming Corporation (PAGCOR) on the possibility of setting up a Amber Gagajena Oblicon Digests – Block 1F

casino in Pryce Plaza Hotel in Cagayan de Oro City. A series of negotiations followed. PAGCOR representatives went to Cagayan de Oro City to determine the pulse of the people whether the presence of a casino would be welcomed by the residents. Some local government officials showed keen interest in the casino operation and expressed the view that possible  problems  were  surmountable.    Their  negotiations  culminated  with  PPC’s  counter-letter proposal dated October 14, 1992. On November 11, 1992, the parties executed a Contract of Lease involving the ballroom of the Hotel for a period of three (3) years starting December 1, 1992 and until November 30, 1995. Various resolutions and ordinances were promulgated by Sangguniang Panlungsod ng Cagayan De Oro to deter the casino in the city. Permit of the hotel to operate was threatened together with imposition of penalties. In the afternoon of December 18, 1992 and just hours before the actual formal opening of casino operations, a public rally in front of the hotel was staged by some local officials, residents and religious leaders. Barricades were placed which prevented some casino personnel and hotel guests from entering and exiting from the Hotel. PAGCOR was constrained to suspend casino operations because of the rally. An agreement between PPC and PAGCOR, on one hand, and representatives of the rallyists, on the other, eventually ended the rally on the 20th of December, 1992. In the meantime, PAGCOR resumed casino operations on July 15, 1993, against which, however, another public rally was held. Casino operations continued for some time, but were later on indefinitely suspended due to the incessant demonstrations. Per verbal advice from the Office of the President of the Philippines, PAGCOR decided to stop its casino operations in Cagayan de Oro City. PAGCOR stopped its casino operations in the hotel prior to September, 1993. In two Statements of Account dated September 1, 1993, PPC apprised PAGCOR of its outstanding account for the quarter September 1 to November 30, 1993. PPC sent PAGCOR another Letter dated September 3, 1993 as a follow-up to the parties’  earlier  conference.    PPC  sent  PAGCOR  another  Letter  dated  September  15,  1993  stating  its  Board  of  Directors’   decision to collect the full rentals in case of pre-termination of the lease. PAGCOR sent PPC a letter dated September 20, 1993 stating that it was not amenable to the payment of the full rentals citing as reasons unforeseen legal and other circumstances which prevented it from complying with its obligations. PAGCOR further stated that it had no other alternative but to pre-terminate the lease agreement due to the relentless and vehement opposition to their casino operations. In a letter dated October 12, 1993, PAGCOR asked PPC to refund the total of P1,437,582 representing the reimbursable rental deposits and expenses for the permanent improvement of the Hotel’s  parking  lot.    In  a  letter  dated  November  5,  1993,  PAGCOR  formally  demanded  from  PPC  the  payment  of  its  claim   for reimbursement. In a letter dated November 25, 1993, PPC informed PAGCOR that it was terminating the contract of lease due to PAGCOR’s  continuing  breach  of  the  contract  and  further  stated  that  it  was  exercising  its  rights  under  the  contract  of  lease   pursuant to Article 20 (a) and (c) thereof. Issues: W/N  Pryce’s  action  is  termination  or  rescission? W/N Pryce was entitled to future rentals or lease payments for the unexpired period of the contract of lease? W/N the Court is entitled to reduce the penalty? W/N  Pryce  is  entitled  to  damages  even  if  there’s  a  penalty  clause  already? Held: Termination. There is a distinction in law between cancellation of a contract and its rescission. To rescind is to declare a contract void in its inception and to put an end to it as though it never were. It is not merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore the parties to relative positions which they would have occupied had no contract ever been made. The termination or cancellation of a contract would necessarily entail enforcement of its terms prior to the declaration of its cancellation in the same way that before a lessee is ejected under a lease contract, he has to fulfill his obligations thereunder that had accrued prior to his ejectment. However, termination of a contract need not undergo judicial intervention. o In this case, the actions and pleadings of petitioner show that it never intended to rescind the Lease Contract from the beginning. This fact was evident when it first sought to collect the accrued rentals from September to November 1993 because, as previously stated, it actually demanded the enforcement of the Lease Contract prior to termination. Yes. The Court classified this as penalty clause which is legal in contracts. However, with the circumstances that PAGCOR encountered, collecting the remaining rental payments by Pryce will lead to unjust enrichment. Also worth mentioning  is  the  CA’s  finding  that  PAGCOR’s  casino  operations  had  to  be  suspended  for  days  on  end  since  their  start  in   December 1992; and indefinitely from July 15, 1993, upon the advice of the Office of President, until the formal cessation of operations in September 1993. Needless to say, these interruptions and stoppages meant that PAGCOR suffered a tremendous loss of expected revenues, not to mention the fact that it had fully operated under the Contract only for a limited time. Yes. The due to the circumstances, the Court find the penalty unconscionable. Yes. In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the indemnity for damages and the payment of interests in case of noncompliance; that is, if there is no stipulation to the contrary, in which case proof of actual damages is not necessary for the penalty to be demanded. There are exceptions to the aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1) when there is a stipulation to the contrary, 2) when the obligor is sued for refusal to pay the agreed penalty, and 3) when the obligor is guilty of fraud. In these cases, the purpose of the penalty is obviously to punish the obligor for the breach. Hence, the obligee can recover from the former not only the penalty, but also other damages resulting from the nonfulfillment of the principal obligation. The contract fell under 1).

Amber Gagajena Oblicon Digests – Block 1F

Case 32. Solid Homes Vs. Spouses Tan Case about Rescission of the Contract Where Price is No Longer Updated and May Lead to Unjust Enrichment Case about Subdivision without infrastructure and utility systems Oblicon Concept: Article 1144. The following actions must be brought within ten years from the time the right of action accrues: o (1) Upon a written contract; o (2) Upon an obligation created by law; o (3) Upon a judgment (Emphasis supplied). In law, a cause of action exists when the following requisites concur, to wit: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part on the defendant to respect such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff. Facts: On April 7, 1980, petitioner Solid Homes, Inc., sold to the spouses Joe Uy and Myrna Uy a subdivision lot with an area of 1,069 square meters, more particularly identified as   Lot   18,   Block   2,   located   at   petitioner’s   Loyola   Grand   Villas   Subdivision, Quezon City. Thereafter, the lot was registered in the name of the Uys under Transfer Certificate of Title. Sometime in February, 1985, the spouses Uy sold the same lot to herein respondents, the spouses Ancheta K. Tan and Corazon de Jesus-Tan, by reason of which the former title covering the lot was cancelled and replaced by TCT in respondents’  name. From then on, respondents visited their property a number of times, only to find out the sad state of development thereat. There was no infrastructure and utility systems for water, sewerage, electricity and telephone, as announced in the approved plans and advertisements of the subdivision. Worse, squatters occupy their lot and its surrounding areas. In short, there has been no development at all. Accordingly, in a letter dated December 18, 1995, respondents demanded on petitioner to provide the needed utility systems and clear the area of squatters and other obstructions by the end of January, 1996 to enable them to start the construction of their house thereon and to allow other lot owners in the area a full access to and peaceful possession of their respective lots, conformably with P.D. No. 957 which requires an owner or developer of a subdivision project to develop the same within one year from the issuance of its license. Having received no reply from petitioner, respondents filed with the Field Office of the Housing and Land Use Regulatory Board (HLURB), NCR a complaint for specific performance and damages therein praying, inter alia, that petitioner be ordered to provide the needed facilities in the premises and rid the same of squatters; or, in the alternative, for petitioner to replace  respondents’  property  with  another  lot  in  the same subdivision where there are facilities and sans squatters. After due proceedings, the Housing and Land Use Arbiter, in a decision dated September 17, 1996, rendered judgment for the respondents by directing petitioner to perform its obligation to provide subdivision facilities in the subject premises and to rid the premises of squatters. In the alternative, at the option of complainants to replace subject lot with a lot of similar size and with available facilities, located in the subject subdivision. Upon appeal to the Office of the President, the department added that if no other lot is available, Solid Homes can just reimburse the respondents the purchase price, with legal rate of interest from February 1985, until fully paid. Upon appeal to the CA, the price was changed to current market value. Issues: W/N  the  respondents’  right  to  bring  the  instant  case  against  petitioner  has  already  prescribed? W/N in the event respondents opt to rescind the contract, should petitioner pay them merely the price they paid for the lot plus interest or the current market value thereof? Held: No. Thus, the period of prescription of any action is reckoned only from the date the cause of action accrued. And a cause of action arises when that which should have been done is not done, or that which should not have been done is done. Time and again, we have emphasized that it is only upon the happening of the last element when it can be said that a cause of action has arisen. In short, it is from the time an act is performed or an omission incurred which is violative of the plaintiff’s  right,  that  signals  the  accrual  of  a  cause  of  action.    And  it  is  from  that  time  that  the  10-year prescriptive period commences to run. o The debtor, therefore, violates the obligation in point of time if there is mora or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal obligation was still subsisting, although there were late amortizations there was no demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiff-appellant there was no demand for the payment of the penalty, hence the debtor was not in mora in the payment of the penalty. The cause of action only arose upon demand of Spouses Tan. Market Value. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value. Petitioners invoked Art 1385. Rescission in which parties merely RETURNS what they have received therefore it should just pay the purchase price with legal interest. o Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase price plus interest. It is definite that the value of the subject property already escalated after almost two decades from the time the petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value. Surely, such a situation should not be countenanced for to do so would be contrary to reason and therefore, Amber Gagajena Oblicon Digests – Block 1F

unconscionable. Over time, courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law. ARTICLE 1193-1197: Obligations with a Period Case 33. Radiowealth Finance Company Vs. Spouses Del Rosario Case about Court Fixing a Period in Obligations Subject to Period Solely Dependent Upon the Will of the Debtor. Case about the Promissory Note Not Indicating when the first installment is due Oblicon Concept: Sec 33 of the Rules of Court on Demurrer of Evidence Art 1197. Court Fixing a Period in Obligations Subject to Period Solely Dependent Upon the Will of the Debtor Facts: On March 2, 1991, Spouses Vicente and Maria Sumilang del Rosario (herein respondents), jointly and severally executed, signed and delivered in favor of Radiowealth Finance Company (herein petitioner), a Promissory Note for P138,948. Pertinent provisions of the Promissory Note read: P11,579 payable for 12 consecutive months starting on [date not indicated – respondent claims that the obligation is not yet due because Court should first insert date]; 2.5% per month penalty charge for non-payment;;  25%  attorney’s  fee  in  case  of  court  case;;  10%  liquidated  damages. Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they failed to pay their obligations under their Promissory Note. On June 7, 1993, petitioner filed a Complaint for the collection of a sum of money before the Regional Trial Court of Manila, Branch 14. During the trial, Jasmer Famatico, the credit and collection officer of petitioner, presented in evidence the respondents’  check  payments,  the  demand  letter  dated  July  12,  1991,  the  customer’s  ledger  card  for  the  respondents,   another demand letter and Metropolitan Bank dishonor slips. Famatico admitted that he did not have personal knowledge of the transaction or the execution of any of these pieces of documentary evidence, which had merely been endorsed to him. On July 4, 1994, the trial court issued an Order terminating the presentation of evidence for the petitioner. Thus, the latter formally offered its evidence and exhibits and rested its case on July 5, 1994. Respondents filed on July 29, 1994 a Demurrer to Evidence for alleged lack of cause of action. On November 4, 1994, the trial court dismissed the complaint for failure of petitioner to substantiate its claims, the evidence it had presented being merely hearsay. On  appeal,  the  Court  of  Appeals  (CA)  reversed  the  trial  court  (because  the  respondents’  admitted  the  genuineness  of  the   PN) and remanded (re-trial which is a waste of time and resources) the case for further proceedings. Petitioner claims that respondents are liable for the whole amount of their debt and the interest thereon, after they defaulted on the monthly installments. Respondents, on the other hand, counter that the installments were not yet due and demandable. Petitioner had allegedly allowed them to apply their promotion services for its financing business as payment of the Promissory Note. This was supposedly evidenced by the blank space left for the date on which the installments should have commenced. In other words, respondents theorize that the action for immediate enforcement of their obligation is premature because its fulfillment is dependent on the sole will of the debtor. Hence, they consider that the proper court should first fix a period for payment, pursuant to Articles 1180 and 1197 of the Civil Code. RTC ruled in favor of respondents. CA and SC ruled in favor of petitioner. Issues: W/N the CA erred in ruling that re-trial should be done because of the Demurrer of Evidence signed by the respondents? W/N the Court should first fix the period of the first installment payment for the obligation to become due and demandable? Held: Yes. Sec 33 of the Rules of Court provides that after the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the motion is granted but on appeal the order of dismissal  is  reversed  he  shall  be  deemed  to  have  waived  the  right  to  present  evidence.  The  respondents’  case  will  now   depend  on  the  weakness  of  the  petitioner’s  evidence. No. The act of leaving blank the due date of the first installment did not necessarily mean that the debtors were allowed to pay as and when they could. If this was the intention of the parties, they should have so indicated in the Promissory Note. However, it did not reflect any such intention. Furthermore, it also provided for an acceleration clause and a late payment penalty, both of which showed the intention of the parties that the installments should be paid at a definite date. Had they intended that the debtors could pay as and when they could, there would have been no need for these two clauses. o In this case, the conclusion that the installments had already became due and demandable is bolstered by the fact that respondents started paying installments on the Promissory Note, even if the checks were dishonored by their drawee bank.

Amber Gagajena Oblicon Digests – Block 1F

Case 34. Spouses Ismael and Teresita Macasaet Vs. Spouses (Parents) Vicente and Rosario Macasaet Case about Resolutory Period vs Resolutory Condition (tolerance of parents) Case about Land Eviction but there are improvements (bldg) done in good faith Oblicon Concept: Art 448. How to resolve accessions in principal land. Art 1197. Courts fixing the period if not indicated. Facts: Petitioners Ismael and Teresita Macasaet and Respondents Vicente and Rosario Macasaet are first-degree relatives. Ismael is the son of respondents, and Teresita is his wife. On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of Lipa City an ejectment suit against the children. Respondents alleged that they were the owners of two (2) parcels of land situated at Banay-banay, Lipa City; that by way of a verbal lease agreement, Ismael and Teresita occupied these lots in March 1992 and used them as their residence and the situs of their construction business; and that despite repeated demands, petitioners failed to pay the agreed rental of P500 per week. Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that respondents had invited them to construct their residence and business on the subject lots in order that they could all live near one other, employ Marivic (the sister of Ismael), and help in resolving the problems of the family. They added that it was the policy of respondents to allot the land they owned as an advance grant of inheritance in favor of their children. Thus, they contended that the lot covered by TCT No. T-103141 had been allotted to Ismael as advance inheritance. On the other hand, the lot covered by TCT No. T-78521 was allegedly given to petitioners as payment for construction materials used in the renovation of respondents’  house. The MTCC ruled in favor of respondents and ordered petitioners to vacate the premises. It opined that Ismael and Teresita had occupied the lots, not by virtue of a verbal lease agreement, but by tolerance of Vicente and Rosario. As their stay was by mere tolerance, petitioners were necessarily bound by an implied promise to vacate the lots upon demand. The MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on the ground that successional  rights  were  inchoate.    Moreover,  it  disbelieved  petitioners’  allegation  that  the  other  parcel  had  been  given  as   payment for construction materials. On appeal, the regional trial court (RTC) upheld the findings of the MTCC. However, the RTC allowed respondents to appropriate the building and other improvements introduced by petitioners, after payment of the indemnity provided for by Article 448 in relation to Articles 546 and 548 of the Civil Code. It added that respondents could oblige petitioners to purchase the land, unless its value was considerably more than the building. In the latter situation, petitioners should pay rent if respondents would not choose to appropriate the building. Upon denial of their individual Motions for Reconsideration, the parties filed with the CA separate Petitions for Review, which were later consolidated. Issues: W/N the complaint should have been dismissed because of the non-appearance of the respondents in pre-trial? W/N Article 1678 of the Civil Code should apply to the case on the matters of improvements, or is it Article 447 of the Civil Code in relation to the Article 453 and 454 thereof that should apply, if ever to apply the Civil Code? W/N petitioners should be rejected in the property? W/N the Court should fix a period for the duration of stay of the petitioners? Held: No.  Appearance  by  representatives  with  “special  authorization”  is  good.  Lawyers  are  duly  represented. No. Art 448 (Rights of a Builder in Good Faith) should apply. o The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof Yes. In the present case, petitioners failed to justify their right to retain possession of the subject lots, which respondents own. Since possession is one of the attributes of ownership, respondents clearly are entitled to physical or material possession. To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally withholding possession from the plaintiff is sufficient. The complaint may lie even if it does not employ the terminology of the law, provided the said pleading is couched in a language adequately stating that the withholding of possession or the refusal to vacate has become unlawful. o Petitioners’  argument  that  the  lots  are  given  as  advance  inheritance  and  dation  in  payment  for  former  debts  is  not   recognized by the courts. No. Article 1197, however, applies to a situation in which the parties intended a period. Such qualification cannot be inferred from the facts of the present case. To repeat, when Vicente and Rosario invited their children to use the lots, they did so out of parental love and a desire for solidarity expected from Filipino parents. No period was intended by the parties. Their mere failure to fix the duration of their agreement does not necessarily justify or authorize the courts to do so. o Based   on   respondents’   reasons  for gratuitously allowing petitioners to use the lots, it can be safely concluded that the agreement subsisted as long as the parents and the children mutually benefited from the arrangement. Amber Gagajena Oblicon Digests – Block 1F

ARTICLE 1207-1222: Joint and Solidary Obligations Case 35. Marsman Drysdale Vs. Philippine Geoanalytics, Inc. and Gotesco Properties, Inc. Case about Presumption of Joint Obligations in Contracts (Joint Venture Agreement) where there is no stipulation or law or nature of the obligation requiring Solidarity. In the eyes of third party, JV partners are considered as one party only. Relativity of Contracts! Rules on Partnership Applicable to JVA. Oblicon Concept: Art 1207 and 1208 – Presumption of Joint Obligation Art 1797 – Partnerships’  sharing  of  profits  and  losses is same proportion unless specified otherwise Facts: On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the construction and development of an office building on a land owned by Marsman Drysdale in Makati City. JVA contains provisions for: o 50-50% sharing in capital and profits o Marsman to contribute land in BUILDABLE condition (420k) o Gotesco to contribute cash (420k) o Marsman shall not be obligated to fund the Project as its contribution is limited to the Property. o All funds advanced by a Party (or by third parties in substitution for advances from a Party) shall be repaid by the JV. Via Technical Services Contract (TSC) dated July 14, 1997, the joint venture engaged the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic study and geotechnical engineering for the project. PGI, was, however, able to drill only four of five boreholes needed to conduct its subsurface soil exploration and laboratory testing, justifying its failure to drill the remaining borehole to the failure on the part of the joint venture partners to clear the area where the drilling was to be made. PGI was able to complete its seismic study though. PGI then billed the joint venture on November 24, 1997 for P284,553 representing the cost of partial subsurface soil exploration; and on January 15, 1998 for P250,800 representing the cost of the completed seismic study. Total of P535k. Despite repeated demands from PGI, the joint venture failed to pay its obligations. Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short and the planned building project was eventually shelved. PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and damages at the Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco. In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of paying PGI to Gotesco which, under the JVA, was solely liable for the monetary expenses of the project. Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI had yet to complete the services enumerated in the contract; and that Marsman Drysdale failed to clear the property of debris which prevented PGI from completing its work. Both RTC and CA ruled in favor of PGI. Issues: W/N the JV is required to pay PGI for its services? W/N the obligation of the partners are joint of solidary? Held: Yes. The Court is convinced that PGI had more than sufficiently established its claims against the joint venture. In fact, Marsman  Drysdale  had  long  recognized  PGI’s  contractual  claims  when  it  (PGI)  received  a  Certificate of Payment from the joint  venture’s  project  manager  which  was  endorsed  to  Gotesco  for  processing  and  payment. Joint. PGI executed a technical service contract with the joint venture and was never a party to the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the two joint venturers-partners. The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of the project, and all billing invoices indicated the consortium therein as the client. o Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on partnership  on  division  of  losses  but  would  partake  of  a  clear  case  of  unjust  enrichment  at  Gotesco’s  expense.     The grant by the lower courts of Marsman Drysdale cross-claim against Gotesco was thus erroneous. Case 36. Eusebio Gonzales Vs. Philippine Commercial and International Bank, Ocampo and Noceda Case about Solidary Obligation when stipulated in the contract Accommodation Party Extra Diligence of Banks Oblicon Concept: Art 1207 – Presumption rebutted by stipulation, law or nature of obligation Amber Gagajena Oblicon Digests – Block 1F

Sec 29 of NegoLaw – Accommodation  party  is  a  person  “who  has  signed  the  instrument  as  maker,  drawer,  acceptor,  or   indorser, without receiving value therefor, and for the purpose of lending his name to some other person.” Facts: Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed the instant case. His account with PCIB was handled by respondent Edna Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda). In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement (COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB. On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of P1,000,000 and P300,000, respectively. These three loans amounting to P1,800,000 were covered by three promissory notes. To secure the loans, a real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of P1,800,000. The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues which were left still left unpaid. In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson (Unson) for P250,000 drawn against the credit line (COHLA). However, on October 13, 1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB due to the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales. Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They had a heated argument in the premises of the Philippine Columbian Association (PCA) where they are both members, which caused great embarrassment and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter to Gonzales for the P250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter to Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay the P250,000 he owed to Unson in cash. On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he issued had been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. PCIB replied on March 22, 1999 and stood its ground in freezing Gonzales’  accounts  due  to  the  outstanding  dues  of  the  loans.   On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio. PCIB’s  refusal  to  heed  his  demands  compelled  Gonzales  to  file  the  instant  case  for  damages  with  the  RTC,  on  account  of   the alleged unjust dishonor of the check issued in favor of Unson. RTC and CA ruled in favor of the bank but SC considered the petitioner partly meritorious. Issues: W/N  Gonzales’  liability  to  PCIB  for  the  3  promissory  notes  is  joint  or  solidary? W/N PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank? Held: Solidary. As an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. Moreover, the solidary liability of Gonzales is clearly stipulated in the promissory notes which  uniformly  begin,  “For  value  received, the undersigned   (the   “BORROWER”)  jointly   and  severally   promise   to   pay   x   x   x.”     Solidary  liability   cannot   be   presumed   but   must be established by law or contract. No. We find PCIB negligent in not properly informing Gonzales, who is an accommodation party, about the default and the exact outstanding periodic interest dues. Without being properly apprised, Gonzales was not given the opportunity to properly act on them. Likewise, PCIB failed to inform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called  “cross  default  provisions,”  it  may  not  with  impunity  ignore  the  rights  of  Gonzales under the COHLA (i.e., upon prior notice served on CLIENT). Case 37. Lafarge Cement Philippines, Inc. and affiliates Vs. Continental Cement Corporation (CCC), Lim and Mariano Case about Solidarity of Obligations in Torts Oblicon Concept: Art 1207 – Presumption of Joint except upon stipulation, LAW or nature Permissive and Compulsory Counterclaims Facts: Amber Gagajena Oblicon Digests – Block 1F

Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a case pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation. In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount of P117,020,846 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account in the First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712. However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of several  other  properties  as  well,  CCC  filed  before  the  Regional  Trial  Court  of  Quezon  City  on  June  20,  2000,  a  “Complaint   with  Application  for  Preliminary  Attachment”  against  petitioners.    Docketed  as  Civil  Case  No.  Q-00-41103, the Complaint prayed,  among  others,  that  petitioners  be  directed  to  pay  the  “APT  Retained  Amount”  referred  to  in  Clause  2  (c)  of  the   SPA. Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-00-41103 in another action, which involved the same parties and which was filed earlier before the International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP No. 68688. In the meantime, to avoid being in default and without prejudice to the outcome of their appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-41103. In their Answer, they denied the allegations in the Complaint. They prayed -- by way of compulsory counterclaims against Respondent CCC, its majority stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as  moral  damages,  and  (d)  P5,000,000  each  as  attorney’s  fees  plus costs of suit. Petitioners  alleged  that  CCC,  through  Lim  and  Mariano,  had  filed  the  “baseless”  Complaint  in  Civil  Case  No.  Q-00-41103 and  procured  the  Writ  of  Attachment  in  bad  faith.  Relying  on  this  Court’s  pronouncement  in  Sapugay  v.  CA,  petitioners   prayed  that  both  Lim  and  Mariano  be  held  “jointly  and  solidarily”  liable  with  Respondent  CCC. On  behalf  of  Lim  and  Mariano  who  had  yet  to  file  any  responsive  pleading,  CCC  moved  to  dismiss  petitioners’  compulsory   counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition. Issues: W/N respondents obligation is joint or solidary? W/N  petitioners’  counterclaims  against  Respondents  Lim  and  Mariano  are  not  compulsory? W/N Sapugay v. Court of Appeals is inapplicable here? W/N petitioners violated the rule on joinder of causes of action? W/N  Respondent  CCC  has  no  personality  to  move  to  dismiss  petitioners’  compulsory  counterclaims  on  Respondents  Lim   and  Mariano’s  behalf? Held: Solidary. Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of the others. No, it is compulsory. Using   the   “compelling   test   of   compulsoriness,”   we   find   that,   clearly,   the   recovery   of   petitioners’   counterclaims is contingent upon the case filed by respondents; thus, conducting separate trials thereon will result in a substantial duplication of the time and effort of the court and the parties. No it is applicable. Sapugay v. Court of Appeals finds application in the present case. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate fiction, so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions. o The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even if both were not parties in the original Complaint. Yes. While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to them.

Amber Gagajena Oblicon Digests – Block 1F

Case 38. Boston Equity Resources, Inc. Vs. CA and Lolita Toledo Case about Right of Creditor to Choose Who among the Debtors subject to solidary obligation he would demand fulfillment. o The Creditor may not choose the debtors already deceased. Personal defense of solidary debtors cannot be adopted by others Oblicon Concept: Article 1216 - "The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected." Facts: On 24 December 1997, petitioner filed a complaint for sum of money (P1.4M solidary obligation of spouses) with a prayer for the issuance of a writ of preliminary attachment against the spouses Manuel and Lolita Toledo. Herein respondent filed an Answer dated 19 March 1998 but on 7 May 1998, she filed a Motion for Leave to Admit Amended Answer in which she alleged, among others, that her husband and co-defendant, Manuel Toledo (Manuel), is already dead. The death certificate of Manuel states "13 July 1995" as the date of death. As a result, petitioner filed a motion, dated 5 August 1999, to require respondent to disclose the heirs of Manuel. In compliance with the verbal order of the court during the 11 October 1999 hearing of the case, respondent submitted the required names and addresses of the heirs. Petitioner then filed a Motion for Substitution, dated 18 January 2000, praying that Manuel be substituted by his children as partydefendants. It appears that this motion was granted by the trial court in an Order dated 9 October 2000. The trial of the case then proceeded. Herein petitioner, as plaintiff, presented its evidence and its exhibits were thereafter admitted. On 26 May 2004, the reception of evidence for herein respondent was cancelled upon agreement of the parties. On 24 September 2004, counsel for herein respondent was given a period of fifteen days within which to file a demurrer to evidence. However, on 7 October 2004, respondent instead filed a motion to dismiss the complaint, citing the following as grounds: o (1) that the complaint failed to implead an indispensable party or a real party in interest; hence, the case must be dismissed for failure to state a cause of action; o (2) that the trial court did not acquire jurisdiction over the person of Manuel pursuant to Section 5, Rule 86 of the Revised Rules of Court; o (3) that the trial court erred in ordering the substitution of the deceased Manuel by his heirs; and o (4) that the court must also dismiss the case against Lolita Toledo in accordance with Section 6, Rule 86 of the Rules of Court. The trial court, in an Order dated 8 November 2004, denied the motion to dismiss for having been filed out of time, citing Section 1, Rule 16 of the 1997 Rules of Court which states that: "Within the time for but before filing the answer to the complaint  or  pleading  asserting  a  claim,  a  motion  to  dismiss  may  be  made  x  x  x."  Respondent’s  motion  for  reconsideration   of  the  order  of  denial  was  likewise  denied  on  the  ground  that  "defendants’  attack  on  the  jurisdiction  of  this  Court   is now barred by estoppel by laches" since respondent failed to raise the issue despite several chances to do so. Aggrieved, respondent filed a petition for certiorari with the Court of Appeals alleging that the trial court seriously erred and gravely abused its discretion in denying her motion to dismiss despite discovery, during the trial of the case, of evidence that would constitute a ground for dismissal of the case. CA ruled in favor of respondent setting aside decision of the RTC. Issues: W/N Respondent  is  already  estopped  from  questioning  the  trial  court’s  jurisdiction? W/N Petitioner never failed to implead an indispensable party as the estate of Manuel is not an indispensable party? W/N the inclusion of Manuel as party-defendant is a mere misjoinder of party not warranting the dismissal of the case before the lower court; and W/N since the estate of Manuel is not an indispensable party, it is not necessary that petitioner file its claim against the estate of Manuel. o In essence, what is at issue here   is   the   correctness   of   the   trial   court’s   orders   denying   respondent’s  motion   to   dismiss. W/N the other solidary debtors can use the personal defense of death? Held: Yes. This case is about jurisdiction over parties and jurisdiction over subject matter which may be questionned anytime. Jurisdiction over the person of a defendant is acquired through a valid service of summons; trial court did not acquire jurisdiction over the person of Manuel Toledo. Dispensable party since the creditor may choose other solidary debtors to fulfill the whole obligation. It is clear that the estate of Manuel is not an indispensable party to the collection case, for the simple reason that the obligation of Manuel and his wife, respondent herein, is solidary. Based on the last sentence of the afore-quoted provision of law, a misjoined party must have the capacity to sue or be sued in the event that the claim by or against the misjoined party is pursued in a separate case. In this case, therefore, the inclusion of Manuel in the complaint cannot be considered a misjoinder, as in fact, the action would have proceeded against him had he been alive at the time the collection case was filed by petitioner. This being the case, the remedy provided by Section 11 of Rule 3 does not obtain here. The name of Manuel as party-defendant cannot simply be dropped from the case. Instead, the procedure taken by the Court in Sarsaba v. Vda. de Te, whose facts, as mentioned earlier, resemble those of this case, should be followed herein. There, the Supreme Court agreed with the trial court when it resolved the issue of jurisdiction over the person of the deceased Sereno in this wise. As a result, the case, as against Manuel, must be dismissed. Amber Gagajena Oblicon Digests – Block 1F

Yes. Manuel died even before the case was filed, thus, he or   his   estate   doesn’t   have   personality   for   these   purposes.   Substitution can only happen if a party died during the case. Since the proper course of action against the wrongful inclusion of Manuel as party-defendant is the dismissal of the case as against him, thus did the trial court err when it ordered the substitution of Manuel by his heirs. Substitution is proper only where the party to be substituted died during the pendency of the case No. ARTICLES 1226-1230: Obligations with a Penal Clause Case 39. Filinvest Land, Inc. vs. CA, Pacific Equipment Corp and Phil American General Insurance Company Case  about  Court’s  Discretion  to  Lower  Penalties  which  are  excessive,  iniquitous  and  unconscionable  in  obligations  which   are partially fulfilled. Penal clause purposes: 1) Actual and Liquidated damages and 2) Penalty Oblicon Concept: 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. Facts: On 26 April 1978, Filinvest Land, Inc. a corporation engaged in the development and sale of residential subdivisions, awarded to defendant Pacific Equipment Corporation the development of its residential subdivisions consisting of two (2) parcels  of  land  located  at  Payatas,  Quezon  City,  the  terms  and  conditions  of  which  are  contained  in  an  “Agreement”.  To   guarantee its faithful compliance and pursuant to the agreement, defendant Pacific posted two (2) Surety Bonds in favor of plaintiff which were issued by defendant Philippine American General Insurance. Notwithstanding three extensions granted by plaintiff to defendant Pacific, the latter failed to finish the contracted works. On 16 October 1979, plaintiff wrote defendant Pacific advising the latter of its intention to takeover the project and to hold said defendant liable for all damages which it had incurred and will incur to finish the project. On 26 October 1979, plaintiff submitted its claim against defendant Philamgen under its performance and guarantee bond but Philamgen refused to acknowledge its liability for the simple reason that its principal, defendant Pacific, refused to acknowledge liability therefore. Hence, this action. In defense, defendant Pacific claims that its failure to finish the contracted work was due to inclement weather and the fact that several items of finished work and change order which plaintiff refused to accept and pay for caused the disruption of work. Since the contractual relation between plaintiff and defendant Pacific created a reciprocal obligation, the failure of the plaintiff to pay its progressing bills estops it from demanding fulfillment of what is incumbent upon defendant Pacific. The  acquiescence  by  plaintiff  in  granting  three  extensions  to  defendant  Pacific  is  likewise  a  waiver  of  the  former’s  right  to claim any damages for the delay. Further, the unilateral and voluntary action of plaintiff in preventing defendant Pacific from completing the work has relieved the latter from the obligation of completing the same. On the other hand, Philamgen contends that the various amendments made on the principal contract and the deviations in the implementation thereof which were resorted to by plaintiff and co-defendant  Pacific  without  its  (defendant  Philamgen’s)   written consent thereto, have automatically released the latter from any or all liability within the purview and contemplation of the coverage of the surety bonds it has issued. Upon agreement of the parties to appoint a commissioner to assist the court in resolving the issues confronting the parties, on 7 July 1981, an order was issued by then Presiding Judge Segundo M. Zosa naming Architect Antonio Dimalanta as Court Commissioner from among the nominees submitted by the parties to conduct an ocular inspection and to determine the amount of work accomplished by the defendant Pacific and the amount of work done by plaintiff to complete the project. On 28 November 1984, the Court received the findings made by the Court Commissioner. In arriving at his findings, the Commissioner used the construction documents pertaining to the project as basis. According to him, no better basis in the work done or undone could be made other than the contract billings and payments made by both parties as there was no proper procedure followed in terminating the contract, lack of inventory of work accomplished, absence of appropriate record of work progress (logbook) and inadequate documentation and system of construction management. Based on the billings of defendant Pacific and the payments made by plaintiff, the work accomplished by the former amounted to P11,788,282 with the exception of the last billing (which was not acted upon or processed by plaintiff) in the amount of P844,396. The total amount of work left to be accomplished by plaintiff was based on the original contract amount less value of work accomplished by defendant Pacific in the amount of P681,717 (12,470,000-11,788,282.42). RTC and CA decided in favor of respondent. Issue: W/N the Court can decrease the penalties (which are iniquitous and unconscionable) agreed upon by the parties? Held: Yes. The ruling of the Court of Appeals. It must be remembered that the Court of Appeals not only held that the penalty should be reduced because there was partial compliance but categorically stated as well that the penalty was unconscionable. There has been substantial compliance in good faith on the part of Pecorp which renders unconscionable the application of the full force of the penalty especially if we consider that in 1979 the amount of P15,000 as penalty for delay  per  day  was  quite  steep  indeed.  Nothing  in  the  records  suggests  that  Pecorp’s  delay  in  the  performance  of  5.47%  of   the contract was due to it having acted negligently or in bad faith. Finally, we factor in the fact that Filinvest is not free of blame either as it likewise failed to do that which was incumbent upon it, i.e., it failed to pay Pecorp for work actually Amber Gagajena Oblicon Digests – Block 1F

performed by the latter in the total amount of P1,881,867. Thus, all things considered, we find no reversible error in the Court  of  Appeals’  exercise  of  discretion  in  the  instant  case. Case 40. Go Cinco Spouses vs. CA, Ester Servacio and Maasin Traders Lending Corporation Case about Payment as Mode of Extinguishment of Obligation Case of Creditor Unjustly Refusing Acceptance of Payment Abusing his Right to Accept (Art 19 and 20 of CC) Court decided this case using Equity Oblicon Concept: Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Article 1233. 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. Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Facts: In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of P700,000 from respondent Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December 11, 1987, and secured by a real estate  mortgage  executed  on  December  15,  1987  over  the  spouses  Go  Cinco’s  land  and   4-storey building located in Maasin, Southern Leyte. Under the terms of the promissory note, the P700,000 loan was subject to a monthly interest rate of 3% or 36% per annum and  was  payable  within  a  term  of  180  days  or  6  months,  renewable  for  another  180  days.    As  of  July  16,  1989,  Manuel’s   outstanding obligation with MTLC amounted to P1,071,256, which amount included the principal, interest, and penalties. To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank, Maasin Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC. The PNB approved the loan application for P1.3 Million through a letter dated July 8, 1989; the release of the amount, however, was conditioned on the cancellation of the mortgage in favor of MTLC. On  July  16,  1989,  Manuel  went  to  the  house  of  respondent  Ester  Servacio  (Ester),  MTLC’s  President, to inform her that there was money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the information,  but  she  claimed  that  the  bank’s  officers  informed  her  that  Manuel  had  no  pending  loan  application  with  them. When   she   told   Manuel   of   the   bank’s   response,   Manuel   assured   her   there   was   money   with   the   PNB   and   promised   to   execute a document that would allow her to collect the proceeds of the PNB loan. On July 20, 1989, Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect the proceeds of his PNB  loan.    Ester  again  went  to  the  bank  to  inquire  about  the  proceeds  of  the  loan.    This  time,  the  bank’s  officers  confirmed   the existence of the P1.3 Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage before they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC as collateral for the PNB loan, Ester refused to sign the deed and did not collect the P1.3 Million loan proceeds. As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24, 1989. To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages, and preliminary injunction before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go Cinco alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuel’s   obligation in favor of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment of  the  MTLC  loan.    Ester’s  refusal  to  sign  the  deed  of  release/cancellation  of  mortgage  and  to  collect  the  proceeds  of  the   PNB loan were, to the spouses Go Cinco, completely unjustified and entitled them to the payment of damages. Ester  countered  these  allegations  by  claiming  that  she  had  not  been  previously  informed  of  the  spouses  Go  Cinco’s  plan   to obtain a loan from the PNB and to use  the  loan  proceeds  to  settle  Manuel’s  loan  with  MTLC.    She  claimed  that  she  had   no  explicit  agreement  with  Manuel  authorizing  her  to  apply  the  proceeds  of  the  PNB  loan  to  Manuel’s  loan  with  MTLC;;  the   SPA merely authorized her to collect the proceeds of the loan. She thus averred that it was unfair for the spouses Go Cinco to require the release of the mortgage to MTLC when no actual payment of the loan had been made. Issue: W/N  the  petitioners’  acts  are  equivalent  to  payment  that  extinguished  the  MTLC loan? OR W/N the loan due the MTLC had been extinguished? W/N the creditors have the correlative duty to accept the payment? Held: Yes. Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB loan – an act that would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the delivery of the SPA was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be compelled to accept it as payment based on Article 1233. Nonetheless, the SPA stood as an authority to collect the proceeds of the alreadyapproved PNB loan that, upon receipt by Ester, would have constituted as payment of the MTLC loan. Had Ester presented the SPA to the bank and signed the deed of release/cancellation of mortgage, the delivery of the sum of money would have been effected and the obligation extinguished. As the records show, Ester refused to collect and allow the cancellation of the mortgage.

Amber Gagajena Oblicon Digests – Block 1F

There is nothing legally objectionable in   a   mortgagor’s   act   of   taking   a   second   or   subsequent   mortgage   on   a   property already mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice, subject to the prior rights of previous mortgages. Yes. A refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation. The spouses Go Cinco have undertaken, at the very least, the equivalent of a tender of payment that cannot but have legal effect. Since payment was available and was unjustifiably refused, justice and equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from the time the unjust refusal took place. o

Case 41: International Hotel Corporation vs. Joaquin and Suarez Case about Substantial Fulfillment of Obligations – work left should be technical, insignificant and unimportant. Quantum Meruit Oblicon Concept: Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Facts: On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors of the International Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan for the construction of a hotel, to be guaranteed by the Development Bank of the Philippines (DBP). The proposal encompassed nine phases. The IHC Board of Directors approved phase one to phase six of the proposal during the special board meeting on February 11, 1969, and earmarked P2,000,000 for the project. Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP processed the application, and approved it on October 24, 1969 subject to several conditions. On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request the payment of his fees in the amount of P500,000 for the services that he had provided and would be providing to IHC in relation to the hotel project that were outside the scope of the technical proposal. Joaquin intimated his amenability to receive shares of stock instead  of  cash  in  view  of  IHC’s  financial  situation. On  July  11,  1969,  the  stockholders  of  IHC  met  and  granted  Joaquin’s  request,  allowing  the  payment for both Joaquin and Rafael Suarez for their services in implementing the proposal. On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his negotiations with potential foreign financiers. He narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation. He recommended that the Board of Directors consider Materials Handling Corporation based on the more beneficial terms it had offered. His recommendation was accepted. Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International (Barnes), ensued. While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC, met with another financier, the Weston International Corporation (Weston), to explore possible financing. When Barnes failed to deliver   the   needed   loan,   IHC   informed   DBP   that   it   would   submit   Weston   for   DBP’s   consideration.   As   a   result,   DBP   cancelled its previous guaranty through a letter dated December 6, 1971. On December 13, 1971, IHC entered into an agreement with Weston, and communicated this development to DBP on June 26, 1972. However, DBP denied the application for guaranty for failure to comply with the conditions contained in its November 12, 1971 letter. Due to   Joaquin’s   failure  to   secure  the   needed   loan,   IHC,  through   its   President   Bautista,   canceled   the   17,000  shares   of   stock previously issued to Joaquin and Suarez as payment for their services. The latter requested a reconsideration of the cancellation, but their request was rejected. Consequently, Joaquin and Suarez commenced this action for specific performance, annulment, damages and injunction by a complaint dated December 6, 1973 in the Regional Trial Court in Manila (RTC), impleading IHC and the members of its Board of Directors, namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin J. Bautista, Basilio L. Lirag, Danilo R. Lacerna and Hermenegildo R. Reyes. The complaint alleged that the cancellation of the shares had been illegal, and had deprived them of their right to participate in the meetings and elections held by IHC; that Barnes had been recommended by IHC President Bautista, not by Joaquin; that they had failed to meet their obligation because President Bautista and his son had intervened and negotiated with Barnes instead of Weston; that DBP had canceled the guaranty because Barnes had failed to release the loan; and that IHC had agreed to compensate their services with 17,000 shares of the common stock plus cash of P1,000,000. IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and Benjamin J. Bautista, filed an answer claiming that the shares issued to Joaquin and Suarez as compensation for their "past and future services" had been issued in violation of Section 16 of the Corporation Code; that Joaquin and Suarez had not provided a foreign financier acceptable to DBP; and that they had already received P96,350 as payment for their services. RTC and CA ruled in favor of respondents. CA also ruled in favor of respondents but with significant modifications. Issues: W/N IHC raises questions of law? W/N Article 1186 (debtor stopping the happening of the suspensive condition) and Article 1234 (substantial fulfillment of debtor entitles him for compensation)  of  the  Civil  Code  are  the  sources  of  IHC’s  obligation  to  pay  respondents? W/N IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation? Quantum meruit should apply in the absence of an express agreement on the fees? Held: Amber Gagajena Oblicon Digests – Block 1F

Yes.  Considering  that  what  IHC  seeks  to  review  is  the  CA’s  application  of  the  law  on  the  facts  presented  therein,  there  is   no doubt that IHC raises questions of law. The basic issue posed here is whether the conclusions drawn by the CA were correct under the pertinent laws. No. IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking.  Such  absence  of  any  intention  negated  the  basis  for  the  CA’s  reliance  on  Article  1186  of  the  Civil  Code. o No. Needless to say, finding the foreign financier that DBP would guarantee was the essence   of   the   parties’   contract, so that the failure to completely satisfy such obligation could not be characterized as slight and unimportant  as  to  have  resulted  in  Joaquin  and  Suarez’s  substantial  performance  that  consequentially  benefitted   IHC. Whatever benefits IHC gained from their services could only be minimal, and were even probably outweighed by whatever losses IHC suffered from the delayed construction of its hotel. Consequently, Article 1234 did not apply. Yes. Considering that the respondents were able to secure an agreement with Weston, and subsequently tried to reverse the prior cancellation of the guaranty by DBP, we rule that they thereby constructively fulfilled their obligation. o The existing rule in a mixed conditional obligation is that when the condition was not fulfilled but the obligor did all in his power to comply with the obligation, the condition should be deemed satisfied. Yes. Under the established circumstances, we deem the total amount of P200,000 to be reasonable compensation for respondents’  services  under  the  principle  of  quantum  meruit. Case 42: Manila International Airport Authority vs. Ding Velayo Sports Center, Inc. Case about Obligee accepting performance knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. Case about dependence of lease renewal depending solely on the will of the LESSEE. MIAA is lessor. DVSC is the lessee. DVSC is tasked to develop the land. Oblicon Concept: Article 1235 of the   Civil   Code   states   that   “when the obligee accepts the performance, knowing its incompleteness or irregularity,  and  without  expressing  any  protest  or  objection,  the  obligation  is  deemed  fully  complied  with.” Article 2 of the Civil Code which provides   that   “laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. Facts: On February 15, 1967, petitioner (then still called the Civil Aeronautics Administration or CAA) and Salem Investment Corporation (Salem) entered into a Contract of Lease whereby petitioner leased in favor of Salem a parcel of land known as Lot 2-A, with an area of 76,328 square meters, located in front of the Manila International Airport (MIA) in Pasay City. Petitioner and Salem entered into said Contract of Lease. Contains provisions of 25 year term which is subject to EXCLUSIVE RIGHT OF RENEWAL BY LESSEE. Subsequently, in a Transfer of Lease Rights and Existing Improvements dated September 30, 1974, Salem conveyed in favor of Ding Velayo Export Corporation (Velayo Export), for the consideration of P1,050,000, its leasehold rights over a portion of Lot 2-A, measuring about 15,534 square meters, with the improvements thereon, consisting of an unfinished cinema-theater. Accordingly, petitioner and Velayo Export executed a Contract of Lease dated November 26, 1974 pertaining to the aforementioned leased portion of Lot 2-A. In turn, Velayo Export executed a Transfer of Lease Rights dated April 27, 1976 by which it conveyed to respondent, for the consideration of P500,000, its leasehold rights over an 8,481-square meter area (subject property) out of the 15,534square meter portion it was leasing from petitioner. As a result, petitioner and respondent executed another Contract of Lease dated May 14, 1976 covering the subject property. The Contract of Lease dated May 14, 1976 between petitioner (as lessor) and respondent (as lessee) specified how respondent shall develop and use the subject property. Issues: W/N MIAA has the right to refuse the renewal of the lease even if the respondent has the exclusive right to renew under the Contract of Lease? W/N the violations of the lessee of the provisions of the contract gave MIAA the right to refuse? o subleasing of the premises o failure to ease the problems of parking congestion at the Domestic Airport and to provide a shopping center and sports facilities, such as an oval track and a swimming pool o failure to pay monthly lease rentals in the form of royalties equivalent to 1% of the gross income of respondent or in accordance with the rates fixed in the administrative orders of petitioner Held: No. The right to renew is part of the consideration for the lessee to enter into the contract. The contract between the parties has the force of law. No. DVSC did not sublease the land of MIAA. What it subleased is the improvements (i.e., building) that it owned. Thus, no violation. No. As aptly observed by the RTC, paragraphs 9 and 10 of the Contract of Lease likewise expressly require respondent to submit, for prior approval by petitioner, all construction plans on the subject property; and to complete the contemplated improvements thereon within a year. The Contract of Lease was executed on May 14, 1976, and the one-year period expired on May 14, 1977. Yet, petitioner did not register any protest or objection to the alleged incompleteness of or irregularity in the performance by respondent of its obligation to build and develop improvements on the subject property. Amber Gagajena Oblicon Digests – Block 1F

In fact, upon the expiration of the original 25-year lease period in February 1992, petitioner was already ready and willing to accept and appropriate as its own the improvements built on the subject property in 1992. Petitioner only raised the issue of the purported incompleteness/irregularity of the said improvements when it was brought to court by respondent for refusing to renew the lease. Petitioner later demanded an increase in lease rentals based on subsequent administrative issuances raising the rates for the rental of its properties. But the RTC found that the adverted administrative orders were not published in full, thus, the same were legally invalid within the context of Article 2 of the Civil Code. Case 43: Spouses Carandang vs. Heirs of Quirino De Guzman Case  about  Payment  of  Third  Persons  to  Debtor’s  Obligation  – Third Persons has the right to be reimbursed by the debtor in the amount that benefitted him. Pre-incorporation agreement making the loan gratuitous? Oblicon Concept: Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guarantee, or penalty. Facts: [Quirino de Guzman] and [the Spouses Carandang] are stockholders as well as corporate officers of Mabuhay Broadcasting System (MBS for brevity), with equities at fifty four percent (54%) and forty six percent (46%) respectively. On November 26, 1983, the capital stock of MBS was increased, from P500,000 to P1.5 million and P345,000 of this increase was subscribed by [the spouses Carandang]. Thereafter, on March 3, 1989, MBS again increased its capital stock, from P1.5 million to P3 million, [the spouses Carandang] yet again subscribed to the increase. They subscribed to P93,750 worth of newly issued capital stock. [De Guzman] claims that, part of the payment for these subscriptions were paid by him, P293,250 for the November 26, 1983 capital stock increase and P43,125 for the March 3, 1989 Capital Stock increase or a total of P336,375. Thus, on March 31, 1992, [de Guzman] sent a demand letter to [the spouses Carandang] for the payment of said total amount. [The spouses Carandang] refused to pay the amount, contending that a pre-incorporation agreement was executed between [Arcadio Carandang] and [de Guzman], whereby the latter promised to pay for the stock subscriptions of the former  without  cost,  in  consideration  for  [Arcadio  Carandang’s]  technical  expertise,  his  newly  purchased  equipment,  and   his skill in repairing and upgrading radio/communication equipment therefore, there is no indebtedness on their part [sic]. On June 5, 1992, [de Guzman] filed his complaint, seeking to recover the P336,375 together with damages. Issues: W/N the RTC Decision is void for failing to comply with Section 16, Rule 3 of the Rules of Court? W/N the RTC should have dismissed the case for failure to state a cause of action, considering that Milagros de Guzman, allegedly an indispensable party, was not included as a party-plaintiff? W/N Whether or not respondents were able to prove the loan sought to be collected from petitioners? Held: No. The RTC Decision is valid despite the failure to comply with Section 16, Rule 3 of the Rules of Court, because of the express waiver of the heirs to the jurisdiction over their persons, and because there had been, before the promulgation of the  RTC  Decision,  no  further  proceedings  requiring  the  appearance  of  de  Guzman’s  counsel. No. Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the spouses Carandang, seems to be either an indispensable or a necessary party. If she is an indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section 9, Rule 3. o We therefore hold that Milagros de Guzman is not an indispensable party in the action for the recovery of the allegedly loaned money to the spouses Carandang. As such, she need not have been impleaded in said suit, and dismissal of the suit is not warranted by her not being a party thereto. Yes.  The  spouses  Carandang  are  mistaken.  If  indeed  a  Mr.  "A"  decides  to  pay  for  a  Mr.  "B’s"  obligation,  the  presumption   is that Mr. "B" is indebted to Mr. "A" for such amount that has been paid. This is pursuant to Articles 1236 and 1237 of the Civil Code. There is proof of existence of the loan but there is no proof of the pre-incorporation agreement. o Worse, the testimonies of petitioners Arcadio Carandang and Ma. Luisa Carandang even contradicted the existence of a pre-incorporation agreement because when they were asked by their counsel regarding the matter of the check payments made by the late Quirino A. de Guzman, Sr. in their behalf, they said that they had already paid for it thereby negating their own defense that there was a pre-incorporation agreement excusing themselves from paying Mr. de Guzman the amounts he advanced or loaned to them.

Amber Gagajena Oblicon Digests – Block 1F

Case 44: Republic of Phil and Chief of PNP vs. De Guzman Case about Payment to Proper Party Collusion of Government Bidders Oblicon Concept: Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. Facts: Respondent is the proprietress of Montaguz General Merchandise (MGM), a contractor accredited by the PNP for the supply of office and construction materials and equipment, and for the delivery of various services such as printing and rental, repair of various equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts. On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher for the acquisition of various building materials amounting to P2,288,562 for the construction of a four-storey condominium building with roof deck at Camp Crame, Quezon City. Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief, executed a Contract of Agreement (the Contract) wherein MGM, for the price of P2,288,562, undertook to procure and deliver to the PNP the construction materials itemized in the purchase order attached to the Contract. Respondent claimed that after the PNP Chief approved the Contract and purchase order, MGM, on March 1, 1996, proceeded with the delivery of the construction materials, as evidenced by Delivery Receipt Nos. 151-153, Sales Invoice Nos. 038 and 041, and   the   “Report   of   Public   Property   Purchase”   issued   by   the   PNP’s   Receiving   and   Accounting   Officers to their Internal Auditor  Chief.    Respondent  asseverated  that  following  the  PNP’s  inspection  of  the  delivered  materials  on  March  4,  1996,   the PNP issued two Disbursement Vouchers; one in the amount of P2,226,147 in favor of MGM, and the other, in the amount of P62,415, representing the three percent (3%) withholding tax, in favor of the Bureau of Internal Revenue (BIR). 5, 1997, the respondent, through counsel, sent a letter dated October 20, 1997 to the PNP, demanding the payment of P2,288,562 for the construction materials MGM procured for the PNP under their December 1995 Contract. On November 17, 1997, the PNP, through its Officer-in-Charge, replied to   respondent’s   counsel,   informing   her   of   the   payment made to MGM via Land Bank of the Philippines (LBP) Check No. 0000530631, as evidenced by Receipt No. 001, issued by the respondent to the PNP on April 23, 1996. On November 26, 1997, respondent, through counsel, responded by reiterating her demand and denying having ever received the LBP check, personally or through an authorized person. She also claimed that Receipt No. 001, a copy of which   was   attached   to   the   PNP’s   November   17,   1997   letter,   could   not   support   the   PNP’s   claim   of   payment   as   the   aforesaid receipt belonged to Montaguz Builders, her other company, which was also doing business with the PNP, and not to MGM, with which the contract was made. On May 5, 1999, respondent filed a Complaint for Sum of Money against the petitioner, represented by the Chief of the PNP, before the RTC. There was a judicial admission of petitioner that there was contract of supply of materials from respondent. There was also delivery. What is left for the Court to decide is if the respondent received it. Issues: W/N  petitioner’s  payment  to  third  party  (CRUZ)  constitutes extinguishment of obligation? Held: No. The respondent was able to establish that the LBP check was not received by her or by her authorized personnel. The   PNP’s   own   records   show   that   it   was   claimed   and   signed   for   by   Cruz,   who   is   openly   known as being connected to Highland Enterprises, another contractor. Hence, absent any showing that the respondent agreed to the payment of the contract price to another person, or that she authorized Cruz to claim the check on her behalf, the payment, to be effective must be made to her. Case 45: New Pacific Timber & Supply Company, Inc. vs Judge Seneris, Ricardo Tong and Ex-Officio Sheriff Abdulwahid Case about CERTIFIED CROSSED CHECK as tender of payment – Petition GRANTED! Non-acceptance of the creditor  of  payment  by  CERTIFIED  CASHIER’S  CHECK  (P50k)  and  cash  (P13,130) Levy of properties and Auction Sale Oblicon Concept: Sec. 63. Legal Character. - Checks representing deposit money do not have legal tender power and their acceptance in payment of debts, both public and private, is at the option of the creditor, Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account. Art. 1249. - The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. 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. Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the presentations in which the obligation consists. Neither may the debtor be required to make partial payment. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. Amber Gagajena Oblicon Digests – Block 1F

Facts: Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private respondent. On July 19, 1974, a compromise judgment was rendered by the respondent Judge in accordance with an amicable settlement entered into by the parties the terms and conditions. For failure of the petitioner to comply with his judgment obligation, the respondent Judge, upon motion of the private respondent, issued an order for the issuance of a writ of execution on December 21, 1974. Accordingly, writ of execution was issued for the amount of P63,130 pursuant to which, the Ex-Officio Sheriff levied upon the following personal properties of the petitioner and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975, petitioner deposited with the Clerk of Court, Court of First Instance, Zamboanga City, in his capacity as Ex-Officio Sheriff of Zamboanga City, the sum of P63,130 for the payment of the judgment obligation, consisting of the following: o P50.000 in Cashier's Check No. S-314361 dated January 3, 1975 of the Equitable Banking Corporation; and o P13,130 in cash In a letter dated January 14, 1975, to the Ex-Officio Sheriff private respondent through counsel, refused to accept the check as well as the cash deposit. In the same letter, private respondent requested the scheduled auction sale on January 15, 1975 to proceed if the petitioner cannot produce the cash. The auction was postponed to the next morning. In the course of the proceedings, Deputy Sheriff Castro sold the levied properties item by item to the private respondent as the highest bidder in the amount of P50,000. As a result thereof, the Ex-Officio Sheriff declared a deficiency of P13,130. 7Thereafter, on January 16, 1975, the Ex-Officio Sheriff issued a "Sheriff's Certificate of Sale" in favor of the private respondent. Subsequently, on January 17, 1975, petitioner filed an ex-parte motion for issuance of certificate of satisfaction of judgment. This motion was denied by the respondent Judge in his order dated August 28, 1975. In view thereof, petitioner now questions said order by way of the present petition alleging in the main that said respondent Judge capriciously and whimsically abused his discretion in not granting the motion for issuance of certificate of satisfaction of judgment. Issues: W/N the private respondent can validly refuse acceptance of the payment of the judgment obligation made by the petitioner consisting of P50,000 in Cashier's Check and P13,130 in cash? W/N the auction sale was invalid for lack of proper notice to the petitioner and its counsel? Held: No. Considering that the whole amount deposited by the petitioner consisting of Cashier's Check of P50,000 and P13,130 in cash covers the judgment obligation of P63,000 as mentioned in the writ of execution, then, We see no valid reason for the private respondent to have refused acceptance of the payment of the obligation in his favor. It is to be emphasized in this connection that the check deposited by the petitioner in the amount of P50,000 is not an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a bank of good standing and reputation. As testified to by the ExOfficio Sheriff with whom it has been deposited, it is a certified crossed check. It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as cash. Moreover, since the said check had been certified by the drawee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. o That a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account. Yes. Case 46: Spouses Tibajia vs CA and Eden Tan Case about CERTIFIED CROSSED CHECK as tender of payment – Petition DENIED! Non-acceptance of the creditor of payment by  CERTIFIED  CASHIER’S  CHECK  (P262k)  and  cash  (P135k) Garnishment of levied amount from the other case Oblicon Concept: Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. 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. Sec. 1 of RA 529. Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts. Facts: Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the Regional Trial Court of Kalookan City in the amount of P442,750 in another case, had been garnished by him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay Amber Gagajena Oblicon Digests – Block 1F

her an amount in excess of Three Hundred Thousand Pesos (P300,000). On appeal, the Court of Appeals modified the decision by reducing the award of moral and exemplary damages. The decision having become final, Eden Tan filed the corresponding motion for execution and thereafter, the garnished funds which by then were on deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila, were levied upon. On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in the following form: o Cashier's Check P262,750 o Cash 135,733 o Total P398,483 Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial court on the ground that payment in cashier's check is not payment in legal tender and that payment was made by a third party other than the defendant. Issues: W/N payment by means of check (even by cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act No. 529, and the Central Bank Act? Held: No. 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. o We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objection of the creditor. Case 47: Citibank,  NA,  Investors’  Finance  Corporation  vs.  Modesta  Sabeniano Case about adjusting value of payment in times of inflation – DENIED! Case about compensation of USD deposit of respondent in other foreign branch to her liabilities to the local branch Contract of Adhesion Oblicon Concept: Article 1250. In 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 payment, unless there is an agreement to the contrary. Facts: Respondent was a client of petitioners. She had several deposits and market placements with petitioners, among which were her savings account with the local branch of petitioner Citibank (Citibank-Manila); money market placements with petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva). At the same time, respondent had outstanding loans with petitioner Citibank, incurred at Citibank-Manila, the principal amounts aggregating to P1,920,000, all of which had become due and demandable by May 1979. Despite repeated demands by petitioner  Citibank,  respondent  failed  to  pay  her  outstanding  loans.  Thus,  petitioner  Citibank  used  respondent’s  deposits   and money market placements to off-set and liquidate her outstanding obligations, as follows: o Respondent’s  outstanding  obligation  (principal  and interest as of 26 October 1979) – P2,156,940 o FNCB Finance (principal and interest as of 5 September 1979) - (1,022,916) o Deposits  in  respondent’s  bank  accounts  with  petitioner Citibank - (31,079) o Proceeds  of  respondent’s  money  market  placements  and  dollar accounts with Citibank-Geneva (peso equivalent as of 26 October 1979) - (1,102,944) o Balance  of  respondent’s  obligation  – P 0 Respondent, however, denied having any outstanding loans with petitioner Citibank. She likewise denied that she was duly informed of the off-setting or compensation thereof made by petitioner Citibank using her deposits and money market placements with petitioners. Hence, respondent sought to recover her deposits and money market placements. Respondent instituted a complaint for "Accounting, Sum of Money and Damages" against petitioners, docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati City. Issues: W/N  the  compensation  of  the  petitioner  of  the  respondent’s  USD  account  in  another  foreign  branch  is  legal? W/N the USD to be reimbursed should be adjusted for inflation? W/N  the  respondent’s  Declaration  of  Pledge  is  valid  and  binding? W/N the promissory notes executed by the respondent assigning its other deposits to the petitioner and allowing compensation without notice is enforceable? Held: No.   Without   the   Declaration   of   Pledge,   petitioner   Citibank   had   no   authority   to   demand   the   remittance   of   respondent’s   dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the Amber Gagajena Oblicon Digests – Block 1F

outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions were evidently not the principal creditor of each other. No. While there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine peso which is a characteristic of most currencies. Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without an official declaration thereof by competent authorities. No.  Court  cannot  make  a  categorical  finding  that  respondent’s  signature  on  the  original  copy  of  the  pledge  was  forged,  it  is   persuaded that petitioner Citibank willfully suppressed the presentation of the original document, and takes into consideration the presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced. o First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. o Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank before the RTC was undated. o Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. No. PNs can be considered a contract of adhesion, the PNs being in standard printed form prepared by petitioner Citibank. Generally, stipulations in a contract come about after deliberate drafting by the parties thereto, there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the affixing of his signature or his "adhesion" thereto. This being the case, the terms of such contract are to be construed strictly against the party which prepared it. Case 48: Equitable PCI Bank, Aimee Yu and Bejan Apas vs. Ng Sheung Ngor – Ken Marketing, Ken Appliance Division, Inc. and Benjamin Go Case about Extra-Ordinary Deflation Case about Escalation Clause of Interest Rate in Promissory Notes Oblicon Concept: A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. The participation of the other party is limited to affixing his signature or his "adhesion" to the contract. For this reason, contracts of adhesion are strictly construed against the party who drafted it. For this reason, we have consistently held that a valid escalation clause provides: o that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by the Monetary Board; and o that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or by the Monetary Board (de-escalation clause). Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven: o that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP); o that the obligation was contractual in nature; and o that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation. Facts: On October 7, 2001, respondents Ng Sheung Ngor, Ken Appliance Division, Inc. and Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of Cebu City. They claimed that Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates so they accepted Equitable's proposal and signed the bank's pre-printed promissory notes on various dates beginning 1996. They, however, were unaware that the documents contained identical escalation clauses granting Equitable authority to increase interest rates without their consent. Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in the promissory notes. In fact, they continuously availed of and benefited from Equitable's credit facilities for five years. After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured respondents' loans amounting to US$228,200 and P1,000,000. The trial court, however, invalidated the escalation clause contained therein because it violated the principle of mutuality of contracts. Nevertheless, it took judicial notice of the steep depreciation of the peso during the intervening period and declared the existence of extraordinary deflation. Consequently, the RTC ordered the use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans. Lastly, because the business reputation of respondents was allegedly severely damaged when Equitable froze their accounts, the trial court awarded moral and exemplary damages to them. On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack of merit and ordered the issuance of a writ of execution in favor of respondents. According to the RTC, because respondents did not move  for  the  reconsideration  of  the  previous  order  (denying  due  course  to  the  parties’  notices  of  appeal),  the  February  5,   2004 decision became final and executory as to both parties and a writ of execution against Equitable was in order. A writ of execution was thereafter issued and three real properties of Equitable were levied upon. On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order. It, however, withdrew that petition on March 30, 2004 and instead filed a petition for certiorari with an application for an injunction in the CA to enjoin the implementation and execution of the March 24, 2004 omnibus order. Amber Gagajena Oblicon Digests – Block 1F

On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was correspondingly issued. Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public auction on July 1, 2004. Respondents were the highest bidders and certificates of sale were issued to them. On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who conducted the sale in contempt for proceeding with the auction despite the injunction order of the CA. Issues: W/N petitioner is guilty of forum shopping? W/N Trial Court Committed Grave Abuse of Discretion In Issuing Its March 1, 2004 and March 24, 2004 Orders? W/N The Promissory Notes Were Valid? W/N Escalation Clause Violated The Principle Of Mutuality Of Contracts? W/N There Was No Extraordinary Deflation? Held: No. Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of action. The petition for relief from the denial of its notice of appeal  was  based  on  the  RTC’s  judgment  or  final  order  preventing  it   from taking an appeal by "fraud, accident, mistake or excusable negligence." On the other hand, its petition for certiorari in the CA, a special civil action, sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC. Yes. The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of the decision was undertaken with indecent haste, effectively obviating or defeating Equitable's right to avail of possible legal remedies. No matter how we look at it, the RTC committed grave abuse of discretion in rendering those orders. Yes. If the terms and conditions offered by Equitable had been truly prejudicial to respondents, they would have walked out and negotiated with another bank at the first available instance. But they did not. Instead, they continuously availed of Equitable's credit facilities for five long years. Yes. Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents had no choice but to accept them. This was a violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation clause did not contain the necessary provisions for validity, that is, it neither provided that the rate of interest would be increased only if allowed by law or the Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void. Yes. Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary inflation (or deflation). The RTC never mentioned that there was such stipulation either in the promissory note or loan agreement. Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity. Case 49: Luzon Development Bank vs. Angeles Catherine Enriquez Case about Dacion en Pago as mode of extinguishing obligations Case about subdivision lot under Contract to Sell (not registered in its TCT for protection) which was then conveyed to the Bank as payment in lieu of loan balance Oblicon Concept: The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. Facts: The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The Subdivision and Condominium  Buyer’s  Protective  Decree  will  not  be  defeated  by  someone  who  is  not  an  innocent  purchaser  for  value.  The   lofty aspirations of PD 957 should be read in every provision of the statute, in every contract that undermines its objects, in every transaction which threatens its fruition. "For a statute derives its vitality from the purpose for which it is enacted and to  construe  it  in  a  manner  that  disregards  or  defeats  such  purpose  is  to  nullify  or  destroy  the  law.” The BANK is a domestic financial corporation that extends loans to subdivision developers/owners. Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate properties, particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De Leon (De Leon), who is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-6371837 of the Registry of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases. On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta Homes I. To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties, including Lot 4. Subsequently, this REM was amended by increasing the amount of the secured loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT No. T-637183. DELTA then obtained a Certificate of Registration and a License to Sell from the Housing and Land Use Regulatory Board (HLURB). Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez) over the house and lot in Lot 4 for the purchase price of P614,950. Enriquez made a downpayment of P114,950. The Contract to Sell contained the following provisions: Amber Gagajena Oblicon Digests – Block 1F

That the warning shall be served upon the Vendee/s for failure to pay x x x Provided, however, that for failure to pay three (3) successive monthly installment payments, the Owner may consider this Contract to Sell null and void ab initio without further proceedings or court action and all payments shall be forfeited in favor of the Owner as liquidated damages and expenses for documentations. When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that DELTA "assigns, transfers, and conveys and sets over to the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to [the Bank] x x x." Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4, which is the subject of her Contract to Sell with DELTA. DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via the Contract to Sell. DELTA points out that the Contract to Sell contained a condition that ownership shall only be transferred to Enriquez upon   the   latter’s   full   payment   of   the   purchase   price   to   DELTA.   Since   Enriquez   has   yet   to   comply   with   this   suspensive   condition, ownership is retained by DELTA. As the owner of Lot 4, DELTA had every right to enter into a dation in payment to   extinguish   its   loan   obligation   to   the   BANK.   The   BANK’s   acceptance   of   the   assignment,   without   any   reservation   or   exception, resulted in the extinguishment of the entire loan obligation; hence, DELTA has no more obligation to pay the value  of  Enriquez’s  house  and  lot  to  the  BANK. Echoing   the   argument   of   DELTA,   the   BANK   argues   that   the   Contract   to   Sell   did   not  involve   a   conveyance   of   DELTA’s   ownership over Lot 4 to Enriquez. The Contract to Sell expressly provides that DELTA retained ownership over Lot 4 until Enriquez paid the full purchase price. Since Enriquez has not yet made such full payment, DELTA retained ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago. o Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the BANK contends that DELTA should pay the corresponding value of Lot 4 to the BANK. It maintains that the loan obligation extinguished by the dacion en pago only extends to the value of the properties delivered; if Lot 4 cannot  be  delivered  to  the  BANK,  then  the  loan  obligation  of  DELTA  remains  to  the  extent  of  Lot  4’s  value. o

Issues: W/N the mortgage contract is void? W/N the contract to sell does not transfer ownership? W/N Dacion en pago extinguished the loan obligation? Held: Yes. As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB. We have held before that "a mortgage contract executed in breach of Section 18 of PD 957 is null and void." Considering that "PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices," we have construed Section 18 thereof as "prohibitory and acts committed contrary to it are void." Yes. A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. Yes. The Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned properties   would   serve   as   full   payment   for   DELTA’s   entire   obligation.  Without   any   reservation   or   condition,   the   Dacion   stated that the assigned properties served as full payment  of  DELTA’s  "total  obligation"  to  the  BANK.  The  BANK  accepted   said  properties  as  equivalent  of  the  loaned  amount  and  as  full  satisfaction  of  DELTA’s  debt.  The  BANK  cannot  complain  if,   as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It was aware of the nature  of  DELTA’s  business,  of  the  location  of  the  assigned  properties  within  DELTA’s subdivision development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957. ARTICLES 1256-1269 TENDER OF PAYMENT AND CONSIGNATION Case 50: Far East Bank and Trust Company vs. Diaz Case about personal check as legal tender when accepted by the creditor as deposit and transferred it to another branch of the bank. The steps done by the debtor showed that he is ready, willing and able to pay. The three requisites are also present: (1) INTENT; (2) CAPABILITY; (3) POSITIVE AND CONDITIONAL ACT Oblicon Concept: For a valid tender of payment, it is necessary that there be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due. Though a check is not legal tender, and a creditor may validly refuse to accept it if tendered as payment, one who in fact accepted a fully' funded check after the debtor's manifestation that it had been given to settle an obligation is estopped from later on denouncing the efficacy of such tender of payment. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. Facts: Amber Gagajena Oblicon Digests – Block 1F

Sometime in August 1973, Diaz and Company got a loan from the former PaBC [Pacific Banking Corporation] in the amount of P720,000, with interest at 12% per annum, later increased to 14%, 16%, 18% and 20%. The loan was secured by a real estate mortgage over two parcels of land owned by the plaintiff Diaz Realty, both located in Davao City. In 1981, Allied Banking Corporation rented an office space in the building constructed on the properties covered by the mortgage contract, with the conformity of mortgagee PaBC, whereby the parties agreed that the monthly rentals shall be paid directly to the mortgagee for the lessor's account, either to partly or fully pay off the aforesaid mortgage indebtedness. Pursuant to such contract, Allied Bank paid the monthly rentals to PaBC instead of to the plaintiffs. On July 5, 1985, the Central Bank closed PaBC, placed it under receivership, and appointed Renan Santos as its liquidator. Sometime in December 1986, appellant FEBTC purchased the credit of Diaz & Company in favor of PaBC, but it was not until March 23, 1988 that Diaz was informed about it. According to the plaintiff as alleged in the complaint and testified to by Antonio Diaz (President of Diaz & Company and Vice-President of Diaz Realty), on March 23, 1988, he went to office of PaBC which by then housed FEBTC and was told that the latter had acquired PaBC; that Cashier Ramon Lim told him that as of such date, his loan was P1,447,142; that he (Diaz) asked the defendant to make an accounting of the monthly rental payments made by Allied Bank; that on December 14, 1988, Diaz tendered to FEBTC the amount of P1,450,000.00 through an Interbank check, in order to prevent the imposition of additional interests, penalties and surcharges on its loan; that FEBTC did not accept it as payment; that instead, Diaz was asked to deposit the amount with the defendant's Davao City Branch Office, allegedly pending the approval of Central Bank Liquidator Renan Santos; that in the meantime, Diaz wrote the defendant, asking that the interest rate be reduced from 20% to 12% per annum, but no reply was ever made; that subsequently, the defendant told him to change the P1,450,000 deposit into a money market placement, which he did; that the money market placement expired on April 14, 1989; that when there was still no news from the defendant whether or not it would accept his tender of payment, he filed this case at the Regional Trial Court of Davao City. The check was subsequently cleared and honored by Interbank, as shown by the Certification it issued on January 20, 1992. Issues: W/N there is valid legal tender of payment? Held: Yes. True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a creditor may validly refuse it. It must be emphasized, however, that this dictum does not prevent a creditor from accepting a check as payment. In other words, the creditor has the option and the discretion of refusing or accepting it. In the present case, petitioner bank did not refuse respondent's check. On the contrary, it accepted the check which, it insisted, was a deposit. As earlier stated, the check proved to be fully funded and was in fact honored by the drawee bank. Moreover, FEBTC was in possession of the money for several months. There must be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due. Case 51: State Investment House, Inc. vs. CA and Judge Tirona, Rafael and Refugio Aquino Case about proper tender of payment but no consignation in court resulting to continuance of regular interest but no default penalty. ISSUE ON WHAT INTEREST TO INCLUDE. Tender of payment by SHOWING and HANDING of money. Any act short of this is not tender of payment. Tender of payment does not extinguish an obligation. Acceptance of the creditor or consignation in court extinguishes it. Oblicon Concept: Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Facts: On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to petitioner State Investment House, Inc. ("State") in order to secure a loan of P120,000 designated as Account No. IF-82-0631-AA (LOAN 1). Prior to the execution of the pledge, respondent-spouses, as an accommodation to and together with the spouses Jose and Marcelina Aquino, signed an agreement (Account No. IF-82-1379-AA – LOAN 2) with petitioner State for the latter's purchase of receivables amounting to P375,000. When Account No. IF-82-0631-AA (LOAN 1) fell due, respondent spouses paid the same partly with their own funds and partly from the proceeds of another loan which they obtained also from petitioner State designated as Account No. IF-820904-AA (LOAN 3). This new loan was secured by the same pledge agreement executed in relation to Account No. IF820631-AA (LOAN 1). When the new loan (LOAN 3) matured, State demanded payment. Respondents expressed willingness to pay, requesting that upon payment, the shares of stock pledged be released. Petitioner State denied the request on the ground that the loan (LOAN 2) which it had extended to the spouses Jose and Marcelina Aquino (Account No. IF-82-1379- AA) had remained unpaid. Upon remand of the records of the case to the trial court for execution, there developed disagreement over the amount which respondent spouses Rafael and Refugio Aquino should pay to secure the release of the shares of stock — petitioner State contending that respondents should also pay interest and respondents arguing they should not. Respondent spouses then filed a motion with the trial court to clarify the Fortun decision praying that an order issue Amber Gagajena Oblicon Digests – Block 1F

clarifying the phrase "upon payment of plaintiffs' loan" to mean upon payment of plaintiff' loan in the principal amount of P110,000 alone, "without interest, penalties and other charges. Hence, this Petition for Review contending that no manifest ambiguity existed in the decision penned by Judge Fortun; that the trial court through Judge Tirona, erred in clarifying the decision of Judge Fortun; and that the amendment sought to be introduced in the Fortun decision by respondents may not be made as the same was substantial in nature and the Fortun decision had become final. Issues: if respondent Aquino spouses were not in delay, what should they have been held liable for in accordance with law? Held: Regular interest only. We believe and so hold that since respondent Aquino spouses were held not to have been in delay, they were properly liable only for: (a) the principal of the loan or P110,000; and (b) regular or monetary interest in the amount of seventeen percent (17%) per annum. They were not liable for penalty or compensatory interest, fixed by the promissory note in Account No. IF-82-0904-AA at two percent (2%) per month or twenty-four (24%) per annum. There is valid tender of payment (thus not in delay for penalty interest) but no consignation (thus the debtor was able to use the money therefore he should pay regular interest. o Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced. Thus, in Llamas v. Abaya, the Supreme Court stressed that a written tender of payment alone, without consignation in court of the sum due, does not suspend the accruing of regular or monetary interest. Case 52: Legaspi vs. CA and Salcedo Case about tender of payment as sufficient when done within the pacto de retro period but consignation is done outside the period. EXEMPTION Tender of payment as sufficient to preserve a RIGHT but not extinguishes the obligation. Oblicon Concept: Facts: On February 8, 1971, the plaintiff now petitioner filed a complaint with the Court of First Instance of Cavite, docketed as Civil Case No. N-1595 for reconveyance to enforce his right to repurchase two parcels of land, Lots Nos. 3962 and 3963 of the Imus Estate covered by TCT Nos. T-4388 and T-4389, respectively, which he sold to the defendant, now private respondent, pursuant to a sale with pacto de retro as evidenced by a Deed of Sale with the Right to Repurchase dated October 15, 1965. The complaint alleged, among others, that Bernardo B. Legaspi is the registered owner of the aforementioned two parcels of land which he sold to his son-in-law, Leonardo B. Salcedo, on October 15, 1965 for the sum of P25,000 with the right to repurchase the same within five years from the execution of the deed of sale; that before the expiry date of the repurchase period which was on October 15, 1970, Legaspi offered and tendered to Salcedo the sum of P25,000 for the repurchase of the two parcels of land; that the tender of payment was refused (because according to Salcedo devalued already) by Salcedo without justifiable or legal cause; that Salcedo refused to convey the properties to Legaspi as requested by the latter; that on October 15, 1970, Legaspi deposited in the Office of the Clerk of Court of First Instance of Cavite City the amount of P25,125 as evidenced by Official Receipt No. 2698797-k marked as Exhibit "B"; that despite earnest efforts towards a compromise after consignation of the repurchase money had been made, Salcedo refused to reconvey the properties in question. Issues: W/N the petitioner validly exercised his right to repurchase the properties within the five-year period as stipulated in the sale with pacto de retro entered into between the petitioner as vendor a retro and private respondent as vendee a retro? Held: Yes. Consignation is not required to preserve the right of repurchase as a mere tender of payment is enough if made on time as a basis for an action to compel the vendee a retro to resell the property. Since the case at bar involves the exercise of the right to repurchase, a showing that petitioner made a valid tender of payment is sufficient. It is enough that a sincere or genuine tender of payment and not a mock or deceptive one was made. The fact that he deposited the amount of the repurchase money with the Clerk of Court was simply an additional security for the petitioner. It was not an essential act that had to be performed after tender of payment was refused by the private respondent although it may serve to indicate the veracity of the desire to comply with the obligation.

Amber Gagajena Oblicon Digests – Block 1F

Case 53: Hulganza vs. CA and Gemarino Case about sufficiency of ACTION filed in court to preserve a right. EXEMPTION Tender and Consignation not essential to redeem. Hulganza showed intention to pay by filing a case. Filing of action is equivalent to the formal offer to redeem. Facts: Before Nicomedez Hulganza died leaving as his heirs herein petitioners, he and his wife Matilde had sold the said property on April 21, 1971 in favor of the defendant Basilia Gemarino in the amount of P10,000 and by virtue of the sale the original title was cancelled and a new one issued (T-5082) in the name of private respondent Basilia Gemarino. Since that date, up to the present private respondent has been in possession of the property peacefully, openly or publicly, adversely and without interruption in the concept of owner. But on April 13, 1972, petitioners filed a complaint in court seeking to repurchase the property from said respondent under the provisions of Section 119 of Public Land Act 141 as amended. In its decision dated February 25, 1975, the same court rendered judgment in favor of the plaintiffs (herein petitioners) declaring that they have the legal right to exercise the right of redemption and ordering among other things, the defendant (herein private respondent) to allow the former to exercise said right at the original purchase price of P10,000 with interest. The Court of Appeals reversed the decision of the lower court. In the instant case is bears repeating that plaintiffs-appellees failed to consign the amount due at the time they filed the complaint, four days before the lapse of the five-year period, and in fact it was only on the date of the trial more than three years later that the lower court was informed of the alleged existence of the money available in the hands of Isidro Hulganza who was then in Mindanao. Issues: W/N it is necessary that the formal offer to redeem the land in question be accompanied by a bona fide tender of the redemption price, or the repurchase price be consigned in Court, within the period of redemption even if the right is exercised through the filing of a judicial action? Held: No. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. In view of the foregoing consideration, it appears evident that the bona fide tender of the redemption price or its equivalent — consignation of said price in court is not essential or necessary in the case at bar where the filing of the action itself is equivalent to a formal offer to redeem. Case 54: Heirs of Luis Bacus vs. CA and Spouses Duray Case about sufficiency of NOTICE to secure the Option To Buy There is no tender (bank certification of loan ready is not tender) or consignation (debt not yet due) done but the option to buy is secured. Facts: On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay, Cebu. The lease was for six years, ending May 31, 1990. 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, at P200 per square meter. That rate shall be proportionately adjusted depending on the peso rate against the US dollar, which at the time of the execution of the contract was fourteen pesos. Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary documents, such as a Special Power of Attorney authorizing him to enter into a contract of sale, on behalf of his sisters who were then abroad. On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Duray's adverse claim was annotated by the Register of Deeds of Cebu, at the back of TCT, covering the segregated 2,000 square meter portion of the lot. Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis Bacus with the Lupon Tagapamayapa of Barangay Bulacao, asking that he be allowed to purchase the lot specifically referred to in the lease contract with option to buy. At the hearing, Duray presented a certification from the manager of Standard Chartered Bank, Cebu City, addressed to Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow Faustino Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract with Luis Bacus. RTC and CA ruled in favor of the private respondents (lessees). Issues: W/N when private respondents opted to buy the property covered by the lease contract with option to buy, were they already required to deliver the money or consign it in court before petitioner executes a deed of transfer? 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?

Amber Gagajena Oblicon Digests – Block 1F

Held: No. 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 (lessee) is contingent upon the execution and delivery of a deed of sale by the debtor (lessor). 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. o Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required. No. 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. Case 55: Soledad Dalton vs. FGR Realty and Development Corporation Case about mandatory fulfillment of all the 5 steps of consignation to make it valid. NOTICE BEFORE AND AFTER CONSIGNATION TO INTERESTED PARTIES. Oblicon Concept: Facts: Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez Street in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente Sasam, (Sasam, et al.) leased portions of the property. In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam, et al. In a complaint dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They failed to notify Dayrit and FGR about the consignation. In motions dated 27 March 1987, 10 November 1987, 8 July 1988, and 28 November 1994, Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved the right to question the validity of the consignation. WITHDRAWAL WITH CONDITION OR RESERVATION. Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 1997 and 20 June 1997. In the compromise agreements, they agreed to abandon all claims against each other. Dalton did not enter into a compromise agreement with Dayrit and FGR. Issues: W/N the consignation made by the petitioner is valid or not for lack of notice has already been rendered moot and academic with the withdrawal by the private respondents of the amounts consigned and deposited by the petitioner as rental of the subject premises? Held: Not valid. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to question the validity of  the  consignation.  When  the  creditor’s  acceptance  of  the  money  consigned  is  conditional  and  with  reservations,  he  is  not   deemed to have waived the claims he reserved against his debtor. As respondent-creditor’s   acceptance   of  the   amount   consigned was with reservations, it did not completely extinguish the entire indebtedness of the petitioner-debtor. It is apposite to note here that consignation is completed at the time the creditor accepts the same without objections, or, if he objects, at the time the court declares that it has been validly made in accordance with law. Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. Case 56: NATELCO vs. CA and CASURECO II Case about obligations of CASURECO II which has become so difficult to perform after 11 yrs. Telephone lines of NATELCO attached to electric posts of CASURECO II in exchange of 10 units of telephones with free usage. Oblicon Concept: 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. Facts: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance telephone 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. Said contract also provided: Amber Gagajena Oblicon Digests – Block 1F

(a) That the term or period of this contract shall be as long as the party of the first part has need for the electric light posts of the party of the second part it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part is forced to stop, abandoned [sic] its operation as a public service and it becomes necessary to remove the electric light post. After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the Regional Trial Court 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 reasonable compensation for the use of the posts is P10 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; that a post now costs as much as P2,630; so that justice and equity demand that the contract be reformed to abolish the inequities thereon. Private respondent alleged that starting with the year 1981, petitioners have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City, without any contract with it. Private respondent complained about the poor servicing by petitioners of the ten (10) telephone units which had caused it great inconvenience and damages to the tune of not less than P100,000. o

Issues: W/N whether the continued enforcement of the contract between the parties has, through the years (since 1977), become too inequitous or disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant, so that a solution must be found to relieve plaintiff from the continued operation of said agreement and to prevent defendant-appellant from further unjustly enriching itself at plaintiff's expense? Held: Yes. It is indeed unfortunate that defendant had turned deaf ears to plaintiffs requests for renegotiation, constraining the latter to go to court. But although plaintiff cannot, as we have held, correctly invoke reformation of contract as a proper remedy (there having been no showing of a mistake or error in said contract on the part of any of the parties so as to result in its failure to express their true intent), this does not mean that plaintiff is absolutely without a remedy in order to relieve itself from a contract that has gone far beyond its contemplation and has become so highly inequitous and disadvantageous to it through the years because of the expansion of defendant-appellant's business and the increase in the volume of its subscribers. And as it is the duty of the Court to administer justice, it must do so in this case in the best way and manner it can in the light of the proven facts and the law or laws applicable thereto. Case 57: Philippine National Construction Corporation vs. CA and Raymundo Case about nonpayment of PNCC of advance rental due to alleged impossibility of performance Oblicon Concept: Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. Article 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. Facts: PNCC contracted a lease contract with private respondents for the use of the land for rock crushing activities. This lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial clearance by the Ministry of Human Settlements, renewable for a like or other period at the option of the LESSEE under the same terms and conditions. LESSEE shall pay to the LESSOR rent at the monthly rate of TWENTY THOUSAND PESOS (P20,000), Philippine Currency, in the manner set forth in Paragraph 3 below. This rate shall be increased yearly by Five Percent (5%) based on the agreed monthly rate of P20,000. The rent stipulated in Paragraph 2 above shall be paid yearly in advance by the LESSEE. The first annual rent in the amount of TWO HUNDRED FORTY THOUSAND PESOS (P240,000), Philippine currency, shall be due and payable upon the execution of this Agreement and the succeeding annual rents shall be payable every twelve (12) months thereafter during the effectivity of this Agreement. On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use Permit 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." – IMPOSSIBILITY (Art 1266) / DIFFICULTY (Art 1267) OF FULFILLMENT DAW 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. Petitioner objected to private respondents' claim and argued that it was "only obligated to pay . . . the amount of P20,000 as rental payments for the one-month period of lease, counted from 07 January 1986 when the Industrial Permit was Amber Gagajena Oblicon Digests – Block 1F

issued by the Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination was served" on private respondents. There were multiple delays/postponements caused by the defendant in hearings. Issues: W/N the issuance of an industrial clearance (as opposed to Temporary Use Permit) is a suspensive condition without which the rights under the contract would not be acquired? W/N PNCC should be released from the obligatory force of the contract of lease because the purpose of the contract did not materialize due to unforeseen events and causes beyond its control, i.e., due to the abrupt change in political climate after the EDSA Revolution and financial difficulties? Held: No. Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial clearance contemplated in the contract. See second to the last bullet in facts above. The "Industrial Permit" mentioned in the said letter could only refer to the Temporary Use Permit issued by the Ministry of Human Settlements on 7 January 1986. And it can be gleaned from this letter that petitioner has considered the permit as industrial clearance; otherwise, petitioner could have simply told private respondents that its obligation to pay rentals has not yet arisen because the Temporary Use Permit is not the industrial clearance contemplated by them. Instead, petitioner recognized its obligation to pay rentals counted from the date the permit was issued. No. 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." o 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. o Petitioner PNCC entered into the contract of lease with private respondents with open eyes of the deteriorating conditions of the country. ARTICLES 1278-1290 COMPENSATION Case 58: Mondragon Personal Sales, Inc. vs. Victoriano Sola, Jr. Case about the requisite of legal compensation which is PRINCIPAL DEBTORS Mr. Sola became primary (solidary) debtor with his wife who is the one with debt to Mondragon Mondragon pays Mr. Sola commission on use of bodega cum office for product stockroom and office. Oblicon Concept: Compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and as principals are reciprocally debtors and creditors of each other. Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites. Facts: Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling various consumer products through a network of sales representatives, entered into a Contract of Services with respondent Victoriano S. Sola, Jr. for a period of three years commencing on October 2, 1994 up to October 1, 1997. Under the said contract, respondent, as service contractor, would provide service facilities, i.e., bodega cum office, to petitioner's products, sales force and customers in General Santos City and as such, he was entitled to commission or service fee. Prior to the execution of the contract, however, respondents wife, Lina Sola, had an existing obligation with petitioner arising from her Franchise Distributorship Agreement with the latter. On January 26, 1995, respondent wrote a letter addressed to Renato G. de Leon, petitioner's Vice-President for Finance, wherein   he   acknowledged   and   confirmed   his   wife’s   indebtedness   to   petitioner in the amount of P1,973,154 (the other accountability in the sum of P1,490,091 was still subject to reconciliation) and, together with his wife, bound himself (BECAME PRINCIPAL DEBTOR THRU LETTER) to pay on installment basis the said debt. Consequently, petitioner withheld the payment of respondent's service fees from February to April 1995 and applied the same as partial payments to the debt which he obligated to pay. On April 29, 1995, respondent closed and suspended operation of his office cum bodega where petitioner's products were stored and customers were being dealt with. Issues: W/N petitioner breached its contract with respondent and that there is no compensation in accordance to Article 1279 of the Civil Code? W/N respondent assume the obligation of his wife? Held: No breach and we find the presence of all the requisites for legal compensation: o Petitioner and respondent are both principal obligors and creditors of each other. o Their debts to each other consist in a sum of money. Amber Gagajena Oblicon Digests – Block 1F

Respondent acknowledged and bound himself to pay petitioner the amount of P1,973,154 which was already due, while the service fees owing to respondent by petitioner become due every month. o Respondent's debt is liquidated and demandable, and petitioner's payments of service fees are liquidated and demandable every month as they fall due. o Finally, there is no retention or controversy commenced by third persons over either of the debts. Thus, compensation is proper up to the concurrent amount where petitioner owes respondent P125,040 for service fees, while respondent owes petitioner P1,973,154. Yes. A reading of the letter shows that respondent becomes a co-debtor of his wife's accountabilities with petitioner. Notably, the last paragraph of his letter which states "I fully understand and voluntarily agree to the above undertaking with full knowledge of the consequences which may arise therefrom" and which was signed by respondent alone, shows that he solidarily bound himself to pay such debt. Based on the letter, respondent's wife had an account with petitioner in the amount of P3,463,173, out of which only the amount of P1,973,154 was confirmed while the remaining amount of P1,490,019 would still be subject to reconciliation. As respondent bound himself to pay the amount of P1,973,154, he becomes petitioner's principal debtor to such amount. o

Case 59: Insular Investment and Trust Corporation vs. Capital One Equities Corp and Planters Development Bank Case about Legal Compensation when parties are PRINCIPAL debtors and creditors of each other Insular  claims  that  is  acted  as  a  mere  conduit  on  Capital  and  PDB’s  contract  of  sale  transaction of government treasury bills. Oblicon Concept: Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other. Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Facts: Petitioner Insular Investment and Trust Corporation (IITC) and respondents Capital One Equities Corporation (COEC) and Planters Development Bank (PDB) are regularly engaged in the trading, sale and purchase of Philippine treasury bills. On various dates in 1994, IITC purchased from COEC treasury bills with an aggregate face value of P260,683,392. The purchase price for the said treasury bills were fully paid by IITC to COEC which was able to deliver P121,050,000 worth of treasury bills to IITC. (1st transaction) On May 2, 1994, COEC purchased treasury bills with a face value of P186,774,739. In order to have T-bills to sell, IITC will have to purchase from PDB T-bills amounting to P186,790,000. (2nd transaction) COEC is asking for legal compensation but IITC would not allow it because it is alleging that it is a mere conduit to the second transaction. Issues: W/N IITC acted as a conduit in the transaction between COEC and PDB? W/N COEC can set-off its obligation  to  IITC  as  against  the  latter’s  obligation  to  it? W/N PDB has the obligation to deliver treasury bills to IITC? Held: No. IITC did not act as conduit. The issue raised by IITC is factual in nature as it requires the Court to delve into the records and review the evidence presented by the parties to determine the validity of the findings of both the RTC and the CA  as  to  IITC’s  role  in  the  transactions  in  question.  These  are  purely  factual  issues  which  this  Court  cannot  review.  There   is nothing in the documents which mentions that IITC merely acted as a conduit in the sale and purchase of treasury bills between PDB and COEC. On the contrary, the confirmations of sale and of purchase all clearly and expressly indicate that IITC acted as a principal seller to COEC and as a principal buyer from PDB. Yes. Based on the foregoing, in order for compensation to be valid, the five requisites mentioned in the above-quoted Article 1279 should be present, as in the case at bench. The lower courts have already determined, to which this Court concurs, that IITC acted as a principal in the purchase of treasury bills from PDB and in the subsequent sale to COEC of the COEC T-Bills. Thus, COEC and IITC are principal creditors of each other in relation to the sale of the COEC T-Bills and IITC T-Bills, respectively. Yes. PDB has an obligation to deliver
the treasury bills to IITC. It would be the height of injustice to hold IITC accountable for the delivery of the COEC T-Bills to COEC without similarly holding PDB liable for the release of the treasury bills worth P186,790,000 to  IITC,  which  cannot  be  accomplished  without  allowing  IITC’s  alternative  cause  of  action  against PDB to prosper.

Amber Gagajena Oblicon Digests – Block 1F

Case 60: Asia Trust Development Bank vs. Carmelo Tuble Case   about   inappropriate   legal   compensation   when   one   debt   is   not   yet   liquidated   or   determinable   (Tuble’s   Deferred   Incentive Plan) The bank foreclosed one of the debts of Tuble but the redemption price included other debts, interests and charges. Oblicon Concept: Article 1279 of the Civil Code requires that the debts be liquidated and demandable. Facts: The CA affirmed the Regional Trial Court (RTC) Decision in Civil Case No. 67973, which granted to respondent the refund of P845,805.49 representing the amount he had paid in excess of the redemption price. Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust Development Bank, availed himself of the   car   incentive   plan   and   loan   privileges   offered   by   the   bank.   He   was   also   entitled   to   the   bank’s   Senior   Managers Deferred Incentive Plan (DIP) [to be given only after clearance] and final pay and 13th month worth P25,797. Tuble has 3 loans from the bank: o Nissan Vanette car - obligation o Real estate loan with maturity date of January 1, 1999. No interest stipulated. – P421,800 o Consumption loan with 18% interest. – P100,000 o Salary loan – P16,250 On 30 March 1995, he resigned. Subsequently, he was given the option to either return the vehicle without any further obligation or retain the unit and pay its remaining book value (obligation 1). Respondent claimed that since he and the bank were debtors and creditors of each other, the offsetting of loans could legally take place. He then asked the bank to simply compute his DIP and apply his receivables to his outstanding loans. However, instead of heeding his request, the bank sent him a demand letter obliging him to pay his debts. The bank also required him to return the Nissan Vanette. Despite this demand, the vehicle was not surrendered. Tuble wrote the bank again to follow up his request to offset the loans. This letter was not immediately acted upon. The bank finally allowed the offsetting of his various claims and liabilities. As a result, his liabilities were reduced to P970,691 plus the unreturned value of the vehicle. In order to recover the Nissan Vanette, the bank filed a Complaint for replevin against Tuble. Petitioner obtained a favorable judgment. Then, to collect the liabilities of respondent, it also filed a Petition for Extra-judicial Foreclosure of real estate mortgage over his property. The Petition was based only on his real estate loan, which at that time amounted to P421,800. His other liabilities to the bank were excluded. The foreclosure proceedings terminated, with the bank emerging as the purchaser of the secured property. Thereafter, Tuble timely redeemed the property on 17 March 1997 for P1,318,401. Notably, the redemption price increased to this figure, because the bank had unilaterally imposed additional interest and other charges. With the payment of P1,318,401, Tuble was deemed to have fully paid his accountabilities. Thus, three years after his payment, the bank issued him a Clearance necessary for the release of his DIP share. Subsequently, he received a Manager’s Check in the amount of P166,049 representing his share in the DIP funds. Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of P421,800 ballooned to P1,318,401 in  a  matter  of  one  year.  Belatedly,  the  bank  explained  that  this  redemption  price  included  the  Nissan  Vanette’s   book  value,  the  salary  loan,  car  insurance,  18%  annual  interest  on  the  bank’s  redemption  price  of  P421,800,  penalty  and   interest charges on Promissory Note No. 0142, and litigation expenses. By way of note, from these items, the amounts that remained to be collected as stated in the Petition before us, are (1) the 18% annual interest on the redemption price and (2) the interest charge on Promissory Note No. 0142. Issues: W/N legal compensation is valid and to how much only? W/N the bank is entitled to the 18% annual interest, other charges and other debts TO BE INCLUDED TO THE REDEMPTION PRICE. Held:

Yes but up to P25k final pay and 13th month only since the pro-rata DIP is not yet liquidated. No. The Court ruled that the appellate court correctly deleted the 18% annual interest charges, albeit for different reasons. First, the interest cannot be imposed, because any reference to it under the Real Estate Mortgage Contract is misplaced, as the contract is already extinguished. Second, the said interest cannot be collected without any basis in terms of Tuble's redemption rights. Third, assuming that the Real Estate Mortgage Contract subsists, the bank cannot collect the interest because of the contract's ambiguity. Fourth, the dragnet clause referred to in the contract cannot be presumed to include the 18% annual interest specified in the consumption loan. Fifth, with respect to the compensatory interest claimed by the bank, we hold that neither is the interest due, because Tuble cannot be deemed to be in default of his obligations.

Amber Gagajena Oblicon Digests – Block 1F

ARTICLES 1278-1290 COMPENSATION Case 63: United Planters Sugar Milling Co., Inc. vs. CA, Philippine National Bank, Asset Privatization Trust (as trustee of the Republic of the Philippines Case about Conventional Compensation which may still be effective despite lack of some requisites Compensation  by  PNB  and  United  Planters.  PNB  is  debtor  of  United  Planter’s  deposits.  United, on the other hand, is the debtor  of  PNB’s  takeoff  loans  and  operational  loans. Oblicon Concept: Art 1282. (Conventional Compensation) The parties may agree upon the compensation of debts which are not yet due. Facts: Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of milling sugar. In 1974, as UPSUMCO commenced operations, it obtained a set of loans from respondent Philippine National Bank (PNB). These loans, referred herein as the "takeoff loans," were intended to finance the construction of a sugar milling plant and “operational loans”  were  oriented  towards  financing  the  operations  of  the  Company. The loans are covered by various real and chattel mortgages. These were soon sold at P450M. As a condition to the loans, UPSUMCO agreed to "open and/or maintain a deposit account with the [PNB] and the bank is authorized at its option to apply to the payment of any unpaid obligations of the client any/and all monies, securities which may be in its hands on deposit. On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its "rights, titles and interests" over UPSUMCO, among several other assets. The Deed of Transfer acknowledged that said assignment was being undertaken "in compliance with Presidential Proclamation No. 50." The Government subsequently transferred these "rights, titles and interests" over UPSUMCO to the respondent Asset and Privatization Trust (APT). Thereafter,  APT  and  UPSUMCO  entered  into  talks  concerning  the  disposal  of  UPSUMCO’s mortgaged assets. The parties then agreed to an "uncontested  or  ‘friendly  foreclosure’  of  these  mortgaged  assets, in exchange for UPSUMCO’s  waiver  of   its right of redemption." Soon, a Petition for Extrajudicial Foreclosure Sale dated 28 July 1987 was filed with the Ex-Officio Regional Sheriff, with PNB  identified  therein  as  "Mortgagee"  and  APT  as  "Assignee  and  Transferee  of  PNB’s  rights,  titles  and  interests."  PNB   and APT manifested in the petition their intent to foreclose on the real estate and chattel mortgages which notably were executed to secure the take-off loans. The foreclosure sale was conducted on 27 August 1987, whereby APT purchased the auctioned properties for P450 Million. Seven (7) days after the foreclosure sale, or on 3 September 1987, UPSUMCO executed a Deed of Assignment wherein it assigned to APT its right to redeem the foreclosed properties, in exchange for or in consideration of APT "condoning any deficiency amount it may be entitled to recover from the Corporation under the Credit Agreement. On even date, the Board of Directors of UPSUMCO agreed to a Board Resolution authorizing Joaquin Montenegro, its President, to enter into the said Deed of Assignment. Issues: W/N the loans condoned include the operational loans? W/N the Deed of Assignment has retroactive effect on date of foreclosure? W/N  APT  can  use  compensation  even  if  it’s  not  a  PRINCIPAL  party  (it  is  not  PNB  were  United  Planters  has  deposits)? Held: No. Only the takeoff loans because it is what is indicated in the Board Resolution. No. Not explicitly indicated. (parol evidence) Yes. We recognize the concept of conventional compensation, defined as occurring "when the parties agree to compensate their mutual obligations even if some requisite is lacking, such as that provided in Article 1282." It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations. Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites. The only requisites of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits. The right of PNB to set-off payments from UPSUMCO arose out of conventional compensation rather than legal compensation, even though all of the requisites for legal compensation were present as between those two parties. The determinative factor is the mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were present. Case 64: Corazon Perez vs. CA and Mever Films, Inc. Case about movement of debts in money market transactions. No LEGAL COMPENSATION because the two debts of MOJICA was rolled over, thus, these are NOT YET DUE and not subject to compensation. Ability of the debtor to question legal compensation on assignment of his debt.

Amber Gagajena Oblicon Digests – Block 1F

Oblicon Concept: ART. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. The money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in the open market." It involves "commercial papers" which are instruments "evidencing indebtedness of any person or entity . . ., which are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse". 4 The fundamental function of the money market device in its operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal considerations." 5 The market mechanism is intended to provide quick mobility of money and securities." Facts: CONGENERIC Development & Finance Corporation is, or was, a company engaged in "money market" operations. There are 4 debts in this case. st o 1 : Creditor = Ramon Mojica; Debtor = Congeneric; Amount = P111,974 o 2nd: Creditor = Ramon Mojica; Debtor = Congeneric; Amount = P208,667 o 3rd: Creditor = Congeneric; Debtor = Mever Films, Inc.; Amount = P500,000 th o 4 : Creditor = Corazon Perez; Debtor = Congeneric; Amount = P200,000 On 3rd debts due date, Mever paid P100k to Congeneric. Congeneric, in turn, paid it with interest to Perez. Balance of 3 rd and 4th debts are P400,000 and P100,000, respectively after this. On due dates (August 6 and 13, 1974), interests on 1st and 2nd debts were paid but the principals were rolled over. st nd On September 9, 1974, MOJICA assigned 1 and 2 debts to MEVER through a notarized deed. st nd On October 3, 1974, MEVER surrendered the originals of 1 and 2 debts to CONGENERIC, and asked the latter to compute the balance of the account of MEVER with CONGENERIC, taking account of the amounts of the debts, which balance MEVER would then pay (Legal Compensation for Mever). Mever is saying that he is On the same date of October 7, 1974, CONGENERIC advised MEVER by telephone that of the original amount of P500,000.00 of 3rd debt, the sum of P200,000.00 was sold on July 3, 1974 to a third party, Perez. On November 15, 1974, MEVER turned over to the Provincial Sheriff of Rizal (Exhibit "5"), the sum of P79,359.75, which MEVER had computed as the amount it was still owing CONGENERIC and which was subject to garnishment. Trial court decided against Mever. CA decided in favor of Mever. SC decided against Mever. Issues: W/N there is legal compensation in this case? Held:

No. Because 1st and 2nd debts, which were rolled over are NOT YET DUE. Since, on the respective dates of maturity, specifically, August 6, 1974 and August 13, 1974, respectively, Ramon C. Mojica was still the holder of those bills, it can be safely assumed that it was he who had asked for the roll-overs on the said dates. MEVER was bound by the roll-overs since the assignment to it was made only on September9, 1974. The inevitable result of the roll-overs of the principals was that Bill No. 1298 and Bill No. 1419 were not yet due and demandable as of the date of their assignment by MOJICA to MEVER on September 9, 1974,nor as of October 3, 1974 when MEVER surrendered said Bills to CONGENERIC. As a consequence, no legal compensation could have taken place because, for it to exist, the two debts, among other requisites, must be due and demandable.

ARTICLES 1291-1304: NOVATION Case 65: William Kwong vs. Atty. Gargantos, Anacleto Gargantos, Sps Santos and Sps Arceo Case about Implied Novation Deed of Conditional Sale is INCOMPATIBLE with Deed of Absolute Sale and Promissory Note Test of Incompatibility From 15 lots to 11 lots Oblicon Concept: Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. Article 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Facts: Kwong agreed to sell his real properties, consisting of 15 lots, to defendant for $137,255 U.S. Currency or in Philippine Currency at the rate of P20.40 per dollar (P2.8M), as evidenced by a deed of conditional sale dated November 1986. That on the date the conditional sale was executed, defendants paid $10,000 U.S. Currency or P204,000.00, Philippine Currency thereby leaving a balance of $127,255.00 or P2,596,002 Philippine Currency which shall be paid on December 15, 1986 without interest. However, despite repeated demands, the balance was not paid. On May 1, 1990, Atty. Ramon Gargantos (brother of respondent Anacleto Gargantos), armed with a Special Power of Attorney executed by respondents, paid the amount of P1,776,200. Amber Gagajena Oblicon Digests – Block 1F

Thereafter, petitioner and Atty. Gargantos executed a notarized Deed of Absolute Sale, wherein petitioner sold to respondent Gargantos 11 out of the 15 lots for the sum of P500,000 and Atty. Gargantos signed a Promissory Note for the payment of the amount of P373,075, on or before June 30, 1990, representing the unpaid balance of the purchase covering the remaining four lots. Issues: W/N  there  was  a  valid  IMPLIED  NOVATION?  W/N  it  was  the  parties’  intention  to  supersede  the  Deed  of  Conditional  Sale   with the Deed of Absolute Sale? Held: Yes. An examination of the Deed of Absolute Sale and the Promissory Note, as well as the surrounding circumstances of this case, shows that it was meant to novate and replace the Deed of Conditional Sale. Logically, the Deed of Conditional Sale and the Deed of Absolute Sale cannot co-exist as these are of different nature and provide for separate and distinct obligations. o The fact that the Deed of Absolute Sale of the 11 lots was executed even without respondents having fully paid the purchase price for the entire 15 parcels of land covered by the Deed of Conditional Sale enforces the conclusion that the parties intended to enter into a new agreement and discard the old one Case 66: Anamer Salazar vs. JY Brothers Marketing Corporation Case about change in the object or principal conditions. This does not included change of MODE OF PAYMENT. Salazar as accommodation indorser. Still liable. Extinctive vs Modificatory Novation. 300 cavans of rice for P214,000. Oblicon Concept: Art. 1231. Obligations are extinguished thru (6) Novation. Facts: J.Y. Brothers Marketing is a corporation engaged in the business of selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. Salazar negotiated and indorsed this check (became an accommodation indorser). However,  upon  presentment,  the  check  was  dishonored  due  to  "closed  account”. Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank Check again issued by Nena Jaucian Timario in the amount of P214,000.00 but which, just the same, bounced due to “insufficient  funds”. A criminal case (i.e., Estafa) was filed against Salazar and Timario but the criminal case failed, leaving only the civil case. RTC ruled in favor of Salazar but CA and SC ruled against her. Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in replacement of the dishonored Prudential Bank check, amounted to novation that discharged the latter check; that respondent's acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of the Prudential Bank check would have incurred in the issuance thereof in the amount of P214,000.00; and that a check is a contract which is susceptible to a novation just like any other contract. Issues: W/N the change of checks (mode of payment) is equivalent to change in object or principal conditions subject to novation? Held: No. The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely supplements the old one. Neither is there incompatibility because both checks were given precisely to terminate a single obligation. Respondent’s  acceptance  of  the  Solid  Bank  check,  which  replaced  the  dishonored  Prudential  Bank  check,  did  not  result  to   novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was   also   indorsed   by   petitioner   which   shows   petitioner’s   recognition   of   the   existing   obligation   to   respondent   to   pay   P214,000.00 subject of the replaced Prudential Bank check.

Amber Gagajena Oblicon Digests – Block 1F

Case 67: Philippine National Bank vs. Lilian Soriano Case about no implied novation in criminal cases (violation of Trust Receipts Law) Estafa under Floor Stock Line (FSL) with Trust Receipts vs Ordinary Omnibus Loan Oblicon Concept: The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. Facts: On March 20, 1997, PNB extended a credit facility in the form of a Floor Stock Line (FSL) in the increased amount of Thirty  Million  Pesos  (₱30  Million)  to  Lisam  Enterprises,  Inc. Soriano is the chairman and president of LISAM, she is also the authorized signatory  in   all   LISAM’s   Transactions   with   PNB. On various dates, LISAM made several availments of the FSL in the total amount of P29,645,944, the proceeds of which were credited to its current account with PNB. For each availment, LISAM through Soriano, executed 52 Trust Receipts (TRs). In addition to the promissory notes, showing its receipt of the items in trust with the duty to turn-over the proceeds of the sale thereof to PNB. Sometime on January 21-22,  1998,  PNB’s  authorized  personnel  conducted  an  actual  physical  inventory  of  LISAM’s  motor   vehicles and motorcycles and   found   that   only   four   (4)   units   covered   by   the   TRs   amounting   to   ₱158,100.00   remained   unsold. Out  of  the  ₱29,644,944  as  the  outstanding  principal  balance  of  the  total  availments  on  the  line  covered by TRs, LISAM should have remitted to PNB, ₱29,487,844. Despite several formal demands, respondent Soriano failed and refused to turn over the said amount to the prejudice of PNB. The Court looked to whether there is an incompatibility between the Floor  Stock  Line  secured  by  TR’s  and  the  subsequent   restructured Omnibus Line which was supposedly approved by PNB. Prosecutor found that Soriano is chargeable of 51 counts of Estafa but Secretary of DOJ reversed it and ordered the trial court to force the prosecutor to drop charges. CA also took the stand of DOJ but SC ruled in favor of PNB and reinstated the decision of the prosecutor. Issues: W/N  the  Court  of  Appeals  gravely  erred  in  affirming  the  DOJ’s  ruling  that  the  restructuring  of  LISAM’s  loan  secured by trust receipts extinguished  Soriano’s  criminal  liability? W/N  Soriano’s  right  to  Double  Jeopardy  was  abused? Held: Yes. The purported restructuring of the loan agreement did not constitute novation and there is also no waiver to trustortrustee relationship. We have scoured the records and found no incompatibility between the Floor Stock Line and the purported restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof was subject to conditions precedent such as the payment of interest and other charges, and the submission of the titles to the real properties in Tandang Sora, Quezon City. These conditions precedent imposed on the restructured Omnibus Line were never  refuted  by  Soriano  who,  oddly  enough,  failed  to  file  a  Memorandum.  To  our  mind,  Soriano’s  bare  assertion  that  the   restructuring   was   approved   by   PNB   cannot   equate   to   a   finding   of   an   implied   novation   which   extinguished   Soriano’s   obligation as entrustee  under  the  TR’s. No. The withdrawal of the criminal cases did not include a categorical dismissal thereof by the RTC. Double jeopardy had not set in because Soriano was not acquitted nor was there a valid and legal dismissal or termination of the fifty one (51) cases against her. It stands to reason therefore that the fifth requisite which requires conviction or acquittal of the accused, or the dismissal of the case without the approval of the accused, was not met. Case 68: Cresencio Milla vs. People of the Phil and Market Pursuits, Inc. and Carlo Lopez Case about no implied novation in criminal cases (Estafa, Falsification of Public Documents, Swindling) Milla misrepresented himself as an authorized agent of Spouses Handog who possess the property in Makati He is saying that he is no longer criminally liable because his debt was novated thru the issuance of Equitable PCI checks to return the P2M. Oblicon Concept: The changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. Facts: Respondent Carlo Lopez was the Financial Officer of private respondent, Market Pursuits, Inc. (MPI). In March 2003, Milla represented himself as a real estate developer from Ines Anderson Development Corporation, which was engaged in selling business properties in Makati, and offered to sell MPI a property therein located. For this purpose, he showed Lopez a photocopy of TCT registered in the name of spouses Farley and Jocelyn Handog (Sps. Handog), as well as a Special Power of Attorney purportedly executed by the spouses in favor of Milla. Lopez verified with the Registry of Deeds of Makati and confirmed that the property was indeed registered under the names of Sps. Handog. Amber Gagajena Oblicon Digests – Block 1F

Since   Lopez   was   convinced   by   Milla’s   authority,   MPI   purchased the property for P2 million, issuing Security Bank and Trust Co. Check in the amount of P1.6 million. After receiving the check, Milla gave Lopez (1) a notarized Deed of Absolute Sale dated 25 March 2003 executed by Sps. Handog in favor of MPI and (2) an  original  Owner’s  Duplicate  Copy  of  TCT. Consequently, Lopez demanded the return of the amount of P2 million from Milla, who then issued 2 Equitable PCI Check in the amount of P1 million each. However, these checks were dishonored for having been drawn against insufficient funds. Milla contends that his issuance of Equitable PCI Checks before the institution of the criminal complaint against him novated his obligation to MPI, thereby enabling him to avoid any incipient criminal liability and converting his obligation into a purely civil one. RTC and CA ruled against Milla. SC ruled against him too. Issues: W/N the negligence of counsel deprived Milla of due process of law? W/N the principle of novation can exculpate Milla from criminal liability? W/N the factual findings of the trial court, as affirmed by the appellate court, should be reviewed on appeal? Held: No. The general rule is that the mistake of a counsel binds the client, and it is only in instances wherein the negligence is so gross or palpable that courts must step in to grant relief to the aggrieved client. Milla was given opportunities to defend his case and was granted concomitant reliefs. Thus, it cannot be said that the mistake and negligence of his former counsel were so gross and palpable to have deprived him of due process. No. It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal liability or to cast doubt on the true nature of the original petition, whether or not it was such that its breach would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to. o The changes alluded to by petitioner consists only in the manner of payment. No. Factual findings of the trial court, especially when affirmed by the appellate court, are binding on and accorded great respect by this Court. Case 69: Abelardo Licaros vs. Antonio Gatmaitan Case about CONVENTIONAL SUBROGATION Oblicon Concept: Conventional Subrogation. Facts: The Anglo-Asean Bank and Trust Limited is a foreign private bank. Its business consists primarily in receiving fund placements by way of deposits from institutions and individual investors from different parts of the world and thereafter investing such deposits in money market placements and potentially profitable capital ventures in Hongkong, Europe and the United States for the purpose of maximizing the returns on those investments. Licaros, a Filipino businessman, decided to make a fund placement with said bank. After having invested in Anglo-Asean, Licaros encountered tremendous and unexplained difficulties in retrieving, not only the interest or profits, but even the very investments he had put in Anglo-Asean. Licaros then decided to seek the counsel of Antonio P. Gatmaitan, a reputable banker and investment manager who had been extending managerial, financial and investment consultancy services to various firms and corporations both here and abroad. Gatmaitan was only too willing enough to help. Gatmaitan voluntarily offered to assume the payment of Anglo-Asean’s   indebtedness to Licaros subject to certain terms and conditions. In order   to   effectuate   and   formalize   the   parties’   respective commitments, the two executed a notarized MEMORANDUM OF AGREEMENT. Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier executed by him and Licaros for the purpose of collecting the  latter’s  placement  thereat  of  $150,000. Albeit the officers of Anglo-Asean allegedly committed themselves to   “look   into   [this   matter]”,   no   formal   response   was   ever   made   by   said   bank   to   either   Licaros   or   Gatmaitan.     To   date,   Anglo-Asean has not acted on Gatmaitan’s  monetary  claims. Because of his inability to collect from Anglo-Asean, Gatmaitan did not bother anymore to make good his promise to pay Licaros the amount stated in his promissory note. Licaros, however, thought differently. He felt that he had a right to collect on the basis of the promissory note regardless of the outcome of Gatmaitan's recovery efforts. Thus, in July 1996, Licaros,  thru  counsel,  addressed  successive  demand  letters  to  Gatmaitan  demanding  payment  of  the  latter’s  obligations   under the promissory note. Issues: W/N Licaros can collect from Gatmaitan? W/N the MOA is effective? Held: No. The Court agrees with the finding of the Court of Appeals that the Memorandum of Agreement was in the nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. The structure of the MOA is that of conventional subrogation (whereas clause and conforme) which requires the consent/signature of the Amber Gagajena Oblicon Digests – Block 1F

debtor (bank). But since there is no consent/signature from the debtor, the MOA is not effective and Licaros has no right to collect. It is true that conventional subrogation has the effect of extinguishing the old obligation and giving rise to a new one. However, the extinguishment of the old obligation is the effect of the establishment of a contract for conventional subrogation. It is not a requisite without which a contract for conventional subrogation may not be created. As such, it is not determinative of whether or not a contract of conventional subrogation was constituted. ARTICLES 1305-1317: CERTAIN RULES ON CONTRACTS A. CONTRACT IS THE LAW BETWEEN PARTIES Case 70: Department of Health vs HTMC Engineers Company Case about noncompliance by DOH of the Owner-Consultant Agreement because HTMC did not agree to the restructuring of a subsequent contract. There being no new contract or meeting of the minds, the original contract subsists and the parties are bound thereby. Executive Order No. 1008, also known as the "Construction Industry Arbitration Law" Oblicon Concept: Art 1308. The contract must bind both contracting parties, its validity or compliance cannot be left to the will of one of them. A contract properly executed between parties continue to be the law between said parties and should be complied with in good faith. Facts: On various dates in May 1996, petitioner Department of Health (DOH) entered into four Owner–Consultant Agreements with respondent HTMC Engineers Company (HTMC) involving various infrastructure projects for East Avenue Medical Center, Rizal Medical Center, Amang Rodriguez Medical Center, and Tondo Medical Center. All four consultancy agreements for the above-named hospitals were similarly-worded, indicating therein that said contracts were intended for the preparation of architectural and engineering (A & E) design plans and bid documents/requirements, and for construction supervision (CS). Moreover, Under Article 5.1 of the consultancy contracts, the professional fee of HTMC is 7.5% of the project fund allocation. Sometime in July and August 1996, respondent was able to complete the A & E services for all four hospitals and the necessary documents were submitted to petitioner in accordance with the consultancy agreements. On 29 November 1996, petitioner requested the amendments to the consultancy agreements pursuant to the guidelines issued by the National Economic Development Authority (NEDA). In response to the proposed amendments, on 24 January 1997, HTMC sent the DOH a position paper expressing their opinion on the matter. It would seem, however, that no clear settlement had  been  reached  by  the  parties  in  connection  with  petitioner’s  proposed   amendments to the consultancy agreements, thus, the DOH refused to issue the necessary notices to proceed with the construction supervision in favor of HTMC (these were done by DOH employees themselves). On  22  April  1998,  respondent’s  counsel  sent  a  demand letter to the DOH. o it   is   hereby   requested   that   the   balance   of   the   Consultant’s   Fee   for   the   above   four   (4)   referred   projects   in   the amount of P2,102,469 be paid. For  petitioner’s  continued  refusal  to  heed  respondent’s  demand  for  payment  and  issuance  of  notices  to  proceed,  on  26   October 1998, HTMC filed a claim against DOH and requested for arbitration with the CIAC. CIAC, CA and SC decided against DOH. Issues: W/N CIAC has jurisdiction? W/N the monetary award provided by the CIAC is in accord with the tenor of the consultancy agreements? Held: Yes it is expressly provided in their contract (Articles 12.1 and 12.2). Upon the signing of said agreements in May 1996 by DOH and HTMC, both parties have explicitly agreed that after a dispute arising from said agreements has been passed upon by the Health Secretary, said controversy involving the consultancy agreements shall be submitted to voluntary arbitration, jurisdiction over which is granted by law to the CIAC. It is clear that prior to the filing of the controversy for arbitration before the CIAC, HTMC, through counsel, had repeatedly appealed the matter before the DOH, through the Department  Secretary,  but  the  latter  failed  to  act  upon  HTMC’s  request. Yes. The perfected consultancy agreements between DOH and HTMC are valid, and therefore, under the stipulations contained therein, DOH is under obligation to pay HTMC the unpaid sum of its consultancy fees which according to the findings of the CIAC, as affirmed by the appellate court, amounts to P3,543,630 (A & E services), reimbursement for the salaries of the three engineers engaged by HTMC to perform construction supervision in the amount of P576,000.00, and damages in the form of unrealized profit in the amount of P310,544.00, or the total amount of P4,430,174.00 with interest.

Amber Gagajena Oblicon Digests – Block 1F

B. MUTUALITY OF CONTRACTS Case 71: GF Equity, Inc. vs Arturo Valenzona Case about abuse of rights (Art 19 of CC) regarding void provision of the Employment Contract of basketball coach. This leads to award of damages under Art 20 of the CC. Case about mutuality of contracts and not leaving the compliance to the will of one of the contracting parties. Oblicon Concept: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Art 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. o The ultimate purpose of the mutuality principle is thus to nullify a contract containing a condition which makes its fulfillment or pre-termination dependent exclusively upon the uncontrolled will of one of the contracting parties. Laches has been defined as the failure 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, thus giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact of delay, standing alone, is insufficient to constitute laches. Facts: GF Equity, represented by its Chief Financial Officer, Steven Uytengsu, hired Valenzona as Head Coach of the Alaska basketball team in the Philippine Basketball Association (PBA) under a Contract of Employment. Under the contract, GF Equity would pay Valenzona the sum of Thirty Five Thousand Pesos (P35,000) monthly, net of taxes, and provide him with a service vehicle and gasoline allowance. While the employment period agreed upon was for two years commencing on January 1, 1988 and ending on December 31, 1989, the last sentence of paragraph 3 of the contract carried the following condition: o If at any time during the contract, the COACH, in the sole opinion of the CORPORATION, fails to exhibit sufficient skill or competitive ability to coach the team, the CORPORATION may terminate this contract. During  his  stint  as  Alaska’s  head  coach, the team placed third both in the Open and All-Filipino PBA Conferences in 1988. Valenzona was later advised by the management of GF Equity by letter of September 26, 1988 of the termination of his services. Close to six years after the termination of his services,  Valenzona’s  counsel,  by  letter  of  July  30,  1994,  demanded  from  GF   Equity payment of compensation arising from the arbitrary and unilateral termination of his employment. RTC decided in favor of GF Equity, CA and SC decided in favor of Valenzona. Issues: W/N the parapgraph 3 of the Employment Contract is void? W/N GF Equity abused its right in terminating the contract? W/N   GF   Equity’s   defense   of   laches   on   account   of   Valenzona’s   invocation   of   his   right   under   the   contract   only   after   the   lapse of six years is valid? Held: Yes. It is against the mutuality of contracts (Art 1308), Art 19 and Art 20 of the CC. Yes. Since the pre-termination of the contract was anchored on an illegal ground, hence, contrary to law, and GF Equity negligently failed to provide legal basis for such pre-termination, e.g. that Valenzona breached the contract by failing to discharge his duties thereunder, GF Equity failed to exercise in a legitimate manner its right to pre-terminate the contract, thereby abusing the right of Valenzona to thus entitle him to damages under Art. 19 in relation to Article 20 of the Civil Code. No. Laches applies in equity, whereas prescription applies at law. Our courts are basically courts of law, not courts of equity. Laches cannot thus be invoked to evade the enforcement of an existing legal right (10 years prescription for contracts).    Equity,  which  has  been  aptly  described  as  a  “justice  outside  legality,”  is  applied  only  in  the  absence  of,  and   never against, statutory law. Case 72: Philippine National Bank vs Spouses Agustin and Pilar Rocamora Case about violation of mutuality of contracts in ESCALATION CLAUSES (of 12% to 42% interest) without the consent of the other party. -VOID Case  about  PNB’s  deficiency  judgment  case  on  remaining balance of loan plus interest and charges after foreclosure. Oblicon Concept: Art 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Facts: On September 25, 1981, the spouses Rocamora obtained a loan from PNB in the aggregate amount of P100,000 under the Cottage Industry Guarantee and Loan Fund (CIGLF). The loan was payable in five years, under the following terms: o P35,000 payable semi-annually and P65,000 payable annually. Amber Gagajena Oblicon Digests – Block 1F

In addition to the principal amount, the spouses Rocamora agreed to pay interest at the rate of 12% per annum, plus a penalty fee of 5% per annum in case of delayed payments. o The spouses Rocamora signed two promissory notes evidencing the loan. To secure their loan obligations, the spouses Rocamora executed two mortgages: a real estate mortgage over a property covered by TCT in the amount of P10,000, and a chattel mortgage over various machineries in the amount of P25,000. Payment of the remaining P65,000 was under the CIGLF guarantee, with the spouses Rocamora paying the required guarantee fee. Both the promissory note and the real estate mortgage deed contained an escalation clause that allowed PNB to increase the 12% interest rate at anytime without notice, within the limits allowed by law. It also contains de-escalation clause. The PNB claimed that the outstanding principal balance as of foreclosure date (September 19, 1990) was P79,484.65, plus interest and penalties, for a total due and demandable obligation of P250,812. Allegedly, after deducting the P75,500 proceeds of the foreclosure sale, the spouses Rocamora still owed the bank P206,297. The  spouses  Rocamora  refused  to  pay  the  amount  claimed  as  deficiency.    They  alleged  that  the  PNB  “practically created”   the deficiency by (a) increasing the interest rates from 12% to 42% per annum, and (b) failing to immediately foreclose the mortgage pursuant to Presidential Decree No. 385 (PD 385 or the Mandatory Foreclosure Law) to prevent the interest and penalty charges from accruing. RTC, CA and SC decided against PNB. o

Issues: W/N PNB can escalate the interest rate anytime without the consent of Spouses Ricamora? W/N PNB failed to sufficiently and satisfactorily prove the amount of P250,812? W/N PNB failed to comply with the immediate and mandatory foreclosure required under PD 385? Held: No. Any increase in the rate of interest made pursuant to an escalation clause must be the result of an agreement between the parties. The minds of all the parties must meet on the proposed modification as this modification affects an important aspect of the agreement. There can be no contract in the true sense in the absence of the element of an agreement,  i.e.,   the   parties’   mutual   consent.     Thus,   any   change   must   be  mutually agreed upon, otherwise, the change carries no binding effect. o Even with a de-escalation clause, no matter how elaborately worded, an unconsented increase in interest rates is ineffective if it transgresses the principle of mutuality of contracts. Yes. Both the RTC and the CA found that PNB failed to prove the claimed deficiency; its own testimonial and documentary evidence   in   fact   contradicted   one   another.   The   PNB   alleged   that   the   spouses   Rocamora’s   obligation   at   the   time   of   foreclosure (September 19, 1990) amounted to P250,812.10, yet its own documentary evidence showed that, as of that date,  the  total  obligation  was  only  P206,664;;  the  PNB’s  own  witness,  Mr.  Reynaldo  Caso,  testified  that  the  amount  due   from the spouses Rocamora was only P206,664. Yes. Under PD 385, government financial institutions – which  was  PNB’s  status  prior  to  its  full  privatization  in  1996  – are mandated to immediately foreclose the securities given for any loan when the arrearages amount to at least 20% of the total outstanding obligation. PNB foreclosed only after 3 years of default by the spouses. Case 73: Solidbank Corporation vs Permanent Homes, Inc. Case about validity of changing interest rates depending on fluctuations in local and international markets. Case about validity of changing interest rates based on NOTICE given to debtor by the creditor. Lastly, the changing of interest rates is valid because it is expressly provided in the contract. Oblicon Concept: Art 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. 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. These circulars 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. Although interest rates are no longer subject to a ceiling, the lender still does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing. Facts: PERMANENT HOMES is a real estate development company, and to finance its housing project known as the "Buena Vida Townhomes" located within Merville Subdivision, Parañaque City. It applied and was subsequently granted by SOLIDBANK with an "Omnibus Line" credit facility in the total amount of P60M. Of the entire loan, P59M as time loan for a term of up to three hundred sixty (360) days, with interest thereon at prevailing market rates, and subject to monthly repricing. The remaining P1M was available for domestic bills purchase. PERMANENT HOMES initially mortgaged 3 townhouse units within the Buena Vida project in Parañaque. At the time, however, the instant complaint was filed against SOLIDBANK, a total of 36 townhouse units were mortgaged with said bank. Of the P60M available to PERMANENT HOMES, it availed of a total of P41.5M, covered by three (3) promissory notes, WITH PROVISIONS FROM MONTHLY REPRICING OF INTEREST RATES AFTER NOTICE TO PERMANENT. These amount to P19.6M, P18M and P3.9M. Amber Gagajena Oblicon Digests – Block 1F

Contrary to the specific provisions as afore-quoted, there was a standing agreement by the parties that any increase or decrease in interest rates shall be subject to the mutual agreement of the parties. RTC and SC decided in favor of Solidbank. CA ruled in favor of Permanent. Issues: W/N  the  increases  in  the  interest  rates  on  Permanent’s  loans  are  void  for  having  been  unilaterally  imposed  without  basis? W/N   the   parties   need   to   enter   into   an   express   agreement   regarding   the   applicable   interest   rates   on   Permanent’s   loan   availments subsequent to the initial thirty-day (30) period? Held: No. The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said stipulations; (2)   repricing   takes   effect   only   upon   Solidbank’s   written   notice   to   Permanent   of   the   new   interest   rate;;   and   (3)   Permanent has the option to prepay its loan if Permanent and Solidbank do not agree on the new interest rate. The phrases "irrevocably authorize," "at any time" and "adjustment of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent," emphasize that Permanent should receive a written notice from Solidbank as a condition for the adjustment of the interest rates. SC ordered that the change of interest rates should be recomputed at the time Permanent received notice. o Moreover,   Solidbank’s  range of lending rates were consistent with "prevailing rates in the local or international capital markets." o The interest rate repricing happened at the height of the Asian financial crises in late 1997, when banks clamped down on lendings because of higher credit risks across industries, particularly the real estate industry. No. Receipt of notice is enough. If Permanent feels that it is excessive, it has the option to pre-pay. C. AUTONOMY OF CONTRACTS Case 74: Daisy Tiu vs Platinum Plans Phil., Inc. Case about stipulations in contracts which should not be contrary to law, morals, good customs, public order and public policy. Case about validity of non-involvement clause which is limited as to trade, time and place. Oblicon Concept: Article 1306 provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Article 1159 provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. 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 Hongkong and Asean operations. The parties executed a contract of employment valid for 5 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. Respondent alleged, among others, that petitioner’s   employment   with   Professional   Pension   Plans,   Inc.   violated   the non-involvement clause in her contract of employment. It contained provisions prohibiting the employee from working in the same business (i.e., pre-need industry) as her employer for 2 years. The liquidated damage is set at P100k. Petitioner avers that the non-involvement clause is offensive to public policy since the restraint imposed is much greater than what is necessary to afford respondent a fair and reasonable protection. She adds that since the products sold in the pre-need industry are more or less the same, the transfer to a rival company is acceptable. Petitioner also points out that respondent did not invest in her training or improvement. At the time she joined respondent, she already had the knowledge and expertise required in the pre-need industry. Finally, petitioner argues that a strict application of the noninvolvement clause would deprive her of the right to engage in the only work she knows. Issues: W/N the non-involvement clause is valid? Held: Yes. A non-involvement clause is not necessarily void for being in restraint of trade as long as there are reasonable limitations as to time, trade, and place. 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 preneed business akin to respondent’s.   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. 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.

Amber Gagajena Oblicon Digests – Block 1F

D. RELATIVITY OF CONTRACTS 1. 2.

To defraud creditors (Accion Pauliana) Pledge notarized

Case 75: National Power Corporation vs Province of Quezon and Municipality of Pagbilao Case about Relativity of Contracts NPC  has  no  legal  interest  in  operations  and  machineries  of  Mirant,  thus,  NPC  can’t  avail  of  tax-exemption on real property tax from the Local Government Code. Oblicon Concept: Art. 1311. If the contract should contain some stipulation in favor of a third person, he may demand its fulfilment 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. Facts: The NPC is a government-owned and controlled corporation mandated by law to undertake, among others, the production of electricity from nuclear, geothermal, and other sources, and the transmission of electric power on a nationwide basis. To pursue this mandate, the NPC entered into an Energy Conversion Agreement (ECA) with Mirant on November 9, 1991. The ECA provided for a build-operate-transfer (BOT) arrangement between Mirant and the NPC. Mirant will build and finance a coal-fired thermal power plant on the lots owned by the NPC in Pagbilao, Quezon for the purpose of converting fuel into electricity, and thereafter, operate and maintain the power plant for a period of 25 years. The NPC, in turn, will supply the necessary fuel to be converted by Mirant into electric power, take the power generated, and use it to supply the electric power needs of the country. At the end of the 25-year term, Mirant will transfer the power plant to the NPC without compensation. Among the obligations undertaken by the NPC under the ECA was the payment of ALL TAXES that the government may impose on Mirant. In  a  letter  dated  March  2,  2000,  the  Municipality  of  Pagbilao  assessed  Mirant’s  real property taxes on the power plant and its machineries in the total amount of P1,538,076,000 for the period of 1997 to 2000. The Municipality of Pagbilao furnished the NPC a copy of the assessment letter. NPC filed a case with the Local Board of Assessment Appeals (LBAA) to   avail   of   GOCC’s   tax   exemptions   (ON MACHINERIES AND EQUIPMENTS ACTUALLY, DIRECTLY AND EXCLUSIVELY USED) under Section 234, paragraphs (c) and (e) of the LGC. LBAA, CBAA, CTA and SC ruled against NPC. Issues: W/N  NPC  can  question  CBAA’s  jurisdiction? W/N NPC was not the proper party to protest the real property tax assessment, as it did not have the requisite "legal interest"? W/N NPC is using the subject machineries actually, directly, and exclusively? Held: No. Petitioner is bound by the appellate jurisdiction of the CBAA under the principle of equitable estoppel. In this regard, NPC is in no position to question the appellate jurisdiction of the CBAA as it is the same party which sought its jurisdiction and participated in the proceedings therein. Yes. The entity liable for tax has the right to protest the assessment (The owner of the real property or the person having legal interest therein). NPC is neither the owner nor the possessor/user of the subject machineries (subject to condition only after 25 years which may or may not happen). No. The government-owned or controlled corporation claiming exemption must be the entity actually, directly, and exclusively using the real properties, and the use must be devoted to the generation and transmission of electric power. Neither the NPC nor Mirant satisfies both requirements. Although  the  plant’s  machineries  are  devoted  to  the  generation  of   electric   power,   by   the   NPC’s   own   admission   and   as   previously   pointed   out,   Mirant – a private corporation – uses and operates them. That Mirant operates the machineries solely in compliance with the will of the NPC only underscores the fact that NPC does not actually, directly, and exclusively use them. The machineries must be actually, directly, and exclusively used by the government-owned or controlled corporation for the exemption under Section 234(c) to apply. 3.

Tortuous Interference

Case 76: Herminio Tayag vs Lacson

Oblicon Concept: Facts: Respondents Lacson et al. are owners of 3 parcels of land in Pampanga and these properties were tenanted agricultural lands administered by Renato Espinosa for the owner. A group of original farmers and another group individually executed in favor of the petitioner(Tayag) separate Deeds of Assignment in which the assignees assigned to the petitioner Amber Gagajena Oblicon Digests – Block 1F

respective rights as tenants of the land for a consideration of P50/sq.mtr. The certain amount was made payable when the legal impediments to the sale of the property no longer existed Petitioner also granted exclusive right to buy the property if and when the respondents(Lacson), with the concurrence of the defendants-tenants(the farmers), agreed to sell the property. Petitioner gave varied sums of money to the tenants and the latter issued receipts for the petitioner Petitioner called a meeting with the tenants to work out the implementation of the agreements but the tenants did not go to the meeting saying that they decided to sell all their rights and interests as tenants to the respondents. Petitioner filed a complaint with the RTC for the court to fix a period within which to pay the purchase price (50 per sqmtr.) as provided for in the Deeds of Assignments RTC held that petitioner was entitled to injunctive relief unless the respondents and tenants adduced controverting evidence Repondents appealed to CA CA ruled against the petitioner annulling and setting aside the assailed orders of the trial court Ca ruled that the respondents could not be enjoined from alienating or encumbering their property since they were not privies to the deeds of assignment executed by the tenants. These tenants were not yet owners of the properties and therefore, they had nothing to assign to the petitioner The deeds assigned were contrary to PD no. 27 and Rep. Act no. 6657. Issues: W/N Held:

Case 77: Gilchrist vs Cuddy, Jose Espejo and Mariano Zaldarriaga Case about Tortuous Interference This is the landmark case. Here, malice is not yet required for award of damages to injured party. Mere interference (even for furtherance of financial interest) is subject to damages. If there is malice then the award of damages will be higher. Oblicon Concept: The only motive for interference by the third party in that case was the desire to make a profit to the injury of one of the parties of the contract. There was no malice in the case beyond the desire to make an unlawful gain to the detriment of one of the contracting parties. Facts: Cuddy was the owner of the Zigomar. Gilchrist was the owner of a cinematograph theater in Iloilo. In accordance with the terms of the contract entered into between Cuddy and Gilchrist the former leased to the latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913. Cuddy willfully violate his contract in order that he might accept the appellant's offer of P350 for the film for the same period. Did the other respondents know that they were inducing Cuddy to violate his contract with a third party when they induced him to accept the P350? Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter from his agents in Manila dated April 26, assuring him that he could not get the film for about six weeks. The arrangement between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May were perfected after April 26, so that the six weeks would include and extend beyond May 26. The appellants must necessarily have known at the time they made their offer to Cuddy that the latter had booked or contracted the film for six weeks from April 26. Therefore, the inevitable conclusion is that the appellants knowingly induced Cuddy to violate his contract with another person. But there is no specific finding that the appellants knew the identity of the other party. Cuddy is liable for breach of contract. Other respondents liable for tortuous interference. Issues: W/N Held: The only motive for the interference with the Gilchrist — Cuddy contract on the part of the appellants was a desire to make a profit by exhibiting the film in their theater. There was no malice beyond this desire; but this fact does not relieve them of the legal liability for interfering with that contract and causing its breach. It is, therefore, clear, under the above authorities, that they were liable to Gilchrist for the damages caused by their acts. Case 78: Jose Lagon vs CA and Menandro Lapuz Case about Tortuous Interference 2nd requirement of KNOWLEDGE of the valid contract. No malice on the part of Lagon because he exercised due diligence in finding out existing attachments to land before contracting with the heirs. Oblicon Concept: Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall be liable for damages to the other contracting party. The tort recognized in that provision is known as interference with contractual relations. The interference is penalized because it violates the property rights of a party in a contract to reap the benefits that should result therefrom. Amber Gagajena Oblicon Digests – Block 1F

Facts: On June 23, 1982, Jose Lagon purchased from the estate of Bai Tonina Sepi, through an intestate court, two parcels of land located at Sultan Kudarat. A few months after the sale, private respondent Menandro Lapuz filed a complaint for torts and damages against petitioner. Respondent is claiming that petitioner induced the heirs to contract with him. Private respondent claimed that he entered into a contract of lease with the late Bai Tonina Sepi Mengelen Guiabar over three parcels of land in Sultan Kudarat, beginning 1964. One of the provisions agreed upon was for private respondent to put up commercial buildings which would, in turn, be leased to new tenants. The rentals to be paid by those tenants would answer for the rent private respondent was obligated to pay Bai Tonina Sepi for the lease of the land. In 1974, the lease contract ended but since the construction of the commercial buildings had yet to be completed, the lease contract was allegedly renewed. When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed administrator of her estate. But when the administrator advised him to stop collecting rentals from the tenants of the buildings he constructed, he discovered that petitioner, representing himself as the new owner of the property, had been collecting rentals from the tenants. Petitioner conducted due diligence before contracting with the heirs. Issues: W/N the petitioner is liable for interference of contractual relation under Article 1314 of the New Civil Code? W/N the petitioner liable for actual damages and attorney's fees? Held: No. Petitioner had no knowledge of the lease contract. He conducted his own personal investigation and inquiry, and unearthed no suspicious circumstance that would have made a cautious man probe deeper and watch out for any conflicting claim over the property. An examination of the entire property's title bore no indication of the leasehold interest of private respondent. Even the registry of property had no record of the same. No because there is no malice. In our view, petitioner's purchase of the subject property was merely an advancement of his financial or economic interests, absent any proof that he was enthused by improper motives. Being in the concept of actual damages, the award for attorney's fees must have clear, factual and legal bases which, in this case, do not exist. Case 79: So Ping Bun vs CA, Tek Hua Enterprises Corp and Manuel Tiong Case about lack of damages in Tortuous Interference without malice (only business interest). Oblicon Concept: The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of contract; and (3) interference of the third person is without legal justification or excuse. A duty which the law of torts is concerned with is respect for the property of others, and a 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. Facts: In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts. 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 Co. 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. Manuel Tiong, president of Tek Hua Enterprising Corp. demanded So Ping Bun to vacate the premises because it will use it for its own business (being the rightful lessee). 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. Issues: W/N So Ping Bun is guilty of tortuous interference? W/N  the  award  of  attorney’s  fees  against  petitioner  is  valid  despite  the  lack  of  malice?   Held: Yes. 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. Yes. NO DAMAGE TO BE AWARDED. While we do not encourage tort interferers seeking their economic interest to intrude into existing contracts at the expense of others, however, we find that the conduct herein complained of did not transcend the limits forbidding an obligatory award for damages in the absence of any malice. The business desire is there Amber Gagajena Oblicon Digests – Block 1F

to make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But it does not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones. The respondent appellate court correctly confirmed the permanent injunction and nullification of the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages. The injunction saved the respondents from further damage or injury caused by petitioner's interference. 4.

Stipulation Pour Autrui

Case 80: Limitless Potentials, Inc. vs Judge Quilala and Roman Catholic Archbishop of Manila Case about Stipulation Pour Autri in favor of a third person. Lease and sublease of billboards and payment in favor of the lessor not creditable to the lessee. Oblicon Concept: The definition of a stipulation pour autrui is set forth in the second paragraph of the above provision. The requisites for such stipulation are the following: (a) the stipulation in favor of a third person, the third-party beneficiary which should be a part, not the whole, of the contract; (b) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest; (c) the favorable stipulations should not be conditioned or compensated by any kind of obligation whatsoever; (d) the third person must have communicated his acceptance to the obligor before its revocation; and (e) neither of the contracting parties bear the legal representation or authorization of the third party. The third-party may be (a) a donee beneficiary; (b) a creditor beneficiary; or (c) an incidental beneficiary. The intent of the promisee to benefit a third person as a primary party-in-interest is generally said to be controlling. Facts: LPI had a lease contract with Roman Catholic Archbishop of Manila for advertising purposes over certain areas where the Our Lady of Guadalupe Minor Seminary Compound and the San Carlos Seminary Compound are located. Other advertising agencies, including ASTRO Advertising, Inc. (ASTRO), applied to RCAM for the putting up of neon signs/billboards in the leased premises. RCAM referred the applications to LPI. LPI wrote RCAM that it would execute the appropriate contracts with the applicants, and oversee the installation and operation of neon advertising signs; the overlapping of signboards would be avoided and the area would not be rendered unsightly and unmanageable. It also stated that the monthly rentals from the agencies shall go to the church to enable it to earn more. RCAM agreed. On January 18, 1990, LPI, as sublessor, and ASTRO, as sublessee, executed an agreement (Sublease Agreement) in which LPI sublet Lot 28-B for a period of five (5) years from February 1, 1990 to February 1, 1995. Under the agreement, ASTRO was to remit the rentals for the property directly to RCAM. LPI paid the rentals to RCAM until August 1993. ASTRO also paid to RCAM the rentals due under the Sublease Agreement from February 1, 1990 to July 1, 1993 totaling P832,920.00; LPI, however, was not credited the rental payments made by ASTRO. When the sublease to ASTRO expired in February 1995, RCAM did not turn over to LPI the possession of the sublet advertising spaces/areas; instead, the said areas were leased to Macgraphics Carranz International Corporation (MCIC) which erected its own billboards and advertising signs thereon. Issues: W/N LPI had overpaid RCAM for rentals due up to February 1, 1995 (insofar as the sublet spaces are concerned) and October 5, 1995 (insofar as the rest of the leased premises are concerned), and if so, how much LPI had overpaid? W/N LPI had the right to continue to possess the property from the time RCAM rescinded the MOA, until the expiration of the two-year period? W/N amended decision of the RTC ordering RCAM to restore possession of the property to LPI was immediately executory? Held: No. Without any solicitation therefor, LPI informed RCAM, through a letter, that it would earn more from monthly rentals from ASTRO, and that such rentals "shall go to the church." Thus, ASTRO’s  payments  should  not  be  creditable  to  LPI’s   payments since it is clear that this is a STIPULATION POUR AUTRI. Acceptance need not be written. Under the sublease agreement between LPI and ASTRO, the latter is obliged to remit its rental payments directly to RCAM, and not to LPI. RCAM accepted the offer of LPI and indeed, received all the rentals of ASTRO from February 1990 to July 1993. RCAM did not credit the said rentals to LPI. For its part, LPI paid the rentals under its lease agreement with RCAM, without deducting therefrom the rental payments of ASTRO for the said period. LPI never demanded that RCAM credit it for the rental payments of ASTRO. It was only when LPI sued RCAM for consignation, and the latter filed a suit for ejectment that LPI  claimed  the  crediting  of  ASTRO’s  rental  payments  from  February  1990  to  July  1993  for  the  first  time. Yes. A lessee unlawfully evicted by the lessor is entitled to be restored to the possession of the property leased for the "unused" period of the lease contract, counted from his eviction; such "unexpired portion" of the contract cannot be affected by the lapse of the period pending the final resolution of the complaint for ejectment filed by the lessor. No. The execution of the judgment pending appeal is proper only if the judgment is in favor of the plaintiff and against the defendant, and not vice versa.

Amber Gagajena Oblicon Digests – Block 1F

ARTICLES 1318-1324: Essential Requisites of a Contract CONSENT Case 81: Spouses David and Lorenzana Pelayo vs Melki Perez Case about presence of cause even if not equitable and just. The Court could not always protect a capacitated person from entering private transactions. Consensual contracts are valid upon perfection. The transaction is not under the requirements of RA 6656 or Comprehensive Agrarian Reform Law. Oblicon Concept: Sale is a consensual contract that is perfected by mere consent, which may either be express or  implied.  A  wife’s  consent   to   the   husband’s   disposition   of   conjugal   property   does   not   always   have   to   be   explicit   or   set   forth   in   any   particular   document, so long as it is shown by acts of the wife that such consent or approval was indeed given. Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: o (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; Facts: David Pelayo, by a Deed of Absolute Sale executed on January 11, 1988, conveyed to Melki Perez two parcels of agricultural land situated in Davao. Loreza Pelayo, wife of David, and another one whose signature is illegible witnessed the execution of the deed. Loreza,  however,  signed  only  on  the  third  page  in  the  space  provided  for  witnesses  on  account  of  which  Perez’  application   for registration of the deed with the Office of the Register of Deeds in Tagum, Davao was denied. Perez thereupon asked Loreza to sign on the first and second pages of the deed but she refused, hence, he instituted on August 8, 1991 the instant complaint for specific performance against her and her husband Pelayo. The defendants claimed that as the lots were occupied illegally by some persons against whom they filed an ejectment case, they and Perez who is their friend and known at the time as an activist/leftist, hence feared by many, just made it appear in the deed that the lots were sold to him in order to frighten said illegal occupants, with the intentional omission of Loreza’s  signature  so  that  the  deed  could  not  be  registered;;  and  that  the  deed  being  simulated  and  bereft  of  consideration   is void/inexistent. Perez countered that the lots were given to him by defendant Pelayo in consideration of his services as his attorney-in-fact to make the necessary representation and negotiation with the illegal occupants-defendants in the ejectment suit. Issues: W/N the deed of sale was null and void on the following grounds: o (a) for not complying with the provision in R.A. No. 6657 that such document must be registered with the Register of Deeds within three months after the effectivity of said law; o (b) for lack of marital consent; o (c) for being prohibited under Article 1491 (2) of the Civil Code; and o (d) for lack of consideration. Held: No.  The  issue  of  whether  or  not  the  deed  of  sale  is  null  and  void  under  R.A.  No.  6657,  for  respondent’s  failure  to  register   said document with the Register of Deeds within three months after the effectivity of R.A. No. 6657, had been resolved with finality by the CA in its Decision dated November 24, 1994 in CA-G.R. SP No. 38700. Herein petitioners no longer elevated said CA Decision to this Court and the same became final and executory on January 7, 1995. This is now the law of the case. No. Although it appears on the face of the deed of sale that Lorenza signed only as an instrumental witness, circumstances leading to the execution of said document point to the fact that Lorenza was fully aware of the sale of their conjugal property and consented to the sale. No. Petitioners, by signing the Deed of Sale in favor of respondent, are also deemed to have given their consent to the sale of the subject property in favor of respondent, thereby making the transaction an exception to the general rule that agents are prohibited from purchasing the property of their principals. No. The element of consideration for the sale is indeed present. Petitioners, in adopting   the   trial   court’s   narration   of   antecedent facts in their petition, thereby admitted that they authorized respondent to represent them in negotiations with the  "squatters"  occupying  the  disputed  property  and,  in  consideration  of  respondent’s  services, they executed the subject deed of sale. Aside from such services rendered by respondent, petitioners also acknowledged in the deed of sale that they received in full the amount of Ten Thousand Pesos. Evidently, the consideration for the sale is respondent’s  services   plus the aforementioned cash money. Case 82: Miguela Villanueva and Children vs CA, Central Bank, Philippine Veterans Bank and Ildefonso Ong Case about no perfected contract when one party becomes INSOLVENT before acceptance of offer. Miguela  (defrauded)  has  better  title  because  Ong’s  offer  not  perfected.

Amber Gagajena Oblicon Digests – Block 1F

Oblicon Concept: Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that: The contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed. Facts: The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva. Sometime in 1975, Miguela Villanueva sought the help of one Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but without the signature of her husband Celestino. Miguela Villanueva, however, never got the loan she was expecting. Subsequent attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that new titles over the two (2) lots were already issued in the name of the PVB. It appeared upon inquiry from the Registry of Deeds that the original titles of these lots were canceled and new ones were issued to Jose Viudez, which in turn were again canceled and new titles issued in favor of Andres Sebastian, until finally new titles were issued in the name of PVB after the lots were foreclosed for failure to pay the loan granted in the name of Andres Sebastian. Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold at auction. The PVB told her that she can redeem the lots for the price of P110,416.00. Negotiations for the repurchase of the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985. In October 1984, plaintiff-appellant offered to purchase two pieces of Land that had been acquired by PVB through foreclosure. To back-up plaintiff-appellant's offer he deposited the sum of P10,000.00. His offer was not yet accepted when the PVB became insolvent and went under receivership. Issues: W/N Ong has a better title to the 2 parcels of disputed land? Held: No. The Court of Appeals erred when it held that Ong had a better right than the petitioners to the purchase of the disputed lots. The insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act, especially in relation to its property, applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the resolution of the bank approving his bid as basis for his alleged right to buy the disputed properties. Case 83: Federico Serra vs CA and Rizal Commercial Banking Corporation Case  about  Certainty  of  Price  where  the  description  is  “not  greater  than  P210”. Case about Contract of Lease with Option to Buy. Oblicon Concept: Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. Facts: Petitioner is the owner of a parcel of land located at Quezon St., Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties. The LESSOR leases unto the LESSEE, the LESSEE hereby accepts in lease, the parcel of land, to have and to hold the same for a period of twenty-five (25) years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to purchase said parcel of land within a period of ten (10) years from the date of the signing of this Contract at a price not greater than P210.00 per square meter. For this purpose, the LESSOR undertakes, within such ten-year period, to register said parcel of land under the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account. Rent is P700 per month. Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its option and informed petitioner, through a letter, of its intention to buy the property at the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no longer selling the property. Issues: W/N the disputed contract is a contract of adhesion? W/N there was no consideration to support the option, distinct from the price, hence the option cannot be exercised? Amber Gagajena Oblicon Digests – Block 1F

W/N there should be currency adjustment on the already eroded value of the stipulated rentals for twenty-five years? W/N the price of purchase is certain? Held: No. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. No there was consideration. In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. In which case, the parties may then reciprocally demand performance. o The consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period stipulated. No. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an extraordinary inflation. Yes. Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in his testimony. Case 84: Ang Yu Asuncion, Arthur Go and Keh Tiong vs CA and Buen Realty Development Corporation Case about about unavailability of Motion for Execution in Right of First Refusal. This  right  can’t  be  enforced  because  it  lacks  elements of a valid contract. This should be a case on action for damages. Oblicon Concept: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Facts: On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court in Civil Case No. 8741058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; That on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; That since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them. Petitioners received favorable decision from the RTC and CA about their Right of First Refusal. On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation for P15M. On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058. The lessees filed a Motion for Execution. Issues: W/N the application of Writ of Execution in this case is valid? Held: No. In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum Amber Gagajena Oblicon Digests – Block 1F

juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages. Case 85: Equitorial Realty Development, Inc. vs Mayfair Theater, Inc. Case about Right of First Refusal vs Option Contract Case about rescission of contracts upon injury The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals should be modified, if not amplified under the peculiar facts of this case. Oblicon Concept: In Right of First Refusal, the lessor-seller should always notify first the lessee that he is intending to sell the property at a price, if he wants to match it then he can exercise his right of first refusal. Lessor-seller   is   not   bound   by   the   lessee’s   counter-offer. In this case, lessor-seller notified the lessee that he will sell at P7M. After 4 years, he sold the property for P11.3M to a third person. He should have notified the lessee again of the new price. If the lessee rejects, he will lose the right of first refusal. In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair "30-days exclusive option to purchase the (leased premises)," was meant to provide Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo should decide to dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling the leased property to third parties. The right vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if Carmelo should receive any offer from third parties to purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that offer. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. – CANT BE RESCINDED pag ganito. Facts: Carmelo owned a parcel of land, together with two 2-storey buildings. On June 1, 1967 Carmelo entered into 2 contracts of lease with Mayfair for the latter's lease of a portion of Carmelo's property for use by Mayfair as a motion picture theater (Maxim and Miramar) and for a term of 20 years. Both contracts of lease provides identically worded paragraph 8, which reads: o That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. RIGHT OF FIRST REFUSAL o 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 hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire 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 P7M. Mayfair wrote a letter of intent to buy. Four years later, on July 30, 1978, Carmelo sold its entire 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 P11.3M. Carmelo and Equitorial acted in bad faith. Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period. Issues: W/N the right of Mayfair is an option contract or right of first refusal? W/N Mayfair failed to exercise its right which is only 30 days from notice? Held: Right of first refusal. We agree with the respondent 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 not also correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration for the right of first refusal. No. 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 Amber Gagajena Oblicon Digests – Block 1F

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 (can still be exercised by Mayfair). o Since Mayfair has a right of  first  refusal  (it  can  buy  at  P11.3M  too  because  after  this  case,  the  property’s  price   skyrocketed already), it can exercise the right only if the fraudulent sale is first set aside or rescinded. Case 86: Bible Baptist and Pastor Reuben Belmonte vs CA and Spouses Elmer Medina Case about the need for consideration (whether monetary or not) for validity of option contracts Oblicon Concept: An option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. Facts: On June 7, 1985, the Bible Baptist Church entered into a contract of lease with Mr. & Mrs. Elmer Tito Medina Villanueva. The latter are the registered owners of a property located at Leon Guinto St., Malate, Manila. The pertinent stipulations in the lease contract were: That the lease shall take effect on June 7, 1985 and shall be for the period of 15 years. That LESSEE shall pay the LESSOR within five (5) days of each calendar month, beginning Twelve (12) months from the date of this agreement, a monthly rental of P10,000, plus 10% escalation clause per year starting on June 7, 1988. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of P84,000. Said sum is to be paid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of said property which is mortgaged by the LESSOR. That the LESSEE has the option to buy the leased premises during the 15 years of the lease. If the LESSEE decides to purchase the premises the terms will be: o A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. o A down payment agreed upon by both parties. o The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year. When  Bible  Baptist  decided  to  exercise  “the  option”,  the  spouses  Villanueva  did  not  sell. Petitioners claim that the Baptist Church "agreed to advance the large amount needed for the rescue of the property but, in exchange, it asked the Villanuevas to grant it a long term lease and an option to buy the property for P1.8 million." They argue that the consideration supporting the option was their agreement to pay off the Villanueva's P84,000 loan with the bank, thereby freeing the subject property from the mortgage encumbrance. Issues: W/N the option to buy given to the Baptist Church is founded upon a consideration? W/N by the terms of the lease agreement, a price certain for the purchase of the land had been fixed? W/N the Baptist Church is entitled to an award for attorney's fees? Held: No. The Baptist Church did not pay a separate and specific sum of money to cover the option alone. This Court agrees with respondents that the amount of P84,000 has been fully exhausted and utilized by their occupation of the premises and there is no separate consideration to speak of which could support the option. No. In view of this Court's finding that the option contract is not enforceable for being without consideration, the respondents Villanueva spouses' refusal to comply with it cannot be the basis of a claim for attorney's fees. Case 87: Public Estates Authority and Manuel Berina, Jr. vs Bolinao Security and Investigation Service, Inc. Case about government not duty bound to accept the highest bidder. The qualifications should be first be approved before the government can consider their bid. Oblicon Concept: Waiver is defined as the relinquishment of a known right with knowledge of its existence and an intention to relinquish it. Extension of the effectivity of the security service contract cannot be interpreted as an extension of the effectivity of license to operate a security agency. Neither can the new license issued to Bolinao Security be given retroactive effect without running afoul of the rule in public biddings that qualifications of bidders shall be determined at the time of the opening of the bids, and not at any other time. The "National Accounting and Auditing Manual" is explicit on the matter. Facts: On February 1, 1990, the PEA, a government corporation, through its then Acting General Manager Luis B. Pangilinan, Jr., entered into a Contract for Security Services with Bolinao Security and Investigation Services, Inc., to secure and protect  PEA’s  properties,  personnel  and  premises  at  Villa  Porta  Vaga  Subdivision,  Cavite  City.  The  contract  was  effective   February 1, 1990 until January 31, 1991, extendible at the option of PEA. In December 1990, PEA published in several newspapers an Invitation to Bid for the services of 307 regular and welltrained guards for its establishments, facilities, and other properties in Metro Manila including those in Cavite City. Amber Gagajena Oblicon Digests – Block 1F

PEA reserves the right to reject any proposal or waive any defects or formality, impose additional terms and conditions and accept the proposal most advantageous to the Government. The Terms of Reference (TOR) for Security Services listed the documents which an interested party should submit to PEA to qualify to bid. One of which is Xerox copy of CURRENT LICENCE to operate. In the meantime, after the contract with Bolinao Security expired on January 31, 1991, it was extended monthly by PEA up to July 29, 1991. nd The result of the bid shows that the 2 highest bidders (Bolinao placed 2 ) were disqualified for lacking requisites. The bid rd was awarded to the 3 highest bidder, Masada Security. Bolinao Security insisted to PEA, however, that it should be declared the winning bidder. But PEA explained that the bid of Bolinao Security was rejected because it failed to submit a current license to operate. Issues: W/N  the  thrashing  out  of  Bolinao  Security’s  bid  in  favor  of  Masada  Security  was  justified  by  PEA  in  view  of  the  former’s   lack  of  "current  license  to  operate"  at  the  time  of  the  opening  of  the  bids  on  April  10,  1991  and  PEA’s  "right  to  reject  any  or all bids" stipulation in the Invitation to Bid? Held: No.  The  lower  courts’  rulings  constituted an unjustified judicial intervention over purely executive matters and functions; where the invitation to bid provides that the government may reject any or all bids or any part thereof or waive any defects contained therein and accept an offer most advantageous to the government, the highest or lowest bidder, as the case may be, cannot claim the award as a matter of right; it should not be considered in estoppel by opening and reading the bids of Bolinao Security since it (PEA) declared, aside from its published reservation, that it reserved the right to reject any bid; and at all events, Bolinao Security failed to submit the most advantageous bid. ARTICLES 1327-1349: CONSENT Case 88. Jose and Aida Yason vs. Arciaga Case about presumption of capacity to enter into contracts. Those who are questioning the capacity has the burden of proof to show that there is no capacity. Oblicon Concept: Notarial document must be sustained in full force and effect so long as he who impugns it does not present strong, complete, and conclusive proof of its falsity or nullity on account of some flaws or defects provided by law. A notarized Deed of Absolute Sale has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its execution. Facts: Spouses Emilio and Claudia Arciaga were owners of land situated in Muntinlupa City. On March 28, 1983, they executed a Deed of Conditional Sale whereby they sold the land for P265,000.00 to petitioners. They tendered an initial payment of P150,000. On April 19, 1983, upon payment of the balance of P115,000, spouses Emilio and Claudia Arciaga executed a Deed of Absolute Sale. That day, Claudia died. She was survived by her spouse and their six children. Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City. They entrusted its registration to one Jesus Medina to whom they delivered the document of sale and the amount of P15,000 as payment for the capital gains tax. Without their knowledge, Medina falsified the Deed of Absolute Sale and had the document registered in the Registry of Deeds of Makati City. He made it appear that the sale took place on July 2, 1979, instead of April 19, 1983, and that the price of the lot was only P25,000, instead of P265,000. Sometime   in   April   1989,   spouses   Arciaga’s   children   learned   of   the   falsified   document   of   sale.   Four  of   them   caused  the   filing of a complaint for falsification of documents against petitioners. It was only after receiving the subpoena in April 1989 when they (petitioners) learned that the Deed of Absolute Sale was falsified. Respondents content that Claudia Arciaga (1) did not give her consent to the sale as she was then seriously ill, weak, and unable to talk and (2) Jesus Medina falsified   the   Deed   of   Absolute   Sale;;  that   without   Claudia’s   consent,   the   contract  is   void. Issues: W/N the Claudia Arciaga has the capacity to contract when she placed her thumb mark on the documents? Held: Yes. While it is true that Claudia was sick and bedridden, respondents failed to prove that she could no longer understand the terms of the contract and that she did not affix her thumbmark thereon. Unfortunately, they did not present the doctor or the nurse who attended to her to confirm that indeed she was mentally and physically incapable of entering into a contract. Mere weakness of mind alone, without imposition of fraud, is not a ground for vacating a contract. Only if there is unfairness in the transaction, such as gross inadequacy of consideration, the low degree of intellectual capacity of the party, may be taken into consideration for the purpose of showing such fraud as will afford a ground for annulling a contract. Hence, a person is not incapacitated to enter into a contract merely because of advanced years or by reason of physical infirmities, unless such age and infirmities impair his mental faculties to the extent that he is unable to properly, intelligently and fairly understand the provisions of said contract. Respondents failed to show that Claudia was deprived of Amber Gagajena Oblicon Digests – Block 1F

reason or that her condition hindered her from freely exercising her own will at the time of the execution of the Deed of Conditional Sale. Case 89. Epifania Dela Cruz vs. Spouses Sison Case about presumption of validity to notarized documents and other public documents. Party claiming FRAUD should be the one to procure evidence to prove such. Oblicon Concept: ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Documents acknowledged before notaries public are public documents which are admissible in evidence without necessity of preliminary proof as to their authenticity and due execution. They have in their favor the presumption of regularity, and to contradict the same, there must be evidence that is clear, convincing and more than merely preponderant. The burden of proof to overcome the presumption of due execution of a notarial document lies on the one contesting the same. Facts: Epifania claimed that sometime in 1992, she discovered that her rice land in Pangasinan, 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. Epifania thus filed a complaint before the RTC 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. They averred that Epifania could not have been deceived into signing the Deed of Absolute Sale because it was duly notarized before Notary Public Maximo V. Cuesta, Jr.; and they have complied with all requisites for its registration, as evidenced by the Investigation Report by the Department of Agrarian Reform (DAR); Affidavit of Seller/Transferor, Affidavit of Buyer/Transferee, Certification issued by the Provincial Agrarian Reform Officer (PARO), 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, proof that she agreed to the transfer of the property. Petitioner  claims  that  she  could  not  read  but  her  testimony  said  that  she  examined  Demetrio’s  Deed  of  Sale. Issues: W/N the Deed of Absolute Sale is valid? Held: Yes. These contradictory statements do not establish the fact that Epifania was unable to read and understand the English language. There being no evidence adduced to support her bare allegations, thus, Epifania failed to satisfactorily establish her inability to read and understand the English language. It is well settled that a party who alleges a fact has the burden of proving it. o 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 documents without ascertaining their contents, especially if, as she alleges, she did not direct Eduardo to prepare the same. Case 89. Spouses Paragas vs. Heirs of Dominador Balacano Case about incapacity to contract because one of the parties already at his death bed. Case about testimony of false witnesses. Oblicon Concept: ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Facts: Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of 2 huge lots. Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was confined until his death. Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-E and the whole Lot 1175-F to the Spouses Rudy and Corazon Paragas for the total consideration of P500,000. This sale appeared in a deed of absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on the same date – July 22, 1996 – and  witnessed  by  Antonio  Agcaoili  and  Julia  Garabiles  .  Gregorio’s  certificates  of  title  over  Lots  1175-E and 1175-F were consequently cancelled and new certificates of title were issued in favor of the Spouses Paragas. Amber Gagajena Oblicon Digests – Block 1F

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for the total consideration of P60,000. Petitioners claimed that: (1) the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996 and not July 22, 1996; (2) the Notary Public personally went to the Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already subject of a previously concluded covenant between Gregorio and the Spouses Paragas; (3) at the time Gregorio signed the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F were Gregorio’s  separate  capital  and  the  inscription  of  Lorenza’s  name  in  the  titles  was just  a  description  of  Gregorio’s  marital   status; (5) the entire area of Lots 1175-E and 1175-F were sold to the Spouses Paragas. Issues: W/N the Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano is void? Held: Yes.   We   do   not   consider   Atty.   de   Guzman’s   testimony   sufficient   evidence   to   establish   the   fact   that   there   was   a   prior agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-E and 1175-F. This testimony does not conclusively establish the meeting of the minds between Gregorio and the Spouses Paragas on the price or consideration for the sale of Lots 1175-E and 1175-F – Atty. de Guzman merely declared that he was asked by Gregorio to prepare a deed; he did not clearly narrate the details of this agreement. We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his testimony because of his tendency to commit falsity.  To  us,  Atty.  de  Guzman’s  propensity  to  distort  facts  in  the  performance  of  his  public  functions as a notary public, in utter disregard of the significance of the act of notarization, seriously affects his credibility as a witness in the present case. Given that Gregorio purportedly executed a deed during the last stages of his battle against his disease, we seriously doubt whether Gregorio could have read, or fully understood, the contents of the documents he signed or of the consequences   of   his   act.   We   note   in   this   regard   that   Gregorio   was   brought   to   the   Veteran’s   Hospital   at   Quezon   City   because his condition had worsened on or about the time the deed was allegedly signed. This transfer and fact of death not   long   after   speak   volumes   about  Gregorio’s   condition   at  that  time.  We   likewise   see   no conclusive evidence that the contents of the deed were sufficiently explained to Gregorio before he affixed his signature. Case 90. Development Bank of the Philippines and Privatization and Management Office vs. CA, Philippine United Foundry and Machinery Corp. and Philippine Iron Manufacturing Company Case about no UNDUE INFLUENCE of the bank to the company to refinance and restructure their loan. Oblicon Concept: Art 1330. A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable. Refinancing is an exchange of an old debt for a new debt, as by negotiating a different interest rate or term or by repaying the existing loan with money acquired from a new loan. Restructuring, as applied to a debt, implies not only a postponement of the maturity but also a modification of the essential terms of the debt (e.g., conversion of debt into bonds or into equity, or a change in or amendment of collateral security) in order to make the account of the debtor current. Facts: Sometime in March 1968, the DBP granted to respondents Philippine United Foundry and Machineries Corporation and Philippine Iron Manufacturing Company, Inc. an industrial loan in the amount of P2,500,000 consisting of P500,000 in cash and P2,000,000 in DBP Progress Bonds. The loan was evidenced by a promissory note dated June 26, 1968 and secured by a mortgage executed by respondents over their present and future properties such as buildings, permanent improvements, various machineries and equipment for manufacture. Subsequently, DBP granted to respondents another loan in the form of a five-year revolving guarantee amounting to P1,700,000 which was reflected in the amended mortgage contract dated November 20, 1968. According to respondents, the loan guarantee was extended to them when they encountered difficulty in negotiating the DBP Progress Bonds. Respondents were only able to sell the bonds in 1972 or about five years from its issuance for an amount that was 25% less than its face value. On September 10, 1975, the outstanding accounts of respondents with DBP were restructured in view of their failure to pay. Thus, the outstanding principal balance of the loans and advances amounting to P4,655,992.35 were consolidated into a single account. The restructured loan was evidenced by a new promissory note dated November 12, 1975. At around 1980s, the respondents obligations were again refinanced and restructured. Sometime in October 1985, DBP initiated foreclosure proceedings upon  its  computation  that  respondents’  loans  were  in   arrears by P62,954,473. According to DBP, this figure already took into account the intermittent payments made by respondents between 1968 and 1981 in the aggregate amount of P5,150,827. However, the foreclosure proceedings were suspended on twelve separate occasions from October 1985 to December 1986 upon the representations of respondents that a financial rehabilitation fund arising from a contract with the military was forthcoming. On December 23, 1986, before DBP could proceed with the foreclosure proceedings, respondents instituted the present suit for injunction. On January 6, 1987, the complaint was amended to include the annulment of mortgage. Issues: W/N the binding and obligatory force of contracts is the law between the parties? W/N the petitioners exerted UNDUE INFLUENCE? Amber Gagajena Oblicon Digests – Block 1F

W/N  contracts  take  effect  only  between  the  parties?  Respondent  linked  the  parties’  contract  with  its  contract  with  the  AFP. W/N  DBP  and  APT  can  foreclose  the  mortgages  on  respondents’  properties? Held: Yes. As correctly pointed out by PMO, the original loans alluded to by respondents had been refinanced and restructured in   order   to   extend   their   maturity   dates.   DBP   accommodated   respondents’   request   to   restructure   and   refinance   their   account twice in view of the financial difficulties the latter were experiencing. Thus, respondents should follow their revised contracts. No. The fact that the representatives were "forced" to sign the promissory notes and mortgage contracts in order to have respondents’   original   loans   restructured   and   to   prevent   the   foreclosure of their properties does not amount to vitiated consent. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting  party  as  to  destroy  the  latter’s  free  agency, making such party express the will of another rather than its own. The alleged lingering financial woes of a debtor per se cannot be equated with the presence of undue influence. o The threat to foreclose the mortgage would not in itself vitiate consent as it is a threat to enforce a just or legal claim through competent authority. Yes. Its contract with DBP is independent from its contract with AFP. Respondents must honor their contract with DBP. Yes. A mortgage is a mere accessory contract and its validity would depend on the validity of the loan secured by it. The debtor cannot escape the consequences of the mortgage contract once the validity of the loan is upheld. Case 91. The Manila Banking Corporation vs. Edmundo Silverio and CA Case about Absolute Simulation of Contract vs Fraudulent Alienation subject to Accion Pauliana (acts to defraud creditors) Oblicon Concept: An absolutely simulated contract, under Article 1346 of the Civil Code, is void. It takes place when the parties do not intend to be bound at all. The characteristic of simulation is the fact that the apparent contract is not really desired or intended to produce legal effects or in any way alter the juridical situation of the parties. Thus, where a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and control of the property; hence, the deed of transfer is but a sham. Lacking, therefore, in a fictitious and simulated contract is consent which is essential to a valid and enforceable contract. The  validity  of  the  contract  of  sale  being  the  focal  point  in  the  two  court’s  decision,  we  begin  our  analysis  into  the  matter with two veritable presumptions: first, that there was sufficient consideration of the contract and, second, that it was the result of a fair and regular private transaction. Facts: On 22 February 1990, herein petitioner, TMBC, filed a complaint with the RTC for the collection of a sum of money with application for the issuance of a writ of preliminary attachment against Ricardo, Sr. and the Delta Motors Corporation. On 02 July 1990, by virtue of an Order of the RTC, notice of levy on attachment of real property and writ of attachment were inscribed on TCTs. On 29 March 1993, the trial court rendered its Decision in favor of TMBC and against Ricardo, Sr. and the Delta Motors Corporation. The Decision was brought up to the Court of Appeals for review. In the meantime, on 22 July 1993, herein private respondent, Edmundo S. Silverio, the nephew of judgment debtor Ricardo, Sr., requested TMBC to have the annotations on the subject properties cancelled as the properties were no longer owned by Ricardo, Sr. No steps were taken to have the annotations cancelled. On 17 December 1993, Edmundo filed in the RTC of Makati City a case for "Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer Certificates of Title. In his petition, Edmundo alleged that as early as 11 September 1989, the properties, subject matter of the case, were already sold to him by Ricardo, Sr. As such, these properties could not be levied upon on 02 July 1990 to answer for the debt of Ricardo, Sr. who was no longer the owner thereof. In its Answer with Compulsory Counterclaim, TMBC alleged, among other things, that the sale in favor of Edmundo was void (SIMULATED CONTRACT), therefore, the properties levied upon were still owned by Ricardo, Sr., the debtor. Basic is the rule that only properties belonging to the debtor can be attached, and an attachment and sale of properties belonging to a third party are void.16 At the pith of the controversy, therefore, is the issue of ownership of the subject properties at the time of the levy thereof as the right of petitioner TMBC, as creditor, depends on whether such properties were still owned by its debtor, Ricardo, Sr., and not by Edmundo, who is concededly not a debtor of TMBC. If the properties were validly transferred to Edmundo before the levy thereof then cancellation of the annotation is in order. If, however, the sale was absolutely simulated and was entered into between uncle and nephew for the lone reason of removing the properties from the reach of TMBC, then the annotation should stay. Issues: W/N the contract of sale to Edmundo is simulated? W/N TMBC (a third party) can question the validity of the sale? W/N the notice of levy should be cancelled? Held: Yes. In herein case, badges of fraud and simulation permeate the whole transaction, thus, we cannot but refuse to give the sale validity and legitimacy. o There is no proof that the said sale took place prior to the date of the attachment. The notarized deed of sale, which would have served as the best evidence of the transaction, did not materialize until 22 July 1993, or three (3) years after TMBC caused the annotation of its lien on the titles subject matter of the alleged sale. Amber Gagajena Oblicon Digests – Block 1F

If it were true that money indeed changed hands on 11 September 1989 as evidenced by the assailed deed of sale, then, at the very least, Edmundo, as buyer, would definitely not have forgotten personally handing P3,109,425.00 to the seller. o As correctly pointed out by TMBC, an indication of simulation of contract is the complete absence of an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties. In herein case, Edmundo did not attempt to have the 1989 deed of sale registered until 1993. Yes. The remedy of accion pauliana is available when the subject matter is a conveyance, otherwise valid¸ undertaken in fraud of creditors. Such a contract is governed by the rules on rescission which prescribe, under Art. 1383 of the Civil Code, that such action can be instituted only when the party suffering damage has no other legal means to obtain reparation for the same. The contract of sale before us, albeit undertaken as well in fraud of creditors, is not merely rescissible but is void ab initio for lack of consent of the parties to be bound thereby. A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into; it produces no effect whatsoever either against or in favor of anyone. No. Edmundo, who has no legal interest in these properties, cannot cause the cancellation of the annotation of such lien for the reasons stated in his petition. o

Case 92. Heirs of Balite vs. Rodrigo Lim Case about Relatively Simulated Contract where the only irregularity is the price or consideration but all the other elements of a valid contract are present. Oblicon Concept: Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have given under the "contract." On the other hand, if the parties state a false cause in the contract to conceal their real agreement, such a contract is relatively simulated. Here, the parties’  real  agreement  binds  them. Facts: The spouses Aurelio and Esperanza Balite were the owners of a parcel of land with an area of 17,551 square meters. When Aurelio died intestate [in 1985, his wife], Esperanza Balite, and their children inherited the subject property and became co-owners thereof, with inheriting an undivided share of 9,751 square meters. In the meantime, Esperanza ill and was in dire need of money for her hospital expenses. She, through her daughter, Cristeta, offered to sell to Rodrigo Lim, her undivided share for the price of P1,000,000. Esperanza and Rodrigo agreed that, under the "Deed of Absolute Sale", to be executed by Esperanza over the property, it will be made to appear that the purchase price of the property would be P150,000 to avoid capital gains tax, although the actual price agreed upon by them for the property was P1,000,000. On April 16, 1996, Esperanza executed a "Deed of Absolute Sale" in favor of Rodrigo N. Lim over a portion of the property with an area of 10,000 square meters, for the price of P150,000. They also executed, on the same day, a "Joint Affidavit" under which they declared that the real price of the property was P1,000,000, payable to Esperanza, by installments. Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. (co-owners) learned of the sale, and on August 21, 1996, they wrote a letter to the Register of Deeds, saying that they were not informed of the sale of a portion of the said property by their mother nor did they give their consent thereto. On October 23, 1996, Esperanza signed a letter addressed to Rodrigo informing the latter that her children did not agree to the sale of the property to him and that she was withdrawing all her commitments until the validity of the sale is finally resolved. On October 31, 1996, Esperanza died intestate and was survived by her aforenamed children. Issues: W/N the Deed of Sale is valid? W/N there is still any sum for which respondent is liable? Held: Yes. A deed of sale that allegedly states a price lower than the true consideration is nonetheless binding between the parties and their successors in interest. Furthermore, a deed of sale in which the parties clearly intended to transfer ownership of the property cannot be presumed to be an equitable mortgage under Article 1602 of the Civil Code. Finally, an agreement that purports to sell in metes and bounds a specific portion of an unpartitioned co-owned property is not void;;  it  shall  effectively  transfer  the  seller’s  ideal  share  in  the  co-ownership. No answer. This Court is not a trier of facts. Case 93. Fr. Edilberto Cruz and Simplicio Cruz vs. Bancom Finance Corporation Case  about  Absolutely  Simulated  Contract,  thus,  transferring  no  new  title  to  the  transferee  who  won’t  be  able  to  use  it as mortgage asset. Banks should exercise extra ordinary diligence.

Amber Gagajena Oblicon Digests – Block 1F

Oblicon Concept: Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter when the parties conceal their true agreement. Art. 1346. An absolutely simulated contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their agreement. Facts: Brothers Rev. Fr. Edilberto Cruz and Simplicio Cruz were the registered owners of a 339,335 square meter parcel of land together with. Sometime in May 1978, defendant Norma Sulit, after being introduced by Candelaria Sanchez to Fr. Cruz, offered to purchase  the  land.  Petitioners’  asking  price  for  the  land  was  P700,000.00,  but  Norma  only  had  P25,000.00  which  Fr.  Cruz   accepted as earnest money with the agreement that titles would be transferred to Norma upon payment of the balance of P675,000.00. Norma failed to pay the balance and proposed to Fr. Cruz to transfer the property to her but the latter refused, obviously because he had no reason to trust Norma. But capitalizing on the close relationship of Candelaria Sanchez with the plaintiffs, Norma succeeded in having the plaintiffs execute a document of sale of the land in favor of Candelaria who would  then  obtain  a  bank  loan  in  her  name  using  the  plaintiffs’  land  as  collateral.   On the same day, Candelaria executed another Deed of Absolute Sale over the land in favor of Norma. In both documents, it appeared that the consideration for the sale of the land was only P150,000. Pursuant to the sale, Norma was able to effect the transfer of the title to the land in her name. Evidence shows that aside from the P150,000, Candelaria undertook to pay the plaintiffs the amount of P655,000.00 representing the balance of the actual price of the land. In a Special Agreement dated September 1, 1978, Norma  assumed  Candelaria’s  obligation, stipulating to pay the plaintiffs the said amount within six months on pain of fine or penalty in case of non-fulfillment. Unknown to the plaintiffs, Norma managed to obtain a loan from Bancom in the amount of P569,000.00 secured by a mortgage over the land now titled in her name. On  account  of  Norma’s  failure  to  pay  the  amount  stipulated  in  the  Special  Agreement  and  her  subsequent  disappearance   from her usual address, plaintiffs were prompted to file the herein complaint for the reconveyance of the land. Norma filed an Answer on February 11, 1980 but failed to appear in court and was eventually declared in default. On May 20, 1980, Bancom filed a motion for leave to intervene which was granted by the trial court. In its Answer in Intervention, Bancom claimed priority as mortgagee in good faith; and that its contract of mortgage with Norma had been executed before  the  annotation  of  plaintiffs’  interest  in  the  title. Meanwhile in the middle of 1980, Norma defaulted in her payment to the Bank and her mortgage was foreclosed. At the subsequent auction sale, Bancom was declared the highest bidder and was issued the corresponding certificate of sale over the land. Issues: W/N the Deed of Sale is null and void? W/N Bank is a mortgagee in good faith? Held: Yes. An absolutely simulated contract of sale is void ab initio and transfers no ownership right. The purported buyer, not being the owner, cannot validly mortgage the subject property. Consequently, neither does the buyer at the foreclosure sale acquire any title thereto. Although the Deed of Sale between petitioners and Sanchez stipulated a consideration of P150,000, there was actually no exchange of money between them. Another telling sign of simulation was the complete absence of any attempt on the part of the buyers -- Sanchez and Sulit -- to assert their alleged rights of ownership over the subject property. This fact was confirmed by respondent which, however, tried to justify the non-occupancy of the land by Sanchez and Sulit. Supposedly, because the two failed to pay the purchase price of the land, they could not force petitioners to vacate it. o Clearly, the Deeds of Sale were executed merely to facilitate the use of the property as collateral to secure a loan from a bank. Being merely a subterfuge, these agreements could not have been the source of any consideration for the supposed sales. Indeed, the execution of the two documents on the same day sustains the position of petitioners that the Contracts of Sale were absolutely simulated, and that they received no consideration therefor. No. Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations. ARTICLES 1350-1379 CAUSE OF CONTRACTS Case 94. E. Razon, Inc. and Enrique Razon vs Philippine Ports Authority, Solis, Jr. Suazo, Jr. and Marina Port Services, Inc. Case about Unlawful Cause (Romualdez to be able to contract with the government which was prohibited by law) making the Management Contract VOID. Exception that Motive precedes the cause which predetermines the contract. Amber Gagajena Oblicon Digests – Block 1F

Oblicon Concept: Unlawful cause makes the contract void. While the general rule is that the causa of the contract must not be confused with the motives of the parties, this case squarely fits into the exception that the motive may be regarded as causa when it predetermines the purpose of the contract. Facts: Petitioner E. Razon, Inc., also known as Metro Port Service, Inc. (MPSI), is a Philippine corporation organized on June 21, 1962 for the main purpose of bidding for the contract to manage all the piers in South Harbor, Manila. Co-petitioner Enrique Razon was allegedly the 100% equity owner. In 1978 to secure extension of its Management Contract, ERI transferred 60% shares of stock to Alfredo "Bejo" Romualdez,  the  Marcos’  brother-in-law. On December 31, 1978, the contract of petitioner ERI/MPSI expired. It was extended in 1979 to June 31, 1980, during which month respondent PPA executed a new contract in favor of ERI for a term of eight (8) years, beginning July 1, 1980. It is alleged that on February 26, 1986, after the ouster of the former government administration, petitioner Razon went to South Harbor and took active control, supervision and management of MPSI. On the same day, July 19, 1986, respondent PPA informed petitioner ERI/MPSI thru a letter of even date that it was canceling the management contract and taking over the cargo handling operations as well as the equipment of petitioner "effective immediately". On July 21, 1986, respondent PPA appointed Marina Port Services, Inc. as interim operator of the arrastre service at South Harbor. Issues: W/N the Management Contract is Void? W/N  ERI’s  right  to  due  process  was  violated? Held: Yes. The transfer of the shares of stock of petitioner E. Razon, Inc. representing 60% equity to persons fronting for Alfredo "Bejo" Romualdez was null and void. The invalidity springs not from vitiated consent nor absolute want of monetary consideration, but for its having had an unlawful cause — that of obtaining a government contract in violation of law. While the general rule is that the causa of the contract must not be confused with the motives of the parties, this case squarely fits into the exception that the motive may be regarded as causa when it predetermines the purpose of the contract. o On the part of Romualdez, the motive was to be able to contract with the government which he was then prohibited by law from doing, and on petitioner Razon's part, to be able to renew his management contract. For it is scarcely disputable that Enrique Razon would not have transferred said shares of stock to Romualdez without an assurance from the latter that he would be unduly favored with a renewal of the Management Contract. Thus, it came to pass that by transferring 60% of the shares in his company to Romualdez, petitioner Enrique Razon was able to secure an eight-year contract with respondent PPA and for six years before its cancellation benefit from the proceeds thereof. o Being the direct consequence and result of a previous illegal contract, the Management Contract itself is null and void as provided in Article 1422 of the Civil Code. No. Elementary in the law of contracts is the principle that no judicial action is necessary for the annulment of a void contract. Any such action would be merely declaratory. It was well within the rights of respondent PPA to unilaterally cancel and treat as avoided the Management Contract and no arbitrariness may be attached to its exercise of this right. Case 95. William Uy and Rodel Roxas Vs. CA, Hon. Robert Balao and National Housing Authority Case about the exception when Motive precedes the Cause which determines the contract. Case  about  Agents’  Interest  in  the  Cancellation  of  Contract  of  Sale  of  Parcel  of  Land  Between  their  Principals  and  NHA.   Oblicon Concept: Article 1311. Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. 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 (Stipulation Pour Autrui). 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. Art. 1318. There is no contract unless the following requisites concur: o (1) Consent of the contracting parties; o (2) Object certain which is the subject matter of the contract; o (3) Cause of the obligation which is established. 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 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, with an area of 31.8231 hectares, 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) Amber Gagajena Oblicon Digests – Block 1F

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 daños perjuicios. On 9 March 1992, petitioners filed before the Regional Trial Court (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. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action before the trial court. Issues: W/N the NHA had any legal basis for rescinding the sale involving the last 3 parcels of land? Held: Yes. 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. 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 (KUNG ANO MAKUKUHA). 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. o 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. Motive preceded the cause. FORM OF CONTRACTS Case 96. Estate and Heirs of Pedro Gonzales vs Heirs of Marcos Perez Case about validity of written contracts (even if not in public document because this is for convenience only) for transfer of real properties following Statute of Frauds. Case   about   nature   and   effect   of   provincial   governor’s   power   to   approve   contracts   entered   into   by   the   municipal   government. Oblicon Concept: SECTION 2196. Execution of deeds. – When the government of a municipality is a party to a deed or an instrument which conveys real property or any interest therein or which creates a lien upon the same, such deed or instrument shall be executed on behalf of the municipal government by the mayor, upon resolution of the council, with the approval of the governor (considered as voidable only which can be sold before voiding). Art. 1358. The following must appear in a public document: o (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2 and 1405; Art. 1403. The following contracts are unenforceable, unless they are ratified: o (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; Facts: On January 14, 1966, the Municipal Council of Marikina passed Resolution No. 9, series of 1966 which authorized the sale through public bidding of Municipal Lots A and C. On April 25, 1966, a public bidding was conducted wherein Pedro Gonzales was the highest bidder. Two days thereafter, or on April 27, 1966, the Municipal Council of Marikina issued Resolution No. 75 accepting the bid of Pedro. Thereafter, a deed of sale was executed in favor of the latter which was later forwarded to the Provincial Governor of Rizal for his approval. The Governor, however, did not act upon the said deed. Sometime in September 1966, Pedro sold to Marcos Perez a portion of Lot C, denominated as Lot C-3. The contract of sale was embodied in a Deed of Sale which, however, was not notarized. On February 7, 1992, the Municipality of Marikina, through its then Mayor Rodolfo Valentino, executed a Deed of Absolute Transfer of Real Property over Lots A and C in favor of the Estate of Pedro C. Gonzales. On October 1, 1992, herein respondents sent a demand letter to one of herein petitioners asking for the reconveyance of the subject property. However, petitioners refused to reconvey the said lot. As a consequence, respondents filed an action Amber Gagajena Oblicon Digests – Block 1F

for "Annulment and/or Rescission of Deed of Absolute Transfer of Real Property x x x and for Reconveyance with Damages." Issues: W/N Marcos, who is respondents' predecessor-in-interest, could not have legally bought the disputed parcel of land from petitioners' predecessor-in-interest? W/N the Deed of Sale is invalid on the ground that it does not appear in a public document? Held: No. The approval by the provincial governor of contracts entered into and executed by a municipal council, as required in Section 2196 of the Revised Administrative Code, is part of the system of supervision that the provincial government exercises over the municipal governments. The absence of the approval, therefore, does not per se make the contracts null and void. And since absence of such approval does not necessarily render the contract entered into by the municipality null and void, the transaction remains voidable until such time when by subsequent unfavorable action of the governor, for reasons of public interest, the contract is thereby invalidated. No. Under Article 1403(2), the sale of real property should be in writing and subscribed by the party charged for it to be enforceable. In the case before the Court, the Deed of Sale between Pedro and Marcos is in writing and subscribed by Pedro and his wife Francisca; hence, it is enforceable under the Statute of Frauds. o However, not having been subscribed and sworn to before a notary public, the Deed of Sale is not a public document and, therefore, does not comply with Article 1358 of the Civil Code. o Nonetheless, it is a settled rule that the failure to observe the proper form prescribed by Article 1358 does not render the acts or contracts enumerated therein invalid. It has been uniformly held that the form required under the said Article is not essential to the validity or enforceability of the transaction, but merely for convenience. REFORMATION Case 97. Flordeliza Emilio vs Bilma Rapal Case about Reformation where the petitioner claims that it should be a LOAN and not Deed of Sale. Oblicon Concept: For an action for reformation of instrument to prosper, the following requisites must concur: o (1) there must have been a meeting of the minds of the parties to the contract; o (2) the instrument does not express the true intention of the parties; and o (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident. The onus probandi (burden of proof) is upon the party who insists that the contract should be reformed. Facts: Since 1989, Bilma Rapal (respondent) had been leasing a portion of the house of the petitioner. In 1993, she leased an adjoining room in the house. In early 1996, petitioner borrowed P10,000 from respondent. By petitioner’s   claim,   she   accepted   respondent’s   offer   to   extend her an additional P60,000.00 loan upon the condition that respondent would not pay the monthly rentals from February 1996 until December 1998, as the total amount of P70,000.00 would serve as advance rentals. Atty. Patricio Balao-Ga  of  the  Public  Attorney’s  Office  (PAO)  notarized  a  document   entitled  “Sale  and  Transfer  of  Rights   over  a  Portion  of  a  Parcel  of  Land” executed by petitioner whereby she sold to respondent 27 sq. m. of her lot, together with the house constructed thereon, for a consideration of P90,000.00. Petitioner was later to claim that she signed the deed, without its contents having been explained to her. She thus filed a complaint on July 11, 2002 with the Regional Trial Court for reformation of document alleging that the deed of sale and transfer must be reformed, there being no intention on her part to sell the property as she could not do so without the consent of the NHA. Issues: W/N the Deed of Sale clearly expressed the intention of the parties? Held: Yes. Petitioner having admitted the existence and execution of the instrument, what remains to be resolved is whether the contract expressed the true intention of the parties; if not, whether it was due to mistake, fraud, inequitable conduct or accident. The onus probandi is upon the party who insists that the contract should be reformed. Since she was not able to prove the defect then the plain meaning of the contract is followed which is the law between the contracting parties. Case 98. PCI Leasing and Finance, Inc. vs Trojan Metal Industries, Inc., Walfrido Dizon, Elizabeth Dizon and John Doe Case about Reformation where the Sale and Leaseback Transaction is contrary to law and the correct transaction should be one of loan with chattel mortgage.

Amber Gagajena Oblicon Digests – Block 1F

Oblicon Concept: Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct, or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. In a true financial leasing, whether under RA 5980 or RA 8556, a finance company purchases on behalf of a cashstrapped lessee the equipment the latter wants to buy but, due to financial limitations, is incapable of doing so. The finance  company  then  leases  the  equipment  to  the  lessee  in  exchange  for  the  latter’s  periodic  payment  of  a  fixed  amount   of rental. Article 1144 of the Civil Code, the prescriptive period for actions based upon a written contract and for reformation of an instrument is ten years. Facts: Sometime in 1997, respondent Trojan Metal Industries, Inc. came to petitioner PCI Leasing and Finance, Inc. to seek a loan. Instead of extending a loan, PCILF offered to buy various equipment TMI owned. Hard-pressed for money, TMI agreed. PCILF   and   TMI   immediately   executed   deeds   of   sale   evidencing   TMI’s   sale   to   PCILF   of   the   various   equipment   in   consideration of the total amount of P2,865,070.00. PCILF and TMI then entered into a lease agreement, dated 8 April 1997, whereby the latter leased from the former the various equipment it previously owned. Pursuant to the lease agreement, TMI issued postdated checks representing 24 monthly installments. The lease agreement required TMI to give PCILF a guaranty deposit of P1,030,350.00, which would serve as security for the  timely  performance  of  TMI’s  obligations  under  the  lease  agreement,  to  be  automatically  forfeited   should TMI return (voluntary and not replevin) the leased equipment before the expiration of the lease agreement. To obtain additional loan from another financing company, TMI used the leased equipment as temporary collateral. PCILF considered the second mortgage a violation of the lease agreement.   At   this   time,   TMI’s   partial   payments   had   reached   P1,717,091.00. On  8  December  1998,  PCILF  sent  TMI  a  demand  letter  for  the  payment  of  the  latter’s  outstanding  obligation. On 7 September 1999, the RTC issued the writ of replevin PCILF prayed for, directing the sheriff to take custody of the leased equipment. Not long after, PCILF sold the leased equipment to a third party and collected the proceeds amounting to P1,025,000. Issues: W/N the sale with lease agreement the parties entered into was a financial lease or a loan secured by chattel mortgage? W/N PCILF should pay TMI, by way of refund, the amount of P1,166,826? Held: Loan secured by chattel mortgage. In this case, however, TMI already owned the subject equipment before it transacted with PCILF. Therefore, the transaction between the parties in this case cannot be deemed to be in the nature of a financial leasing as defined by law. The Court went on to explain that where the client already owned the equipment but needed additional working capital and the finance company purchased such equipment with the intention of leasing it back to him, the lease agreement was simulated to disguise the true transaction that was a loan with security. In that instance, continued the Court, the intention of the parties was not to enable the client to acquire and use the equipment, but to extend to him a loan. Yes. Records show that PCILF paid TMI P2,865,070 as consideration for acquiring the mortgaged equipment. In turn, TMI gave PCILF a guaranty deposit of P1,030,350.00. Thus, the amount of the principal loan was P1,834,720.00, which was the net amount actually received by TMI (proceeds of the sale of the equipment to PCILF minus the guaranty deposit). Against the principal loan of P1,834,720.00 plus the applicable interest should be deducted loan payments, totaling P1,717,091. Since PCILF sold the mortgaged equipment to a third party for P1,025,000., the proceeds of the said sale should be applied to offset the remaining balance on the principal loan plus applicable interest. ARTICLES 1380-1389: RESCISSIBLE CONTRACTS Case 99. Union Bank vs Spouses Ong and Jackson Lee Case about presumption of validity for contracts vs Badges of Fraud attending sale Case about the alleged Rescissibility of the Ong-Lee contract because done in Fraud of Creditors (alienation presumed in fraud of creditors. Oblicon Concept: Article 1381. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claim due them. Art. 1387(2). Alienation by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking rescission. When the validity of sales contract is in issue, two veritable presumptions are relevant: first, that there was sufficient consideration of the contract; and, second, that it was the result of a fair and regular private transaction. Facts: The spouses Alfredo Ong and Susana Ong, own the majority capital stock of Baliwag Mahogany Corporation (BMC). On October 10, 1990, the spouses executed a Continuing Surety Agreement in favor of Union Bank to secure a P40Mcredit line facility made available to BMC. The agreement expressly stipulated a solidary liability undertaking. Amber Gagajena Oblicon Digests – Block 1F

On October 22, 1991, or about a year after the execution of the surety agreement, the spouses Ong, for P12.5M, sold their lot located in Greenhills, San Juan, together with the house and other improvements standing thereon, to their corespondent, Jackson Lee. The following day, Lee registered the sale and was then issued TCT. At about this time, BMC had already availed itself of the credit facilities, and had in fact executed a total of 22 promissory notes in favor of Union Bank. On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration of Suspension of Payments with the SEC. To protect its interest, Union Bank lost no time in filing with the RTC of an action for rescission of the sale between the spouses Ong and Jackson Lee for purportedly being in fraud of creditors. Badges of Fraud alleged: o Consideration is inadequate (adequate because slight difference only to FMW - Not as gross to support a conclusion of fraud). o Petitioner used a case where a suit has been instituted against seller (not applicable in this case). o Sale upon credit by insolvent debtor (BMC is separate from Spouses Ong – Corporate Veil not pierced). o Failure of the vendee to take exclusive possession of the property (Because Lee leased it to Spouses for 1 year at P25k - either when he himself physically occupies the same or when another person who recognizes his right as owner is in such occupancy). Issue: W/N the Ong-Lee contract of sale partakes of a conveyance to defraud Union Bank? W/N Lee is buyer in good faith? Held: No. Respondent spouses Ong had sufficiently established the validity and legitimacy of the sale in question. The conveying deed, a duly notarized document, carries with it the presumption of validity and regularity. The sale was duly recorded and annotated on the title of the property owners, the spouses Ong. As the transferee of said property, respondent Lee caused the transfer of title to his name. The rescissory action to set aside contracts in fraud of creditors is accion pauliana, essentially a subsidiary remedy accorded under Article 1383 of the Civil Code which the party suffering damage can avail of only when he has no other legal means to obtain reparation for the same. It does not appear in this case that the petitioner sought other properties of the spouses other than the subject Greenhills property. For a contract to be rescinded for being in fraud of creditors, both contracting parties must be shown to have acted maliciously so as to prejudice the creditors who were prevented from collecting their claims. Yes. The twin elements of good faith and valuable and sufficient consideration have been duly established. Case 100. The Manila Banking Corporation vs. Edmundo Silverio and CA Case about Absolute Simulation of Contract (VOID) vs Fraudulent Alienation subject to Accion Pauliana (acts to defraud creditors) - RESCISSIBLE Case about Badges of Fraud where thing under litigation is alienated without the  defendant  and  court’s  knowledge  and   approval. Oblicon Concept: An absolutely simulated contract, under Article 1346 of the Civil Code, is void. It takes place when the parties do not intend to be bound at all. The characteristic of simulation is the fact that the apparent contract is not really desired or intended to produce legal effects or in any way alter the juridical situation of the parties. Thus, where a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and control of the property; hence, the deed of transfer is but a sham. Lacking, therefore, in a fictitious and simulated contract is consent which is essential to a valid and enforceable contract. The  validity  of  the  contract  of  sale  being  the  focal  point  in  the  two  court’s  decision,  we  begin  our  analysis  into  the  matter with two veritable presumptions: first, that there was sufficient consideration of the contract and, second, that it was the result of a fair and regular private transaction. Facts: On 22 February 1990, herein petitioner, TMBC, filed a complaint with the RTC for the collection of a sum of money with application for the issuance of a writ of preliminary attachment against Ricardo, Sr. and the Delta Motors Corporation. On 02 July 1990, by virtue of an Order of the RTC, notice of levy on attachment of real property and writ of attachment were inscribed on TCTs. On 29 March 1993, the trial court rendered its Decision in favor of TMBC and against Ricardo, Sr. and the Delta Motors Corporation. The Decision was brought up to the Court of Appeals for review. In the meantime, on 22 July 1993, herein private respondent, Edmundo S. Silverio, the nephew of judgment debtor Ricardo, Sr., requested TMBC to have the annotations on the subject properties cancelled as the properties were no longer owned by Ricardo, Sr. No steps were taken to have the annotations cancelled. On 17 December 1993, Edmundo filed in the RTC of Makati City a case for "Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer Certificates of Title. In his petition, Edmundo alleged that as early as 11 September 1989, the properties, subject matter of the case, were already sold to him by Ricardo, Sr. As such, these properties could not be levied upon on 02 July 1990 to answer for the debt of Ricardo, Sr. who was no longer the owner thereof. In its Answer with Compulsory Counterclaim, TMBC alleged, among other things, that the sale in favor of Edmundo was void (SIMULATED CONTRACT), therefore, the properties levied upon were still owned by Ricardo, Sr., the debtor. Basic is the rule that only properties belonging to the debtor can be attached, and an attachment and sale of properties belonging to a third party are void.16 At the pith of the controversy, therefore, is the issue of ownership of the subject Amber Gagajena Oblicon Digests – Block 1F

properties at the time of the levy thereof as the right of petitioner TMBC, as creditor, depends on whether such properties were still owned by its debtor, Ricardo, Sr., and not by Edmundo, who is concededly not a debtor of TMBC. If the properties were validly transferred to Edmundo before the levy thereof then cancellation of the annotation is in order. If, however, the sale was absolutely simulated and was entered into between uncle and nephew for the lone reason of removing the properties from the reach of TMBC, then the annotation should stay. Issues: W/N the contract of sale to Edmundo is simulated? W/N TMBC (a third party) can question the validity of the sale? W/N the notice of levy should be cancelled? Held: Yes. In herein case, badges of fraud and simulation permeate the whole transaction, thus, we cannot but refuse to give the sale validity and legitimacy. o There is no proof that the said sale took place prior to the date of the attachment. The notarized deed of sale, which would have served as the best evidence of the transaction, did not materialize until 22 July 1993, or three (3) years after TMBC caused the annotation of its lien on the titles subject matter of the alleged sale. o If it were true that money indeed changed hands on 11 September 1989 as evidenced by the assailed deed of sale, then, at the very least, Edmundo, as buyer, would definitely not have forgotten personally handing P3,109,425 to the seller. o As correctly pointed out by TMBC, an indication of simulation of contract is the complete absence of an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties. In herein case, Edmundo did not attempt to have the 1989 deed of sale registered until 1993. Yes. The remedy of accion pauliana is available when the subject matter is a conveyance, otherwise valid¸ undertaken in fraud of creditors. Such a contract is governed by the rules on rescission which prescribe, under Art. 1383 of the Civil Code, that such action can be instituted only when the party suffering damage has no other legal means to obtain reparation for the same. The contract of sale before us, albeit undertaken as well in fraud of creditors, is not merely rescissible but is void ab initio for lack of consent of the parties to be bound thereby. A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into; it produces no effect whatsoever either against or in favor of anyone. No. Edmundo, who has no legal interest in these properties, cannot cause the cancellation of the annotation of such lien for the reasons stated in his petition. VOIDABLE CONTRACTS Case 101. The Roman Catholic Church vs Regino Pante Case about alleged Voidable Contract of Sale due to fraud. Case about Double Sale. Oblicon Concept: Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: o (1) Those where one of the parties is incapable of giving consent to a contract; o (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. o Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. o Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession (whether thru actual or constructive delivery – Pante did this); and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. Facts: The Church owned a 32-square meter lot that measured 2x16 meters located in Camarines Sur. On September 25, 1992, the Church contracted with respondent Regino Pante for the sale of the lot (thru a Contract to Sell and to Buy) on the belief that the latter was an actual occupant of the lot. The contract between them fixed the purchase price at P11,200.00, with the initial P1,120.00 payable as down payment, and the remaining balance payable in three years or until September 25, 1995. On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi a 215-square meter lot that included the lot previously sold to Pante. The spouses Rubi asserted their ownership by erecting a concrete fence over the lot sold to Pante, effectively blocking Pante  and  his  family’s  access  from  their  family  home  to  the  municipal  road.   As no settlement could be reached between the parties, Pante instituted with the RTC an action to annul the sale between the Church and the spouses Rubi, insofar as it included the lot previously sold to him. The Church filed its answer with a counterclaim, seeking the annulment of its contract with Pante. The Church alleged that its consent to the contract was obtained by fraud when Pante, in bad faith, misrepresented that he had been an actual occupant of the lot sold to him, when in truth, he was merely using the 32-square meter lot as a passageway from his house to the town proper. Amber Gagajena Oblicon Digests – Block 1F

It contended that it was its policy to sell its lots only to actual occupants. Since the spouses Rubi and their predecessorsin-interest have long been occupying the 215-square meter lot that included the 32-square meter lot sold to Pante, the Church claimed that the spouses Rubi were the rightful buyers. Issue: W/N the contract of sale is voidable for fraud? Held: No. No misrepresentation existed vitiating the
seller’s   consent   and   invalidating   the   contract.   The   actual   occupancy   or   residency of a buyer over the land does not appear to be a necessary qualification that the Church requires before it could sell its land. Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of the 32square meter lot, as none of them actually occupied or resided on the lot. We note in this regard that the lot was only a 2x16-meter   strip   of   rural   land   used   as   a   passageway   from   Pante’s   house   to   the   municipal   road.   The   surrounding   circumstances (being in the same brgy and verifiable) actually indicate that the Church was aware that Pante was using the lot merely as a passageway. From another perspective, any finding of bad faith, if one is to be made, should be imputed to the Church. Without securing a court ruling on the validity of its contract with Pante, the Church sold the subject property to the spouses Rubi. Article 1390 of the Civil Code declares that voidable contracts are binding, unless annulled by a proper court action. From the time the sale to Pante was made and up until it sold the subject property to the spouses Rubi, the Church made no move  to  reject  the  contract  with  Pante;;  it  did  not  even  return  the  down  payment  he  paid.  The  Church’s  bad  faith  in  selling   the lot to Rubi without annulling its contract with Pante negates its claim for damages. Case 102. Spouses Fernando and Lourdes Villoria vs Continental Airlines, Inc. Case about alleged VOIDABLE contract due to fraud. Case about agency. Oblicon Concept: Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Facts: On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, 2 round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at US$400 each from a travel agency called "Holiday Travel" and was attended to by a certain Margaret Mager. According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no available seats at Amtrak, an intercity passenger train service provider in the United States. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on August 21, 1997. Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526 per passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied his request as the subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-issuance of new tickets within 1 year from the date the subject tickets were issued. Fernando decided to reserve 2 seats with Frontier Air. As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased 2 tickets for Washington, D.C. In  a  letter  dated  March  24,  1998,  Continental  Micronesia  denied  Fernando’s  request  for  a  refund  and  advised  him  that  he   may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within 2 years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee. On  June  17,  1999,  Fernando  went  to  Continental’s  ticketing  office  at  Ayala  Avenue,  Makati  City  to  have  the  subject  tickets   replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was informed that Lourdes’  ticket  was  non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was US$1,867 so he would have to pay what will not be covered by the value of his San Diego to Newark round trip ticket. Issue: W/N a principal-agent relationship exist between CAI and Holiday Travel? W/N assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of Holiday Travel’s  agents  and  employees  such  as  Mager? W/N the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria in the purchase of the subject tickets? W/N CAI justified in insisting that the subject tickets are non-transferable and non-refundable? W/N CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando?

Amber Gagajena Oblicon Digests – Block 1F

W/N CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the subject tickets in the purchase of  new  ones  when  it  refused  to  allow  Fernando  to  use  Lourdes’  ticket  and  in  charging  a  higher  price  for  a  round  trip  ticket   to Los Angeles? Held: Yes. A principal-agent relationship exists between CAI and Holiday Travel. All the elements of an agency exist in this case. It depends on evidence. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s  employees  if  it  has  been  established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them. No. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not entitled to a refund.  Mager’s  statement  cannot be considered a causal fraud that would justify the annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets. No. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts. Accordingly, by pursuing the remedy of rescission under Article 1191 (Valid – Not Voidable), the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. No. Contracts cannot be rescinded for a slight or casual breach. No. CAI has the discretion on how much it will charge and the newspaper ad of another airline is not admissible for comparison. Case 103. Eduardo Manzano vs. Antonio Lazaro Case about alleged VOIDABLE contract thru MISTAKE or FRAUD but IMPLIEDLY/TACITLY RATIFIED. Oblicon Concept: Implied Ratification Facts: On February 16, 1998, petitioner Eduardo B. Manzano and respondent Antonio B. Lazaro entered into a Professional Services Contract pertaining to the former's candidacy for the Vice-Mayoralty post in Makati City. Subsequently, petitioner won as Vice-Mayor of Makati. Respondent, thereafter, learned in a transmittal letter dated June 16, 1998 representing the last payroll of certain individuals, which included him, that he would be paid the amount of P15k only and the balance of P20k shall be forwarded only upon his final inventory of materials used during the campaign. Hence, respondent, in his letter dated July 3, 1998 to petitioner, wrote that he had already turned over the equipment used for the campaign. Respondent then demanded the payment of P20k as balance of his compensation and the P200k bonus pay agreed upon. Petitioner acknowledged respondent's demand letter and the delivery of the campaign equipment and furniture in his letter dated July 17, 1998, but wrote that he needed to receive the liquidation of the expenses incurred during the campaign, which task was requested shortly after the May 11, 1998 elections. In his letter dated July 30, 1998, respondent wrote that the preparation of the audited financial report of the campaign was not part of his responsibilities as he was not in charge of the management of campaign funds; that such function was assigned to Robert Gomez and Soliman Cruz (Cruz) who acted as petitioner's Director for Finance with petitioner's brother, Angie Manzano (Angie), as the auditor. He reiterated the payment of P220k due him. In his defense, petitioner argued that he hired respondent's services because of the latter's representation of being a seasoned and an experienced campaign manager. However, during the campaign period, he discovered that respondent had no expertise or capacity for political organization and was often absent during campaign sorties and public meetings; that he failed to provide petitioner with poll watchers to safeguard his chances of winning against electoral fraud. Issue: W/N the contract is RESCISSIBLE? W/N the contract is VOIDABLE? W/N petitioner ratified the voidable contract? Held: Not. Petitioner's claim of breach of obligation consisted only of his uncorroborated and self-serving statement which was contradicted by the evidence on record. SC is bound by the facts of the RTC when adopted by the CA. Noteworthy to mention is the fact that petitioner had even paid respondent his salary for the three-month period with only a balance of P20,000.00, conditioned upon respondent's delivery of the inventory of campaign equipment. Such payment established that indeed respondent had performed his responsibilities under the contract. We, therefore, agree with the RTC's conclusion that petitioner's claim of breach of contract was merely used as an excuse to evade payment of the amounts due respondent. Yes. The alleged fraud committed by appellee upon appellant made the contract for professional services a voidable contract. Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified, the action to annul it is extinguished and the contract is cleansed from all its defects. But if the contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as a consequence. Assuming  that   it’s   voidable,   the   petitioner   impliedly ratified. No action was taken by appellant to annul the professional service contract. Appellant also did not confront appellee regarding the latter's poor campaign services. This silence, taken together with appellant's demand for appellee to make an inventory of equipment and a liquidation of the funds used Amber Gagajena Oblicon Digests – Block 1F

during the campaign, constitutes in itself an effective ratification of the original agreement in accordance with Article 1393 of the Civil Code. UNENFORCEABLE CONTRACTS Case 99. Spouses Alcantara and Spouses Rubi vs Brigida Nido, as atty-in-fact of Revelen Srivastava Case about VOID contract due to lack of authority of the agent to sell real property. Case about UNAUTHORIZED CONTRACTS which are unenforceable. Case about original jurisdiction of the MTC in dispositions of immovable with value below P20k and P50k for Metro Manila. Oblicon Concept: Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Art. 1878. Special powers of attorney are necessary in the following cases: o (5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration; Facts: Revelen,  who  is  respondent’s  daughter  and  of  legal  age,  is  the  owner  of  an  unregistered  land  with  an  area  of  1,939  square   meters located in Rizal. Sometime in March 1984, respondent (agent) accepted the offer of petitioners to purchase a 200-square meter portion of Revelen’s  lot  (lot)  at  P200  per  square  meter.   Petitioners paid P3,000 as downpayment and the balance was payable on installment. Petitioners constructed their houses  in  1985.  In  1986,  with  respondent’s  consent,  petitioners  occupied  an   additional 150 square meters of the lot. By 1987, petitioners had already paid P17,500 before petitioners defaulted on their installment payments. On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a complaint for recovery of possession with damages and prayer for preliminary injunction against petitioners with the RTC. Issue: W/N the contract entered into by respondent, in representation of her daughter, and former defendant Eduardo Rubi (deceased), is void? W/N the General Power of Attorney executed by Revelen in the US can authorize her agent? W/N the petitioners are entitled to their counterclaims, particularly specific performance? W/N the RTC has original jurisdiction? Held: Yes. Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable property. Based  on  a  review  of  the  records,  there  is  absolutely  no  proof  of  respondent’s  written  authority  to  sell  the  lot  to  petitioners. In fact, during the pre-trial conference, petitioners admitted that at the time of the negotiation for the sale of the lot, petitioners were of the belief that respondent was the owner of lot. Petitioners only knew that Revelen was the owner of the lot during the hearing of this case. Consequently, the sale of the lot by respondent who did not have a written authority from Revelen is void. A void contract produces no effect either against or in favor of anyone and cannot be ratified. No. Since the General Power of Attorney was executed and acknowledged in the United States of America, it cannot be admitted in evidence unless it is certified as such in accordance with the Rules of Court by an officer in the foreign service of the Philippines stationed in the United States of America. Hence, this document has no probative value. No. Petitioners are not entitled to claim for specific performance. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof. To reiterate, there is a clear absence of proof that Revelen authorized respondent to sell her lot. No. The appellate court correctly ruled that even if the complaint filed with the RTC involves a question of ownership, the MTC still has jurisdiction because the assessed value of the whole lot as stated in Tax Declaration is P4,890. Case 105. Orduna vs Fuentebella, Cid and Gabriel, Jr. Case about Enforceability of the Contract To Sell even if not written down (in accordance with Statute of Frauds) because the contract is a PARTIALLY EXECUTED CONTRACT and the sellers received benefits from the sale (i.e., installment payments). Oblicon Concept: Article 1403 par 2 of the Civil Code applies only to executory contracts, i.e., those where no performance has yet been made. Stated a bit differently, the legal consequence of non-compliance with the Statute does not come into play where the contract in question is completed, executed, or partially consummated. Facts: Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Orduña, but no formal deed was executed to document the sale. The contract price was apparently payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted partial payments. One of the Orduñas would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the purchase price. As early as 1979, however, Antonita and her sons, Dennis and Anthony Orduña, were already occupying the subject lot. Amber Gagajena Oblicon Digests – Block 1F

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT over the subject lot and continued accepting payments from the petitioners. Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta obviously without the knowledge of petitioners. Bernard then sold to the Cids, which in turn also sold to Eduardo. As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo, checked, so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry and discovered said title to be free and unencumbered at the time each purchased the property. Furthermore, respondent Eduardo, before buying the property, was said to have inspected the same and found it unoccupied by the Orduñas. Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent a letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically occupying the subject lot vacate the premises or face the prospect of being ejected. The respondents won in the RTC and CA but lost in the SC. Issue: W/N the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of Frauds? W/N the sale has adequate consideration? W/N the instant action has already prescribed? W/N the respondents are purchasers in good faith? Held: No. The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent. However, where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the vendor, as in the present case, the contract is taken out of the scope of the Statute. Yes. The Court, therefore, cannot see its way clear as to how the RTC arrived at its simplistic conclusion about the transaction between Gabriel Sr. and Antonita being without "adequate consideration." RTC and CA equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. No. The prescriptive period for the reconveyance of fraudulently registered real property is 10 years, reckoned from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but imprescriptible if he is in possession of the property. Thus, one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. As it   is,   petitioners’   action   for   reconveyance is imprescriptible. No. The act of registration by any of the three respondent-purchasers was not coupled with good faith. At the minimum, each was aware or is at least presumed to be aware of facts which should put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor (i.e., the seller is not in actual possession of the property sold). Case 106. Spouses Torcuator vs Spouses Bernabe and Spouses Salvador Case about Special Power of Attorney as NOT notes and memoranda contemplated in Art. 1403. Oblicon Concept: Art. 1403. The following contracts are unenforceable unless they are ratified: (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: o (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or an interest therein; Facts: The subject of this action is Lot 17, Block 5 of the Ayala Alabang Village. The lower court found that the above parcel of land was purchased by the spouses Salvador from the developers of Ayala Alabang subject, among others, to the following conditions: o "It is part of the condition of buying a lot in Ayala Alabang Village o (a) that the lot buyer shall deposit with Ayala Corporation a cash bond (about P17,000.00 for the Salvadors) which shall be refunded to him if he builds a residence thereon within two (2) years of purchase, otherwise the deposit shall be forfeited, o (b) architectural plans for any improvement shall be approved by Ayala Corporation, and o (c) no lot may be resold by the buyer unless a residential house has been constructed thereon (Ayala Corporation keeps the Torrens Title in their sic possession). Evidences on record further reveal that on December 18, 1980, the Salvadors sold the parcel of land to the spouses Bernabe. Given the above restrictions, the Salvadors concomitantly executed a special power of attorney authorizing the Bernabes to construct a residential house on the lot and to transfer the title of the property in their names. The Bernabes, on the other hand, without making any improvement, contracted to sell the parcel of land to the spouses Torcuator sometime in September of 1986. Amber Gagajena Oblicon Digests – Block 1F

Then again, confronted by the Ayala Alabang restrictions, the parties agreed to cause the sale between the Salvadors and the Bernabes cancelled in favor of (a) a new deed of sale from the Salvadors directly to the Torcuators; (b) a new Irrevocable Special Power of Attorney executed by the Salvadors to the Torcuators in order for the latter to build a house on the land in question; and (c) an Irrevocable Special Power of Attorney from the Salvadors to the Bernabes authorizing the latter to sell, transfer and convey, with power of substitution, the subject lot. The Torcuators thereafter had the plans of their house prepared and offered to pay the Bernabes for the land upon delivery of the sale contract. For one reason or another, the deed of sale was never consummated nor was payment on the said sale ever effected. Subsequently, the Bernabes sold the subject land to Leonardo Angeles, a brother-in-law. The document however is not notarized. As a result, the Torcuators commenced the instant action against the Bernabes and Salvadors for Specific Performance or Rescission with Damages. Issue: W/N the CA may dismiss their appeal on the strength of issues which were neither pleaded nor proved? W/N the contract is a contract of sale or contract to sell? Held: Yes. Contract to sell. First, the agreement imposed upon petitioners the obligation to fully pay the agreed purchase price for the property. That ownership shall not pass to petitioners until they have fully paid the price is implicit in the agreement. Secondly, the parties clearly intended the construction of a residential house on the property as another suspensive condition which had to be fulfilled. Ayala Corporation retained title to the property and the Salvador spouses were precluded from selling it unless a residence had been constructed thereon. Thirdly, there was neither actual nor constructive delivery of the property to petitioners. Apart from the fact that no public document evidencing the sale was executed, which would have been considered equivalent to delivery, petitioners did not take actual, physical possession of the property. The special power of attorney, which petitioners count on as evidence that they took possession of the property, can by no means be interpreted as delivery or conveyance of ownership over the property. o In the instant case, petitioners present as written evidence of the agreement the special power of attorney executed in their favor by the Salvadors and the summary of agreement allegedly initialed by respondent Remigio Bernabe. These documents do not suffice as notes or memoranda as contemplated by Article 1403 of the Civil Code. Case 107. Rosencor Development Corporation and Rene Joaquin vs Inquing, Guillermo, Bantugan, Magbanua and Tiangco Case about EXCLUSIVITY of the list of Statute of Frauds (Right of First Refusal is not one of them). Rescission not available in case of purchaser in good faith. Oblicon Concept: Art. 1403. The following contracts are unenforceable, unless they are ratified: (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: o e) An agreement for the leasing of a longer period than one year, or for the sale of real property or of an interest therein; Facts: Respondents averred that they are the lessees since 1971 of a two-story residential apartment located at Tomas Morato Ave., Quezon City and owned by spouses Tiangco. The lease was not covered by any contract. The lessees were renting the premises then for P150 a month and were allegedly verbally granted by the lessors the pre-emptive right to purchase the property if ever they decide to sell the same. Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had knowledge that this right was extended to the former by the late spouses Tiangcos. The lessees continued to stay in the premises and allegedly spent their own money amounting from P50,000 to P100,000 for its upkeep. These expenses were never deducted from the rentals which already increased to P1,000. In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate the premises so that the demolition of the building be undertaken. They received a letter from Eufrocina de Leon offering to sell to them the property they were leasing for P2,000,000. The lessees offered to buy the property from de Leon for the amount of P1,000,000. De Leon told them that she will be submitting the offer to the other heirs. Since then, no answer was given by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin came to the leased premises introducing himself as its new owner. A month thereafter, the lessees received a letter from de Leon advising them that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The following month Atty. Aguila wrote them another letter demanding the rental payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of the premises. The lessees requested from de Leon why she had disregarded the pre-emptive right she and the late Tiangcos have promised them. They also asked for a copy of the deed of sale between her and the new owners thereof but she refused Amber Gagajena Oblicon Digests – Block 1F

to heed their request. In the same manner, when they asked Rene Joaquin a copy of the deed of sale, the latter turned down their request and instead Atty. Aguila wrote them several letters demanding that they vacate the premises. The lessees offered to tender their rental payment to de Leon but she refused to accept the same. It was also at this instance that the lessees were furnished with a copy of the Deed of Sale and discovered that they were deceived by de Leon since the sale between her and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon made the offer to them only in October 1990 or after the sale with Rosencor had been consummated. The lessees also noted that the property was sold only for P726,000. Issue: W/N the right of first refusal is indeed covered by the provisions of the New Civil Code on the statute of frauds? W/N the respondents have satisfactorily proven their right of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon? W/N  the  contract  of  sale  entered  into  in  violation  of  a  third  party’s  right  of  first  refusal  be  rescinded  in  order  that  such   third party can exercise said right? Held: No. A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale. A right of first refusal, such as the one involved in the instant case, is not by any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to be sold. Yes. Respondents have adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were currently leasing should they decide to sell the same. No. We hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of the property on September 4, 1990, petitioners were aware or had notice of the oral right of first refusal. The acquisition by Rosencor of the property subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in lawful possession of the subject of the contract and that it did not act in bad faith. VOID CONTRACTS Case 108. Menchavez vs Tevez, Jr. Case about IN PARI DELICTO in void contracts. Both party will be left by the court. Neither will be entitled to legal protection. Oblicon Concept: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: o (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of  the  contract,  or  demand  the  performance  of  the  other’s  undertaking;; o (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. Lease of fishponds-Public lands available for fishpond development including those earmarked for family-size fishponds and not yet leased prior to November 9, 1972 shall be leased only to qualified persons, associations, cooperatives or corporations, subject to the following conditions. o 1. The lease shall be for a period of twenty five years (25), renewable for another twenty five years; o 2. Fifty percent of the area leased shall be developed and be producing in commercial scale within three years and the remaining portion shall be developed and be producing in commercial scale within five years; both periods begin from the execution of the lease contract; o 3. All areas not fully developed within five years from the date of the execution of the lease contract shall automatically revert to the public domain for disposition of the bureau; provided that a lessee who failed to develop the area or any portion thereof shall not be permitted to reapply for said area or any portion thereof or any public land under this decree; and/or any portion thereof or any public land under this decree; o 4. No portion of the leased area shall be subleased. Facts: On  February  28,  1986,  a  “Contract of Lease”  was  executed  by  Jose  S.  Menchavez,  Sr.  and  Florentino Teves Jr. as lessee. Lessor alleged that they are the absolute and lawful co-owners of a fishpond (which really belonged to the State thru Regalian Doctrine). Its application is still subject to approval by the Fisheries Regional Office. On June 2, 1988, Cebu RTC Sheriffs demolished the fishpond dikes constructed by respondent and delivered possession of the subject property to other parties. As a result, he filed a Complaint for damages with application for preliminary attachment against petitioners. In his Complaint, he alleged that the lessors had violated their Contract of Lease, specifically the peaceful and adequate enjoyment of the property for the entire duration of the Contract. He claimed P157,184 as consequential damages for Amber Gagajena Oblicon Digests – Block 1F

the demolition of the fishpond dikes, P395,390 as unearned income, and an amount not less than P100,000 for rentals paid. Respondent further asserted that the lessors had withheld from him the findings of the trial court in Civil Case entitled “Eufracia   Colongan   and   Paulino   Pamplona   v.   Juan   Menchavez   Sr.   and   Sevillana   S.   Menchavez.”     In   that   case   involving the same property, subject of the lease, the Menchavez spouses were ordered to remove the dikes illegally constructed  and  to  pay  damages  and  attorney’s  fees. Issues: W/N the Contract of Lease is valid? W/N both parties are in pari delicto? W/N the liquidated damages should be awarded to the respondent? Held: No it is void. Being a patent nullity, petitioners could not give any rights to Florentino Teves, Jr. under the principle: ONE CANNOT GIVE WHAT HE DOES NOT HAVE, considering that this property in litigation belongs to the State and not to petitioners. Yes. The defendants ought to have known that they cannot lease what does not belong to them for as a matter of fact, they themselves are still applying for a lease of the same property under litigation from the government. On the other hand, Florentino Teves, being fully aware that petitioners were not yet the owners, had assumed the risks and under the principle of - He who voluntarily assumes a risk, does not suffer damages thereby. As a consequence, when Teves leased the fishpond area from petitioners- who were mere holders or possessors thereof, he took the risk that it may turn out later that his application for lease may not be approved. No. In the present case, it was stipulated that the party responsible for the violation of the terms, conditions and warranties of the Contract would pay not less than P50,000 as liquidated damages. Since the principal obligation was void, there was no contract that could have been breached by petitioners; thus, the stipulation on liquidated damages was inexistent. The nullity of the principal obligation carried with it the nullity of the accessory obligation of liquidated damages. ARTICLES 1440-1457: TRUSTS Case 109. Richard Lopez, in his capacity as trustee of the trust estate of late Juliana Lopez-Manzano vs CA and heirs of Jose Lopez Manzano Case about prescription of implied trust due to mistake or fraud. Oblicon Concept: ART. 1456. 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 benefit of the person from whom the property comes. Implied trusts are either resulting or constructive trusts. o Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. o Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold. o A resulting trust is presumed to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction but not expressed in the deed itself. Specific examples of resulting trusts may be found in the Civil Code, particularly Arts. 1448, 1449, 1451, 1452 and 1453. o A constructive trust is created, not by any word evincing a direct intention to create a trust, but by operation of law in order to satisfy the demands of justice and to prevent unjust enrichment. It is raised by equity in respect of property, which has been acquired by fraud, or where although acquired originally without fraud, it is against equity that it should be retained by the person holding it. Constructive trusts are illustrated in Arts. 1450, 1454, 1455 and 1456. Facts: The instant petition stemmed from an action for reconveyance instituted by petitioner Richard B. Lopez in his capacity as trustee of the estate of the late Juliana Lopez Manzano to recover from respondents several large tracts of lands allegedly belonging to the trust estate of Juliana. The decedent, Juliana, was married to Jose Lopez Manzano. Their union did not bear any children. Juliana was the owner of several properties, among them, the properties subject of this dispute. The disputed properties totaling more than 1,500 hectares consist of six parcels of land, which are all located in Batangas. They were the exclusive paraphernal properties of Juliana together with a parcel of land situated in Mindoro and a fractional interest in a residential land on Balayan, Batangas. On 23 March 1968, Juliana executed a notarial will, whereby she expressed that she wished to constitute a trust fund for her paraphernal properties, denominated as Fideicomiso, to be administered by her husband. If her husband were to die or renounce the obligation, her nephew, Enrique Lopez, was to become administrator and executor of the Fideicomiso. As to her conjugal properties, Juliana bequeathed the portion that she could legally dispose to her husband, and after his death, said properties were to pass to her great grandchildren. Amber Gagajena Oblicon Digests – Block 1F

Jose filed for a petitioner for partition in which he was able to transfer properties in trust to his own exclusive properties. Mistake by the court. The disputed properties were excluded from the Fideicomiso at the outset. Jose registered the disputed properties in his name partly as his conjugal share and partly as his inheritance from his wife Juliana, which is the complete reverse of the claim of the petitioner, as the new trustee, that the properties are intended for the beneficiaries of the Fideicomiso. Furthermore, the exclusion of the disputed properties from the Fideicomiso was approved by the probate court and, subsequently, by the trial court having jurisdiction over the Fideicomiso. The registration of the disputed properties in the name of Jose was actually pursuant to a court order. The apparent mistake in the adjudication of the disputed properties to Jose created a mere implied trust of the constructive variety in favor of the beneficiaries of the Fideicomiso. Issues: W/N the trust is express or implied? W/N action has prescribed? Held: Implied. The apparent mistake in the adjudication of the disputed properties to Jose created a mere implied trust of the constructive variety in favor of the beneficiaries of the Fideicomiso. Yes. The right to seek reconveyance based on an implied or constructive trust is not absolute. It is subject to extinctive prescription. An action for reconveyance based on implied or constructive trust prescribes in 10 years. This period is reckoned from the date of the issuance of the original certificate of title or transfer certificate of title. Since such issuance operates as a constructive notice to the whole world, the discovery of the fraud is deemed to have taken place at that time. Case 110. Tala Realty Services Coporation vs CA and Banco Filipino Savings and Mortgage Bank Case about alleged implied trust of Banco Filipino with Tala to circumvent the law is VOID for being contrary to law. Oblicon Concept: Facts: Banco   Filipino’s   complaints   commonly   alleged   that   in   1979,   expansion of its operations required the purchase of real properties for the purpose of acquiring sites for more branches; that as Sections 25(a) and 34 of the General Banking Act limit  a  bank’s  allowable investments in real estate to 50% of its capital assets, its board of directors decided to warehouse some of its existing properties and branch sites. Thus, Nancy, a major stockholder and director, persuaded Pedro Aguirre and his brother Tomas Aguirre, both major stockholders of Banco Filipino, to organize and incorporate Tala Realty to hold and purchase real properties in trust for Banco Filipino;;  that  after  the  transfer  of  Banco  Filipino  properties  to  Tala  Realty,  the  Aguirres’  sister  Remedios  prodded her brother Tomas to, as he did, endorse to her his shares in Tala Realty and registered them in the name of her controlled corporation, Add International. Thus, Nancy, Remedios, and Pedro Aguirre controlled Tala Realty. In implementation of their trust agreement, Banco Filipino sold to Tala Realty some of its properties. Tala Realty simultaneously leased to Banco Filipino the properties for 20 years, renewable for another 20 years at the option of Banco Filipino with a right of first refusal in the event Tala Realty decided to sell them. In August 1992, Tala Realty repudiated the trust, claimed the titles for itself, and demanded payment of rentals, deposits, and goodwill, with a threat to eject Banco Filipino. Thus  arose  Banco  Filipino’s  17  complaints (subject to forum shopping) for reconveyance against Tala Realty. Issues: W/N the trust agreement between Tala and the bank is void and unenforceable? Held: Yes. In the eyes of the law, however, this implied trust is inexistent and void for being contrary to law. An implied trust could not have been formed between the Bank and Tala as this Court has held that "where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty of the fraud. Clearly, the Bank was well aware of the limitations on its real estate holdings under the General Banking Act and that its "warehousing agreement" with Tala was a scheme to circumvent the limitation. Thus, the Bank opted not to put the agreement in writing and call a spade a spade, but instead phrased its right to reconveyance of the subject property at any time as a "first preference to buy" at the "same transfer price." This agreement which the Bank claims to be an implied trust is contrary to law. Thus, while we find the sale and lease of the subject property genuine and binding upon the parties, we cannot enforce the implied trust even assuming the parties intended to create it. In the words of the Court in the Ramos case, "the courts will not assist the payor in achieving his improper purpose by enforcing a resultant trust for him  in  accordance  with  the  ‘clean  hands’  doctrine." The Bank cannot thus demand reconveyance of the property based on its alleged implied trust relationship with Tala. Parties are in pari delicto.

Amber Gagajena Oblicon Digests – Block 1F

Case 111. Heirs of Jose Ringor vs Heirs of Jacobo Ringor Case about explicit trust depending on the intention of the parties and need not be in writing. Case about imprescriptibility of explicit trusts. Case  about  Torrens’  title  not  conveying  ownership  but  only  confirms  one  already  existing. Oblicon Concept: Article 1443. No express trust concerning an immovable or any interest therein may be proved by parol evidence. Art 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof. Facts: The controversy involves lands in Pangasinan, owned by the late Jacobo Ringor. By his first wife, Gavina Laranang, he had two children, Juan and Catalina. He did not have offsprings by his second and third wives. Catalina predeceased her father Jacobo who died sometime in 1935, leaving Juan his lone heir. Juan married Gavina Marcella. They had seven (7) children, namely: Jose (the father and predecessor-in-interest of herein petitioners) and others. Jacobo applied for the registration of his lands under the Torrens system. He filed three land registration cases alone, with his son Juan, or his grandson Jose, applying jointly with him. Expedientes 241 and 4449 were allegedly sold to Jose. SC finds the deeds of sale as invalid and simulated. Expedientes 244 were allegedly donated to Jose. SC finds this invalid because no deed of donation shown. During trial, witnesses attested that even after the decisions in the three land registration cases and the Compraventas, Jacobo remained in possession of the lands and continued administering them as he did prior to their registration. He unfailingly gave a share of the produce to all the 7 children of his son Juan. According to witness Julio Monsis, Jacobo did not partition the lands since the latter said that he still needed them. When Jacobo died on June 7, 1935, the lands under the three land registration applications, including those which petitioners sought to partition in their counterclaim before the trial court, remained undivided. Jose, as the eldest grandchild, assumed and continued the administration of the lands. He also conscientiously gave his 5 younger sisters and only brother Agapito, their share in the produce and income from the lands. Herein respondents claim they repeatedly asked Jose for partitioning of the land; however, every time they did, Jose always answered that it was not going to be easy because there would be "big and small shares." Respondents explained that they did not zealously press for the immediate partition of the lands because Jose constantly assured them that he would never cheat them and because they respected him highly. Jose died on April 30, 1971. Respondents demanded from Jose's children, herein petitioners, the partition and delivery of their share in the estate left by Jacobo and under Jose's administration. The petitioners refused and attempts at amicable settlement failed. Issues: W/N the factual findings of the lower and appellate courts supported by evidence on record? W/N there a valid express trust established by Jacobo Ringor? W/N parol evidence can be used as proof of the establishment of the express trust? W/N the court in effect nullify the Torrens titles over the disputed parcels of land? W/N respondents' action barred by prescription and laches? Held: Yes.  SC  can’t  overturn  the  facts  of  the  RTC  when  affirmed by the CA. Yes. The oral testimonies of witnesses Emeteria Ringor, Julio Monsis and Teofilo Abalos - - which the appellate court also relied on to arrive at the conclusion that an express trust exists. What is crucial is the intention to create a trust. While oftentimes the intention is manifested by the trustor in express or explicit language, such intention may be manifested by inference from what the trustor has said or done, from the nature of the transaction, or from the circumstances surrounding the creation of the purported trust. Yes. Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of the settlor or the trustor – by some writing, deed, or will, or oral declaration. It is created not necessarily by some written words, but by the direct and positive acts of the parties. No particular words are required, it being sufficient that a trust was clearly intended. Oral testimony is allowed to prove that a trust exists. It is not error for the court to rely on parol evidence No. A Torrens Certificate of Title in Jose's name did not vest ownership of the land upon him. The Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. The Torrens system was not intended to foment betrayal in the performance of a trust. It does not permit one to enrich himself at the expense of another. Where one does not have a rightful claim to the property, the Torrens system of registration can confirm or record nothing. Petitioners cannot rely on the registration of the lands in Jose's name nor in the name of the Heirs of Jose M. Ringor, Inc., for the wrong result they seek. No. Generally, resulting trusts do not prescribe except when the trustee repudiates the trust. Further, the action to reconvey does not prescribe so long as the property stands in the name of the trustee. To allow prescription would be tantamount to allowing a trustee to acquire title against his principal and true owner. Here, Jose did not repudiate the trust, and the titles of the disputed lands are still registered in Jose's name or in the name of the Heirs of Jose M. Ringor, Inc.

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Case 112. Oco vs Victor Limbaring Case about purchase of things for children presumed as gift and not trust. Oblicon Concept: ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. Sec. 2 of the Rules of Court. Parties in interest. – A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest. Facts: Sometime in 1996, Sabas Limbaring subdivided his Lot into two lots. He then executed in favor of Jennifer Limbaring a Deed of Sale for P60,000; and, in favor of Sarah Jane Limbaring, another Deed for P14,440. Sensing some irregularities in the transaction, Percita Oco, the daughter of Sabas Limbaring, left Puerto Princesa City and went to Ozamis City. She then filed a case of perjury and falsification of documents against respondent, her uncle who was the father of Jennifer and Sarah Jane. During the pre-litigation conference called by City Prosecutor Luzminda Uy on July 1, 1996, the parties agreed that the two parcels of land should be reconveyed to Percita, who was to pay respondent all the expenses that had been and would be incurred to transfer the titles to her name. Respondent demanded P30,000 for the estimated expenses for documentation, capital gains, and documentary stamp taxes; registration fees for the Register of Deeds; and other incidental expenses for clearances from the Department of Agrarian Reform (DAR). Percita succeeded in lowering the amount to P25,000, for which she executed an undertaking. Pursuant to their agreement, respondent facilitated the transfer of the titles to her from the names of his daughters. After the transfer had been effected, Percita left for Puerta Princesa, without paying the P25,000. Several demands were made, but she refused to pay. Issues: W/N the Victor Limbaring is a real party in interest? W/N Victor Limbaring is a trustor of his daughters? Held: No. Respondent is not a real party in interest. He was not a party to the contracts and has not demonstrated any material interest in their fulfillment. Evidently, the allegations in the Complaint do not show that the properties would be conveyed to him, even if Percita were to be proven to have committed a breach of the subject agreements. No. Under the last sentence  of  Article  1448,  respondent’s  alleged  acts  -- paying the price of the subject properties and, in the titles, naming his children as owners -- raise the presumption that a gift was effected in their favor. Respondent failed to rebut this presumption. Absent any clear proof that a trust was created, he cannot be deemed a real party in interest. That he should be deemed a trustor on the basis merely of having paid the purchase price is plainly contradicted by the presumption based on Article 1448 of the Civil Code "that there is a gift in favor of the child," not a trust in favor of the parent. Case 113. Aznar Brothers Realty Company vs Heirs of Aying Case about implied trust in cases of mistake or fraud. Oblicon Concept: ART. 1456. 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 benefit of the person from whom the property comes. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary. Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold. Facts: The disputed property is a lotwith an area of 34,325 square meters located at Lapu-Lapu City. Crisanta Maloloy-on petitioned for the issuance of a cadastral decree in her favor over said parcel of land. After her death in 1930, the Cadastral Court issued a Decision directing the issuance of a decree in the name of Crisanta Maloloy-on’s  eight children all surnamed Aying. The certificate of title was, however, lost during the war. Subsequently, all the heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale dated March 3, 1964, conveying the subject parcel of land to herein petitioner Aznar Brothers Realty Company. Said deed was registered with the Register of Deeds of Lapu-Lapu City on March 6, 1964 under Act No. 3344 (the law governing registration for unregistered land), and since then, petitioner had been religiously paying real property taxes on said property. Amber Gagajena Oblicon Digests – Block 1F

In 1988, herein petitioner filed a Petition for Reconstitution of the Original Title as the original title over the subject property had been lost during the war. On April 12, 1988, the court granted said petition, thereby directing the Register of Deeds of Lapu-Lapu City to issue a reconstituted title in the name of the abovementioned Aying siblings. Thus, OCT was issued. In 1991, petitioner, claiming to be the rightful owner of the subject property, sent out notices to vacate, addressed to persons occupying the property. Unheeded, petitioner then filed a complaint for ejectment against the occupants before the Metropolitan Trial Court (MTC), Lapu-Lapu City. After  trial,  the  RTC  rendered  a  Decision  ruling  that  respondents’  evidence  failed  to  prove  that  the  extra-judicial partition with deed of absolute sale was a totally simulated or fictitious contract and concluded that said document is valid, thus, effectively  conveying  to  petitioner  the  property  in  question.  It  further  held  that  respondents’  action  had   prescribed in that the action is considered as one for reconveyance based on implied or constructive trust. The   CA   held   instead   that   herein   respondents’   action had not prescribed but upheld the validity of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale, except as to the shares of the heirs of Emiliano, Simeon and Roberta (3/8), who did not participate in the execution of said document. Issues: W/N  the  respondents’  cause  of  action  is  imprescriptible? W/N assuming imprescriptible, may the principle of laches apply? Held: No. An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed or the date of the issuance of the certificate of title over the property, but if the person claiming to be the owner thereof is in actual possession of the property, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. o In the present case, respondents Wenceslao Sumalinog, an heir of Roberta Aying; Laurencio Aying, an heir of Emiliano Aying; and Paulino Aying, an heir of Simeon Aying, all testified that they had never occupied or been in possession of the land in dispute. Hence, the prescriptive period of ten years would apply to herein respondents. The question then arises as to the date from which the ten-year period should be reckoned, considering that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and not under Act No. 496 (Land Registration Act), despite the fact the land in dispute was already titled under Act No. 496 in the names of the Aying siblings at the time the subject document was executed. o In this case, since the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and not under Act No. 496, said document is deemed not registered. Accordingly, the ten-year prescriptive period cannot be reckoned from March 6, 1964, the date of registration of the subject document under Act No. 3344. The prescriptive period only began to run from the time respondents had actual notice of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. No. With regard to respondent heirs of Roberta Aying who had knowledge of the conveyance as far back as 1967, their cause of action is already barred by prescription when said amended complaint was filed as they only had until 1977 within which to bring action. As to the respondent heirs of Emiliano and Simeon Aying, they were able to initiate their action for reconveyance of property based on implied or constructive trust well within the ten-year prescriptive period reckoned from 1991 when they were sent by petitioner a notice to vacate the subject property. Case 114. The Manila Bank Corporation vs Teodoro Case about guarantee or pledge. Oblicon Concept: Facts: On April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointly and severally, executed in favor of plaintiff a Promissory Note for the sum of P10,42 payable in 120 days, or on August 25, 1966, at 12% interest per annum. Defendants failed to pay the said amount inspite of repeated demands and the obligation as of September 30, 1969 stood at P15,137 including accrued interest and service charge. On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr. and Anastacio Teodoro, Jr. executed in favor of plaintiff additional two Promissory Notes for P8,000.00 and P1,000.00 respectively, payable in 120 days at 12% interest per annum. Father and Son made a partial payment on the May 3, 1966 promissory Note but none on the June 20, 1966 Promissory Note, leaving still an unpaid balance of P8,934.74 as of September 30, 1969 including accrued interest and service charge. The three Promissory Notes stipulated that any interest due if not paid at the end of every month shall be added to the total amount then due, the whole amount to bear interest at the rate of 12% per annum until fully paid; and in case of collection through an attorney-at-law, the makers shall, jointly and severally, pay 10% of the amount over-due as attorney's fees, which in no case shall be less than P200.00. It appears that on January 24, 1964 (before the PNs), the Son executed in favor of plaintiff a Deed of Assignment of Receivables from the defunct Emergency Employment Administration in the sum of P44,635. The Deed of Assignment provided that it was for and in consideration of certain credits, loans, overdrafts and other credit accommodations extended to defendants as security for the payment of said sum and the interest thereon, and that defendants do hereby remise, release and quitclaim all its rights, title, and interest in and to the accounts receivables. Amber Gagajena Oblicon Digests – Block 1F

Non-payment of the notes was due to the failure of the Commission to pay defendants after the latter had complied with their contractual obligations; and that the President of plaintiff Bank took steps to collect from the Commission, but no collection was effected. Issues: W/N the plaintiff claim is already considered paid by the Deed of Assign of Receivables by the Son? W/N the plaintiff who should directly sue the Philippine Fisheries Commission for collection? Held: No. At the time the assignment was executed, there was no obligation to be extinguished except the amount of P10,000.00. Moreover, in order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. No. The obligation of appellants under the promissory notes not having been released by the assignment of receivables, appellants remain as the principal debtors of appellee bank rather than mere guarantors. The deed of assignment merely guarantees said obligations. That the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor, under Article 2058 of the New Civil Code does not therefore apply to them. It is of course of the essence of a contract of pledge or mortgage that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor (Article 2087, New Civil Code). In the instant case, appellants are both the principal debtors and the pledgors or mortgagors. Resort to one is, therefore, resort to the other. PRESCRIPTION Case 116. Rosario Tan vs. Heirs of Roberto Ramirez Case about ordinary acquisitive prescription Oblicon Concept: Prescription, as a mode of acquiring ownership and other real rights over immovable property, is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted, and adverse. The party who asserts ownership by adverse possession must prove the presence of the essential elements of acquisitive prescription. Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten years. In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for thirty years without need of title or of good faith. Possession "in good faith" consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership. There is "just title" when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. Facts: On August 11, 1998, the petitioner, representing her parents (spouses Alumbro), filed with the MCTC of Inopacan, Leyte a complaint for the recovery of ownership and possession and/or quieting of title of a one-half portion of the subject property against the respondents. The petitioner alleged that her great-grandfather Catalino Jaca Valenzona was the owner of the subject property under a 1915 Tax Declaration. Catalino had four children: Gliceria, Valentina, Tomasa, and Julian; Gliceria inherited the subject property when Catalino died; Gliceria married Gavino Oyao, but their union bore no children; when Gliceria died on April 25, 1952, Gavino inherited a one-half portion of the subject property, while Nicomedesa acquired the other half through inheritance, in representation of her mother, Valentina, who had predeceased Gliceria, and through her purchase of the shares of her brothers and sisters. In 1961, Nicomedesa constituted Roberto as tenant of her half of the subject property; on June 30, 1965, Nicomedesa bought  Gavino’s  one-half  portion  of  the  subject  property  from  the  latter’s  heirs, Ronito and Wilfredo Oyao, evidenced by a Deed of Absolute Sale of Agricultural Land; on August 3, 1965, Nicomedesa sold to Roberto this one-half portion in a Deed of Absolute Sale of Agricultural Land; and in 1997, Nicomedesa discovered that since 1974, Roberto had been reflecting the subject property solely in his name under TD No. 4193. On January 9, 1975, a certain Santa Belacho,  claiming  to  be  Gavino’s  natural  child,  filed  a  complaint  with the Court of First Instance of Baybay, Leyte against Roberto, Nicomedesa, Ronito and Wilfredo Oyao for recovery of possession and ownership of 2 parcels of land, including the subject property. On September 16, 1977, Roberto bought the subject property from Belacho through a Deed of Absolute Sale of Land; and on October 5, 1977, Roberto and Nicomedesa entered into a Compromise Agreement with Belacho to settle Civil Case. Belacho agreed in this settlement to dismiss the case and to waive her interest over the subject property in favor of Roberto, and the other parcel of land in favor of Nicomedesa in consideration of P1,800. Issues: W/N the CA erred in relying upon the compromise agreement and the contract of sale to conclude that the respondents had been possessors in good faith and with just title and could acquire the subject property through ordinary acquisitive prescription? Amber Gagajena Oblicon Digests – Block 1F

Held: Yes. Compromise agreement not a valid basis of possession in good faith and just title. No right can arise from the compromise agreement because the parties executed the same only to buy peace and to write finis to the controversy; it did not create or transmit ownership rights over the subject property. In executing the compromise agreement, the parties, in effect, merely reverted to their situation before Civil Case was filed. Contract of sale cannot support
claim of good faith and just title. Roberto, therefore, had actual knowledge that  Belacho’s   claim to ownership of the subject property, as   Gavino’s   purported   heir,   was   disputed   because   he   (Roberto)   and   Nicomedesa were the defendants in Civil Case. Roberto even admitted that he bought the subject property from Belacho to "avoid any trouble." He, thus, cannot claim that he acted in good faith under the belief that there was no defect or dispute in the title of the vendor, Belacho. Not being a possessor in good faith and with just title, the ten-year period required for ordinary acquisitive prescription cannot  apply  in  Roberto’s  favor. Even the thirty-year period under extraordinary acquisitive prescription has not been met because  of  the  respondents’  claim  to  have  been  in  possession,  in  the  concept  of  owner,  of  the  subject  property  for  only   twenty-four years, from the time the subject property was tax declared in 1974 to the time of the filing of the complaint in 1998.

Amber Gagajena Oblicon Digests – Block 1F